Property/Casualty Insurance Industry Suffered Largest-Ever Drop in Surplus in the First Quarter of 2020

Insurers Face Multiple Challenges as Impacts of COVID-19 Continue to Unfold

The surplus for the private U.S. property/casualty insurance industry dropped by $75.9 billion in the first quarter of 2020—its largest-ever quarterly decline—as the stock market suffered a major downturn, according to Verisk (Nasdaq:VRSK), a leading data analytics provider, and the American Property Casualty Insurance Association (APCIA). Since then, the COVID-19 pandemic has continued to affect many insurers and will likely impact underwriting results for the second quarter and the remainder of the year.

The surplus fell to $771.9 billion as of March 31, 2020, from the record-high $847.8 billion at the end of 2019. This drop was mostly driven by a decline in valuations of insurers’ investments. While the decline set surplus back to mid-2018 levels, traditional leverage ratios remained below their long-term averages.

Other industry results remained steady or improved from a year earlier. Net income after taxes in first-quarter 2020 was $17.9 billion, essentially the same as in first-quarter 2019. The net underwriting gain in the first quarter was $6.3 billion, a 19.9% increase from a year earlier. Net written premiums increased to $164.4 billion in first-quarter 2020 from $154.7 billion in first-quarter 2019—a 6.2% increase.

While having no apparent effect on first-quarter underwriting results, the COVID-19 pandemic and associated economic disruptions have affected many insurers, and the impact goes beyond the investment losses reported in the first quarter. Based on what is already known about the first half of 2020 and on available forecasts, significant changes are expected in insured exposures as well as in the amount and mix of claims. Verisk research estimates that personal auto insurers have offered more than $13 billion in policyholder rebates and credits. MarketStance, a Verisk solution, estimates that at least 1 million insured businesses in the United States will fail in 2020, and direct written premiums in commercial lines will decrease 2.8%.

“The historic drop in industry surplus in the first quarter was concerning for many insurers, as it began to show the impact of COVID-19 on their results,” said Neil Spector, president of ISO. “But the impact of COVID-19 on the industry is just beginning to unfold. Will personal auto insurers see the reduction in losses matching the policyholder rebates and credits offered this spring? To what extent will commercial lines premiums be affected by the challenges facing the economy? How will insurers adapt and continue to serve their customers efficiently in our new normal?”

Verisk recently created an online resource page at verisk.com/insurance/covid-19/ to help insurers learn about new regulations, read about critical insights, and discover new products being created to address the effects of COVID-19. It also recently launched a web page that provides strategies for personal lines insurers in the new normal: verisk.com/newnormal.

“Property/casualty insurers started the year with solid net written premium growth, but that was the calm before the storm,” said Robert Gordon, senior vice president for policy, research and international at APCIA. “By the end of the first quarter, insurers experienced their largest-ever quarterly surplus decline as the stock market suffered its largest drop since 1987 and interest rates reached a record low. While the industry remains safely capitalized, many individual insurers face potentially significant unknown coronavirus liability exposures, as well as political and regulatory threats of mandated retroactive and prospective COVID-19 coverage.”

View the full report from Verisk and APCIA here.  

About Verisk 
Verisk (Nasdaq:VRSK) is a leading data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using advanced technologies to collect and analyze billions of records, Verisk draws on unique data assets and deep domain expertise to provide first-to-market innovations that are integrated into customer workflows. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, and many other fields. Around the world, Verisk helps customers protect people, property, and financial assets.

Headquartered in Jersey City, N.J., Verisk operates in 30 countries and is a member of Standard & Poor’s S&P 500® Index and part of the Nasdaq 100 Index. For more information, please visit www.verisk.com.

About APCIA
Representing nearly 60 percent of the U.S. property casualty insurance industry, the American Property Casualty Insurance Association (APCIA) promotes and protects the viability of a competitive private insurance market for the benefit of consumers and insurers. APCIA represents the broadest cross section of home, auto, and business insurers of any national trade association. APCIA members represent all sizes, structures, and regions, which protect families, communities, and businesses in the U.S. and across the globe. For more information, visit www.apci.org.

