state of personal and commercial lines automobile insurance
TRANSCRIPT
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State of Personal and Commercial Lines Automobile Insurance
Roosevelt C. Mosley, FCAS, MAAA, CSPA
Gregory W. Fears Jr., FCAS, MAAA, ARM
Dalesa M. Bady, ACAS, MAAA
September 13, 2021
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Agenda
• Personal Auto
– Current Trends
– Current Challenges and Beyond
• Commercial Auto
– Introduction: Commercial Auto Makeup
– Industry & RRG Data
– Current Issues
– Future Considerations
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Personal Auto – State of the Line
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Current Trends
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Bodily Injury
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Source: ISS/ISO/NISS Private Passenger Auto Fast Track Data
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Collision
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Source: ISS/ISO/NISS Private Passenger Auto Fast Track Data
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Declining Loss Ratios, Premium Growth Slowing
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Source: ISS/ISO/NISS Private Passenger Auto Fast Track Data
Total Liability Total Physical Damage
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Industry Profitability
• Largely profitable in recent years
• Contributing factors:
– Focus on rate adequacy
– Increased use of technology and data analytics
– Enhancements in auto-repair management
• Impact of COVID-19 on auto travel generated single-lowest combined ratio in 11 years
Source: A.M. Best Global Insurance Database, Total U.S., All Private Passenger Auto, P&C IndustryIncludes policyholder dividends
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Industry Profitability
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Source: A.M. Best Global Insurance Database, Total U.S., All Private Passenger Auto, P&C IndustryIncludes policyholder dividends
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Driving Trends - CARFAX
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Driving Trends - Empty Roads Led to a Spike in Speeding
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Phone Distraction Rose and Remains Above Normal
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Consumer Behavior – Shopping Volatile, Still On The Rise
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Source: LexisNexis Insurance Demand Meter
MONTHLY YEAR-OVER-YEAR CHANGE IN SHOPPING AND NEW POLICIES
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The Economy and Uninsured Shopping
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Source: LexisNexis Insurance Demand Meter
2020 SHOPPING VOLUME GROWTH BY INSURED AND UNINSURED SHOPPERS
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Current Challenges and Beyond
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Data Explosion
Policy Master
File
Claim
Rating & Undewriting
Customer Service
Internal Information
Premium
Demographics
Credit ScoreCensus
Telematics
Weather
Competitor
Geographical Location
Social Media
Internet of Things
Vehicle History
Monitored Home
Adaptive driver-assistance systems
TomTomAccident Likelihood
Drones
Aerial Imagery
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More Sophisticated Data Analysis
Deep Learning
Deep Boltzmann Machine Deep Belief Networks Convolutional Neural NetworkStacked Auto-Encoders
PerceptronBack-PropagationHopfield Network
Radial Basis Function Network
Dimensionality Reduction
Multidimensional Scaling Projection PursuitLinear, Mixture, Quadratic, Flexible Discriminant Analysis
Principal Component AnalysisPC Regression
Partial Least Squares Sammon Mapping
Instance based
k-Nearest NeighborLearning Vector Quantization
Self-Organizing Map Locally Weighted Learning
Regularization
Ridge RegressionLeast Absolute Shrinkage and Selection Operator (LASSO)Elastic NetLeast-Angle Regression
k-Means, k-MediansExpectation Maximization Hierarchical Clustering
Clustering
Artificial Neural Network
Ordinary Least SquaresLinear, Logistic, StepwiseMultivariate AdaptiveLocally Estimated Scatterplot Smoothed
Regression
Naïve, Gaussian Naïve, Multinomial Naïve
Bayesian Belief Network
Bayesian Network
Bayesian
A priori algorithmEclat algorithm
Association Rule Learning
Iterative Dichotomizer 3 (ID3)Chi-squared Automatic
Interaction Detection (CHAID)Decision Stump
Conditional Decision Trees
Decision Trees
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Usage Based Insurance (UBI) Demand
• The total UBI market share is difficult to determine
• Prior to 2020, the UBI take-up rate had been significantly slower than projected
• In 2020, the COVID-19 pandemic significantly increased consumer interest in UBI programs
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“The global usage-based insurance market is projected to
reach $77.25 billion by 2026, from $25.46 billion in 2020, according to a new study by
Valuates Reports. The market is expected to grow at a compound
annual growth rate of 20.32% between 2020 and 2026.”
