J.D. Power Reports on Auto Insurance Customer Satisfaction

Price is a key driver of satisfaction among auto insurance buyers, according to the J.D. Power 2014 U.S. Insurance Shopping Study – Wave 1.

The study examines insurance shopping and purchase behaviors and overall satisfaction among customers who recently purchased insurance across three factors (in order of importance): price, distribution channel, and policy offerings. Retention and shopping rates reflect Q2 2013 results.

J.D. Power reports that rate increases are driving more auto insurance customers to obtain competitive price quotes, while satisfaction with the purchase experience is trending downward among new buyers due to lower satisfaction with price.

Key findings of the study include:

— Price satisfaction declines to 808 (on a 1,000-point scale) in 2014, from 821 in 2013.

— Auto customer retention averages 97 percent, with 3 percent of auto insurance customers switching insurers, fueled by a shopping rate of 8 percent.

— More than 20 percent of new buyers purchased auto insurance online. Therefore, companies that lack a viable quote website are not well-positioned to acquire or sell to one in five customers.

— The average annual savings when switching to a new insurer is on par with 2013 ($387 vs. $386, respectively).

In a press release, Jeremy Bowler, senior director of the global insurance practice at J.D. Power, says:

As rate increases continue to drive customers to shop around for the best price, insurers need to provide a seamless shopping experience, including competitive websites with quote compatibilities and a satisfying on-boarding experience to acquire new customers.

Communicating new offerings and allowing customers to tailor their policies helps demonstrate the value of the policy and improve customer satisfaction.†

The 2014 U.S. Insurance Shopping Study – Wave 1, which for the first time is being conducted on a quarterly basis, is based on responses from more than 5,500 auto insurance shoppers.

Check out I.I.I. facts and statistics on auto insurance.

TRIA Renewal Essential for Continued Protection of Economy

More than a decade since 9/11, the Terrorism Risk Insurance Program continues to deliver “substantive direct benefits to millions of businesses, workers, consumers and the overall economy – all at essentially no cost to taxpayers.†

This was a key takeaway from testimony delivered yesterday by Dr. Robert Hartwig, I.I.I. president and chief economist, at a Senate Banking Committee hearing.

Dr. Hartwig noted:

The war on terror is far from over, as the recent Boston Marathon bombings attest, but TRIA by all objective measures is now a proven and unqualified success.†

Dr. Hartwig pointed out that upwards of 60 percent of businesses purchased terrorism coverage nationally in 2012, up from 27 percent in 2003.

Industries responsible for much of the country’s critical infrastructure such as power and utilities, telecommunications and healthcare, along with financial institutions and local government have take-up rates that approach or exceed 70 percent, Dr. Hartwig said.

Moreover, the take-up rate for workers compensation is effectively 100 percent, meaning that every worker in America is protected against injuries suffered as the result of a terrorist attack.

But it is important to note that the majority of coverage that exists in the market today exists because of the continued existence of the Terrorism Risk Insurance Program, Dr. Hartwig said.

He went on to warn of dire economic consequences if TRIA is not renewed:

A sharp spike in business failures, higher unemployment and reduced GDP growth are just a few of the adverse consequences that are certain to follow in the event of a major terrorist attack in the absence of TRIA.”

Dr. Hartwig noted that the unambiguous success of TRIA demonstrates that the Act has become an invaluable component of the country’s national security infrastructure, adding:

Failure to institutionalize a permanent plan to protect the nation’s financial infrastructure leaves the country unnecessarily vulnerable to economic instability and risk of recession.†

Also check out a  recently updated  I.I.I. paper on terrorism risk.

PC360 has more on this story.

Marsh: Cyber Risks Are Not Just About Data Breaches

Supply chain and operational disruptions from cyber attacks may be a more severe potential threat to businesses than data and privacy exposures, according to a new report from Marsh.

In its latest risk management research briefing, Marsh notes that technology outages and software failures resulting in supply chain and operational disruptions can cause significant loss of income, increase operating expenses, and damage an organization’s reputation.

Marsh  suggests businesses may be overlooking this threat and says the  risk of an IT outage or software failure needs to be managed and addressed not just with insurance, but in a well-planned and effective risk management program.

The good news is that although cyber insurance policies have historically been triggered primarily by data breaches and hacking attacks, many now provide coverage for a broad range of technology failures and outages.

But Marsh adds that the purchase of cyber insurance should be just one part of a well-planned and effective risk management program that also includes policies and protocols to prevent and mitigate technology risks.

If unplanned, information technology (IT) outages are the most debilitating source of supply chain disruption, affecting 52 percent of companies responding to the Business Continuity Institute’s Supply Chain Resilience 2012 report.

In fact, IT outages outpaced all other sources of supply chain disruption, including severe weather events, transportation disruptions, and product contamination.

Business Insurance has more on this story.

Swiss Re: River Flooding Poses Highest Risk to Urban Areas

Flood risk threatens more people around the world than any other natural catastrophe, according to a new report from Swiss Re.

