Category Archives: Insurers and the Economy

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.

Insurers, Regulators
Push Back on Changes
In S&P Rating Criteria

Insurers, regulators, and members of Congress have expressed concern about proposed changes in how Standard & Poor’s Global Ratings defines “available capital” in its rating criteria. Specifically, S&P would no longer consider certain debt to be counted as available for purposes of rating insurers’ financial strength and ability to pay claims.

“Disruptive” and an “overuse of market power” is how the Association of Bermuda Insurers and Reinsurers (ABIR) described the measure in an 18-page letter to S&P, which has requested comments by April 29 on its proposed methodology and assumptions for analyzing the risk-based capital adequacy of insurers and reinsurers.

S&P’s proposed changes, in ABIR’s view, would lead to the sudden removal of billions of dollars overnight that otherwise would be available to underwrite catastrophe risk – a sector in which average insured losses have risen nearly 700 percent since the 1980s.

“This debt is viewed as capital by the regulators,” ABIR CEO John Huff says in a news release. “If carriers are forced to restructure debt, they’ll get less favorable terms today. Any replacement debt will increase financial leverage, which is counter to the stability people seek from a rating agency.”

Members of the U.S. House of Representatives and Senate, along with the U.S. state insurance regulators, through the National Association of Insurance Commissioners, have expressed similar concerns about S&P’s proposed change in its rating criteria.

ABIR points out ambiguity in the timing of the rollout of the planned changes, saying, “Insurers and reinsurers will have no time to respond to the new debt treatment before S&P has indicated the changes will go into effect.”

“There is no glide path or grandfathering,” Huff says. “It’s just a cliff. “

Bermuda’s insurers urge the rating agency to provide a transition period for any such changes, as well as grandfathering debt that already is in place.

“If there’s a transition plan, we can work within that,” Huff says. “But having this so abrupt is quite disruptive. Standard & Poor’s should be adding stability, not causing disruption.”

Invasion’s Impact on CPI, P/C Replacement Costs

Russia’s invasion of Ukraine since Feb. 24, combined with persisting supply chain disruptions related to the pandemic, continue to drive inflation as measured by the Consumer Price Index (CPI). From a property/casualty insurance perspective, these forces have a particularly strong impact on replacement costs – especially in the automotive sector.

Total P/C replacement costs represent a weighted average for the homeowners, personal and commercial auto, commercial multi-peril, general liability, and workers compensation lines. Auto replacement costs include new and used vehicles, as well as parts and labor for construction and repair.

Based on the March release of CPI data from the Bureau of Labor Statistics, total P/C replacement costs rose to 16.3 percent in February – up 4.6 percent from 11.8 percent in December. That increase is 3.3 percent greater than Triple-I projected in December, before the invasion began.

While CPI growth is largely being fueled by rising gasoline prices stemming from uncertainty surrounding affairs in Eastern Europe, the key driver of replacement costs is the industry’s exposure to auto prices. New-vehicle price increases only broke double-digits in the fourth quarter of last year; however, used-vehicle price inflation has been above 25 percent in nine of the past 12 months.

“Despite fuel imports from Ukraine and Russia making up only a single-digit percentage of U.S. energy consumption, gasoline prices will likely remain elevated as speculation over OPEC exports, alternative fuel sources for Central Europe, long-term profitability of domestic drilling operations, and rising food-insecurity in fuel exporting counties in the Middle East continue,” said Dr. Michel Léonard, Triple-I’s chief economist and data scientist and head of its Economics and Analytics Department. “At the same time, new vehicle prices can be expected to keep rising as Russian exports of nickel and palladium cease.”

Russian exports of these metals – critical to automotive construction – account for 15 percent and 20 percent, respectively, of the global market.

Dramatic increases in used vehicle prices are common during and after economic corrections and recessions, Léonard said, adding that these elevated prices usually resolve themselves within 24 months of the end of the downturn. Assuming the supply-chain situation improves and the U.S. economy doesn’t slip back into recession, used vehicle price growth is likely to fall back in line with new vehicle inflation over the next 12 months.

