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7/17/2019
WED_GS_2019_Kevelighan_Economic_Insurance_Market_Conditions_v07 1
2019 Economic and Insurance Market Conditions
Sean KevelighanChief Executive Officer
Insurance Information Institute
7/17/2019
WED_GS_2019_Kevelighan_Economic_Insurance_Market_Conditions_v07 2
How Do We Define Success?
ResilienceCapitalProtection
Community Wellbeing
EconomicGrowth
The Disruption Continuum
Geopolitical
Catastrophes Economics
Technology
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The Evolving Risk LandscapeTop 5 Global Risks in Terms of Likelihood
Source: World Economic Forum 2009-2019 Global Risks Report
Extreme weather events
Large-scale involuntary migration
Natural disasters
Large-scaleterrorist attacks
Massive incidentof data fraud / theft
Extreme weather events
Natural disasters
Cyber-attacks
Data fraud of theft
Failure of climate-change mitigation
and adaptation
Extreme weather events
Failure of climate-change mitigation and
adaptation
Natural disasters
Data fraud of theft
Cyber-attacks
2017 2018 2019
Economic
Environmental
Geopolitical
Societal
Technological
Short Term Risk Outlook 2019
Source: World Economic Forum 2009-2019 Global Risks Report
64
67
69
72
73
80
82
85
88
91
0 10 20 30 40 50 60 70 80 90 100
Personal identity theft
Domestic political polarization
Media echo chambers and “fake news”
Populist and nativist agendas
Loss of confidence in collective security alliances
Cyber attacks: disruption of operations and infrastructure
Cyber attacks: theft of data / money
Political confrontations / frictions between major powers
Erosion of multilateral trading rules and agreements
Economic confrontations / frictions between major powers
Percentage of respondents expecting riskto increase in 2019
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A world with MORE insurance
I.I.I. Mission Statement
Improving public understanding of insurance...
…what it does and how it works
Insurance Industry News Cycle Is Wide-Ranging, But CenteredAround Core Clusters Nat Cats, Auto, Tech/Innovation Continue As Biggest P/C Drivers
*Source: Quid, HPS Analysis. -Coverage excludes earnings/financials
US Media Coverage On Insurance Topics In 2018 & 2019
11% 9%
7% 7%
8%4%
6%
10%7%
6%
7%
12%17%
18% 18%
4% 9%4%
6%6%8%10%
2018
2%
Homeowner Insurance
2019
3%
InsurTech
Mortgage & Title InsuranceTravel & Pet Insurance
Insurance Lawsuits
Crop Insurance
Life Insurance & Long Term Care
Auto Insurance
Wildfires
Flood & Storms
NFIP
Cyber Insurance
41% on other P/C and life products
23% on natural catastrophe risks
16% on cyber insurance and digital trends
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Social Media: "Sharing Is Caring" Crop Is Outlier with Flood-Tariffs Combo – Pushing Down Nat Cats
Source: Quid, HPS Analysis
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
0 20 40 60 80 100 120 140 160 180 200 220 240
Crop Insurance
NFIP
Cyber Insurance
Publisher Count
Auto Insurance
Insurance LawsuitsInsurTech
Life Insurance & Long-Term Care
Travel & Pet
Wildfires
Ave
rag
e S
oci
al S
ha
reTraditional Media Coverage vs Social Shares 2019 (To Date)
Natural Catastrophe Cyber / Technology Auto
Flood & Storms
Homeowner Insurance
Our Priorities In 2019 Continue To Reflect Where Industry & Customer Conversations Are Focused
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Insurance IndustryEconomic Trends
US Inflation-Adjusted Catastrophe Losses
*2018: Inflation-adjusted estimate, subject to change. 2010s is average of 2010 to 2018. All losses are Direct.Sources: Property Claims Service, a Verisk Analytics business; Insurance Information Institute.
4037
79
104
48
1980s:$3.4 billion
1990s: $5.2 billion 2000s: $6.5 billion 2010s: $15.5 billion
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18*
Bill
ion
s, 2
01
8 $
Average for Decade
Hurricane Andrew
WTC
Katrina, Rita, Wilma
Harvey, Irma, Maria
2018 – Third worst year for US Insured catastrophe losses Average insured loss per year for 1980-2018 is $19.3 billion
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Inflation Adjusted US Catastrophe Losses by Cause of Loss1997 – 20161
Source: Property Claim Services (PCS)®, a unit of ISO®,a Verisk Analytics® business.
(1) Adjusted for inflation through 2016 by ISO using the GDP implicit price deflator. Excludes catastrophes causing direct losses less than $25 millionin 1997 dollars. Does not include flood damage covered by the federally administered National Flood Insurance Program.(2) Includes other wind, hail, and/or flood losses associated with catastrophes involving tornadoes.(3) Includes wildland fires.(4) Includes losses from civil disorders, water damage, utility service disruptions, and any workers compensation catastrophes generating lossesin excess of PCS's threshold after adjusting for inflation.
