Category Archives: Market Conditions

Fla. P&C Crisis Worsens As Hurricane Season Begins

Already this year, three Florida insurers have been declared insolvent due to their failure to obtain full reinsurance as the 2022 hurricane season bears down.

“We have the potential of a massive failure of Florida insurers, probably the worst on record,” says Triple-I communications director Mark Friedlander. According to Friedlander, the $2 billion reinsurance fund created in legislation Gov. Ron DeSantis signed into law at the end of May isn’t nearly enough, and private reinsurers are pulling back from the market because of its high level of property claims and litigation.

“It needed to be at least double the amount of the funds that were allocated for reinsurance coverage for hurricane season and open to other perils as well,” Friedlander said.

Most recently, insurance rating agency Demotech announced that it had withdrawn its financial stability rating for Southern Fidelity Insurance Company after the insurer placed a moratorium on writing new business and processing renewals in Florida until it secured enough reinsurance for hurricane season. When the Tallahassee, Fla.-based insurer failed to do so by the June 1 start of the season, the OIR ordered it to “wind down operations,” indicating the company could become the fourth Florida residential insurer to fail this year, following the liquidations of St. Johns, Avatar, and Lighthouse.

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.”

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.

Why Personal Auto Insurance Rates
Are Likely to Keep Rising

Personal auto insurance premium rates have returned to pre-pandemic levels, but several trends are likely to sustain upward pressure on rates, according to a new Triple-I Issues Brief.

At the start of the pandemic, 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. But while miles driven declined and accident frequency initially dropped, frequency and severity quickly started increasing again. Traffic fatalities also increased, after decades of steady declines.

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 on the road and replacement parts climbing, this loss trend is expected to continue.

Auto premium rates reflect a range of factors that contribute to an insurer’s loss experience. In a world of perfect information, rate changes would correlate perfectly with changes in loss experience. As the chart below shows, until the pandemic these two metrics for the overall industry tracked quite closely. The disruptions of 2020 led to volatility for both, and losses have proved more volatile than pricing.

Barely profitable

To remain viable, insurers have to set premiums at levels appropriate to the risks they cover. Insurers’ underwriting profitability is measured by a “combined ratio”, which is calculated by dividing the sum of claim-related losses and all expenses by earned premium. A combined ratio under 100 percent indicates a profit. A ratio above 100 percent indicates a loss.

As the chart above shows, personal auto insurance has been a barely profitable line for the industry for years. If recent accident and replacement-cost trends persist, upward pressure on premium rates is likely to continue.  

Learn More

Facts + Statistics: Auto insurance

Why Did My Auto Insurance Costs Go Up Even When I Didn’t File a Claim?

Triple-I Offers U.S. Insights into Auto Insurer Pricing Factors

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

Triple-I Brief Explains Rising Homeowners’ Insurance Premium Rates

Homeowners’ insurance premium rates have risen significantly since the pandemic and are likely to keep increasing. It’s important for consumers and policymakers to understand why this is happening and why it’s likely to continue, so Triple-I has published an Issues Brief on the topic.

From 2017 through 2021, premium rates are up 12.2 percent on average nationwide, according to S&P Global Market Intelligence data. Much of this can be attributed to pandemic-related supply-chain issues and labor shortages driving up the cost of home repairs and replacement.

But, as the Issues Brief shows, longer-term trends are in play – most significantly, more than 40 years of rising natural catastrophe losses. Average insured cat losses are up approximately 700 percent since the 1980s, due in part to increased frequency and intensity of events and to population shifts into disaster-prone regions. The brief cites U.S. Census Bureau data showing that the number of housing units in the United States has increased most dramatically since 1940 in areas most vulnerable to weather and climate-related damage.

It also shows that homeowners’ insurance premium rates have generally trailed increases in home replacement costs.  As a result, homeowners’ coverage has been an unprofitable business line for insurers in recent years – an unsustainable long-term trend that has been exacerbated by the pandemic’s disruption of the supply chain and the global economy.

