the changing auto safety landscape...8/24/2016 1 the changing auto safety landscape naic cipr august...

8/24/2016

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The Changing Auto Safety Landscape

NAIC CIPR

August 28, 2016

San Diego, CA

1

www.pciaa.net

48Member groups that write morethan $1 billion annually

50States in which a PCI member is domiciled

35Percentage of U.S. premiums written by PCI members

50States in which PCI has retained lobbyist

1,000member companies

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The End of Auto Insurance?

3

Auto Deaths/Injuries Increasing –The Public Safety Challenge

• National Highway Traffic Safety Administration (NHTSA)

+7.7% auto deaths in 2015 - vs. 22% decrease from 2000-2014

+ 35,200 fatalities

+ 3.7% increased death rate per

100 million miles traveled

• National Safety Council (NSC)

+9% increase auto deaths in 2016 (6 mo)+ 2015 = Largest annual increase in last 50 years

+ 18% higher auto deaths vs. 2014 midterm- 2 year increase in fatalities/vehicle miles 4

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5

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Auto Deaths Increasing More RapidlyAnnual Percent Change

Source: PCI using NHTSA data

7.7%

6

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014 2015

Auto Injuries Rising% Change Indexed from 2009

Auto injuries up 26% since 2009

Source: PCI using National Safety Council data, Medically consulted auto injuries, indexed by PCI

%

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A Mismatch of Perception & Reality

• Perception

– “Technology is making cars safer, so why isn’t my premium going down? ”

• Reality

– More accidents = More claims

– Claim costs are rising

7

Industry vs Auto Trends

• Mixed p/c operating results/trends

• Auto insurance losses are the outlier

– Significant increases in auto accident frequency, severity and deaths

• Regulator concerns:

– Public expectations mismatched with trends (if cars are getting safer why are costs increasing?)

– Biggest impact on affordability is increasing costs

– Regulators can be leaders helping the public

8

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Insurance Small Part of Vehicle Ownership Costs

9

Sources: PCI using data from WARD’S Facts & Figures; NAIC – Liability Insurance; Audatex - Repair Cost; Experian Automotive - Used Car Payment

10

0

2

4

6

8

10

12

14

16

18

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Annual Rate of ReturnP-C Low Return Standout

P-C Comm Banks Electric & Gas Utilities Fortune 500 All-Industry

10-Yr Avg. Return: P-C 6.7% vs. 13.8% Fortune 500

Source: PCI via Insurance Information Institute, GAAP ROE except 2015 P-C is statutory and annualized from Q3; P-C excl. WC state funds and residual market; Fortune 500 median ROE combined industrial and service businesses

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Underwriting Gains Pretax Op. Income Combined Ratio(Inverted)

Premium Growth Surplus

-16%

-47%

-13%

+1%

11

P/C: Deteriorating TrendsQ1 2015 to Q1 2016

2015Level

-2% +1%+6%

NWP

DWP

Source: Financial Operating Results, PCI and ISO

12

$45

$47

$49

$51

$53

$55

$57

$59

$61

$63

$65

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Net Investment IncomeInflation-Adjusted ($Billion)

Source: Financial Operating Results, PCI and ISO; 2015 CPI inflation adjustment by PCI

Investment Results

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13

39.9%

14.8%

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

Commercial Lines - Index Inflation-Adjusted Premium and Loss

Trends

DPW Inc Loss

Source: PCI using SNL Financial; 2015 inflation adjustment by PCI using CPI; indexed by PCI; commercial lines exclude private passenger auto and homeowners

Commercial LinesQ4 2014 – Q4 2015

14

Major Commercial LinesDPW

% ChangeIncurred Loss

% Change

Financial & Mortgage Grnty 4.2 -94.7

Fire & Allied Combined -3.2 -25.1

Total CMP -0.5 -4.9

Workers Compensation 0.9 -4.8

Fidelity & Surety 0.4 -0.6

Commercial Auto 6.0 16.9

Acc & Health 25.7 22.7

Medical Professional Liab -3.1 24.5

Marine Lines Combined 6.8 26.2

Other Liability 2.8 46.2

Total Commercial 2.1 9.7Source: PCI using SNL Financial

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15

17.6%

25.0%

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1

Commercial Auto Liability - IndexLoss Growth Exceeds Premiums

Com Auto Liab DPW Com Auto Liab Inc Loss

Source: PCI using SNL FinancialNotes: Represents 4 quarter rolling change from year-end 2013.