39.9%
38.2%
7.0%
6.7%
5.9%2.0%
Events Including Tornadoes2, $168.1
Fires3, $8.4
Hurricanes & Tropical Storms, $161.1
Wind / Hail / Flood, $29.7
Winter Storms, $28.2
Terrorism, $25.0 Other4, $0.8$ Million
P/C Insurance Industry Combined Ratio2000 – 2018*
* Excludes Mortgage & Financial Guaranty insurers 2008-2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012=103.2; 2013=96.1; 2014= 97.0.Sources: A.M. Best; ISO, a Verisk Analytics company; I.I.I. estimate for 2018.
110.1
115.8
107.5
100.1
98.4
100.8
92.6
95.7
101
99.3
101.1
106.5
102.5
96.4 97 97.8
100.7
104.1
97.395.6
90
100
110
120
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19:Q1
Hurricanes, wildfires drive
CR higher
Heavy use of reinsurance lowered net
losses
Best combined ratio since 1949 (87.6)
Sandy
3 consecutive years of U/W profits;
1st time since 1971-73
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P/C industry Net Income After Taxes$ Billions, 2018
Adjusted for inflation using the BLS CPI calculator, to 2018 dollars.Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.
$63.62
$3.71
$32.20$37.22
$20.12
$38.42
$71.62
$64.76$58.31
$44.31$40.33
$61.38
$17.90
$0
$10
$20
$30
$40
$50
$60
$70
$80
7 8 9 10 11 12 13 14 15 16 17 18 19:Q1
Catastrophes drove earnings down in 2017, continuing a four-year slide in inflation-adjusted profits
Key Sources of P/C Insurer Profits$ Billions
Through first quarter. Data are before taxes and exclude extraordinary items.Source: NAIC data, sourced from S&P Global Market Intelligence.
$4.0
$14.6 $14.1 $14.6$20.2
$14.5 $16.8$13.6 $14.9 $16.0 $14.7
-$2.2 -$1.2-$4.2
$0.1
$5.0
$2.8$4.6
$2.9 $0.0$4.7 $5.3
-$10
$0
$10
$20
$30
09 10 11 12 13 14 15 16 17 18 19
Net investment gains Underwriting gains / losses
Strong capital gains; underwriting result lifted profits
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Commercial & Personal Lines NPW Growth1996-2018
Note: Data include state funds beginning in 1998.Sources: A.M. Best; Insurance Information Institute.
Commercial lines prone to much more cyclical volatility than personal lines
-10%
-5%
0%
5%
10%
15%
20%
25%
96 98 0 2 4 6 8 10 12 14 16 18
Commercial Lines Personal Lines
73.6%
73.5%
72.8%
73.5%
71.8%
68.7%
67.5%
68.1%
67.6%
64.7%
66.8%
12.30%
14.12%
14.20%
14.83%
16.09%
19.33%
20.02%
19.29%
19.86%
21.77%
20.52%
14.10%
12.40%
13.00%
11.70%
12.10%
12.00%
12.50%
12.60%
12.50%
13.50%
12.65%
0% 20% 40% 60% 80% 100%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Bonds Stock
The Changing Mix of Invested Assets, P/C Industry2008-2017
Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.
• From 2008 to 2017, P/C portfolios shifted out of bonds (74% of invested assets in 2008 to 65% in 2017) into common stock (up from 12% to 22%)
• The US economy now hovers near full employment, but a slowdown is widely expected, so an increasein bond holdings—a defensive position—is understandable
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Catastrophes are Impacting Reinsurance RatesEstimated year-over-year property catastrophe rate movement,using 100 in 1990 as a baseline
Source: Willis Re 1st View A Discerning Market, July 1, 2019
• Recent smaller catastrophe losses from perils not fully modeled and continuing loss-creep from larger events are impacting the market
• Mid-year reinsurance renewal rates increased 25 percent (not shown on chart)
1991 93 95 97 99 2001 03 05 07 09 2011 13 15 17 2019
600
500
400
300
200
100
0
United States
Consolidation / M&A
Source: Conning Research & Consulting Inc. analysis.Note: Includes transactions where a U.S. firm was the acquirer and/or the target. Include property/ casualty, life/annuity, health and managed care and distribution and services companies.
