All posts by James Lynch

Earthquakes: More links from Insurance Information Instititute

We posted this look at insurance coverage and earthquakes earlier today. More important links about earthquakes and insurance:

 

Ridin’ with the Waymos

In Phoenix last week, I did what insurance folks do in Phoenix. I hunted down an autonomous vehicle. I even took a picture:

The ‘W’ on the rear window stands for Waymo, the Google/Alphabet division that is probably the leader in developing driverless technologies.

Depending on which insurance thought leader you talk to, driverless vehicles will revolutionize our business or destroy it. I’m a skeptic: We will have driverless cars; everyone will use them, but not for another 20-plus years; and they will not be the death of auto insurance.

Google’s not-so-secret testing facility is just south of Phoenix, in Chandler. I couldn’t find it on Google Maps (it’s a secret, surprise surprise), but I could find Chandler City Hall. In an adjoining lot sat three or four bubble-headed Waymos. They are eerily identical Chrysler Pacifica minivans. Each is white. Each has the same bubble brain on the same spot of the hood and the same aqua-and-sea-green W logo. And, though they are white, the desert sun reveals no hint of grime.

I parked across the street and began my stake-out. Continue reading Ridin’ with the Waymos

Assignment of Benefits and Hurricane Loss Creep

We’re putting the finishing touches on a major research project on the assignment of benefits problem in Florida, a phenomenon in which a quirk in that state’s laws becomes a lever with which the less-than-scrupulous can supersize a claim settlement.

Our paper looks at how the problem has spread across lines of business – from no-fault insurance to homeowners to auto physical damage claims – and across the state – what started in South Florida has metastasized into the Interstate 4 corridor. Even far west on the Panhandle,  Escambia County (Pensacola) has had 346 assignment of benefits lawsuits this year through November 9. Five years ago it had 20.

Our research focused on the growth from one line of business to another and the spread of the problem over time. Artemis.bm has an interesting take on the knock-on effect from the way the problem is rolling through Hurricane Irma claims. Artemis is a website that is expert in alternative sources of insurance capital like catastrophe bonds, collateralized reinsurance and industry loss warranties.

That marketplace is fretting, in part, because after one major event, the capital that insured (or reinsured) that event is locked up. It can’t be used to insure against a second event until it is clear that it won’t be needed for the first.

And losses from Irma, a 2017 storm,  keep rising. In August, four insurers raised their loss estimates more than $1 billion.  The total  this month passed $11 billion, according to Florida’s Office of Insurance Regulation. More than 76,000 remain open.

What is causing the creep? Assignment of benefits issues are a prime suspect. Unscrupulous contractors dupe policyholders into letting the contractor settle directly with their insurance company – without letting the insurance company know. The insurer gets the news in the form of a bill to pay – never having had a chance to ensure the repairs were appropriate or done competently.

Disputes often go to court, where if the insurer loses, it must pay the plaintiff’s legal costs as well as its own.

As Irma’s loss estimates grow, reinsurers and alternative capital sources worry that the same thing will happen to Hurricane Michael claims. Michael struck six weeks ago, but the number of claims is accelerating.

Artemis cautions against overreacting to Irma’s situation, but notes that reinsurance markets may need to price for loss creep (read: charge more for reinsurance), which ultimately pushes homeowner premiums higher.

 

 

Leadership In All Its Forms

We’re excited here at the Insurance Information Institute about our annual Joint Industry Forum in January (details here) and our keynote speaker, Gen. Stanley McChrystal.

Gen. McChrystal is perhaps best known as commander of Joint Special Operations Command in Afghanistan and renowned for his ability to lead and his exploration of the puzzle that is leadership.

His latest book, “Leaders: Myth & Reality,” takes an intriguing look. Here is a snip from the Wall Street Journal review of his latest book, Leaders: Myth and Reality:

Gen. McChrystal … studies six peculiar pairs of leaders, searching for lessons: the irascible but brilliant creative entrepreneurs (Walt Disney and Coco Chanel); the geniuses (Albert Einstein and Leonard Bernstein); the zealots (French revolutionary Maximilien Robespierre and Jordanian terrorist Abu Musab al-Zarqawi); the heroes (15th-century Chinese admiral Zheng He and American abolitionist Harriet Tubman); the “power brokers” (New York’s Boss Tweed and Margaret Thatcher); and the reformers (Martin Luther and Martin Luther King Jr.).

Quite the dinner party, no? But it does speak to the truth that one can lead by inspiration (MLK) or by intimidation (Robespierre). What makes it all work is at the heart of McChrystal’s book and should make for fascinating listening at our event next January.

Sleep and insurance

I came across this from Swiss Re around 2 a.m., which helps explain why it caught my (sleepy) eye:

Consider these two facts: Firstly, two out of three man-made losses worldwide are due to human failure. Based on Swiss Re’s sigma research, this would mean that people trigger a loss volume of around USD 3 billion per year.

Secondly, life insurance generated premiums of USD 2.6 trillion in 2017. These two facts are linked because tired people make more errors and insomniacs are at a greater risk of dying earlier than would otherwise be the case.

That’s right – the insurance angle on sleep.

The lack of sleep is associated with increased rates of heart attacks, strokes, obesity and other diseases. Sleeping less can also contribute to the development of Alzheimer’s. And recent research found that chronic sleep restriction increases risk seeking behaviour.

If these trends change the loss patterns in property and casualty or mortality rates, this could have a multi-billion dollar impact on the insurance industry in the long run.

The lack of sleep has caused some high profile accidents, the most notable in my world being a New Jersey Transit train that  in 2016 crashed into Hoboken terminal because the engineer, suffering from sleep apnea, zoned out at a crucial moment. One woman died, dozens were injured.