Learn More

Flood: Beyond Risk Transfer

Hurricane Season: More Than Just Wind and Water

Fighting Wildfires With Innovation

Facts + Statistics: Homeowners’ and Renters’ Insurance

For even more resources, check out Triple-I’s Resilience Accelerator.

JIF C-Suite Panel:
Finding Opportunity
Amid Evolving Risks

Credit for all photos in this post: Don Pollard

Insurers – beyond their traditional role as financial first responders – are helping policyholders mitigate the risks posed by natural disasters and cyber threats, panelists at a Joint Industry Forum (JIF) panel said.

The JIF’s C-Suite on Resilience panel was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR). It included Richard Creedon, CEO, Utica Mutual Insurance Company; Paul Horgan, Head of U.S. National Accounts, Zurich North America; John Smith, CEO, Pennsylvania Lumbermens Mutual Insurance Company; and Rohit Verma, CEO, Crawford & Co.

“2021 has been a year of risk that has certainly challenged us,” ABIR’s Huff said. “Eighteen events in the U.S. alone, with over a billion dollars an event. Just a few years ago, those types of numbers would be unheard of, not to mention the 538 deaths and significant economic losses.”

Hurricane Ida, a Category 4 storm that made landfall in Louisiana in August, and the Dixie Fire, which burned 1 million acres in California over four months, were two of the most devastating national disasters this year.

“One recurring theme that we can talk about, especially with hurricanes and wildfires, is that we have growth in population in areas that are significantly impacted by these threats,” said Phil Klotzbach, PhD, a research scientist at Colorado State University’s Department of Atmospheric Science, and a Triple-I non-resident scholar, in introductory remarks.

Huff started the discussion by noting that the notion of resilience seems to have evolved from preparedness to meet and rebound from large, single events like hurricane, earthquake, or wildfire.

“It seems we may have entered a new period for leadership to think of resilience more broadly,” he said. “I’m thinking of the interconnectedness of businesses, individuals, and communities through technology and global commerce; the supply-chain and labor-force disruptions we’ve experienced due to the pandemic; cyber risks, which is such a growing market for our industry but also a growing risk for our global economy. Have risk and resilience fundamentally changed in recent years? Or are we just having to adjust to viewing them through a new lens?”

“There’s certainly a lot more to think about,” said Utica Mutual’s Creedon. “The opportunity moment for us is that there’s market need and expertise we have to expand beyond the traditional risk-transfer product.”

He noted that the industry has historically thought about risk and resilience “in balance-sheet terms, we’re building up large reservoirs of capital and surplus for that large capital- and surplus-draining event that’s going to happen. But nowadays capital is fairly cheap and abundant – it’s almost a renewable resource – and that kind of makes the risk-transfer product more commoditized and sort of a race to the bottom on pricing and product.”

The opportunity lies in insurers’ ability to augment their traditional capabilities with risk management, loss control, and other services to have an impact for consumers, he noted.

“It’s not, in my mind, a fundamental shift in what we define as risk,” said Pennsylvania Lumbermens’ Smith. “It’s that there are so many coming at us. As I think about risk, I do a lot of listening.  That’s why I’m here today, why I’m part of [Triple-I] I want to hear different perspectives.”

Zurich’s Horgan drew a contrast between U.S. insurers and their European counterparts, which, he said, “have been focused on climate change for a much longer time. Zurich has been monitoring its environmental footprint since 2007, has been net neutral since 2014, has signed on to U.N. agreements. These are things that have been hotly debated in the U.S., but they’re buying in.”

 “Our customers are craving for insights,” Horgan continued. “These are evolving risks. Some of them are insurable, some of them are not.  [Our customers] are looking to us for data. They know where they’ve got to be, and they know they have this journey to get there.”