Across the 616 metropolitan areas included in the study, river flooding poses a threat to over 379 million residents. That’s more than the 283 million inhabitants potentially affected by earthquakes and the 157 million people at risk from windstorms.

When these natural catastrophes occur they not only affect millions of people but can also significantly disrupt the local and national economy.

Urban dwellers in Asia’s megacities are especially at risk, with Tokyo, Manila and Hong Kong-Guangzhou topping the population-at-risk index, Swiss Re says. Although smaller in size, European and U.S. cities could also face huge economic repercussions in the event of a major disaster.

Swiss Re’s report finds that metropolitan areas such as Tokyo, Los Angeles, New York and Amsterdam-Rotterdam rank high in terms of potential lost productivity, measured by the value of working days lost.

For example, the report shows that while a devastating earthquake in Los Angeles could affect just as many people as in Jakarta, the resulting value of working days lost would be 25 times higher.

Based on Swiss Re’s risk models and detailed hazard data, the report provides a global risk index comparing the human and economic exposure of 616 cities around the world. Together, these are home to 1.7 billion people and produce a combined GDP of $35 trillion, half of the world’s total economic output.

Swiss Re notes:

Investments in infrastructure are vital to strengthen the resilience of metropolitan areas. The potential damage that a large natural disaster can cause to roads, bridges, telecommunications and other essential infrastructure is perhaps nowhere more apparent than in the world’s big cities. This is why strengthening urban resilience is also a prime concern for the insurance industry. As an ultimate risk taker, the insurance industry has a vested interest in new infrastructure investments, upgrades to ageing infrastructure and adaptation measures.†

KCC Report Underscores Hurricane Risk in Northeast

A recurrence of the 1938 Long Island Express hurricane today would result in estimated insured losses in excess of $35 billion, while a similar storm tracking further to the west would result in insured losses of more than $100 billion.

That’s a key takeaway  from a report by Karen Clark & Co (KCC) marking the 75th anniversary of the 1938 Great New England hurricane.

In a press release Karen Clark, president and CEO, KCC, says:

In the Northeast, it’s not a question of the intensity but of the storm track. It will only take a Category 3 hurricane with the right track to cause industry losses far exceeding anything we’ve seen to date. This type of storm could also result in losses well above many insurers’ PMLs.†

The KCC report notes that such a storm could make landfall anywhere along the Long Island, Rhode Island or Massachusetts coastlines and the different landfall points would result in dramatically different industry losses and damages.

This is because hurricanes are “right handed† in the northern hemisphere, with the strongest winds occurring from a few miles to 50 miles to the right of the storm center. Hurricanes that make landfall further to the west will cause greater damage because more of the right, or east, side of the storm will be over highly populated areas, according to the report.

Historical records show that the Northeast had felt the impact of several major hurricanes before 1900. Given this history, KCC says it’s reasonable to assume the 1938 storm is a 100 year type event for the region and has an estimated one percent annual probability of occurring.

However, while insurers have relied on probable maximum losses (PMLs) derived from catastrophe models to quantify and manage hurricane risk, KCC  points out  that the PML approach can give a false sense of security by masking exposure concentrations that can lead to solvency-impairing events.

Instead, KCC has developed the Characteristic Event (CE) methodology of “floating† the 100 year storms along the coast and estimating the resulting losses. While providing probability information, the CE method also clearly identifies exposure concentrations and “hot spots,† KCC notes.

Tools that rely on the historical record alone can significantly underestimate the chances of this type of an event and potential Northeast hurricane losses. Insurers shouldn’t assume, as the forecasters did in 1938, that a major storm will not follow a particular path simply because there is no record of such an occurrence.†

* In other hurricane-related industry news, the ACE Group has released six new audio podcasts providing commercial property and business owners with important information on how to best prepare for hurricanes. To access the podcast series, click here.

Towers Watson on Commercial Insurance Prices

Commercial insurance prices rose by 6 percent in aggregate during the second quarter of 2013, marking the 10th consecutive quarter of price increases, according to Towers Watson’s latest Commercial Lines Insurance Pricing Survey (CLIPS).

The chart below compares the change in price level reported by carriers on policies underwritten during the second quarter of 2013 to those charged for the same coverage during the second quarter of 2012.

Commercial Lines Insurance Pricing Survey

Workers compensation and employment practices liability lines experienced the largest price increases year over year, as has been the case since the third quarter of 2012, Towers Watson said.

Price increases for most lines of business fell in the mid- to upper-single digits, with no lines having an overall price increase of less than 4 percent.

Towers Watson noted:

While still significant, price increases for commercial property insurance underwent a slight dip in the second quarter. All account sizes for standard commercial lines showed price increases, with larger increases in mid-market accounts. In addition, companies using predictive models in pricing or underwriting saw higher price increases.†

For the most recent survey, data were contributed by 40 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).

Humberto and Late Season Hurricanes

Tropical Storm Humberto, the eighth named storm of the 2013 Atlantic hurricane season, is generating a lot of news headlines, as the most recent forecasts  tip it to become  the first hurricane of the season by Wednesday.

