All posts by Maria Sassian

Joint Industry Forum 2020: A clear vision for the insurance industry

Each year Triple-I hosts a conference called the Property/Casualty Joint Industry Forum. This event, which took place on January 16 this year, assembles key figures from the business, policymaking, and media spheres to explore topics of vital interest to the property/casualty insurance industry.

During his opening remarks, Triple-I CEO Sean Kevelighan laid out many of the key issues the industry is facing: extreme weather events (wildfires can now be as costly as hurricanes), flat interest rates, populism and political risk around the world, building the workforce of the future, and the race to better engage with customers. Making disaster resilience a win/win proposition for both insurers and their customers is another vital issue.

He then sat down with CBS News’ senior foreign affairs correspondent and Face the Nation host Margaret Brennan. They discussed current events, including the impeachment of President Trump and the recently signed trade deal with China. Ms. Brennan advised news consumers to make sure that they have a trusted source: “if they are a pain to each side,” then you know they get it right.

Sean Kevelighan and Margaret Brennan

Over the next week or so, we’ll be blogging about the fascinating conversations that took place during the conference. Upcoming  posts will cover:

  • Extreme Weather
  • The Future of Insurance Marketing
  • JIF 2020 Crystal Ball—What Does the Future Hold for the Insurance Industry?
  • A 21st Century Workforce That Reflects the Communities We Serve
  • A Conversation with Economist Dr. Glenn Hubbard on Business and the Economy

For a full agenda click here. Check out this video for an overview of the conference. Interested in attending next year’s conference? Contact us at jif@iii.org.

Florida Dropped From 2020 “Judicial Hellholes” List

Each year the American Tort Reform Association (ATRA) publishes a list of “Judicial Hellholes”  — places where ATRA says laws and court procedures are applied in an “unfair and unbalanced” way in civil cases, usually to the disadvantage of defendants.

Since the issue of social inflation has been trending in recent months, it’s no surprise that the mention of ATRA’s report in our Daily newsletter garnered an unprecedented number of clicks.

Florida — a former number one Judicial Hellhole — doesn’t even make the cut this year.

“Florida took great strides toward improving its legal climate in 2019,” ATRA says “Although there is much work to be done, the election of Governor Ron DeSantis (R) has heralded a sea change in Florida’s legal landscape, beginning with the appointment of several new Florida Supreme Court justices. This new court is deferential to legislative efforts to stop lawsuit abuse and poised to correct the course set by the prior activist court.”

DeSantis in 2019 also signed into law a measure aimed at curbing assignment of benefits (AOB) litigation in the state. AOB is a standard insurance practice and an efficient, customer-friendly way to settle claims. As a convenience, a policyholder lets a third party – say, an auto glass repair company – directly bill the insurer. In Florida, however, legislative wrinkles have spawned a state of affairs in which legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.

The measure DeSantis signed puts new requirements on contractors and lets insurers offer policies with limited AOB rights, or none at all. But it excludes auto glass repairs. The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000.

This year, the Philadelphia Court of Common Pleas took over the top spot for 2019. It is one of the preferred jurisdictions for asbestos litigation and home to an $8 billion product liability verdict. California, New York City, Louisiana, and St. Louis all rank in the top five.

Some of the trends noted in the ATRA report include:

  • the trial bar’s push to use public nuisance law to shift costs associated with public crises to businesses;
  • lead paint and climate change litigation;
  • the opioid and vaping crisis; and
  • new rights of action against employers.

Three Illinois counties – Cook, Madison, and St. Clair – made the list.  Antonio M. Romanucci, president of the Illinois Trial Lawyers Association, called the ATRA report misleading.  “The deceptively titled ‘Hellholes’ report is part of [ATRA’s] ongoing campaign to deny access to the court system that our tax dollars fund,” Romanucci told Illinois Radio Network. “ATRA’s annual publicity stunt demeans the U.S. Constitution and attacks citizens’ Seventh Amendment right to trial by jury.”

Romanucci said the number of civil lawsuits filed in Illinois has been declining since 2010 and was down 47 percent. And medical malpractice cases have dropped 32 percent since 2003.

