Tag Archives: Covid-19

Why Financial Markets and Fed See Post-Pandemic Recovery Differently

Two narratives about how recovery from the COVID-19-driven economic downturn will play out are competing in the business press – the Federal Reserve’s and that of the financial markets.

Market economists typically forecast wider changes in quarter-over-quarter gross domestic product (GDP) than their counterparts at the Fed. But the current discrepancy is wider than it has been in decades. This is creating so much confusion in financial news that a recent edition of Squawk Box discussed the extent to which “markets seem reluctant to believe the Fed’s policy goals.”

The markets see recent GDP growth as closely aligned to stock market performance: a dramatic drop in the second quarter of 2020 and an equally dramatic recovery from third-quarter 2020 to third-quarter 2021.

The Fed sees GDP as driven by structural economic considerations that move only gradually from quarter to quarter. As a result, the Fed estimated a smaller drop in GDP for second-quarter 2020 and a slower recovery ever since.

Over the last year, the Fed view was proven right multiple times.

“Triple-I’s forecasts fall within the consensus central banks view, as represented by the Fed for the U.S. and the International Monetary Fund (IMF) for the large insurance markets we follow,” said Dr. Michel Léonard, Triple-I vice president and senior economist.  He said the expectations gap comes down to three economic considerations:

  • Fiscal stimulus and GDP growth: Fed and market economists disagree about the extent of the relationship between fiscal stimulus and growth. When generating GDP forecasts, all economists assign a “multiplier” to quantify the impact of government spending on GDP growth. Market economists tend to assign larger multipliers than central bank economists. Given the historically high fiscal stimulus of the last 12 months, market economists expect historically high GDP growth. 
  • Shifts in economic output: They also tend to weight quarterly data differently. Fed economists focus more heavily on quarter-to-quarter trends, and market economists on changes within quarters. The COVID-19 economy upended how certain activities are carried out and reduced the comprehensiveness of quarterly data. For market economists, this led to overestimating the decrease in activity in the second quarter of  2020 and now overestimating the increase in first and second quarter 2021.
  • Timing: The Fed and markets agree broadly about GDP growth but disagree on timing. Both expect a comparable amount of growth between now and 2023 but, for the reasons above, allocate it differently across 2021, 2022, and 2023. Market economists allocate most of the growth to 2021, while Fed economists spread it over the 2021-2023 period. This has led to the Fed forecasting higher growth in 2022 than some markets economists.

Here’s what’s happening to your auto insurance costs

By James Lynch, Chief Actuary, Senior Vice President of Research and Education, Triple-I

You’ve probably been reading news stories about rising inflation, and auto insurance has been pulled into the picture. But that is a little misleading.

Auto insurance rates aren’t soaring. They are returning to normal, pre-pandemic levels.

Consumer prices in April were 4.2 percent higher than a year ago, the Bureau of Labor Statistics reported Wednesday, and its report picked out auto insurance as one of the areas that had “a large impact on the overall increase.”

Auto insurance rates were 2.5 percent higher in April than in March and 6.1 percent higher than a year ago.

That doesn’t mean, though, that the cost of auto insurance is skyrocketing. Remember that a year ago – April 2020 – insurers were busy returning billions of dollars to consumers because of the drastic change in driving patterns the pandemic brought on.

Those givebacks – which eventually totaled $14 billion – drove down the price of insurance, and the official inflation numbers reflected that.

Now driving patterns are returning to pre-pandemic norms – more or less. People are driving somewhat less than before, but they are driving faster and are much more likely to tinker with their smartphones or practice other distracting behaviors.

Premiums are reflecting the new normal, and in terms of the cost of insurance, that looks a lot like the old normal. The price of insurance, using BLS indices, is virtually unchanged from pre-pandemic levels – 0.01 percent higher than it was in March 2020, when the pandemic/recession began.

