Category Archives: Insurers and the Economy

Tech Gains Traction
in Fight Against Insurance Fraud

By Max Dorfman, Research Writer, Triple-I

Insurance fraud costs the U.S. $308.6 billion a year, according to recent research by the Coalition Against Insurance Fraud (CAIF).  And, while staffing within insurers’ Special Investigation Units (SIU) is a pain point, CAIF found that use of anti-fraud technology is on the rise.

CAIF notes that hardest-hit insurance lines are:

  • Life insurance, at $74.7 billion annually;
  • Medicare and Medicaid, at $68.7 billion; and
  • Property and casualty, $45 billion.

“There is a huge and monumental impact that insurance fraud causes to American citizens, American families, and to our economy every single year,” said Matthew Smith, the coalition’s executive director.

Another recent CAIF study looked at SIUs and insurers’ response to fraud. The study found that SIU staff grew at 1.4 percent from 2021 to 2022, slower than the 2.5 percent growth rates from two previous studies addressing this issue. Staffing and talent are among the top concerns of anti-fraud leaders CAIF surveyed.

However, an additional CAIF study found that anti-fraud technology is increasingly being used—a positive sign in the fight against these crimes. Among the key findings of that report is that 80 percent of respondents use predictive modeling to detect fraud, up from 55 percent in 2018.

Insurance fraud is not a victimless crime. According to the FBI, the average American family spends an extra $400 to $700 on premiums every year because of fraud. Most of these costs are derived from common frauds, including inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and staging accidents.

To further combat insurance fraud, there are ways to file complaints, including contacting your state’s fraud bureau; contacting your insurer to see if a fraud system is in place; using the National Insurance Crime Bureau (NICB) “Report Fraud” button; and reporting it to a local FBI branch.

“Insurance fraud is the crime we all pay for,” CAIF’s Smith added. “Ultimately, it’s American policyholders and consumers that pay the high cost of insurance fraud.”

Learn More:

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Study: Insurers Suspect Rise in Fraudulent Claims Since Start of Pandemic

The Battle Against Deepfake Threats

Personal Auto Insurers’ Losses Keep Rising
Due to Multiple Factors

Nearly all the largest U.S. personal auto insurers reported poor financial results in the second quarter of 2022, according to an S&P Global Market Intelligence analysis. Several issues contributed to this trend and are putting upward pressure on premium rates as insurers’ loss ratios grow. The loss ratio is the percentage of each premium dollar an insurer spends on claims.

The factors driving negative auto insurer economic performance include:

  • Rising insurer losses due to increasing accident frequency and severity;
  • More fatalities and injuries on the road, leading to increased attorney involvement in claims;
  • Continuing supply-chain issues, leading to rising costs for autos, auto replacement parts, and labor; and
  • More costly auto repairs due to safer, more technologically sophisticated vehicles.

“The private auto business, besieged by the impact of inflation on vehicle repair and replacement costs, swung to a combined ratio of nearly 101.5 percent in 2021 from 92.5 percent in 2020 and 98.8 percent in 2019,” S&P reports. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss. “After the private auto business nearly brought the industry to the brink of breakeven in 2021, we project that it will push the overall combined ratio into the red in 2022.”

At the beginning of the pandemic in 2020, auto insurers – anticipating fewer accidents amid the economic lockdown – gave back approximately $14 billion to policyholders in the form of cash refunds and account credits. While insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels.

With more drivers returning to the road in 2022, this loss trend is expected to continue. The severity of the post-pandemic riskiness of U.S. highways is illustrated by the fact that traffic deaths – after decades of decline – have increased in the past several years due to more drivers speeding, driving under the influence, or not wearing seat belts during the pandemic. In 2021, U.S. traffic fatalities reached a 16-year high, with nearly 43,000 deaths. 

“When everyday life came to a halt in March 2020, risky behaviors skyrocketed and traffic fatalities spiked,” said National Highway Traffic Safety Administration (NHTSA) administrator Steven Cliff.  “We’d hoped these trends were limited to 2020, but, sadly, they aren’t.”

This year, NHTSA estimates, 9,560 people died in motor vehicle crashes between January and March, up 7 percent from the same period in 2021, making it the deadliest first quarter since 2002. 