P/C Insurers’ Profits
Still Under Pressure

The profitability of the U.S. property/casualty insurance industry is expected to remain under pressure, according to the latest underwriting projections released by Triple-I and Milliman actuaries. Speaking at a members only webinar yesterday, the actuaries said this is due to continued deterioration in personal lines.

The sector’s combined ratio – the most commonly used measure of underwriting profitability – is seen running at an estimated 101.3 combined ratio for 2021. A combined ratio under 100 percent indicates an underwriting profit, and one above 100 percent indicates a loss.

Dr. Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, said the industry’s performance continues to be “significantly constrained” by higher-than-average inflation and lower underlying growth.

Dale Porfilio, Triple-I chief insurance officer, noted that the insurance industry had the worst full-year catastrophe losses since 2017 with the Texas freeze, Hurricane Ida, wildfires and tornadoes.

“Healthy premium growth in 2022 and 2023 is possible from an economic recovery and a hard market,” he said, noting however, that uncertainty from COVID-19 continues to put pressure on rates and profitability.  “Inflation, supply chain, and riskier insured behavior are also contributing to loss pressures.”

On the personal auto side, Porfilio said the 2021 estimated combined ratio has increased to 99.9 due to deteriorating non-catastrophe loss trends combined with excess catastrophe losses.

“Loss pressures forecast for 2022 and 2023 will likely result in profitability similar to pre-pandemic levels,” he said.  “Miles driven are back to 2019 levels, but with riskier driving behaviors such as speeding and impaired driving.”  

On the commercial auto side, underwriting losses are forecast to continue through 2023, but improve year-over-year said Dave Moore, president and consulting actuary at Moore Actuarial Consulting.

“We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market,” Moore said. He cited a recent paper published by Triple-I, funded by a research grant from the Casualty Actuarial Society (CAS), that quantifies the impact of “social inflation” on commercial auto liability claims.

“Based on this research, we estimate that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019,” Moore said. “This can be influenced by a variety of factors, including negative public sentiment about larger corporations, litigation funding, and tort reform rollbacks.”

Jason B. Kurtz, a principal and consulting actuary at Milliman, said general liability underwriting losses are expected to continue, but profitability should improve due to rate increases.  Looking at the workers compensation line, Kurtz noted that underwriting profits continue, although margins continue to shrink.

“The pandemic recession, remote work, and economic recovery are still impacting volume and location of workers comp risk,” he said. “Claim frequency remains below pre-pandemic levels and if the trend of large reserve releases on prior accident years continues, 2021 is likely to be another profitable year.” 

Learn More:

What’s Happening With Auto Insurance Premiums

Trends and Insights: Drivers of Homeowners’ Insurance Rate Increases

Social Inflation and Loss Development

Workers Comp:
Resilient and Relevant

Despite early “dire estimates” of how the COVID-19 pandemic might affect the workers compensation insurance sector, the system has proved to be resilient, according to Bill Donnell, president and CEO of the National Council on Compensation Insurance (NCCI).

Triple-I CEO Sean Kevelighan recently spoke with Donnell about a range of workers comp topics, starting with how the line has managed to buck the hard-market trend affecting much of the rest of the industry. Workers comp plays a critical role in the U.S. economy and is the second-largest line of commercial insurance, with $42 billion in premium annually. As part of its mission to foster a healthy workers compensation system, NCCI gathers data, analyzes industry trends, and provides objective insurance rate and loss cost recommendations. 

While much of the rest of the property and casualty insurance sector has been marked by rising rates in recent years, Donnell said, “Workers compensation rates have been trending down, unlike others in the marketplace.”

Even with rates falling, he said, the line has seen “seven years of underwriting gains and favorable combined ratios.” Combined ratio is the most commonly cited measure of profitability for individual insurers and for the industry.

Donnell added that, in 2020, workers comp writers had $14 billion in reserves.

“It’s a resilient system,” he said.

Donnell also offered his perspective on how the nearly 100-year-old industry can stay relevant in the years ahead.

“It’s about modernizing data and analysis,” he said. “It’s about attracting the best talent, and never losing focus about why we exist, which is helping injured workers and their families. I can’t think of a more noble mission than that one.”