Insurance Is a Key Part
of Financial Literacy

Many people think of financial literacy primarily in terms of saving and investing – which is understandable, since watching your wealth grow is the most rewarding aspect.

While fiscal discipline and the magic of compound interest are foundational, it’s important not to overlook wealth protection. Insurance plays a critical – and widely misunderstood – role in ensuring that your wealth-building efforts won’t be overtaken by a costly event or accident.

April is Financial Literacy Month, during which organizations across the United States conduct events and carry out initiatives to improve financial literacy – especially among the nation’s youth. While such awareness-building initiatives are important, financial literacy is a year-round, long-term concern — and the COVID-19 pandemic appears to have added urgency.

Two dozen states are now considering legislation on financial literacy. Proponents say student debt and heightened interest in economic inequality are behind the efforts. As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education.  That was a net gain of four states since the council’s previous count two years earlier.

“I do think the pandemic is bringing more attention to the topic,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education. He noted that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures.

Nearly half of respondents to a survey from financial planning firm D.A. Davidson said having more financial literacy education would have helped them manage their money better through the pandemic. The study, which surveyed 1,047 U.S. adults, found that 21 percent felt insurance was the subject they understood least – second only to investments. 

Triple-I provides information and insights individuals and businesses need to make educated decisions, manage risk, and appreciate the essential value of insurance. Our website, blog, and social media channels offer a wealth of data-driven studies, videos, articles, infographics and other resources dedicated to explaining insurance. 

Maritime Supply-Chain Vulnerabilities: Why This Won’t Be the Last Time
a Megaship Gets Stuck

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

(Photo by Mahmoud Khaled/Getty Images)

When mega containership Ever Given wedged herself across a one-way section of the Suez Canal during a sandstorm last month, it brought 10 percent of global trade to a halt for a week. The ship – owned by Taiwanese container transportation and shipping company Evergreen Marine Corp. – was finally refloated and traffic in the canal was able to resume.

A Risk & Insurance cover story, published by Triple-I sister organization Risk & Insurance Group (RIG), describes how – in the context of a trend toward larger container vessels and a global supply chain already disrupted by COVID-19 – this incident should serve as a wake-up call for insurers.

Looking at the Ever Given grounding and disruption of canal traffic from a marine insurance perspective, RIG author Gregory DL Morris highlights the impact on cargo insurance claims and the potential for cargo spoilage. He also discusses compromised maneuverability of these massive vessels in high winds and references an increasing number of on-board fires, challenges surrounding salvage, and lack of suitable repair facilities, noting, “Underwriters need to be aware of this.”

Despite the likelihood that immediate property loss in this case will be minimal, megaships pose serious challenges to marine insurance and risk management. According to MDS Transmodal, a transport and logistics research firm, average vessels capacity grew 25 percent between 2014 and 2018, with ultra-large containerships accounting for 31 percent of the total capacity deployed in the second quarter of 2018. Transmodal attributes this trend to industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing, and vessel-sharing agreements.

Even as traffic through the canal resumes, terminals will experience congestion. In addition, the severe drop in vessel arrival and container discharge in major terminals will aggravate existing shortages of empty containers available for exports. Delays in shipments, increased costs, and product shortages are therefore likely. 

“The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestions, lead times and predictability,” said Jens Roemer, chair of the Sea Transport Working Group of the International Federation of Freight Forwarders.

While traffic through the canal is now moving, the global supply chain’s vulnerabilities may only now be beginning to become clear.

“Whether a blizzard in Texas or a sandstorm in Egypt,” Morris writes, “the narrow focus on minimal inventories that rely upon just-in-time delivery leaves little allowance for weather or accident.”

“Lightning Round” Highlights Technologies Reopening the Economy

Public discussion about re-opening the economy after COVID-19 has mostly revolved around the safety, efficacy, and availability of various vaccines. But in the longer term, other measures and new technologies will be key to getting back to normal and being prepared for future public health emergencies.

