The COVID-19 pandemic and the recession it started will result in no premium growth for 2020 and a deteriorated combined ratio for the property/casualty industry, according to the new report, Insurance Information Institute (Triple-I) / Milliman P/C Underwriting Projections: 2020-2022.
Direct and net premium written will be virtually unchanged from 2019, while the industry combined ratio, a measure of underwriting profitability, is projected to rise to 102 at year-end, up from 99 last year, according to the report, a joint venture of the Insurance Information Institute and Milliman, a provider of actuarial and related products and services. The report, to be published quarterly, was unveiled on August 13 at an exclusive members only virtual webinar moderated by Triple-I CEO Sean Kevelighan.
“The pandemic and the recession it induced drove down exposures in personal auto and several commercial lines,” said James Lynch, FCAS, senior vice president and chief actuary with the Insurance Information Institute (Triple-I). “Overall premiums are projected to be flat,” said Lynch, adding, “a hard commercial lines market is driving rates higher, which offsets some of the deterioration in exposure.”
“Though there is tremendous uncertainty as to size, the pandemic creates insurance losses that were not contemplated in either catastrophe or attritional pricing,” said Jason Kurtz, FCAS, a principal and consulting actuary at Milliman. “Not surprisingly, pandemic losses can cause underwriting results to deteriorate.”
The report noted that a number of legislative and regulatory proposals have the potential to affect pandemic exposures and losses.
A major hurricane or cumulatively severe wildfire season could also impact the combined ratio, the report noted. Right now, the report projects a typical year for catastrophe losses, though most hurricane prognosticators predict more storms than average.
Other Areas to Watch
Other areas to consider include the impact of the pandemic on workers compensation, particularly the shift in the burden of proof onto the employer for certain types of claimants (i.e. presumption) and the changing exposure from people working from home. Workers compensation saw five consecutive years through 2019 where that line of business posted an underwriting gain; that could change with COVID-19.
Economic trends also play a role. The report assumes that exposures roughly grow and shrink with the economy. If the recovery is slower or faster than projected, premium growth will be affected.
The report is an analysis by Triple-I and Milliman based on an actuarial model that relies on information from a number of publicly available sources as well as input from thought leaders and experts at both organizations. It predicts that premiums will grow 7 percent in 2021 and 6 percent in 2022 as the economy recovers, and the combined ratio will fall to 99 for both years as the industry prices for the effects of the pandemic and the higher rates charged this year earn out.
The complete webinar, available exclusively to Triple-I members, projected underwriting results for several lines of business: personal auto, homeowners, commercial auto, general liability, property, commercial multiperil and workers compensation.