Contact:

Joe Madden for Verisk
Joseph.Madden@verisk.com
201-232-4486

Jeffrey Brewer for APCIA
jeffrey.brewer@apci.org
847-553-3763

Loretta Worters for I.I.I.
lorettaw@iii.org
212-346-5575

Close call for Hawaii as Hurricane Douglas passes

Hurricane Douglas brought heavy rain and 90 mph winds to parts of Hawaii on Sunday July 26 as the Category 1 storm passed north of Maui and Oahu, avoiding a direct hit. Some bands of heavy rain with gusty winds did affect both islands.

Although landfalling hurricanes are rare in Hawaii, residents are still advised to know what to do before, during and after a hurricane.

Hawaii homeowners and renters insurance policies usually provide coverage for almost all standard perils (e.g., fire, explosion) and liability; however, some policies exclude hurricanes.

In Hawaii, homeowners and renters generally purchase hurricane and flood insurance policies separately to protect their property from those specific natural disasters and supplement their homeowners and renters insurance policies.

“In addition to encouraging consumers to buy the appropriate coverage, the Triple-I has been outspoken about the need to bridge the flood insurance coverage gap and build more resilient communities through its Resilience Accelerator,” said Sean Kevelighan, CEO, Insurance Information Institute. “In fact, the average take-up rate for flood insurance in the entire state of Hawaii is 12.6 percent, which is an alarming recovery gap for citizens.”

Only a flood insurance policy, available through FEMA’s National Flood Insurance Program (NFIP) and some private insurers, can protect a homeowner, renter, or business from flood-caused property damage. Most U.S. natural disasters involve flooding, and standard homeowners, renters, and business policies do not cover flood-caused damage.

An auto insurance policy’s optional comprehensive provision covers wind, hurricane, and flood-caused property damage to vehicles. 

COVID-19 and Workers Compensation: Impact Will Become Clearer … Eventually

By John Novaria

The impact of COVID-19 on workers compensation will come down to several fundamental questions in the coming months: Who’s at work? Who’s going back to work? And under what circumstances?

Experts addressed these questions during a webcast jointly sponsored by Triple-I and the National Council on Compensation Insurance (NCCI). The discussion was moderated by Mark Friedlander, director of corporate communications, Triple-I.

While they agreed it’s too early to know all of the impacts of the virus on workers compensation, several important themes are emerging.

Sean Cooper, practice leader and senior actuary, NCCI, said the economy has experienced sudden job losses, compared to the Great Recession of 2008-09, when they were spread out over a period of time, and the nature of those jobs is much different.

“Back then you saw construction and manufacturing impacted greatly, while this time it’s hospitality, leisure and travel,” he said.

Cooper explained some of the varying impacts of COVID-19 on overall workers compensation claims: while COVID-19 claims will have an upward influence on claims, social distancing could put downward pressure on frequency. He also noted telehealth could put downward pressure on the cost of claims.

NCCI files rates and loss costs for every job classification in 38 states, and submits those to regulators for approval in each state. The organization has taken several actions and made several changes to reflect COVID-19.

“We began collecting payroll for furloughed workers so that payroll wouldn’t be used in premium calculations,” said Jeff Eddinger, senior division executive, NCCI. “We are also tracking legislation in each state that affects compensability presumptions.”

Triple-I chief economist Dr. Steven Weisbart pointed out that the last recession was a lengthy one – lasting 19 months – and this one in contrast is unique because it largely depends on a virus and society’s ability to successfully combat it.

Weisbart said he believes the nation will emerge from this pandemic with a different type of economy.

“Telecommuting will be one of the new norms,” he said. “People are recognizing they can do most jobs at home, and companies don’t have the expense of renting office space.”

Weisbart also thinks there will be some additional conversion to robotics and machine jobs, and the number of jobs performed by people may well shrink. He says these types of changes in the workplace will make some difference over time in the types of jobs available and skills required.

Until now, few would have considered a pandemic a likely workers compensation catastrophe. Eddinger noted that traditional methods for calculating the impacts don’t work for low frequency, high severity events.

“NCCI has engaged a modeling firm to evaluate if a pandemic catastrophe provision would be appropriate for future rate filings,” he said. “After 9/11 we applied terrorism models in all 38 of our states, but that was more straightforward because compensability applied to all workers; if you were at work during an event you were covered.”

