Latest Studies

The U.S. insurance sector announced deal value reached $28.6 billion in the first two quarters of 2018, compared to $10.1 billion in the first two quarters of 2017. This was primarily due to AXA’s announced acquisition of XL Group for $15.4 billion, and AIG’s announced acquisition of Validus for $5.6 billion. Insurance broker deals remained the most active, comprising 87 percent of announced deal volume. The effects of tax reform are becoming clearer and may encourage deal activity the remainder of the year. Full Report.

Property/ Casualty (P/C) insurance companies are falling short of customer expectations in digital interactions, according to this J.D. Power study. While digital-natives such as Amazon and Uber are setting the standard, the report found that "while many insurers are falling short, the leaders are establishing best practices for how to build engagement, create personalized digital experiences and deliver consistency across digital components,” said Tom Super, Director of the P/C Insurance Practice at J.D. Power. This year the Digital Experience study was expanded to include an assessment of a carrier’s overall digital performance based on an industry-agnostic view of best practices, combined with customer perception of their interactions with the 19 largest P/C insurance brands in the United States. The survey found that most insurers’ digital offerings are lacking in insurance-specific capabilities such as processing claims, effective shopping and servicing of policies. Across the study, insurers that perform highest in personalization—by aligning insurance offerings and customer needs; offering benefits tailored to certain customers; and delivering timely guidance—tend to have high digital customer satisfaction scores. Likewise, those that deliver consistently across digital components—ranging from chatbots to app features—earn the highest satisfaction scores. Press Release

Global economic losses from natural disasters for the first half of 2018 were estimated at $45 billion – 64 percent lower than the 10-year average of $124 billion, and 48 percent lower than the 18-year average of $87 billion. Insured losses were preliminarily estimated at $21 billion – 40 percent lower than the 10-year average of $35 billion, and 19 percent lower than the 18-year average of $26 billion. Natural disasters claimed at least 2,153 lives during the first half of 2018 – the least since 1986 – and significantly below the long-term (1980-2017) average of 36,570 and a median of the same period (7,991). Flooding was the deadliest peril of the first half of 2018, having been responsible for at least 892 deaths. An estimated 156 natural disaster events occurred in the first half of 2018, which was above the 18-average of 142. While there was no ‘mega catastrophe’ that led to economic damage beyond $10 billion. There were 15 billion-dollar events – all except one which were weather-related. Full Report.

This essay is the winner of a Society of Actuaries contest which encouraged actuaries to share how they incorporate the financial risks of environmental sustainability into their work for their employers or clients. The essay explains that private insurers are the natural ally of sustainable development because insurance by its very nature must account for the cost of risk in an objective and accurate manner. Since the industry stands to lose from many of the risks related to unsustainable practices, especially those that contribute to climate change, the industry is aligned well with sustainability. The industry has the ability to support sustainability by setting actuarially sound rates, and reserving funds to pay uncertain future losses.  The insurance industry promotes sustainability through market signals via the way it underwrites and prices risks. The industry is not as captive to public opinion as political officials are and can make decisions that promote sustainability in a more timely and efficient manner. The industry can promote sustainable behavior through discounts, surcharges and product offerings.  Insurers can also use their substantial investment influence to reduce holdings in organizations engaged in unsustainable practices, and to increase holdings in those organizations that promote sustainability. Full text.

In this post-2017 hurricane season report, the Federal Emergency Management Agency (FEMA) discloses that it was hampered by personnel shortages, a critical lack of aid supplies and difficulties coordinating relief efforts with the territorial government during its response to the devastation that Hurricane Maria caused in Puerto Rico last September 2017. The report shows FEMA resources were drained by back-to-back responses to Hurricane Harvey in Texas and Hurricane Irma in Florida, leaving the agency understaffed and unprepared for the catastrophe that followed when Maria hit Puerto Rico, where millions of U.S. citizens faced widespread loss of communications and power as well as massive infrastructure failures. FEMA estimates that the three major hurricanes that made landfall in the U.S. along with the wildfires and other natural disasters in 2017 resulted in losses of nearly $300 billion. The lessons learned from the review will be used to improve future responses and with FEMA's efforts to help communities improve preparedness. Full report

Munich Re Group reports that the total losses of $33 billion from natural disasters during the first half of 2018 were almost 50 percent lower than during the same period last year and fell to the lowest level since 2005. During the first half of this 2018, insurers paid $17 billion for natural disaster claims, compared with $25.5 billion in 2017, but close to the 30-year average of $17.5 billion. In its report Munich Re warned that the highest losses were usually recorded during the second half of any year, noting that a series of major hurricanes during the last half of 2017 pushed the total losses to $340 billion. During the first half of this year, Munich Re recorded 430 natural disasters, compared with 380 in 2017, and a long-term average of 250. This year the costliest natural disaster was Friederike, a storm that caused overall damages of $2.7 billion, $2.1 billion of which was insured. News Release