- Valuates Reports
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More Intense Competition
• Increase in advertising
• Innovation in advertising
• Increase in supply
• Insuretech startups
• Increased sophistication
– Analytics
– Artificial intelligence
– Process improvement
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“Hybrid” Workplace, Addressing Employment Inequality
• Increased levels of remote work due to COVID-19 pandemic restrictions
• 2020 McKinsey Global Institute analysis:
“[About] three-quarters of the time spent on activities in the finance and insurance industries can be done remotely without a loss of productivity”
• Insurers face hard decisions about vision for post-pandemic organization - talent acquisition and retention, onboarding experiences, development opportunities, etc.
• Diversity, equity, and inclusion efforts part of short and long-term strategies
• Attracting top talent and greater volume of Millennials/Gen Z to backfill aging workforce
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Heavier Scrutiny on Use of Credit-Based Insurance Scoring
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• COVID-19 generated more discussion around credit-based insurance scoring
• Washington Insurance Commissioner issued three-year ban on credit score usage
• Consumer groups continue to express concern with bias in rating
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The Concerns with Bias in Rating Have Been Rising for Years
HUD Disparate Impact Rules
State Actions
• NY Education & Occupation
• NY Circular Letter 1 (2019)
• California –Group rating
NAIC
• Price optimization response
• Big data working group
• Model regulation
Federal Algorithm Accountability Act of 2019
Consumer Groups
• CEJ
• CFA
• ProPublica
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Mounting Pressure
Insurance Companies
Being Called to Action
NAIC
State Regulators
Federal Legislature
Consumer Groups
NCOIL
Private Rights of
Action
Calls for Social Justice
Insurance Companies
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In Summary
• COVID-19 pandemic has disrupted several areas of the personal auto line (claims and driving patterns, consumer behavior, etc.)
• Success in personal auto will require continued advancement in leveraging data by analytics, machine learning and automated processes
• Insurers must engage in the social justice and DE&I discussions to help define the true problem and develop effective solutions
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Commercial Auto – State of the Line
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Introduction: Commercial Auto Makeup
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Commercial Auto Coverages (General)
Bodily Injury (BI)
Property Damage (PD)
Uninsured/Underinsured Motorist
Medical Payments (MedPay)
Personal Injury Protection (PIP)
Comprehensive
Collision
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Data Sources
• Federal Motor Carrier Safety Administration (FMCSA)
– Motor Carrier Management Information System (MCMIS) Crash File
• National Highway Traffic Safety Administration (NHTSA)
– Fatality Analysis Reporting System (FARS)
– General Estimates System (GES)
• Federal Highway Administration (FHWA)
– Highway Statistics
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Industry Data - NAIC
• NAIC – Commercial Auto Liability (CAL) is all commercial vehicle types
• Just a few NAIC annual statement lines of business:
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Commercial Auto Liability
(CAL)Auto Physical
Damage
Workers’ Compensation
Private Passenger Auto
Liability
Homeowners
Commercial Multi Peril
Medical Professional
Liability
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Industry Data - ISO
• ISO – Commercial Auto split by vehicle type
– Bus
• School, church and ”urban” buses
• Buses used to transport athletes and entertainers
• Airport, charter, inter-city and sightseeing buses
• Etc.