Auto insurers also must contend with cost factors beyond what is occurring on the nation’s roadways. A recent auto insurance affordability study published by the Insurance Research Council (IRC) highlights the role of attorney involvement in driving up insurer expenses – and, ultimately, policyholder premiums – in the states where auto coverage is least affordable. As attorney involvement tends to be more prevalent in claims cases involving bodily injury, the NHTSA numbers are important for understanding upward pressure on auto insurance premium rates.

The IRC – like Triple-I, an affiliate of The Institutes – also points out that consumer spending on auto insurance has grown more slowly over the past 30 years than median household income, at least through year-end 2019 (see chart below).

In a society as dependent as ours is on access to transportation, availability and affordability of auto insurance are important components of overall consumer expenses. Triple-I will continue to report on trends in this important line.

Learn More:

 IRC Releases State Auto Insurance Affordability Rankings

Cellphone Bans Cut Crashes; Telematics Can Help Reduce Distracted Driving

2022 P&C Underwriting Profitability Seen Worsening as Inflation, Hard Market Persist

Pot Legalization Link to Car Crashes Varies by State, Study Finds

Delaware Legislature Adjourns Without Action on Banning Gender as Auto Insurance Factor

IRC Study: Public Perceives Impact of Litigation on Auto Insurance Claims

Distracted Driving Surges Since Start of Pandemic

2022 P&C Underwriting Profitability Seen Worsening as Inflation, Hard Market Persist

The property & casualty insurance industry’s combined ratio – an indicator of underwriting profitability – is forecast at 100.7 for 2022, up 1.2 points from 2021, according to actuaries at Triple-I and Milliman, a risk-management, benefits, and technology firm. They presented their findings at a Triple-I members-only virtual webinar.

Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and a ratio above 100 represents a loss. The industry in 2021 was barely profitable, with a combined ratio of 99.5.

Losses have been driven by significant deterioration in the personal auto line. Dale Porfilio, Triple-I’s chief insurance officer, said the 2022 net combined ratio for personal auto is forecast to be 105.2 – 3.8 points higher than 2021, driven primarily by significant deterioration in auto physical damage coverages.

Across most product lines, inflation, supply-chain disruptions, and geopolitical risk are expected to keep pushing insured losses and premium rates higher.

“We forecast 2022 P&C premium growth of 8.5 percent,” Porfilio said. “This is lower than the 9.2 percent growth in 2021, but still strong due to the hard market.”

Dr. Michel Léonard, Triple-I chief economist and data scientist, discussed key macroeconomic trends affecting the property/casualty industry results. He noted that insurance growth continues to be constrained by economic fundamentals, with replacement-cost increases well above pre-COVID levels and sub-par underlying growth.

Jason B. Kurtz, a principal and consulting actuary at Milliman, said another year of underwriting losses is likely for the commercial multi-peril line.

“More rate increases are needed to offset economic and social inflation loss pressures,” Kurtz said. “Social inflation” refers to the impact of litigation costs on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.

Kurtz said the workers’ compensation line’s multi-year run of underwriting profits is expected to continue, although margins are likely to shrink further through 2024.

Dave Moore, president of Moore Actuarial Consulting, said the 2022 combined ratio for commercial auto is forecast to be 101.4 percent.

“We are forecasting underwriting losses for 2022 through 2024 due to prior-year development and the impact of inflation – both social inflation and economic inflation,” Moore said.

Complex Risks in a Complicated World:
Are Federal Government “Backstops” The Answer?

Two U.S. agencies have agreed to explore the potential need for a federal mechanism – analogous to the one put into place for terrorism insurance after the 9/11 attacks – to address the growing cybersecurity threat to critical infrastructure. The perceived need to do so speaks to the growing complexity and interrelatedness of this and other risks facing governments, businesses, and communities today.

The Government Accountability Office (GAO), in a recently published report, recommended that Treasury’s Federal Insurance Office (FIO) and Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) take this action.  It acknowledges that FIO and CISA have “taken steps to understand the financial implications of growing cybersecurity risks” – but those actions have not included the possible need for a federal insurance mechanism.

“Cyber insurance and the Terrorism Risk Insurance Program (TRIP)—the government backstop for losses from terrorism—are both limited in their ability to cover potentially catastrophic losses from systemic cyberattacks,” the GAO report says. “Cyber insurance can offset costs from some of the most common cyber risks, such as data breaches and ransomware. However, private insurers have been taking steps to limit their potential losses from systemic cyber events.”

Insurers are excluding coverage for losses from cyber warfare and infrastructure outages, the report notes, and cyberattacks may not meet TRIP’s criteria to be certified as terrorism.