Aon’s third edition of its U.S. cyber insurance study shows that despite increasing concerns, 2017 appears to have been a very good year for cyber insurers. A total of 170 U.S. insurers reported having underwritten cyber insurance in 2017— up from 140 in 2016. Cyber insurance premiums grew by 37 percent to $1.84 billion in 2017. This was despite a continued explosion of ransomware and record numbers of cyberattacks that year. NotPetya malware showed that cyberattacks could disrupt the operations of multinational companies, and insurers were forced to pay claims on multiple insurance lines.  The direct incurred industry loss ratio was 32.4 percent across all policies, with stand-alone and package business reporting 35.4 percent and 28.8 percent, respectively. There were a total of 9,224 cyber claims in the U.S. 2017, 6,144 of which were first party claims, and 3,080 were third-party claims. Full Report

This Conservation Law Foundation report estimates that self-driving cars will be widely available in Massachusetts by 2023, and that they will greatly affect the state’s economy, environment and budget. The addition of self-driving vehicles is expected to increase the number of vehicle miles traveled due to factors such as lower per-mile vehicle costs, greater access to cars for people who cannot drive, a willingness to travel longer distances and the ability of self-driving vehicles to travel without passengers. Traffic congestion is expected to rise in the short term, potentially causing $984 million in increased congestion costs annually. Pollution also is expected to rise as more people travel. However, collisions and injuries could fall, reducing related costs by about $3.4 billion per year. The report identifies policy options to mitigate certain budget and economic impacts and allow Massachusetts to reap the full benefits of this transition. Full Report

A recent Brookings Institution survey found that just 21 percent of adult internet users would ride in a self-driving car. Support for self-driving cars is down from other surveys over the past year, possibly due to this year's fatalities involving self-driving cars. The survey also found that men and young people were more likely to be open to using driverless cars than women and people age 55 and over. If an insurance company offered a 10 percent insurance rate discount to ride in a self-driving car due to its increased safety, 29 percent say they are likely to do so, 49 percent are not, and 22 percent do not know or gave no answer. This 8 percent increase over the 21 percent number with no discount suggests ridership could be increased through insurance incentives. Full text

Few consumers are considering the purchase of a partially or fully autonomous car, and they are unsure about the impact autonomous cars will have on their insurance premiums, according to a J.D. Power survey. Only 11 percent of respondents said they would definitely consider buying a partially automated car, and only 8 percent would definitely consider buying a fully autonomous car. Despite low intent to purchase, customers see many benefits to automation including fewer collisions, reduced stress and improved fuel economy. While “lower insurance premiums” is a listed benefit of owning an automated vehicle, only 18 percent of consumers say that would play a factor in their decision to purchase one. Considering both the potential for fewer accidents and the added cost of replacing more advanced features, customers were asked about their expectations on whether automated vehicles would raise, lower or have no effect on their insurance premiums. Customers were split nearly evenly on whether premiums would increase (31 percent), decrease (36 percent), or stay the same (33 percent). This may provide some comfort for insurers while they determine how to underwrite such automated technology. Those figures, paired with 44 percent of customers saying “fewer accidents” is a benefit of automation, and only 25 percent saying “lower insurance premiums” is a benefit, suggests at least some customers are aware reduced risk of collisions may not always translate into a lower insurance bill. Customers said that if they had an automated vehicle, they would be likely to switch their insurer to one that offered a discount for automated features. J.D. Power research shows that discounts validating customers’ life choices lead to the highest levels of customer satisfaction, loyalty and advocacy. When it comes to understanding who owns the risk in the event an automated vehicle is involved in a collision, customers are understandably uncertain about who is at fault (and the industry is not far ahead of them). About 39 percent of customers would blame the driver for not taking over in the event of a collision, while only 22 percent say they would blame either the manufacturer of the vehicle or the supplier of the equipment. Nearly one-third (31 percent) say none of the above, which further underscores the uncertainty in the market. Full Text