Top 5 challenges for workers comp

The annual Focus on 5 survey by the National Council of Compensation Insurance (NCCI)  yielded the following issues that are keeping workers comp executives up at night:

  1. Will insurers be able to react quickly enough to preserve rate adequacy if loss costs start to rise after a sustained period of decline?
  2. How does an aging and changing workforce affect industry drivers like claims frequency and severity, along with wage and employment levels?
  3. What does the future hold for medical care costs, given variables like emerging healthcare technology and treatments, issues related to opioids and marijuana in the workplace, and mega-claims associated with seriously ill or injured workers?
  4. Will the gig economy ever grow to the extent that it affects workers comp premium levels? And will insurers develop innovative products to serve that market?
  5. How will rapidly changing workplace technology affect American jobs and the workers comp industry? Can regulation and legislation keep pace?

“It is critically important that we stay on top of the issues affecting our industry,” said Bill Donnell, NCCI president and CEO. “With a better understanding of the concerns of these leaders we can focus on key topics and provide insights that enable more informed decision making across the workers compensation system.”

 

From the Triple-I Daily: Our most popular content, January 4 to January 10

Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

 

To subscribe to the Triple-I Daily email daily@iii.org.

House approves TRIA, NFIP extensions as part of $1.4 trillion spending package

On Tuesday, December 17, the House approved a package of bills that includes a seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) and funding for the National Flood Insurance Program until September 30, 2020.

Numerous insurance industry groups applauded the extension of TRIA. The act has been an important support in the effort to supply terrorism insurance through the private market. Since it was enacted, the percentage of companies purchasing terrorism insurance has risen to 80 percent, and the price of coverage has fallen more than 80 percent.

The $1.4 trillion spending package also includes:

  • Federal funding ($25 million) for gun violence research for the first time in 20 years.
  • A repeal of Obamacare taxes, including a 2.3 percent excise tax on medical devices, a health insurance industry fee that would have taken effect in 2020, and the 40 percent “Cadillac” excise tax on the most expensive health-insurance plans.
  • The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which features provisions that make it easier for smaller employers to join open multiple-employer plans, ease non-discrimination rules for frozen defined benefit plans, and add a safe harbor for selecting lifetime income providers in defined contribution plans.

The bill is expected to pass the Senate and be signed by President Trump before government funding expires on December 20.

From the Triple-I Daily: Our most popular content, November 29 to December 5

Here are the 5 most clicked on articles from this week’s Triple-I Daily newsletter.

To subscribe to the Triple-I Daily email daily@iii.org.

Is a Global Recession Imminent? If So, Businesses Can Protect Themselves with Credit Risk Insurance

By Loretta Worters, Vice President – Media Relations

The credit crisis of 2007-2008 was a severe worldwide economic crisis considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s, to which it is often compared.  “Everyone was impacted, not just those working in banks.  Because the price of debt, the ability to get financing changed, a lot of things happened.  So, everyone is impacted by credit every day, whether they know it or not,” said Tamika Tyson, senior manager, credit with Noble Energy, in this video interview.

Tyson, who is also a non-resident scholar with the Insurance Information Institute, said what she is most concerned about is debt repayments that are coming due. “If a global recession happens, as economists are predicting, and it happens in conjunction within an election, it can be difficult for companies to refinance any mature debentures they have coming in 2020,” she said.  “Leadership needs to be thinking about the risks in their company.  Not just the credit risks, but all risks related to their business.”

What leads to credit risk and how can companies protect themselves?

The main microeconomic factors that lead to credit risk include limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, direct lending, massive licensing of banks, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank.

Doing a comprehensive risk assessment is a great idea for everyone within an organization, noted Tyson.  “Once an assessment is made as to how much risk they are exposed to, then they can develop a strategy to help protect the company. If there’s more risk in the system than a company is willing to take, then they should consider obtaining credit risk insurance,” she said.

What is Credit Risk Insurance?

Credit risk insurance is a tool to support lending and portfolio management.  It protects a company against the failure of its customers to pay trade credit debts owed to them. These debts can arise following a customer becoming insolvent or failing to pay within the agreed terms and conditions.

What can impact credit risk?

The factors that affect credit risk range from borrower-specific criteria, such as debt ratios, to market-wide considerations such as economic growth. Political upheaval in a country can have an impact, too.

For example, political decisions by governmental leaders about taxes, currency valuation, trade tariffs or barriers, investment, wage levels, labor laws, environmental regulations and development priorities, can affect the business conditions and profitability.