16

11.7%

17.6%

0.981.001.021.041.061.081.101.121.141.161.181.20

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1

Personal Lines - Index Consistent Loss Growth over

Premiums

Personal DPW Personal Inc Loss

Source: PCI using SNL FinancialNotes: Represents 4 quarter rolling change from year-end 2013; Quarterly personal lines include commercial auto physical damage.

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Personal Lines DeteriorationPercentage Change 2015 Q1 – 2016 Q1

[VALUE]%

[VALUE]%

[VALUE]%

0

2

4

6

8

10

12

PP Auto LiabilityDPW Direct Losses DPW Direct Losses

17

HO

10.8%

Source: PCI using SNL Financial

%

18

12.2%

17.2%

0.95

1.00

1.05

1.10

1.15

1.20

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1

Personal Auto - IndexAuto Losses Driving Personal Lines

PPA DPW PPA Inc Loss

Source: PCI using SNL FinancialNotes: Represents 4 quarter rolling change from year-end 2013; quarterly personal auto data include commercial auto physical damage; YE1Q 2016 reflects rolling four quarters.

Personal auto makes up 70% of the personal lines market and 76% of YE1Q 2016 personal lines losses.

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19

26.7%

30.5%

0.9

1.0

1.1

1.2

1.3

1.4

Personal Auto - Index Inflation-Adjusted Premium and Loss

Trends

DPW Inc Loss Linear (DPW) Linear (Inc Loss)

Source: PCI using SNL Financial; 2015 inflation adjustment by PCI using CPI; indexed by PCI

Auto Trends: Flat LT Frequency

20

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

BI Collision Frequency 4 Qtr. Rolling 2004-2014(Claims per 100 vehicles)

BI Frequency Collision Frequency

Source: PCI using PPA Fast Track Monitoring System, ISS, NISS and ISO

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Countrywide VEHICLE DAMAGE Claim Frequency and Severity Causing Significant Loss Cost Deterioration

0

2

4

6

8

10

12

14

16

2013 2014 2015 2016YE1Q

Claim Frequency Claim Severity Loss Cost

10.0% increase

Since 2013:

14.9% increase

4.4% increase

% Change since 2013

Vehicle Damage = PD Liability + Collision coverages

Data points reflect year-end, and combined rolling four quarters for 2016(1Q).

21


Countrywide INJURY Claim Frequency Has Been Rising Since End of 2014, Contributing to Higher Growth in Loss Cost

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2014 (4Q) 2015 (1Q) 2015 (2Q) 2015 (3Q) 2015(4Q) 2016(1Q)

Claim Frequency Claim Severity Loss Cost

% Change since 2014

Injury data reflect Bodily Injury Liability (non-no-fault states) + Personal Injury Protection (no-fault states). All data points reflect combined rolling four quarters.

9.7% increase

4.5% increase

5.0% increase

Since 2014:

22Source: PCI using PPA Fast Track Monitoring System, ISS, NISS and ISO

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States with Highest and LowestVehicle Damage Frequency Changes

23

Highest Frequency Change

Lowest Frequency Change

The above two groups of 10 states each have the highest and lowest PD Liability + Collision frequency changes from combined rolling 4 quarters 2014(1) to combined rolling 4 quarters 2016(1). Source: PCI via Society of Actuaries using PPA Fast Track Monitoring System data

Highest Change states are mostly along the Atlantic;Lowest Change states aremostly in the Upper Midwest and Mountain regions

6.8%

7.7%

6.6%7.3%

5.5%

D.C. 14.0%, DC

5.9%, MD

-11.3%

-9.7%

-6.5%

-4.7%

-10.7%

-9.3%

9.4%6.7%

9.7%

7.9%

6.2%

6.1%

5.7%

-7.0%, VT

-4.8%, NH

Severity Trends are Similar Between Highest & Lowest Groups:The Rising Frequency in States with Highest Freq. Changes

is Helping to Drive their Large Growth in Loss Cost

-2

0

2

4

6

8

10

12

14

16

2013 2014 2015(1) 2015(2) 2015(3)

Claim Freq. Claim Severity

Loss Cost

7.2% Change

7.0% Change

-2

0

2

4

6

8

10

12

14

16

2013 2014 2015(1) 2015(2) 2015(3)

Claim Freq. Claim Severity Loss Cost

8.0% Change

% Change since 2013

Highest Freq. Changes Lowest Freq. Changes

% Change since 201314.7% Change

-1.9% Change

6.0% Change

Data points reflect year-end, rolling 4 quarters, vehicle damage coverages.24


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Frequency/Severity Trend Factors • Strong correlations

– Traffic congestion (+distracted driving?)