As we’ve previously reported, some in the national security world have compared U.S. cybersecurity preparedness today to its readiness for terrorist acts prior to the 9/11. Before Sept. 11, 2001, terrorism coverage was included in most commercial property policies as a “silent” peril – not specifically excluded and, therefore, covered. Afterward, insurers began excluding terrorist acts from policies, and the U.S. government established the Terrorism Risk Insurance Act (TRIA) to stabilize the market.  TRIA created TRIP as a temporary system of shared public and private compensation for certain insured losses resulting from a certified act of terrorism.

Treasury administers the program, which has to be periodically reauthorized. TRIP has been renewed four times – in 2005, 2007, 2015, and 2019 – and the backstop has never yet been triggered.

The GAO recommendation that a similar solution be considered for cyber risk highlights the potential insufficiency of traditional risk-transfer products to address increasingly complex and costly threats. Alongside terrorism and cyber, we’ve experienced – and continue to experience – the myriad perils of pandemic, with its assorted impacts on the global supply chain, driving behavior, business interruption and remote work practices, and the economy. Even if those challenges moderate, we will continue to face what is perhaps the most entangled set of risks on the planet: those associated with climate and extreme weather.

One only has to look as far as Florida, where the insurance market is on the brink of failure as writers of homeowners coverage begin to go into receivership and global reinsurers reassess their appetite for providing capacity in that hurricane-prone, fraud- and litigation-plagued state. Or, one could follow the wildfire activity in recent years; or flood loss trends, increasingly creating problems inland, where flood insurance purchase rates tend to be lower than in coastal areas; or insured losses due to severe convective storms, which have been rising in parallel with losses from hurricanes.

Fortunately, many states are taking steps – often with partners, including the insurance industry – to anticipate and mitigate such risks. Much is being done, but much work remains to change behaviors, best practices, and public policies in ways that will reduce risks and improve availability and affordability of coverage.

Fraud, Litigation Push
Florida Insurance Market to Brink of Collapse

With its abundance of unneeded new roofs on homes – and flashy lawyer billboards at every turn claiming massive settlements on claims – Florida’s insurance market is on the verge of failure. This man-made catastrophe is causing financial strain on consumers, as the annual cost of an average Florida homeowners insurance policy will skyrocket to $4,231 in 2022, nearly three times the U.S. annual average of $1,544.

“Floridians pay the highest homeowners insurance premiums in the nation for reasons having little to do with their exposure to hurricanes,” said Triple-I CEO Sean Kevelighan.  “Floridians are seeing homeowners insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes. These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2016 and 2021.” 

Two major hurricanes made landfall in the state since 2016: 2017’s Irma and 2018’s Michael.

No direct hits occurred in Florida over the past three hurricane seasons. 

Florida, however, is the site of 79 percent of all homeowners insurance lawsuits over claims filed nationwide, even though Florida’s insurers receive only 9 percent of all U.S. homeowners insurance claims, according to the Florida governor’s office. To illustrate how lawsuits have weighed on insurer operating costs, JD Supra, citing the Florida Office of Insurance Regulation (OIR), reported $51 billion was paid out by Florida insurers over a 10-year period, and 71 percent of the $51 billion went to attorneys’ fees and public adjusters. The 2020 and 2021 cumulative net underwriting losses for Florida homeowners’ insurers totaled more than $1 billion each year.

“The state’s homeowners’ insurers have been forced to respond to these unfortunate market trends this year by restricting new business, non-renewing existing policies, and even canceling policies mid-term,” Kevelighan said. “What’s more, four homeowners insurance companies have been declared insolvent since February — all while more Americans are moving to Florida than any other state.”

Citizens Property Insurance Corp., the state-backed property insurer of last resort in Florida, has seen its policy count rise to nearly 900,000 this month statewide.  Its policy count figure stood at about 420,000 in October 2019.  Citizens provides insurance coverage to homeowners unable to find a private-sector insurer willing to sell them a homeowners insurance policy.

Placing further pressure on the affordability and availability of homeowners’ insurance in the state, third-party rating bureaus have downgraded the financial ratings of some insurers operating in Florida.

The typical Florida homeowners’ insurance policyholder paid $2,505 for coverage in 2020, Triple-I found, and that figure rose to $3,181 in 2021.  Triple-I’s analysis was based on data and analyses from Florida’s OIR, the National Association of Insurance Commissioners (NAIC), and Triple-I’s estimates of what insurers are paying today for home replacement costs.