 “I think about resilience as being able to recover from adversity, able to recover from a loss, or prevent that loss from having any impact on you,” Crawford’s Verma said.  “It’s impressive to see what the industry has done. Where there’s a gap is, if the industry was a playing field, everyone is playing like a quarterback, and if everyone is playing like a quarterback you can’t win.”

 Verma said his concern is whether the industry is coming together as a team to “rethink the ecosystem of insurance – the brokers, the claims providers, the carriers” to have a meaningful impact on resilience.

Triple-I/Milliman:
Cat Losses, COVID
Keep the Pressure
on Rates, Profitability

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

The property/casualty insurance industry will run at an estimated 101 combined ratio for 2021, slightly worse than what was projected three months ago, putting pressure on rates and profitability, according to the latest underwriting projections by Triple-I and Milliman actuaries.

The industry is projected to experience 7.7 percent net written premium growth in 2021, followed by 5.2 percent in 2022 and 5.5 percent in 2023, due to the economic recovery and hard market.

The quarterly report, Insurance Information Institute (Triple-I) / Milliman P/C Underwriting Projections: 2021-2023, was presented at an exclusive members only virtual webinar moderated by Triple-I CEO Sean Kevelighan.

Dale Porfilio, Chief Insurance Officer, Triple-I

Triple-I Chief Insurance Officer Dale Porfilio explained that the 2021 estimated combined ratio – a measure of insurance company underwriting profitability — worsened from prior quarterly analysis “primarily because actual third-quarter catastrophe losses were worse than expected, with Hurricane Ida being the most destructive event.“

The 2021 year-to-date catastrophes are now the worst since 2017, when Harvey, Irma, and Maria all struck the U.S., Porfilio said.

He added that “healthy premium growth is projected for 2021-2023, as a result of economic recovery and a hard market” – an extended period of increasing premiums and decreasing capacity. Porfilio noted, however, that “insureds will continue to face rate pressure from the uncertainty of the pandemic.”

On the personal auto side, Porfilio said personal auto experienced improving combined ratios from 2016 through 2020, with 2020 heavily influenced by the lower miles driven during the pandemic.

“With miles driven in 2021 back to 2019 levels, we expect combined ratios to also return to pre-pandemic levels,” he said. “The greater concern for the entire industry is the observed riskier driving behaviors, such as impaired driving, speeding, and failure to wear seatbelts, leading to more severe accidents and increased fatalities.”

Jason B. Kurtz, Principal & Consulting Actuary, Milliman

Looking at the commercial side, Jason B. Kurtz, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the hard market persisted in the third quarter, particularly in commercial product lines.

For commercial multiple-peril insurers, Kurtz said, “We are currently estimating a 2021 combined ratio of 109 percent. This line got off to a difficult start in the first quarter due in part to the Texas freeze event, resulting in a historically high first quarter incurred loss ratio on a direct of reinsurance basis.”

Turning to workers compensation, Kurtz noted that underwriting profits will continue, although margins are shrinking. “The pandemic recession significantly impacted premium volumes, but we are finally seeing premium growth again with the economic recovery,” he said.

Dave Moore, President, Moore Actuarial Consulting

In commercial auto, underwriting losses are forecast to continue through 2023, said Dave Moore president of Moore Actuarial Consulting. “We believe social inflation is playing a role in these combined ratios remaining above 100 percent despite many successive years of steady rate increases,” he said. “We continue to observe a significant rebound in premium growth due to the economic recovery and the hard market driving rate increases.”

Moore added that Triple-I will be publishing research later in the month on social inflation, funded by a research grant from the Casualty Actuarial Society (CAS).  “We estimate social inflation increased commercial auto liability claims expense by roughly $20 billion for accident years 2010 – 2019.”

Michel Léonard, VP, Senior Economist, Head of Economics and Analytics, Triple-I

Michel Léonard, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, discussed the economic drivers of insurance performance for 2021 and going into 2022. He noted that the insurance industry is expected to grow by 3.4 percent in 2021, 2.4 percent below U.S. real GDP growth of 5.8 percent.