Watch the highlights: Webcast Highlights Video

Watch the full webcast: Impact of COVID-19 on Workers Compensation Insurance

Additional Resources: 

Media Coverage:

Hurricane Hanna leaves wind damage and flooding in its wake

Hurricane Hanna, 2020’s first Atlantic basin hurricane, made landfall during the late afternoon of Saturday July 25 as a Category 1 storm on the Corpus Christi, Texas, coast. It struck Padre Island with winds of 90 mph.

The Corpus Christi area dodged the hurricane’s heavier rain bands, but the storm still caused significant flooding and damage. Thousands were without power late July 26 as crews worked overtime to make repairs and Texas Governor Greg Abbott issued an emergency declaration for 32 counties.

By Sunday evening, the storm was downgraded to a tropical depression, with maximum sustained winds of 35 mph, and was slowly dying over the mountains of northern Mexico.

CoreLogic, a real estate data analytics provider, estimated that over 14,000 homes are at risk from Hurricane Hanna’s storm surge.

Flood damage to a home, a renter’s possessions, or a business is generally covered under FEMA National Flood Insurance Program (NFIP) policies, if the homeowner, renter, or business has purchased one. Several private insurers also offer flood insurance.

Insured Losses
Due to Civil Unrest
Seen Nearing 1992 Levels

Insured losses related to civil disorder in 2020 are on their way toward a level not seen since 1992, according to estimates by insurance industry analysts. 

On May 26, 2020, protests and riots broke out in response to the death of George Floyd while in Minneapolis police custody and spread to another 140 U.S. cities. By June 4, at least 40 cities in 23 states had imposed curfews, and rioting resulted in at least six deaths. National Guard were called in at least 21 states and Washington, D.C. 

Property Claim Services (PCS) a unit of a Verisk Analytics, has designated the Minneapolis riots a catastrophe. This was the first time PCS has compiled insured losses for a civil disorder event since the Baltimore riots of April 2015. Insured losses in the Baltimore unrest – following the funeral for Freddie Gray, a 25-year-old who died in police custody – fell short of $25 million when it occurred, PCS’s threshold for a catastrophe.  

The 2020 activity, spanning May 26 through June 8 and including more than 20 states with significant losses, is the first time since 1992 that PCS has declared a civil disorder event a catastrophe. The 1992 riots in Los Angeles, after a jury acquitted Los Angeles Police Department officers for using excessive force in the arrest and beating of Rodney King, caused $775 million in insured losses, according to PCS – or about $1.4 billion in 2020 dollars. 

Insured losses for the most recent event are not yet available from PCS. Preliminary estimates from industry analysts put the losses in the range of $500 million to $900 million.

Those estimates will likely change as insurers are resurveyed and data is refined. 

With protests and clashes with police continuing in Portland, Ore., and elsewhere, and President Trump threatening to send federal troops to quell the disorder in some cities, no end seems to be in sight for this costly string of civil disturbances.  

COVID-19 and Shipping Risk

The shipping industry has largely proved resilient to the coronavirus outbreak, and insurance claims related to risks of the sea could be reduced as fewer vessels venture out, insurer Allianz reports in its Safety and Shipping Review 2020

However, new challenges have emerged that could lead to more claims. 

“One of the biggest issues,” Allianz reports, “has been the inability to change crews easily because of pandemic restrictions.” 

Crew relief is essential to ensuring the safety and health of seafarers. Fatigued crew members make errors that Allianz says contribute to 75 percent to 96 percent of marine incidents. Damaged goods and containers account for more than one in five shipping claims. 

“The pandemic has heightened the risk environment around high-value and temperature-sensitive goods in particular as supply chains have come under pressure, cargo-handling companies have shut down abruptly, and ports operated under restrictions,” Allianz says. 

COVID-19 also has made it hard to obtain parts and materials like lubricants that are essential to maintenance and repair. This could make ships and the equipment on board them less safe, potentially leading to groundings or collisions. 

Such an outcome could impede or reverse the industry’s steadily improving safety record.  

The number of total losses of large ships fell in 2019 to 41, Allianz reported – “the lowest total this century and a close to 70% fall over 10 years.” 

The insurer credits improved ship design, technology, regulation, and risk management as contributing to the long-term reduction in losses. 