During a special legislative session in May 2022, Florida lawmakers passed Senate Bill 2B, which Gov. Ron DeSantis signed into law. The measure is aimed at easing homeowners’ premium increases and reducing excessive litigation.

To help Floridians and others residing in natural disaster-prone states better manage risk and become more resilient, Triple-I launched a few years ago its Resilience Accelerator initiative, Kevelighan said.

The Resilience Accelerator’s goal is to demonstrate the power of insurance as a force for resilience by telling the story of how insurance coverage helps governments, businesses and individuals recover faster and more completely after natural disasters. “The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences face from floods, hurricanes, and other natural disasters,” Kevelighan added.

Triple-I Responds to SEC’s Proposed Climate-Risk Disclosure Requirements

Creating a new layer of federal oversight would neither enhance nor standardize the climate-related disclosures U.S. insurers make to investors, Triple-I said in a letter to the U.S. Securities and Exchange Commission (SEC).

Triple-I’s letter responded to the SEC’s request for public comment on its proposed rulemaking, “The Enhancement and Standardization of Climate-Related Disclosures for Investors.”

“The U.S. property and casualty industry supports and can play a constructive role in advancing transparency around weather- and climate-related risks,” Triple-I CEO Sean Kevelighan and Chief Insurance Officer Dale Porfilio wrote. “Indeed, as financial first responders, insurers have a strong ethical and financial interest in facilitating the transition to a lower-carbon economy and in promoting resilience during that transition.”

But adding a new layer of federal oversight to the existing regulatory structure would complicate insurer operations “while providing little to no benefit toward reducing greenhouse gas emissions and adapting to near-term conditions and perils,” the letter said.

The U.S. insurance industry is regulated in more than 50 jurisdictions, receiving more governance and regulatory oversight than any other type of financial service. More than 80 percent of insurers’ investments are in fixed-income – mostly municipal – securities.

“The SEC’s effort overlaps significantly with those of other entities,” Kevelighan and Porfilio wrote, mentioning the National Association of Insurance Commissioners (NAIC) and the states that regulate insurance, as well as the Treasury Department’s Federal Insurance Office (FIO). “Assessing Scope 3 emissions would be particularly onerous for insurers due to the fact that they cover diverse personal and commercial assets and activities, over which they have no control – further, there is currently no accepted methodology for insurers to measure their underwriting-related Scope 3 emissions, which makes the SEC’s proposed requirement premature for our industry.”

Scope 3 emissions are the result of activities from assets neither owned nor controlled by the reporting organization, according to the U.S. Environmental Protection Agency (EPA).

Triple-I recommended that the NAIC climate risk disclosure survey serve as the primary reporting regime for all insurers, allowing for consistent enforcement across ownership structures (public, private, and mutual) while avoiding unnecessary complexity and expenses.

“Property and casualty insurers are no strangers to climate and extreme-weather risk. We may not always have talked about the issue in those terms, but our industry has long had a financial stake in the issue. Consider the fact that insured losses caused by natural disasters have grown by nearly 700 percent since the 1980s and that four of the five costliest natural disasters in U.S. history occurred over the past decade.The industry is committed to disclosure of climate-related exposures, as such information will be integral to insurers’ ability to accurately and reliably underwrite such risks and make better-informed investment decisions,” Kevelighan and Porfilio wrote.

Learn More:

Report: Policyholders See Climate as a ‘Primary Concern’

Climate Risk Is Not a New Priority for Insurers

A Push for Better Building Codes as Catastrophe Losses Mount

Widening and Deepening the Conversation on Climate Risk and Resilience

Report: Policyholders
See Climate as a
‘Primary Concern’

By Max Dorfman, Research Writer, Triple-I (06/08/2022)

Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.

Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”

The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.

The report recommended three policies that could assist in creating climate resiliency among insurers:

  • Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
  • Closing the gap between long-term and short-term goals across a company’s value chain; and
  • Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”

A global problem

Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

Data is key

The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”

The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”

Litigation-Funding Law Found Lacking in Transparency Department

Piecemeal efforts to bring transparency to third-party litigation funding continued apace (albeit a snail’s pace) with legislation the governor of Illinois signed into law on May 27th.

The funding of lawsuits by investors with no stake beyond the potential to profit from any settlement has been a growing contributor to the phenomenon known as “social inflation”: Increased insurance payouts and higher loss ratios than can be explained by economic inflation alone. These increased costs necessarily end up being shared by all policyholders through increased premiums.