“This aligns with historical trends whereby the insurance industry declines less than the overall economy going into downturns but lags national averages during recoveries,” he said, adding, “Going into Q4, as more 2021 data becomes available, the more cool-headed forecasts for overall U.S. growth and inflation have prevailed. While both remain higher than usual on a year-over-year basis, overall U.S. growth is still falling short of making up for the growth lost to the pandemic over the last two years.” 

With the 2021 Atlantic hurricane season nearly over, it is on track to be an above-average season with a total of 21 named storms (trailing only 2020 and 2005 for the most named storms in a single season), according to Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University.

Klotzbach, who is also a Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season, which officially ends on November 30.  He noted that the season had seven hurricanes and four major hurricanes. “The most significant hurricane of the 2021 season was Hurricane Ida, which resulted in nearly 100 fatalities and $65 billion in total damage for the United States,” Klotzbach said. “In addition to devastating storm surge and strong winds near where the storm made landfall along the central Louisiana coast, Ida brought catastrophic flooding to the mid-Atlantic states, highlighting the significant impacts that hurricanes can generate well inland.”

Triple-I Study Sees “Constrained” Growth For Insurers in 2021

From financial economists’ exuberant growth forecasts early in the year to central bankers’ coining of the term “transitory” inflation to pushback against Federal Reserve “tapering”, credible economists have never diverged so widely in their economic outlooks as they have in 2021, says Dr. Michel Léonard, head of Triple-I’s Economics & Analytics department.

Michel Léonard,
V.P., Sr. Economist, Data Scientist, Head of Economics and Analytics

Léonard is author of Triple-I’s fourth-quarter insurance economic outlook report, Soft Landing, Headwinds and Rebound. The quarterly report is available to Triple-I members only at economics.iii.org and is a companion publication to Triple-I’s Insurance Economics Dashboard. Non-members interested in learning about membership can contact Deena Snell.

Triple-I’s analysis translates broad economic growth drivers into business line-specific terms. So, while the insurance industry is expected to show a 3.4 percent growth rate in 2021, Léonard says, it will underperform overall U.S. GDP growth of 5.8 percent because it is “constrained by its ties to industries with growth rates significantly below and inflation rates significantly above the U.S. rates overall.”  

According to the report, concerns about “runaway inflation” subsided in the second half of 2021 as prices for most goods in the consumer supply index (CPI) trended lower and overall inflation peaked at 4 percent. However, for a basket of goods whose prices tend to affect insurance claims and losses – think automobiles and replacement parts, among others – inflation remained above 10 percent. This is due primarily to supply-chain and labor-force disruptions.

As a result, the Triple-I report sees the insurance industry’s combined ratio increasing (underwriting profitability falling) due to low underlying growth and high line-specific inflation. It also sees the industry’s 2021 investment returns outpacing 2020’s, despite headwinds.

2021 P/C Underwriting Profitability May Be Hampered By CAT Losses, Social Inflation,
Triple-I/Milliman Predict

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

Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.

Sean Kevelighan, Triple-I

The forecast – presented in a members-only webinar, “Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.

The industry ended 2020 profitably, with a combined ratio of 98.7.  Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively. 

Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.

Natural catastrophe losses at a decade high

Dave Moore, Moore Actuarial

“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.

Jason B. Kurtz, Milliman

Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.

“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”

Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.

Michel Léonard, Triple-I

“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022.  What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”

Roy Wright, IBHS

Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.

Runaway litigation

Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).

David Corum, IRC

“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.

Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.

Pat Sullivan, Risk Information

Sullivan noted that COVID-19 wasn’t great for growth:  “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”

COVID-19 and business interruption

The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.

Michael Menapace, Wiggin and Dana

“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”

“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said.  “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”

Looking forward, Menapace said the trend of dismissals in the trial courts should continue.

“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”

Atlantic hurricane season

Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.

Dr. Phil Klotzbach, Colorado State University

Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater).  That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.