765+7.3%
713
DEALS
$101.7billion-4.4%
$106.4billion
VALUE
2018
2017
Insurance-Related Deals Involving US Firms
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Cyber Insurance
Cyber Attacks – Ties for No. 1 Global Risk
Source: Allianz Risk Barometer on Business Risks 2019; Source: Deloitte LLP
9%
13%
13%
19%
19%
23%
27%
28%
37%
37%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Shortage of skilled workforce
Loss of reputation or brand value
Climate change / increasing volatility of weather
New technologies
Fire, explosion
Market developments
Changes in legislation and regulation
Natural catastrophes
Cyber incidents
Business interruption, supply chain risk
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0%
10%
20%
30%
40%
50%
60%
70%
80%
2011 2012 2013 2014 2015 2016 2017 2018
Percentage Answering ‘Yes’
Cyber Take-Up Rate Climbing, Approaching PeakQ: Does your company currently purchase cybersecurity insurance?
Source: Zurich and Advisen, Information Security and Cyber Risk Management Survey, 2018, Data as of August 2018.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Large Co (>$1B) Mid-Market (<$1B)
Year First Purchased Large companiesentered market
earlier
US Cyber Direct Premiums Written $ Millions
Source: AM Best data and research, Cyber Insurers are Profitable Today but Wary of Tomorrow’s Risks, June 17, 2019; Data excludes cyber written overseas.
$515 $433
$813 $922
$481$921
$990$1,108
$0
$500
$1,000
$1,500
$2,000
$2,500
2015 2016 2017 2018
Packaged Stand-alone
$996
$1,353
$1,803
$2,030
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Cause of Loss Cyber Claims Received by AIG EMEA (2017) – by Reported Incident
Source: AIG Cyber Claims Study 2018
8%
2%
3%
4%
4%
6%
7%
8%
9%
11%
12%
26%
0% 5% 10% 15% 20% 25% 30%
Other
Denial of service attacks
Other cyber extortions
System failure / outage
Legal / regulatory proceedings based on violation of data privacy
Physical loss or theft of information assets
Data breach due to employee negligence (e.g. sending wrong data)
Other virus / malware infections
Impersonation fraud
Other security falure / unauthorized access
Data breach by hackers
Ransomware
Major Difficulties In Writing Cyber Coverage
Complexityof Risk
• Threats are becoming more sophisticated
• Executives, boards, cyber experts, insurers and others struggle to keep up
• Cyber attacks could be massive — a 'cyber hurricane' could cause thousands of claims
• Some insurers worry that cyber is too big for private sector to handle alone
Lack ofHistorical Data
RiskAccumulation
• New coverages lack historical data, making pricing difficult
• Several insurers are developing common data requirements
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Financial Impact
• There is no market consensus on quantifying measures for financial losses resulting from cyber risk
• The limits sought by insureds —ranging from $2.5 million to $50 million — is a helpful proxy
The most common limitis $30 million
Excess Liability Limits
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Umbrella / Excess Rate Change(vs. Year Earlier)
Sources: MarketScout, Insurance Information Institute..
-3 -3 -3
-2
0 0
-3
-2 -2
0
2
3
4 4
5
4 4
3 3
1
2
1
0 0 0
-4
-2
-1 -1 -1
1 1 1 1
2 2 2 2 2
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Is Excess Liability for Utilities Facing Capacity Concerns Dueto Wildfires and Explosions?
• Location
• Market
• Governance
• Capacity
Overall Market Capacity Experiencing Stress. Key Factors Include
Source: Aon Risk Solutions
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Commercial Auto
Commercial Auto Rate Change (vs. Year Earlier)
Sources: MarketScout, Insurance Information Institute.
Overall commercial auto rates fell less in soft cycle and have risen more than overall property / casualty market
-4-3
-2-1 -1
0
4
6 6
43
12
0
23
67 7
-6%
-4%
-2%
0%
2%
4%
6%
8%
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WED_GS_2019_Kevelighan_Economic_Insurance_Market_Conditions_v07 17
Rates Overall
Commercial Lines Rate Change(vs. Year Earlier)
Sources: MarketScout, Insurance Information Institute.
Rates are as stable as they’ve been in 15 years but beginningto show signs of a modest increase
-20%
-15%
-10%
-5%
0%
5%
10%
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Sep-15 16-Sep 17-Sep 18-Sep
Dec-182.0%
Not much of a hard market, by historic
standardsFeb-050%
Dec-07-16%
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Diversification of Insurance Products is Now More Important
• Overall market qualified as robust but not hard and adequate capacity
• Across-lines premium increasing about2% - 3.5% year-over-year; but some linesare higher and some lower
• Across-lines claims have come down overthe last three years (but wildfire claims and other natural catastrophes are driving claims faster)
• Extreme weather: multi-year programs easing severity of impact compared to personal lines
Source: J.P.Morgan; Insurance Information Institute
Workers’ Compensation and Marijuana Legalization
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Current Marijuana Laws by State
*CBC/Low THC medical program.Source: National Journal, Ballotpedia, 2019
Fully legal
Medical use legal and recreational possession decriminalized
Medical use legal
Recreational possession decriminalized
Fully illegal
What Do We Know About Workplace Safety in the Ageof Legal Marijuana?
