The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights.
Six people died when a pedestrian walkway collapsed at Florida International University on Thursday, March 15.
The 23-year-old man believed to have been behind the recent Austin, Texas-area bombings died on Wednesday, March 21. Two people were killed this month after separately opening packages which exploded.
A 49-year-old woman died after being struck by an Uber self-driving vehicle in Arizona on Sunday, March 18. The Wall Street Journal examined its insurance implications.
Source: Farmers Insurance
As those us who are shoveling out from Winter Storm Toby can confirm, the first days of spring don’t always mean warm weather and budding flowers. Instead, the arrival of spring can be accompanied by blizzards, flooding and hail storms.
Farmers Insurance has recently analyzed five years’ worth of auto insurance claims data to come up the top 10 states for hail damage to cars – Montana, Colorado and Kansas are at the top of the list.
Farmers’ data also shows that in the spring season hail accounts for 58 percent of all comprehensive auto claims and water and flooding accounts for 38 percent of comprehensive claims. An interesting fact – 32 percent of collision claims due to a car door opening into traffic occur in spring!
For more on property losses due to hail damage see the I.I.I.’s Facts + Statistics: Hail
By Steven Weisbart, Chief Economist, Insurance Information Institute
A few days ago, the Census Bureau made news based on its latest projection of the population of the United States over the next 40 years. One observation that the Bureau made was that the number of people over age 65 would soon outstrip the number under age 18—the first time that has happened in our history.
But one sharp-eyed economist/demographer quickly questioned the underlying projections, at least for the near term. Tom Lawler noted that one of the assumptions in the Census Bureau projections is expected deaths by age group which, for seven 10-year age groups from 15 to 85, were far below recent data published by the National Center for Health Statistics (NCHS). For example, in the 35-44 age group, the Census Bureau projection for the July 1, 2016-June 30, 2017 year was for 62,599 deaths, whereas for the 2016 calendar year the NCHS reported 77,792 deaths.
The Census Bureau was also off in the other direction, according to Lawler’s citing of the NCHS data, in over-projecting deaths for the under-1-year age group (39,741 for the Census Bureau, 23,161 for NCHS) and for the 85-and-over age group (909,723 for the Census Bureau, 854,462 for NCHS).
There are several reasons why getting the level and trend of population projections right is important. From any business viewpoint (including insurance), the number and life-stage of customers, as well as potential workers, can have a significant effect on plans for growth. More specifically, using the NCHS numbers implies a smaller “prime working age” population (ages 25-54) than the Census Bureau projects, coupled with a larger 85-and-older population—suggesting greater strain on Social Security and Medicare than would otherwise be expected.
The Insurance Information Institute’s Chief Economist, Dr. Steven Weisbart offers his insight on the impact on life insurance and retirement of the demographic trends highlighted in a recently released Census report.
The report projects that by 2030, the year when all baby boomers will be older than 65, one in every five Americans will be of retirement age. By 2035 older adults will outnumber children for the first time in U.S. history.
On life insurance: The population age 25-44 (the main life-insurance-buying group) was 85.15 million strong in 2016. The Census Bureau projects it to grow to 88.8 million in 2020, to 94.4 million in 2030, and 95.1 million in 2040. The number of children under age 18 was 73.6 million in 2016. The census bureau projects it to grow to 73.9 million in 2020, to 75.4 million in 2030, and 76.8 million in 2040. Thus the size of the “breadwinner with children” segment of the population is projected to grow very slowly in the next two decades, meaning that the market for life insurance will grow very very slowly.
On retirement: the population age 85+ (the main long-lived retirement group) was 6.4 million strong in 2016. The Census Bureau projects it to grow to 6.7 million in 2020, to 9.1 million in 2030, and 14.4 million in 2040. You can see the explosive growth in these projections. We can only hope that people age 63 today, many of whom will live to 85 in 2040, have saved enough to draw sufficient retirement income to pay all of their bills then. Otherwise, this could develop into a massive social problem.
The importance having a clear understanding of what your insurance policy does and does not cover was highlighted last week when several trade publications picked up a story about a wine collector who was sold about $18 million worth of counterfeit wine.
The collector had a property insurance policy, and when his claim was denied he sued for breach of contract. A California trial court upheld an earlier decision that the property policy simply does not cover fraud of the kind he experienced.
The judge’s opinion stated: “The plain language of the “PERILS INSURED AGAINST” provision makes it clear that the insurer was insuring against “direct and accidental loss . . . to covered property…” That is “against any losses to the wine not against any losses to the collector’s finances or to his unrealized expectations as to the value of the wine he had purchased.”