– Garage
• Franchised and non-franchised dealers of motor vehicles
– Misc Vehicles
• Ambulances
• Vehicles with welding apparatuses
• Any risk not included in the ISO circulars
– Private Passenger Types
• Sedans used by a business
• Certain other vehicles used by farmers
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Industry Data - ISO
• ISO – Commercial Auto split by vehicle type
– Public
• Taxis
• Limousines
• Van pools
• Social service automobiles
– Trucks, Tractors & Trailers
• Light, medium and heavy trucks
• Heavy and extra-heavy truck tractors
• Trailers
– Zone Rated
• Zone rated trucks, tractors and trailers
• Includes light, medium, and heavy trucks
• Heavy and extra-heavy truck tractors
• Trailers
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Commercial Vehicle Distribution
• 276M registered vehicles in the US in 2019
• Approximately 13M single-unit and combination trucks
Source: BTSSource: BTS
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Commercial Auto Liability Market Share (DPW%) - Groups
Source: A.M. Best's Market Share Report
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Commercial Auto Liability Market Share (DPW) %
Progressive Insurance Group (G) Travelers Group (G) Old Republic Insurance Group (G)
Liberty Mutual Insurance Companies (G) Nationwide Group (G)
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Current Commercial Auto Loss Cost (or Pure Premium) Industry Trend
AMB# NAIC# Company Name
CAL LC (or
PP) Trend
001900 11770 United Financial Casualty Company 7.1%
002563 16535 Zurich American Insurance Company 5.8%
000439 11371 Great West Casualty Company 6.7%
004461 25674 Travelers Property Casualty Co of Amer 5.8%
000733 24147 Old Republic Insurance Company 5.0%
N/A N/A Insurance Services Office 5.5%
Average 6.0%
Source: Individual rate filings for each company from A.M. Best’s State Rate Filings
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50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
19921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020
Loss
Rat
io
Accident Year
Commercial Auto LiabiltiyInsurance Industry Loss Ratios
Source: Total US P&C Industry Schedule P Triangles - CAL
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(1,500,000)
(1,000,000)
(500,000)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Commercial Auto by Accident YearChange in Initial vs. Mature Incurred Loss Development (000s)
Immature Development
Source: Total US P&C Industry Schedule P Part 2 Triangles - CAL
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Commercial Auto Liability Accident Year Frequency / Severity
Source: Total US P&C Industry Schedule P Data - CAL
0
20
40
60
80
100
120
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Commercial Auto Liability FrequencyClaims/OLEP ($M)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Comercial Auto Liability Severity
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RRG vs Industry
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Commercial Auto RRG vs Industry Fact Sheet
Line of
Business 2016 2017 2018 2019 2020
CAL 27 27 28 30 31
2016 2017 2018 2019 2020
"Pure" CAL RRGs 244,543 267,723 263,669 257,860 275,035
Total RRGs 278,520 328,111 307,469 315,134 334,057
Total Industry 25,174,642 27,404,493 30,981,251 34,697,494 34,993,199
"Pure" is defined as > 90% DWP in one LOB
Direct Written CAL Premium
Number of "Pure" RRGs
Source: Based on Annual Statement Data, Exhibit of Premiums and Losses & Underwriting and Investment Exhibits
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Direct Written Premium Trends
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Commercial Auto Liability RRG to Industry Comparison
Industry DWP RRG % of Market by DWP
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
2010 -2011
2011 -2012
2012 -2013
2013 -2014
2014 -2015
2015 -2016
2016 -2017
2017 -2018
2018 -2019
2019 -2020
Commercial Auto Liability Premium Growth
RRG Industry
Source: Based on Annual Statement Data, Exhibit of Premiums and Losses & Underwriting and Investment Exhibits
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Source: Based on Annual Statement Data, Liabilities, Surplus and Other Funds & Statement of Income
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CAL Loss Ratios – Accident Year
60.00%
65.00%
70.00%
75.00%
80.00%
85.00%
90.00%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
CAL Loss & LAE Net Loss Ratio
Total RRG Industry
Source: Based on Annual Statement Data, Schedule P Part 1
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CAL Combined Ratios
60%
70%
80%
90%
100%
110%
120%
130%
140%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Combined Ratio (RRG) - Calendar Year
'Pure' CAL RRGs CAL - RRG CAL - Industry
Source: Based on Annual Statement Data, Insurance Expense Exhibits
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CAL RRG 1 Year Development
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2014 2015 2016 2017 2018 2019 2020