But improved technology can be a two-edged sword as vessels become more reliant on computers and software, making them vulnerable to cyber incursions. The coronavirus outbreak has affected this risk, too, Allianz says, reporting that companies have faced a 400% increase in attempted cyber-attacks since the pandemic began.  

Lightning Rounds: Investing in disaster and risk management technology

The Insurance Information Institute (Triple-I) yesterday hosted a webinar showcasing technology companies whose products mitigate the impact of severe weather on homeowners, businesses and communities. This is the first in a series of Lightning Rounds – fast-paced pitch panels for insurance and non-insurance investors.

The webinar is part of the Resilience Accelerator initiative, a collaboration of Triple-I, ResilientH2O Partners and The Cannon

During the Lightning Rounds, pre-vetted technology companies, equipment suppliers, integrated solution providers, and large-scale project development teams present their unique value propositions.

This Round’s focus was flood prevention. Shelly Klose, CEO of True Flood Risk described the company’s AI-driven risk management platform that provides individual property data, geolocation intelligence and risk scores related to flood risk in real-time without an on-site inspection. Tasha Nielsen Fuller, CEO of FloodFrame USA, presented a system which is installed underground around a structure, and automatically deploys in a flood, protecting the structure. Rahel Abraham, Founder and Chief Executive Officer of ClimaGuard, was inspired to invent a water-resistant wrapping for vehicles and other possessions when her own vehicle was flooded during Hurricane Harvey.

To view a recording of the webinar click on the video above.

Webinar overview

Part 1: A view from the C-Suite: Identifying the right technology and risk solutions

Brian Gaab, Strategy & Innovation, CSAA Insurance Group, a AAA Insurer

Susan Holliday, Senior Advisor, International Finance Corporation | The World Bank Group

Matthew T. Schneider, Co-CEO, Aon Risk Solutions, M&A and Transaction Solutions

Michel Leonard, PhD, CBE (Moderator), Senior Economist & Vice President, The Insurance Information Institute

Part 2: Use Cases: Bringing to market flood management solutions

Presenting Companies:

Shelly Klose, Founder and Chief Executive Officer, True Flood Risk

Tasha Nielsen Fuller, Chief Executive Officer, FloodFrame USA

Rahel Abraham, Founder and Chief Executive Officer, ClimaGuard

Panelists:

Brian Gaab, Strategy & Innovation, CSAA Insurance Group, a AAA Insurer

Susan Holliday, Senior Advisor, International Finance Corporation | The World Bank Group

Matthew T. Schneider, Co-CEO, Aon Risk Solutions, M&A and Transaction Solutions

Remington Tonar, Chief Resilience Officer and Senior Advisor, The Cannon

Richard Seline (Moderator), Managing Partner, ResilientH2O Partners

Wrap-up: COVID-19
and Workers Comp

Lauded for their service and hailed as heroes, essential workers who become infected with the coronavirus on the job have no guarantee in most states that they’ll qualify for workers compensation to cover lost wages and medical care, Associated Press reports

Fewer than one-third of the states have enacted policies that shift the burden of proof for coverage of job-related COVID-19 so workers like first responders and nurses don’t have to show they got sick by reporting for a risky assignment. 

And for most employees going back to job sites as the economy reopens, there’s even less protection than for essential workers. In nearly all states, they have to prove they got the virus on the job to qualify for workers comp. 

Workers comp is not health insurance, or an unemployment benefit. In exchange for coverage, workers give up the right to sue their employers for job-related harms. Employers pay premiums to support the system. Complex rules differ from state to state. 

Dealing with job-related injuries is fairly straightforward, but diseases have always been trickier for workers’ comp, and COVID-19 seems to be in a class of its own. 

“You don’t know per se where you inhaled that breath whereby you became infected,” said Bill Smith, president of the Workers’ Injury Law & Advocacy Group, a professional association of lawyers representing workers.  

Read more: 

Families of health workers killed by COVID-19 fight for denied workers comp benefits (Philadelphia Inquirer, July 16, 2020) 

Workers comp in the new world of the COVID-19 pandemic (Law.com, July 16, 2020) 

Report: Sharp drop in California workers’ comp premiums expected from COVID-19 (Insurance Journal, July 14, 2020) 

Triple-I: Insurers Poised to Withstand Challenging Economic Times

The economic uncertainty brought about by COVID-19 has impacted the U.S. insurance industry’s investment portfolios this year yet insurers cumulatively entered 2020 in a strong financial condition, according to a just-released Insurance Information Institute (Triple-I) Economic Snapshot report.