Litigation funding not only drives up costs – it introduces motives beyond achieving just results to the judicial process. This is why the practice was once widely prohibited in the United States. As these bans have been eroded in recent decades, litigation funding has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they might otherwise gain in a settlement. In fact, it can encourage lengthier litigation to the detriment of all involved – except for the funders and the plaintiff attorneys.

Funding of lawsuits by international hedge funds and other third parties has become a $17 billion global industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even larger, at $39 billion globally, according to Bloomberg.

But it’s hard to actually know how big the industry is and how much harm it may be causing because, in most cases, plaintiffs’ attorneys are not required to disclose whether, to what extent, and under what terms third-party funders are involved in the cases they bring to court.

Inching toward transparency

In April, we reported on the partial, creeping progress toward bringing greater transparency to this practice in courtrooms and state legislatures. Last year, the U.S. District Court for the District of New Jersey amended its rules to require disclosures about third-party litigation funding in cases before the court. The Northern District of California imposed a similar rule in 2017 for class, mass, and collective actions throughout the district. Wisconsin passed a law requiring disclosure of third-party funding agreements in 2018. West Virginia followed suit in 2019.

At the federal level, the Litigation Funding Transparency Act was introduced and referred to the House Judiciary Committee in March 2021. The measure was referred to the Subcommittee on Courts, Intellectual Property, and the Internet in October of last year.

The Illinois legislation, originally introduced in 2021, has some similarities to Wisconsin’s law – but the version signed last week contained “insufficient regulatory safeguards,” the American Property Casualty Insurance Association (APCIA) said. In its letter urging Gov. J.B. Pritzker to veto the measure, APCIA said a major concern is that it authorizes an interest rate to be paid by the plaintiff/borrowers in such cases “that shall be calculated as not more than 18 percent of the funded amount, assessed every six months for up to 42 months.”

The legislation does not clarify whether the 18 percent rate calculation is simple, compound, or cumulative interest over the 42-month period.

“This lack of clarity is problematic, as a cumulatively calculated interest rate could run as high as 126 percent!” APCIA said. “It is essential for the protection of consumers that this interest rate calculation be clarified.”

Further, APCIA explains, “The parties to these funding agreements are not required to disclose their existence, so that the courts and defendants are typically not aware of the presence or identity of the funders as real parties in interest to the litigation. The economic interests of the funders in these transactions are substantially enhanced by prolonged litigation and discouraging the amicable settlement of disputes, all to no ones’ best interests except those of the money lenders.”

Even the legal profession is concerned about the ethical implications of litigation funding. In 2020, the policymaking arm of the American Bar Association (ABA) approved a set of best practices for these arrangements. The resolution lists the issues lawyers should consider before entering into agreements with outside funders – but it doesn’t take a position on the use of such funding.

A standardized approach to disclosure would go a long way toward helping policymakers and decision makers determine an appropriate path forward.

Maritime Day: Honoring An “Invisible” Industry

By Loretta Worters, Vice President, Media Relations, Triple-I 

Maritime Day is a time-honored tradition that recognizes one of the United States’ most important industries. It is observed on May 22, the date in 1819 that the American steamship Savannah set sail from Savannah, Ga., on the first ever transoceanic voyage under steam power.

“National Maritime Day was created by an Act of Congress in 1933 to celebrate our nation’s mariners – the Merchant Marine,” John A. Miklus, president of the American Institute of Marine Underwriters (AIMU), the trade association representing the U.S. ocean marine insurance industry. “Today, it has expanded to include the entire maritime industry and domestic water-borne commerce, of which marine insurance is a very important part.”

John Miklus, president, American Institute of Marine Underwriters

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the destination. Cargo insurance is the sub-branch of marine insurance, though marine insurance also includes onshore and offshore exposed property, (container terminals, ports, oil platforms, pipelines), hull, marine casualty, and marine liability.

 “The U.S. ocean marine insurance industry covers every imaginable kind of vessel and cargo, whether it’s a small pleasure craft or yacht, on up to the largest cruise ship or container ship calling on a major port here in the United States,” said Miklus, a former marine insurance underwriter with extensive marine insurance and reinsurance experience. 

“Marine insurance and marine commerce are often thought of as an invisible industry,” he said.  “People see an Amazon truck arrive but have no idea how that package found its way to their front doorstep.”