Last week’s Lightning Round V: Reopening America in the Post-Pandemic Scenario – a collaboration between Triple-I’s Resilience Accelerator, ResilientH20 Partners, and The Cannon – featured three technologies that promise to help facilitate the recovery.

Workplace workflow

Tomer Mann, executive vice president of business development for 22 Miles, discussed his company’s “digital experience platform,” which incorporates temperature-scanning technology, touchless kiosks, virtual concierge, and other applications to provide social distance among customers and employees and early warning of possible infection in business settings.   

“In March, when we were seeing a lot of the temperature-scanning solutions coming out of China, we realized we could leverage our software to pivot and create a more secure solution, avoiding some of the sensors that are coming out of China that are blacklisted in the trade market and avoiding some of the data breach implications,” Mann said.

22 Miles’ “workplace workflow” starts at a building’s lobby, using facemask and temperature detection and including badge integration and access control for employees and guests. For companies using shared workspaces, the system tracks what spaces are being used to facilitate sanitization between uses. To minimize physical contact while maximizing interactivity, the system’s components can be activated using voice, gesture, or mobile device.

In addition to facilitating safe, hygienic use of these spaces, the system captures large amounts of data that can provide warnings of possible infections and inform modifications to the workflow.

Scrubbing the air

Santiago Mendoza, senior vice president with Integrated Viral Protection, spoke about his company’s indoor air protection system, which has been shown to capture and destroy coronavirus at a 99-plus percentage rate. The system has shown similar results when tested with anthrax spores and other airborne pathogens.

Heating, ventilation, and air conditioning (HVAC) systems are “super spreaders” of coronavirus and other pathogens, Mendoza said, adding that most filter systems only catch and don’t kill them. 

“Our system heats up to almost 400 degrees Fahrenheit and destroys the pathogens,” he said.

The IVP system is available for commercial and residential uses and has been installed in hospitality venues, health facilities, and schools across the United States, Mendoza said. It comes in multiple sizes, including a personal unit for travelers to use in hotel rooms and other closed spaces.

Early warning in water

Jennings Heussner, business development manager for BioBot Analytics, a wastewater epidemiology company, explained how BioBot went from testing for opioids to tracking coronavirus.

“We analyze wastewater coming into treatment plants for human health markers,” Heussner said. The company originally was focused on the opioid epidemic, helping communities better understand the nature of their local opioid problems to better inform their public health response.

When the pandemic hit, BioBot expanded its focus and became the first company in the United States to identify the presence of the virus in wastewater.

Leveraging existing wastewater sampling processes, BioBot analyzes the sample and reports back within one business day after receiving it, providing a quick, inexpensive, comprehensive early warning system.

Ready and resilient

Such technologies will be essential parts of building a pandemic-ready and resilient society. Anticipating and addressing outbreaks early can help alleviate health-related and business-interruption concerns and head off insurance claims.

Just as the insurance industry played a vital role in improving vehicle safety, infrastructure, building codes, and more, insurers and risk managers – partnering with policymakers, businesses, homeowners, and others – will help determine which of these emerging solutions will endure.

Triple-I CEO: 2020 Proved Insurers Can Lead Through Disruption

Sean Kevelighan


The U.S.’s auto, home, and business insurers have more than met the challenges raised by COVID-19 over the past year, according to Sean Kevelighan, CEO, Insurance Information Institute (Triple-I).

“2020 proved how this industry can lead through disruption. We can adapt. We can innovate. We can keep our promises and pay claims—even during a global pandemic,” Kevelighan said, in remarks today to the Reinsurance Association of America’s (RAA) virtual 2021 Catastrophe Risk Management conference.

The net income after taxes for U.S. auto, home, and business insurers cumulatively dropped to $35 billion in the first nine months of 2020, a 25-plus percent decrease from where the insurers’ net income after taxes stood after the first nine months of 2019, Kevelighan said. The deterioration was attributable in part to the severity of 2020’s hurricanes, wildfires, and civil unrest.