A 2018 Esurance poll found that only 17 percent of 1,000 drivers could imagine giving up driving despite the potential benefit of using their time more productively in a self-driving car. The main reasons for the reluctance to give up the wheel are fear of the unknown and not wanting to give up control. Parents of children under the age of 19 were 60 percent more open to relinquishing driving control than non-parents, and younger people were more likely than older adults were more interested in giving up driving. The poll found respondents distrusted technology, even though most crashes (88 percent) involving autonomous vehicles involved human error. Though full adoption of self-driving technology may be 25 to 30 years from now, auto insurers are considering the change in their role in the autonomous future. “Instead of creating the need for more personal insurance, the move to autonomous vehicles is set to drive the need for more commercial insurance as car manufacturers assume much of the risk for this new tech,” said Haden Kirkpatrick, head of strategy and innovation at Esurance. Full text

Autonomous vehicles could save us up to $1.3 trillion annually in the U.S., according to Morgan Stanley. Consumers willing to give up personal car ownership in favor of ride sharing may see the greatest individual savings. The savings will come in the form of: less time spent in traffic; fewer accidents; increased productivity; and the health benefits from eliminating the stress of driving. The article contains a chart breaking down the savings on items such as gas, insurance, and car maintenance for individuals who use ride sharing in 2018, and another chart with projected savings for individuals owning a self-driving vehicle vs. ride sharing in the years 2025 and 2030. According to Esurance analysis, in the best-case scenario, a family that gives up their car in favor of driverless ride sharing could save up to $4,100 in annual transportation costs. Full text

The presence of autonomous vehicles (AVs) raises significant questions about public policy and regulations that will encourage innovation but maintain high standards of public safety. This white paper discusses The Travelers Companies Inc.’s perspective and recommendations on AVs. Travelers recommends that the insurance industry be one of the principal voices in discussions about AV policymaking held by local, state and federal lawmakers. The insurer also expresses a willingness to help establish a non-government stakeholder coalition to make recommendations on AV issues related to insurance. The discussion in the white paper has three main areas: 1) The current state of the AV market, and projections for future development and early policy responses; 2) How auto insurance can meet society’s needs in an AV world; and 3) Specific insurance-related recommendations for an AV and regulatory structure. Full Report.

The annual world insurance sigma report examines premium developments and growth trends in 2017. Global insurance premiums rose by 1.5 percent to about $5 trillion in 2017 after rising 2.2 percent in 2016. Global life premiums increased by 0.5 percent to $2.7 trillion in 2017, nonlife premiums climbed 2.8 percent, to $2.2 trillion in 2017. Falling life premiums in advanced markets such as the U.S. or Western Europe were the main cause of drag on overall global premium growth. Emerging markets, especially China, are expected to continue to be a key driver of global premium growth, particularly in the life sector. In emerging markets, life and nonlife premiums increased 14 percent and 6.1 percent respectively in 2017. Nonlife premium growth in advanced markets remained broadly stable in 2017, at 1.9 percent. In the U.S., the nonlife industry benefitted from higher rates in the motor business, while prices in commercial lines remained under pressure. Life premiums in advanced markets fell 2.7 percent in 2017. Global nonlife premiums are expected to rise, led by the U.S., where the economy is strengthening. Also, global life insurance premiums are likely to improve over the next few years, driven by strong growth in China. The full report in several different languages is available from the Swiss Re Institute website.

Drones are increasingly used in the maritime sector and have the potential to make a significant contribution to safety and risk management, according to this annual review of shipping losses and trends. The potential for autonomous shipping, however, is still hampered by legal, safety and security issues. Political risk and piracy continue to pose a threat to international shipping, though piracy is trending downward with 180 recorded incidents in 2017 (down 6 percent from 2016 and a 22-year low). The report lists losses by region and vessel type and covers technology, security and climate trends in 2017, and historically. In 2017 there were 94 total losses, the second lowest total in a decade. Thirty of the losses occurred in South China, Indochina, Indonesia and the Philippines. These regions are the main hotspots for losses due to factors such as busy seas, piracy, typhoons and lax safety standards. Full Report

The adoption of smart city technology is altering the way municipalities manage critical services and infrastructure. Worldwide spending on technologies that enable smart cities is projected to reach $80 billion in 2018 and will grow to $135 billion by 2021. There are as many as hundreds of thousands of connected systems embedded throughout a city’s critical infrastructure, which are used for things like traffic monitoring and emergency alerts. Researchers from IBM and Threatcare evaluated three smart city sensor hubs and uncovered vulnerabilities, including bugs that would allow hackers to access the systems. The type of damage exploiting smart city technologies could cause includes: Causing disaster detection and alarm systems to report incorrect data; manipulation of law enforcement response (for example manipulating traffic control infrastructure to create gridlock and delay law enforcement teams from accessing the real scene of a crime); and the manipulation of farm sensors to cause irreversible crop damage. The report suggests security guidelines for smart cities. Full Report