CAL RRGs - 1 Yr Adverse Development
1 yr Development Prior YE Surplus IRIS #11
(000s)
*Includes Spirit Commercial Auto RRG
Calendar Year
Source: Based on Annual Statement Data, Schedule P & Liabilities, Surplus and Other Funds
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CAL Net Loss and LAE to Net Written Premium – Calendar Year
53.7% 56.7%61.7% 61.7% 61.1% 64.6%
70.3% 67.8% 65.8% 69.6%64.0%
5.5%5.7%
6.3% 6.5% 6.4%7.3%
7.0%7.6%
6.8%7.3%
6.7%6.5%
6.4%
6.3% 6.4% 6.2%6.8%
6.8% 6.1%6.1%
5.9%
5.8%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total U.S. P/C Industry Net Loss and LAE to Net Written Premium
Total Net Losses Total DCC Total A&O
40.5%49.3%
58.7% 58.3%70.6% 67.4% 67.1%
78.0% 75.2%88.4%
65.5%
8.2%
9.9%
14.9%7.7%
10.5%7.8% 9.6%
12.0%10.8%
10.5%
9.4%
2.5%
4.2%
5.2%
4.5%
5.8%6.4% 5.2%
0.3%3.8%
4.5%
4.9%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total RRG Net Loss and LAE to Net Written Premium
Total Net Losses Total DCC Total A&O
Source: Based on Annual Statement Data, Insurance Expense Exhibits & Underwriting and Investment Exhibit Part 1b
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Current Issues
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Increase in Comprehensive Claims Driven by Catalytic Converter Thefts
Source: moneymetals.com Source: NICB
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Rising Used Car Prices
• Supply chain issues through the pandemic
• Rental car shortages
• Computer chip shortage dragging new car supply
• Example: Tesla cited “limited availability of battery cells and global supply chain challenges” as reason for semi truck production delay in July 2021
Source: FRED
Source: Manheim
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Shift in Driver Behavior
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The Uneven Impact of COVID-19 on Commercial Miles Driven
Source: Verizon Connect – COVID 19 fleet data trends
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Social Inflation
• Inexperienced drivers
• Litigation funding
• Wealth gap – Jury decisions
• Increased attorney involvement
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Social Inflation
• Inexperienced drivers
• Litigation funding
• Wealth gap – Jury decisions
• Increased attorney involvement
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Social Inflation
• Reptile theory - REPTILE: The 2009 Manual of the Plaintiff’s Revolution
– Ask jurors to put themselves in the shoes of the plaintiff
• Texas HB 19 – Passed. Effective 9/1/2021
– Two-phase trial
• Louisiana SB 115 – Passed.
Effective 1/1/2021
– Disclose attorney fees/expenses
Source: Trends in Attorney Representation: Texas Commercial Automobile Insurance - Milliman
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Future Considerations
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Electric Vehicle News - 2021
Daimler speeds up plans to be electric-only
automaker
JULY 09, 2021 07:13 AM
UK's Arrival, Uber to develop electric ride-hailing
car
May 04, 2021 02:11 AM
Rivian plant gearing up for June launch in Normal
APRIL 16, 2021
GM's BrightDrop locks in second customer with
order for 12,600 electric vans
FEBRUARY 02, 2021 04:23 PM
FedEx Ground Operators Order 120 Xos Electric
Trucks
AUGUST 11, 2021 08:38 AM
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Autonomous Vehicle News - 2021
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Shift to Specific Last Mile Delivery Companies (Amazon Effect)
Amazon introduces free 2-day delivery (2005)
Amazon starts offering free 2-hour shipping on select items/locations (2014)
Amazon starts rollout of free 1-day delivery (2019)
The pandemic accelerates consumer demands for expeditious last mile delivery
New players accelerate entry into the space, challenging legacy carriers and spurring innovation.
Last mile = delivery from warehouse/distribution center to final destination.
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Uber’s Expansion
Food Flowers Groceries
Packages (Uber Connect)
Passenger Transportation
Alcohol
Pharmaceutical Goods
Pet Supplies Prescriptions
PASSENGER TRANSPORTATION
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Future Considerations
Source: Deloitte - Quantifying an uncertain future Insurance in the new mobility ecosystem
“94 percent of serious crashes are due to dangerous choices or errors people make behind the wheel.” - NHTSA
• Decrease in fraudulent claims
• Premium shift between personal auto and commercial auto
• Telematics / PAYD
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Conclusion
• Introduction: Commercial Auto Makeup
• Industry & RRG Data
• Current Issues
• Future Considerations
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Questions
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Roosevelt C. Mosley, Jr., FCAS, MAAA, CSPA
309.807.2330
Dalesa M. Bady, ACAS, MAAA972.464.2809
Thank You
Gregory W. Fears Jr., FCAS, MAAA, ARM
309.807.2316