Despite these events, the Triple-I’s CEO noted how insurers provided an estimated $14 billion in premium relief to locked-down drivers, donated nearly $300 million to charitable causes, and largely retained its national workforce of 2.8 million Americans as premiums grew modestly.

“If you look at net premiums written growth, we were actually at the 10-year average last year,” Kevelighan continued, reporting how auto, home, and business insurers realized three percent net premiums written growth year-over-year when comparing the first nine months of 2020 to the same timeframe in 2019. Net premiums written are premiums written after reinsurance transactions.

COVID-19’s arrival in the U.S. also prompted the Triple-I’s launch last year of its Future of American Insurance & Reinsurance (FAIR) campaign, he continued, as policymakers, such as those in the U.S. House of Representatives, sought clarity on what property damages were, and were not, covered under standard business income (interruption) insurance policies.

“The FAIR campaign was meant to be an aggressive way to inform the discussion,” Kevelighan stated, “Our customers needed financial support and we knew the federal government was the only entity who could provide it.”

In assessing 2021’s key issues, Kevelighan said he thought telematics and social inflation would take on greater import among insurers and their policyholders. “Telematics is one way our industry can drive safety on our roads,” the Triple-I’s CEO said, referring to the devices drivers can place voluntarily in their vehicles to reduce the cost of auto insurance and to encourage safe driving habits. “Social inflation is getting worse. These massive litigation lawsuits are really putting a strain on the cost of liability insurance,” Kevelighan stated.

Following his remarks, Kevelighan participated in a live question and answer session moderated by Frank Nutter, president, RAA. Katrin Zitzelsberger, senior epidemiologist, Munich Re, and Damon Vocke, partner, Duane Morris, joined them.

Insurance Gives Back: March 2021 Update

When disaster strikes the insurance industry is a financial first responder. Millions of dollars are on the way to policyholders to cover claims related to the severe winter weather that pummeled the United States in February. But the industry is also staffed by individuals who care deeply about their communities and contribute above and beyond what their jobs require.

Below are just a few examples of donations companies and organizations have made to help their neighbors in need.

  • The American Family Insurance Dreams Foundation made a $10,000 donation to the American Red Cross on behalf of the enterprise to aid disaster relief in Texas.

  • Several insurers including Liberty Mutual and Northwestern Mutual are part of the American Red Cross Disaster Responder Program. The Red Cross works with government and community partners to coordinate food and water distribution to where it is most needed.

  • The Hanover Insurance Group, Inc. raised $1.5 million for United Way and hundreds of other nonprofit organizations across the country through an employee giving campaign. The contribution represents the largest donation the company’s charitable foundation and its employees have ever made through the annual giving program.  

  • The Insurance Industry Charitable Foundation’s (IICF) Southeast division has raised more than $560,000 to support 21 nonprofit beneficiaries who are facing challenging times due to the COVID-19 pandemic and the recent winter storms. The IICF is also raising funds to help feed children and families that are facing hunger because of the pandemic.

  • New York Life donated $100,000 to Feeding Texas in response to the winter storm to support immediate food shortage needs in the most vulnerable communities in the state. The New York Life Foundation will match donations made by employees and agents up to an additional $100,000 to both Feeding Texas and the New York Life Emergency Assistance Fund, which provides financial assistance to employees and agents impacted by catastrophic events.

  • Texas Mutual Insurance Company donated $100,000 to six organizations on the frontlines providing Texans with basic needs like food, water and shelter. The Coalition for the Homeless in Houston was one of the recipients.

  • The USAA Foundation, Inc. has announced a $350,000 commitment to help Texas residents recover from February’s storm.

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

Class action lawsuits filed in Nevada last month against 10 auto insurers are more likely to hurt policyholders than help them.

The suits contend that discounts, rebates, and policyholder dividends provided in 2020 – amounting to about $14 billion nationally – were not “meaningful” and that the rates charged violate state law against excessive premiums. The $14 billion figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.