• Product potency – THC levels
• Method of consumption and type of product
• User characteristics
Many factors influence impairment onset, intensity,and duration
Source: Insurance Information Institute, Haze of confusion: How employers and insurers are affected by a patchwork of state marijuana laws, June 2019
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WED_GS_2019_Kevelighan_Economic_Insurance_Market_Conditions_v07 20
THC Levels Not an Accurate Indication of Impairment
Source: Sewell, Poling, Sofuoglu, “The Effect of Cannabis Compared with Alcohol on Driving,” American Journal on Addictions, 2009.
Blood alcohol concentration and ‘feeling drunk’ rise and fall in lockstep
THC levels in blood and ‘feeling high’ rise and fall at different rates
Off-duty Medical Marijuana Use and Employment Protections
*CBD/Low THC medical program. †Oklahoma has not yet released its final medical marijuana rules. ‡Provides limited protections to state employees.Source: Insurance Information Institute, 2019.
Only 13 states have antidiscrimination / reasonable
accommodation for off-dutymarijuana use
Antidiscrimination / reasonableaccommodation for off-duty use
Laws do not protectoff-duty use
Laws do not addressoff-duty use
No medicalmarijuana program
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Does Workers’ Compensation Cover a Workplace Accident in Which the Injured Employee Tested Positive for Marijuana?
• Most states restrict benefits if employee was intoxicatedor if intoxication was proximate cause of injury
• Some states limit compensation if employee refusesdrug test
• Presumption of positive drug test indicating impairment
• Rebuttable presumptionRecreational marijuanaand the workplaceNo state protects on-duty recreational marijuana use. State laws will often explicitly state that recreational marijuana laws do not affect an employer’s drug-free workplace policy.
New Mexico is the Only State That Provides a Fee Schedule for Medical Marijuana1
1“Healthcare Provider Fee Schedule and Billing Instructions,” State of New Mexico Workers’ Compensation Administration.
Maximum reimbursable amount In context
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Reimbursement Complications
• Cash-only business
• Proper dosages poorly understood, non-standardized
• No standardized “serving” of marijuana; potency levels non-standardized
• Expenses can vary widely
The Future of Success: Resilience
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What do these images have in common?
It wasn’t the first time…
“Those who cannotremember the past are condemned to repeat it.”
George Santayana, The Life of Reason, 1905
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Extreme Events: A Troubling Trend
(1) Dollars when occurred.(2) Insurance Information Institute estimate based on data from catastrophe risk modelers, the Property Claims Services unit of Verisk Analytics, et al.Source: Insurance Information Institute, catastrophe risk modelers, The Property Claim Services® (PCS®) unit of ISO®, a Verisk Analytics® company, et al.
Rank Date Event Cause Insured Loss (1) ($ millions)
1 Aug. 2005 Hurricane Katrina Hurricane $41,100
2 Sep. 2017 Hurricane Maria (2) Hurricane 25,000-30,000
3 Sep. 2017 Hurricane Irma (2) Hurricane 20,000-25,000
4 Sep. 2001 September 11 Events Terrorism 18,779
5 Oct. 2012 Hurricane Sandy Hurricane 18,750
6 Aug. 2017 Hurricane Harvey (2) Hurricane 16,000-19,000
7 Aug. 1992 Hurricane Andrew Hurricane 15,500
8 Jan. 1994 Northridge, CA earthquake Earthquake 12,500
9 Sep. 2008 Hurricane Ike Hurricane 12,500
10 Oct. 2005 Hurricane Wilma Hurricane 10,300
Three of ten worst US catastrophes occurred in 2017
Uninformed Consumers Uninsured Closing the Coverage Gap is Key Step to Resilient Society
Source: Swiss Re; Wikimedia Commons; DOD
• 2005-2015: $1.3 trillion in uninsured losses
• 70 percent of catastrophe losses are uninsured
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Insurers Studying Solutions to Extreme WeatherI.I.I., actuaries, and IBHS offering resilience know-how to consumers on how to insureand protect themselves
Source: Insurance Information Institute, American Academy of Actuaries Climate Index, Insurance Institute for Business & Home Safety.
Proposed I.I.I. white paper The American Academy of Actuaries Climate Index
Insurance Institute for Business & Home Safety
(IBHS) resources
I.I.I. Resilience Project
• How prepared is each state for the natural and man-made disasters they are likely to see?
• I.I.I. and Aon to share their findings with the industry policy-makers and the general public
Forecasting powered by
7/17/2019
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Phase 1: Data Visualization Tool
Data transformed to show the power of resilience
Forecasting powered by
Thank youwww.iii.org
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