Swiss Re posits that society, ever accelerating, robs us of ever more sleep. The less we sleep, the woozier we become. And the more errors we make.  (Our bodies wear out faster too, becoming susceptible to the maladies Swiss Re mentions above.)

A good dose of resilience helps here. New York area railroads are installing (by federal mandate) positive train control systems, which automatically stop trains in any sort of peril, including that of a tired engineer. The illustration above describes how the system works.

As for my own struggles – an e-book of white text on black background, and perhaps a cup of chamomile tea.

Auto Results: Ups and Downs

While the spike in auto accident rates appears to have eased in the past year or so, increases in claim size continue to present challenges. The folks at Gen Re weigh in:

Industry loss ratios suggest that many carriers are still playing catch-up. With ultimate liability loss ratios above 70% and combined ratios several points above 100%, the industry still has work to do.

Here at I.I.I. we note that for the first half of the year, liability loss ratios have fallen 3 percentage points for personal auto, to 64 percent, but risen 4 points for commercial auto, to 70 percent.  (This comes from NAIC data sourced from S&P Global Market Intelligence. Q3 data isn’t out yet.)

Physical damage loss ratios have fallen 5 percentage points, to 60 percent. Physdam results don’t get split between commercial and personal auto on financial statements until year-end, but the improvement is probably weighted to the personal auto side, since personal physdam is more than 90 percent of total volume.

So the landscape seems to be improving for personal auto but not so much for commercial . . .

. . . Which explains why the Council of Insurance Agents and Brokers reports that commercial auto rates are 7 percent higher than a year ago. It’s the 29th consecutive quarter (more than seven years) of rate increases.

Gen Re spotlights the following trends, most of which transcend personal and commercial lines:

  • Economic Recovery and Miles Driven – The improvement in the unemployment rate puts more cars and a worse mix of drivers on the road.

  • Driver Shortages – The trucking industry estimates a shortage of over 50,000 drivers by year-end, which leads to reliance on inexperienced drivers entering the industry.

  • Distracted Driving – Cognitive distractions and smartphone addiction have contributed to higher accident severity, with statistics often being underreported.

  • Drugged Driving/Marijuana – Studies from Washington, Colorado and Oregon find that accident frequency increased in the years after marijuana was legalized, and more states have since enacted similar legislation.

  • Escalating Repair Costs – Advances in vehicle safety systems, including cameras and sensors, have grown repair costs significantly.

  • Litigation/Jurisdiction – An active plaintiff’s bar, restrictive medical records laws, cost shifting, and litigation funding can drive up settlement values substantially.

We’ve seen similar trends at I.I.I. and highlighted them in this presentation last March in Chicago. The key graphic from that presentation is atop this article. We add speed to the mix, because as cars get more powerful, people drive faster.

 

From the I.I.I. Daily: Our Most Popular Content, October 15 to October 18

Here are the 5 most clicked on articles from the I.I.I. Daily newsletter:

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Discover “How Insurance Drives Economic Growth”

By Sean M. Kevelighan,
CEO, Insurance Information Institute

Most people understand insurance as their first line of defense against financial losses. However, the insurance industry’s commitment to a strong economy goes much deeper.

Insurers and reinsurers in many ways are the very foundation of growth and progress for the modern economy. For individuals and businesses of all sizes faced with managing risk amid increasingly complex challenges, insurance is there to ease uncertainties. It’s the safety net that lets families, businesses, and communities plan for future success, confident that they will be able to bounce back no matter what lies ahead.

In a new research study from the Insurance Information Institute (I.I.I.), “How Insurance Drives Economic Growth,” the I.I.I.’s chief economist, Steven Weisbart, lists 10 ways which insurers and reinsurers create value and drive economic growth by serving as “financial “first responders,” risk mitigators, partners in social policy, job-creators, and as a leading investor in innovation.

Through statistics, analysis and insights this publication tells a story that we’re proud of: How insurers not only make individuals and communities more productive and resilient, but also how the industry provides stability to financial markets and the overall economy, and helps to effectuate civic and social change to help promote the common good.

44% of Drivers Killed in Crashes Test Positive for Drugs, Study Shows

Evidence continues to pour in about the increase in drug use by drivers.

From behind The Wall Street Journal paywall:

Drug tests of car drivers killed in crashes in 2016 found more drivers had marijuana, opioids or other substances in their system than a decade ago, a report shows.

The report from the Governors Highway Safety Association, which represents state highway-safety offices, found that 44% of drivers who died and were tested had positive results for drugs in 2016, up from 28% in 2006.

By contrast, the percentage of fatally injured drivers who were tested fell slightly. In 2016 37.9 percent of all drivers with known test results were alcohol-positive, compared with 41.0 percent a decade earlier.

Marijuana was the most commonly detected drug; 38 percent of those testing positive had marijuana in their system. Sixteen percent tested positive for opioids. Another 4 percent had marijuana and opioids. (The rest tested positive for other drugs.)

The report calls for a series of actions to combat driving while under the influence of opioids and alcohol, including:

  • Adding drug-impaired driving messages to impaired-driving campaigns.
  • Training patrol officers to spot impaired drivers and Drug Recognition Experts (remember there is no commonly accepted breath test for drugs other than alcohol).
  • Monitoring the development of marijuana breath test instruments.

Reminder: Highway Loss Data Institute research shows that states that legalized recreational marijuana sales see a significant increase in accident rates. And here at Triple-I we have presentations discussing the science of driving while high as well as the disconnect between what people know (don’t ride with a high driver) and what they do (too often they say they will).

Update: A webinar discussing the report will be held on June 5 at 1 p.m. EDT. Register at bit.ly/GHSA-DUIDwebinar.