The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers’ net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020.

“The rate is lower because people are driving less,” said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.

Accidents down, fatalities up

Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic.

The 2020 premium reduction would have even been larger, Lynch said, “if people had slowed down.”

Claims rising faster than premiums

Even before COVID-19, auto damage claims were rising faster than general inflation, and auto insurance premium increases trailed inflation. Fatalities had been declining as cars became safer – but safety technology is expensive, making repairs more costly and driving up the size of policyholder claims.

The 2020 trend of increasing fatalities could worsen as traffic volume returns to pre-COVID levels. Data show that many motorists who substantially increased their driving speed when traffic was 50 percent below normal have not slowed down as traffic increased, Lynch said.

“The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates,” Lynch said.

The salient point is this: Insurers have kept their promises to pay claims, given $14 billion back to policyholders, and generously supported communities through philanthropy – even as rising accident severity during the pandemic dented their net incomes. Defending themselves against frivolous litigation will only add to their expenses, and lower premiums are unlikely to be the result.

Triple-I CEO to speak
at RAA Catastrophe Risk Management Conference

Sean Kevelighan, Triple-I CEO, will be a featured speaker at the Reinsurance Association of America’s 18th annual Cat Risk Management conference as part of a COVID-19 panel. The panel will discuss the economic impact of the pandemic on insurers, pandemic-related litigation, and reinsurance issues.

The online conference takes place March 22-24 and features a powerhouse roster of experts who will share their views on lessons learned from the tumultuous year just passed, explore risk-management issues, and offer insights on how decision makers can navigate 2021. 

Conference registration includes three full days of information, plus an on-demand capability that lets attendees preview sessions before the scheduled presentations and review sessions they might have missed or wish to view again.

The conference targets financial-sector professionals–including insurers, reinsurers, and investment banks–responsible for catastrophe risk management; attorneys specializing in reinsurance; academics; federal/state government officials; and regulators. In addition to the exceptional technical program, it’s a great networking opportunity. 

Review the agenda and register at www.reinsurance.org

Triple-I and Milliman forecast: commercial and personal auto and workers comp

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

During an exclusive Groundhog Day webinar presented to Triple-I members by Triple-I and Milliman, experts talked about what the insurance industry can expect in 2021.

Auto Insurance Report editor Brian Sullivan looked at both personal and commercial auto insurance.  “For the first nine months, private passenger auto liability written premium was down less than two percent, but losses incurred were down more than 14 percent with loss ratios likely to be in the mid-50s.”

On the commercial side, Sullivan noted that commercial auto trends aren’t as powerful as those for personal lines. “Things have gotten better in terms of losses, but not that much better; certainly, nothing like personal auto,” Sullivan said.

Jeff Eddinger, senior division executive at the National Council for Compensation Insurance (NCCI), gave an early look at 2020 results for workers compensation insurance. “The pandemic has landed the U.S. economy into a recession. Significant job losses combined with changes in wage and rate levels have put downward pressure on premiums.  NCCI estimates that private carrier net premium written will be down about 8 percent for 2020.” 

Eddinger noted that as the virus began to spread in 2020, so did the concern that COVID claims could overwhelm the system. “Fortunately, that has turned out not to be the case. At the same time, there has been a drop in non-COVID claims, due in part to more remote work and less work-related driving. So far, incurred losses have decreased about 8 percent, in line with the drop in total premium. As a result, the estimated calendar year combined ratio for 2020 is almost unchanged from 2019 at 86. This would be the seventh straight year of underwriting profit for workers compensation.”

The industry is financially strong but continues to face uncertainty, Eddinger warned. “The vaccine rollout has begun, but new cases of the virus in the U.S. have soared to record levels.  In addition to COVID claims, industry leaders are concerned about regulatory activity related to presumptions, the economic downturn and the long-term impact of working from home,” Eddinger said.

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