Digital transformation refers to the integration of technology into all areas of a business resulting in profound changes in how the business operates and interacts with customers.
A recent McKinsey and Company blog post points out that successful companies do not just focus on a digital strategy but instead devise a strategy for the digital age — “a complex, many-tiered undertaking that is made more challenging by continuously shortened development cycles.”
The post explores a few of the digital transformation lessons insurance companies learned in 2017 and questions CEOs should be asking in 2018.
Lessons learned in 2017 include:
- Focusing on the big picture
- Understanding value drivers
- Prioritizing technological literacy
Key questions for 2018 are:
- How should we approach investing in digital?
- What is our ecosystem strategy?
- Are we seeing enough value from data and analytics?
- Is IT effectively partnering with the business?
Florida is unique in that it has no objective bad faith standard, defining it as more than “mere negligence” without calling for a showing of evil intent. As a result, carriers need to watch for common pitfalls to reduce costly bad faith awards.
On March 14 Gen Re is offering its clients a webinar called Navigating the Bad Faith Minefield. Here are some of the bad faith related problems specific to Florida the webinar intends to cover:
- The unique problems posed by “time limit” demand letters and how a missed deadline and/or failure to meet a key term “open up” the policy limit
- Bad faith in a clear-liability case with a likely judgment exceeding a policy limit. Do carriers have an affirmative duty to offer the policy limit in such cases, even in the absence of a demand?
- The tender traps that might be used to “set up” carriers for bad faith. How should carriers respond when presented with a serious injury case that involves low limits?
Students considering a career in insurance would do well to look into marine underwriting, a fascinating specialty that calls for a variety of diverse skill sets and abilities.
A recent blog post by Sean M. Dalton, Head of Marine Underwriting for North America at Munich Re highlights the many ways prior education is applied in marine underwriting.
- Geography and History: Understanding climates, economies, cultures, histories, natural resources, trade, politics, conflicts and more, is at the core of what marine underwriters insure.
- Communication: written, verbal, and presentation skills, are of critical importance. This applies whether drafting business correspondence, preparing a quote/proposal, or servicing your business.
- Mathematics: Strong skills in math including finance, statistics, economics, algebra, and calculus all are important and useful in analyzing profitability, developing technical rates, and understanding trends and developments in results.
- Science: Fields including chemistry, physics, meteorology, and biology are all important to marine underwriters and brokers.
- Computer Sciences: Utilization of the latest IT capabilities and an understanding of how technology impacts the risks we insure are keys to success. CAT modelling and the application of predictive analytics are some specific examples where the power of technology is helping advance the business.
- Social Skills: The insurance industry is a “people” business and how we interact with others is of great value. From marketing, negotiation, problem solving, and networking, social and interpersonal skills are keys to a successful career.
For more information about marine insurance visit the website of the American Institute of Marine Underwriters
For other careers in insurance visit InsureMyPath
Third party abuse of assignment-of-benefits is having a negative impact on Florida’s homeowners insurers’ 2017 financial results, according to a recent S&P Global article.
An assignment of benefits occurs when a person with an insurance claim allows a third party to be paid directly by the insurance company. Usually this happens after a claim, when the insured assigns their benefits right to a contractor or whoever is making the repair the claim is meant to cover. A loophole in the Florida law invites abuse of the right and the ensuing litigation drives up costs.
S&P Global’s article showed how the loophole has dramatically increased costs at Florida’s Citizens Property Insurance Corp.
Hurricane Irma by itself made 2017 a challenging one for Florida’s Citizens: over $1 billion in net losses and loss adjustment expenses.
But increased litigation expenses (which show up in insurance statements as direct defense and cost containment expenses incurred (DCCE) – often referred to as allocated loss adjustment expenses) – those hurt a lot too. The ratio of homeowners DCCE incurred to direct premiums earned increased to 16.9% from 15.2% in 2016, the average such ratio for the first 13 years of Citizens’ existence was 2.9%. In other words, litigation costs are almost six times worse than they were just a couple of years ago.
Private insurers in Florida are also reporting the negative impact of litigated assignment-of-benefits claims. Universal Insurance Holdings, Florida’s largest private property insurer, reported that about 12% of its claims from Irma had some aspect of assignment of benefits to them.
So far, legislative reform of assignment-of-benefits abuse remains in limbo.
The March issue of I.I.I.’s Latest Studies digest is now available.
In this issue:
- Latest reports on drowsy and distracted drivers from AAA and Esurance
- J.D. Power’s Property Claims Satisfaction survey
- Jacobson Group’s insurance labor market study
- Casualty Actuarial Society’s auto loss cost trends report
And much more…..