The question on everyone’s minds is whether or not the record for the latest formation date of the Atlantic’s first hurricane will be broken. The bottom line: if Humberto reaches hurricane status before 8am EDT on Wednesday, the record will stand.

Gustav, which was upgraded from a tropical storm to a minimal hurricane on September 11, 2002, shortly after 8am EDT, currently holds the title as the latest-forming Atlantic season hurricane.

According to the Weather Channel, in addition to 2002’s Gustav there are two other hurricane seasons since 1960 in which the first hurricane did not form until after September 7: 2001 – September 8 (Erin) and 1984 – September 10 (Diana).

The Weather Channel also notes that August 10 is the average date the first Atlantic hurricane arrives, according to the National Hurricane Center, based on 1966-2009 averages.

Meanwhile, the Insurance Information Institute (I.I.I.) cautions us that late season storms can be very destructive:

Indeed, only last year, when it looked like the season was wrapping up, Hurricane Sandy struck the East Coast October 28-31, causing 72 deaths and $18.75 billion in insured property losses in 15 states and the District of Columbia, not including National Flood Insurance Program (NFIP) losses, according to the Property Claim Services (PCS) unit of ISO. Sandy was the third costliest hurricane in U.S. history, topped only by Hurricane Katrina in 2005 and Hurricane Andrew in 1992.†

And Sandy was not the latest hurricane to form during the Atlantic season, the I.I.I. notes. Hurricane Kate struck November 20-21, 1985 in the Florida Panhandle, causing $77.6 million in insured losses (about $165.6 million in 2012 dollars).

Check out I.I.I. facts and statistics on hurricanes.

Flood Peril Still Most Costly Nat Cat Loss in 2013

Flood events continue to dominate natural catastrophe losses in 2013, according to the latest Global Catastrophe Recap report from Aon Benfield.

The report reveals that billion-dollar flood losses were recorded in China, Russia, Philippines, and Pakistan during August 2013, causing an initial combined estimate of $10 billion in economic losses.

Additional flood events were recorded in Afghanistan, Niger, Sudan, Mali, Laos, Cambodia, India, and the United States.

In a press release Steve Jakubowski, president of Impact Forecasting, says:

The flood events during the month of August continues a similar theme that has been observed throughout the year, as the flood peril has proven the most costly – so far – during 2013. Economic losses from flood events have equated to more than 40 percent of overall losses sustained this year.†

He adds:

This highlights the need for insurers to further appreciate the impact of the flood peril through improved analysis and understanding of significant events and utilizing that learning curve to further strengthen the development, and usage, of catastrophe models.†

In the U.S., a severe weather event affected the Midwest and the Plains in early August, causing at least two fatalities. The states of Minnesota and Wisconsin were hardest-hit. Total economic losses were estimated at $1.0 billion, with insured losses in excess of $625 million.

Excessive rainfall also prompted major flooding between August 5 and 12 throughout parts of five states. More than 2,000 homes sustained flood damage in Missouri and Kansas alone due to inundated basements or backed-up sewers. Additional flood damage occurred in Tennessee, Arkansas and Oklahoma. Total economic losses were estimated by state governments at roughly $25 million.

In other U.S. catastrophe news, Aon noted that the Rim Fire became the fourth largest wildfire in California’s history.

Check out I.I.I. facts and statistics on flood insurance.

Reinsurance Rendezvous 2013

Reinsurance executives will be gathering in Monte Carlo this weekend for the sector’s 2013 Reinsurance Rendezvous.

Already, #MCRe13 is seeing a lot of activity on Twitter ahead of this year’s conference.

A just-published report from Aon Benfield found that global reinsurer capital reached a record level of $510 billion at June 30, 2013. This was an increase of 1 percent ($5 billion) from December 31, 2012, Aon Benfield said.

Business Insurance has more on this story.

Meanwhile, a newly-issued report from ratings agency A.M. Best finds that despite a subpar operating climate, global reinsurers have managed to squeeze out relatively reasonable returns on capital and compensate investors while sustaining organic growth in capacity.

Quite an accomplishment, considering all the obstacles reinsurers continue to navigate. According to A.M. Best:

Over the past two-and-a-half years, catastrophes worldwide have inflicted approximately USD 190 billion in insured losses. For global reinsurers, these events were primarily a drag on earnings, as balance sheets remained robust. The challenge of managing loss accumulation from global catastrophes was evident in 2011, and since 2008 reinsurers have faced numerous hurdles due to a weakened global economy: deteriorating investment returns; more volatile investments; suppressed growth opportunities; increased client retentions and competitive pricing.†

Guy Carpenter recently reported that July 1 reinsurance renewals indicate that downward pressure on reinsurance rates is likely to continue through 2013, despite catastrophe losses reaching $20 billion in the first half of the year.

Guy Carpenter noted the increasing influence of alternative capacity, estimating that some $45 billion in additional capital from third-party investors had entered the market. This represents around 14 percent of the current global property catastrophe reinsurance limit.

Check out I.I.I. information on reinsurance.