“At the end of the day, political risks have the ability to impact credit risks.  Credit risks rarely impact political risks,” she said.  “We have a lot of different views right now on the political spectrum so until we know how that’s going to work out, it’s going to create risk in the system, and we’ll see how different companies react to that,” Tyson said.

“We all talk about biases.  Everyone thinks they’re better off and it’s always someone else that has the issue.  It’s the same when looking at a risk assessment or reviewing someone’s financials; everyone thinks they’re doing fine, but then they discount what’s going on with other people.  That’s why it is imperative companies self-evaluate as they evaluate those they transact business with.”

“Know your portfolio, know your customers and understand your risk tolerance,” said Tyson.  “Know, too, there are a lot of tools available to help you mitigate against those risks.”

 

Workers Comp 2019:
Sixth Straight Year
of Underwriting Profits

Private workers compensation insurers were slightly less profitable in 2019 than their 2018 record, according to a preliminary analysis by the National Council of Compensation Insurance (NCCI). NCCI estimates the combined ratio – a measure of insurer profitability – for 2019 will be about 87 percent, the second-lowest in recent history after last year’s record-low 83.2 percent.

These results, reflecting the segment’s sixth consecutive year of underwriting profitability, are part of NCCI’s State of the Line Report—a comprehensive account of workers’ compensation financial results.

 

Workers’ compensation net premiums written (NPW) fell 3.9 percent in 2019, to $41.6 billion from $43.3 billion in 2018, the report says. Before 2018, cession of premiums to offshore reinsurers stalled NPW growth.  But the Base Erosion Anti-Abuse Tax (BEAT) component of the Tax Cuts and Jobs Act of 2017 – which limits multinational corporations’ ability to shift profits from the United States by making tax-deductible payments to affiliates in low-tax countries – spurred NPW growth to almost 9 percent in 2018.

While the BEAT’s residual effect and the strong economy may place upward pressure on 2019 net premiums written, recent decreases in rates and loss costs are likely to more than offset these factors.

Changes in rates/loss costs impact premium growth and reflect several factors that impact system costs, such as changes in the economy, cost containment initiatives, and reforms. NCCI expects premium in 2019 to fall 10 percent, on average, as a result of rate/loss cost filings made in jurisdictions for which NCCI provides ratemaking services.

The State of the Line Report was presented at NCCI’s Annual Issues Symposium (AIS) in May.

FEMA Report Recommends New Mechanisms to Ward Against Natural Disasters

By Max Dorfman, Research Writer

The U.S. Federal Emergency Management Agency (FEMA) is being pressed to adopt innovative methods to increase insurance penetration for floods and other natural disasters. In a draft report, FEMA’s National Advisory Council suggests that in order to increase financial preparedness for householders and local governments, novel financial models must be considered. The report notably mentions parametric triggers as a way to grow the insurance markets and protect against future disasters. Blockchain is also recommended as a means to create a land and property registry stored off-site in a secure platform.

What are parametric triggers, and how can they help?

Parametric insurance is a type of insurance that agrees—before the triggering event—to make a certain payment, instead of compensating for the pure loss. Parametric insurance pays out immediately when a certain threshold, such as water depth or wind speed, is reached; thus, expediting funding and reducing overall administrative costs.

What does the future hold for this new model?

“When added to the ubiquitous nature of smartphones and other levels of connectivity, the opportunity for expanding parametric insurance protection to individual households may merely be a matter of connecting the dots, for which FEMA is uniquely placed to lead this effort,” the Council’s report states.

Indeed, the Council believes that FEMA should “look towards a new model of insurance” in an age when natural disasters increasingly threaten both public and private interests.

The draft report also includes many suggestions to improve disaster preparedness, such as better building codes and code compliance, better preparedness for Indian tribes and rural communities, building resilient infrastructure and increasing funding for mitigation.

To close the insurance gap the report recommends:

  • Educating the public about the benefits of flood renter’s insurance and hidden hazards in real estate, rental properties and communities.
  • Stress testing state insurance guaranty funds to determine if they can withstand large-scale disasters and insurer insolvencies.
  • Creating more offerings for state and local governments to reduce rates of self-insurance of infrastructure.