Insurance is designed to manage risks in the event of unfortunate incidents like cargo losses, damage to expensive ships, environmental disasters due to oil pollution, piracy and recently supply chain issues.

Miklus is passionate about the marine insurance business and is proud of the work of AIMU and the industry it serves. 

“Today, in modern commerce, 90 percent of the goods found in our homes probably arrived on a container ship,” Miklus said. “As vital parts of commerce, these goods all need to be insured, and our member companies of AIMU insure those goods.”

Triple-I/Milliman See
P&C Loss Pressures Continuing

Triple-I/Milliman See Loss Pressures in P&C Industry Continuing

By Max Dorfman, Research Writer, Triple-I

The latest insurance underwriting projections for property/casualty lines by actuaries at the Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reveal that the industry saw the 2021 combined ratio worsen by 0.8 points from 2020, driven by deterioration in the personal auto and workers compensation lines. The report, Insurance Information Institute (Triple-I) /Milliman Insurance Economics and Underwriting Projections: A Forward View, presented at a members-only event on May 12, also found that homeowners, commercial auto, commercial multi-peril, and general liability all experienced significant improvement year-over-year.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist, and head of Triple-I’s Economics and Analytics Department, discussed key macroeconomic trends impacting the property/casualty industry results. He noted that the U.S. P&C insurance industry’s performance continues to be constrained by historically high inflation, which affects replacement costs.

“The insurance industry’s performance continues to be severely constrained by macroeconomic fundamentals,” he said “The average replacement costs for P&C lines is 16.3 percent, nearly twice the U.S. average CPI of 8.5 percent.”

Léonard noted that while the Federal Reserve forecasts U.S. inflation slowing to 4.3 percent by yearend, “Triple-I expects the transition to take longer.”

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, noted that 2021 had the worst full-year catastrophe losses since 2017, though Q4 actuals were materially lower than prior expectation. Kentucky tornadoes and Colorado wildfires in December were part of these losses, with homeowners suffering over 60 percent of the insured losses. Hurricane Ida was the worst single event, although multiple other billion-dollar events also contributed to the 2021 insured catastrophe losses.

“Healthy premium growth observed in 2021 is likely to continue through 2024 due to the hard market,” Porfilio said, adding, “Net expense ratio at 27.0 points was the lowest in more than a decade due to premiums growing at a faster rate than expenses.”

For the P&C industry as a whole, he said to expect loss pressures to continue due to inflation and supply chain disruption.

On the commercial side, Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, said  the commercial multi-peril 2021 combined ratio improved 3.6 points from 2020, primarily due to strong net earned premium growth, which stood at 6.3 percent year over year, from the economic recovery and a hard market.

“Despite the improvement relative to 2020, the CMP line still experienced an underwriting loss in 2021, and we expect underwriting results in 2022-2024 will continue to be adversely impacted by inflation and CAT loss pressures,” he said.

Workers compensation had another very profitable year, Kurtz said, with the 2021 combined ratio coming in at 91.8 percent, although margins shrank in 2021 and are expected to continue to shrink through 2024.

“The workers comp line has experienced seven straight years of underwriting profitability, a remarkable turn-around after eight straight years of underwriting losses,” Kurtz said.  “Not surprisingly, rate increases have been hard to come by. Coupled with low unemployment, these forces will constrain premium growth for the foreseeable future.”   

For commercial auto, the 2021 combined ratio improved by 3.0 points from 2020 due to lower adverse development and a two point reduction in expense ratio, according to Dave Moore, FCAS, MAAA of Moore Actuarial Consulting.

“The 2021 combined ratio dipped below 100 percent for the first time since 2010 and we’ve had the lowest expense ratio in more than a decade,” he said. “Watch for social inflation loss pressure and prior year adverse loss development in 2022-2024.”

According to projections, both personal auto and homeowners lines produced underwriting losses in 2021. Prices need to reflect the underlying risk, particularly because the economic risk is quickly escalating.

Porfilio said the 2021 combined ratio for personal auto jumped up to 101.4, the worst since 2017 and 8.9 points worse than 2020.

“While miles driven are largely back to 2019 levels, riskier driving behaviors have led to increased insured losses and fatality rates,” he said.

Overall, the loss pressures from inflation, supply-chain disruption, risky driving behavior, and increasing catastrophe losses are leading to the need for rate increases to restore both homeowners and personal auto lines to an underwriting profit, which is projected to take at least two more calendar years.