“The good news is the industry is well positioned to provide the safety net we need,” said Dr. Steven Weisbart, Chief Economist and Senior Vice President, Triple-I. “We recognize there’s been deterioration in investment income during the past few months, but the industry was financially strong before the pandemic hit. If a vaccine is discovered, most economists believe the economy will have little trouble bouncing back. Until then, it’s just going to be a longer process than we originally thought.”

The financial fortunes of the U.S.’s property/casualty (P/C) insurers are generally tied to the U.S.’s Gross Domestic Product (GDP) as auto, home, and business (e.g., construction, workers compensation (w/c)) activity are reflective of the economy’s overall health.

Weisbart says while a combination of government restrictions and personal fear is delaying economic recovery, the insurance industry has been able to provide some relief and flexibility for its private-passenger auto insurance policyholders. More than $14 billion in premium relief had been offered to the nation’s drivers in 2020 as of the end of May, a Triple-I analysis found, and insurers continue to monitor the claims experience of motorists.

The Triple-I report shows some additional positive news for insurers. For example, during the past four years the number of owner-occupied homes has risen following a decade during which there was no increase. This is significant for the P/C insurance industry because virtually every owner-occupied home has homeowners insurance while only about half of renters buy renters insurance.

Pandemic-related changes may also affect workers compensation insurance as some states consider changes to the way w/c claims are processed for front-line workers, such as those in health care and law enforcement. On the other hand, some economists suggest w/c claims may experience a decrease due to the number of people working from home.

The Economic Snapshot’s special topic section focuses on life insurance. Although this sector generated its largest pre-tax operating loss of any quarter in at least 18 years, deaths due to the COVID-19 virus weren’t responsible. Instead, the plunge in interest rates was so steep and is expected to last so long that the industry booked an unprecedented increase in aggregate reserves. Reserves rose to $103.5 billion—a $57 billion increase since the third quarter of 2019.

A copy of the 2Q 2020 P/C Industry Economic Snapshot is available to Triple-I members by logging into the members-only portal at www.iii.org.  Please contact members@iii.org for log in instructions, or information about membership.

Hurricane Modeling: High-Tech Meets
Local Insight

Sophisticated computer modeling has led to great advances in forecasting weather-related disasters and their potential human toll and economic impact. The predictive power of these models has given insurers comfort writing coverage for risks – like flood – that were once considered untouchable and enabled them to develop innovative products.  

It can be tempting to think of hurricane forecasting and modeling as being all about high-resolution images, big data, and elaborate algorithms. While these technologies are critical to developing and implementing effective models, they depend heavily on local knowledge and “boots on the ground.” 

“After an event, we quickly send engineers to survey structural damage and look for linkages to the storm’s characteristics,” said Jeff Waters, senior product manager for risk modeler RMS. “Information gathered by our people on the ground is incorporated into our reconstruction of the event to help us identify drivers of the damage and inform our models.” 

Waters recounted how, in the wake of Hurricane Maria in 2017, an RMS team arrived in Puerto Rico on October 3 – 13 days after landfall – to validate a modeled loss estimate. During the week the team spent on the island, they found that damage to insured buildings was less than expected for a storm of Maria’s magnitude. They also observed that most insured buildings featured bunker-style reinforced-concrete construction and flat concrete roofs.  

“These buildings performed very well,” Waters said. “Reinforced concrete prevents significant structural damage, and, with less drywall and tiled flooring, interior damage from water intrusion is limited. Wood and light-metal structures – which tend to be in older neighborhoods where fewer properties are insured – fared far worse.”  

Such ground-level information not only helped validate RMS’s loss estimate – it also contributes to the model’s continuous improvement. You can read a more detailed account on the RMS blog. 

Recent research illustrates how advances in geospatial technologies allow qualitative local knowledge to be incorporated into mathematical models to evaluate potential outcomes of restoration and protection projects and support plans for mitigation and recovery.  Local knowledge mapping is one such approach to marrying modern technology and the advanced analysis it facilitates to the experiences of the individuals, communities, and businesses most affected by natural disasters. 

Latest research and analysis