– Miles driven/employment

• Additional trend factors

– Demographics – more older/younger drivers

– Weather (unusual events)

– Road conditions

– Drugs (Marijuana, Opioids)

• Top long-term factors: Alcohol, speeding and distracted driving

• Severity factors

– Vehicle technology and materials

– Increasing medical costs

– Speed Limits 25

Traffic Congestion: Urban Travel Growing Faster in High Frequency Growth States

26

846.5

590.2

853.1

581.4

868.1

585.3

400

450

500

550

600

650

700

750

800

850

900

Highest Group (5 states) Lowest Group (7 states)

2012 2013 2014

(000)

0.8% Increase

1.8% Increase

1.5% Decrease

0.7% Increase

Growth in Urban Miles Traveled per Urban Lane Miles

Source: PCI using Federal Highway Association (FHWA) data

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Distracted Walking Visits to ER

27

Recent Correlation among Lower Gasoline Prices, More Miles Driven and Accident Claim Frequency

[VALUE].0%

[VALUE]%

-0.1%

-13.8%

9.7%

29.5%

-4.1%[VALUE]%

[VALUE]%22.1%

13.1%8.6%

16.0%

-27.1%

17.8%

[VALUE]%

2.9%

-2.9%[VALUE]%

[VALUE]%-35

-25

-15

-5

5

15

25

35

Gasoline Price Claim Freq. Miles Driven

15.7%

Low crude oil prices;

oversupply of

% Annual Change

Claim frequency fell in 1997-1998, 2001-2002 and 2009 despite lower gasoline prices.* Last data point: Changes in claim frequency and miles driven reflect first 3 qtrs. of 2014 to first 3 qtrs. of 2015. Change in gasoline prices reflects 2014 to 2015 (entire years).Source: FHWA and PCI

Stronger dollar;

oil prices dropped.

More fuel efficient cars; boom in North

American crude oil.

Falloff in consumer demand after 9/11;

oversupply of gasoline.

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More Miles Traveled in States with Higher Claim Frequency Growth

29

3.7%

6.8%

2.7%

3.6%

0

1

2

3

4

5

6

7

8

Urban Miles Rural Miles

Highest Group Lowest Group

Note: Percent changes represent increases from YE Dec. 2014 to YE Dec. 2015.

Source: PCI using Federal Highway Association (FHWA) data

Wet Weather in the South Drives Frequency In 2015

9.09.19.29.39.49.59.69.79.89.9

10.0

States include FL, GA, IN, MS, SC and TX; all are in the group with the highest claim frequency growth in 2015(2) [compared to 2013(2)] and have above avg. precipitation during this quarter.

PD Liab. & Coll. Claimsper 100 Ins. Cars

30

Source: PCI using NOAA data

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Impact of Marijuana in Colorado

0100200300400500600700800900

1000

McDonalds Starbucks MarijuanaDispensaries

2015

MarijuanaDispensaries

2016

227

405

[VALUE][VALUE]

31

Source: Colorado State Highway Patrol, March 2015; 2016 marijuana dispensaries: Colorado Dept. of Revenue

Key Findings

32

Figure 1. Quarterly average proportion of drivers involved in fatal crashes who were positive for THC and modeled seasonally-adjusted linear trend before and after Washington Initiative 502 took effect on 6 December 2012 legalizing recreational use of marijuana for adults aged 21 years and older, Washington, 2010 – 2014

Data: Washington Traffic Safety Commission, 2010 – 2014. Drivers positive for THC based on results of blood toxicological tests. Results imputed 10 times when driver was not tested or test results were unknown; results reflect averages from 10 imputed values for each driver. Model-based predictions are from binomial regression model with identity link function, indicator variables for seasons, and a two-part linear spline with change in slope on 5 September 2013 (39 weeks after effective date of Initiative 502)Findings and graphs from AAA Traffic Safety Foundation.

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Colorado Traffic Deaths Related to Marijuana*

37 3943 47 49

63

7871

94

69

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Nu

mb

er o

f D

eath

s

Legalization

Commercialization

33

*Number of Fatalities Involving Operators Testing Positive for Marijuana

Source: National Highway Traffic Safety Administration, Fatality Analysis Reporting System (FARS), 2006-2013 and CDOT/RMHIDTA 2014, 2015

Opioid Prescriptions Quadrupled Since 1999 --Significant (3x) Differences in State

Prescription Rate

34

Source: MMWR Vital Signs, July 2014. Source: IMS, National Prescription Audit (NPATM), 2012. Findings and graphs from AAA Foundation for Traffic Safety.

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[VALUE]%

[VALUE]%

0

1

2

3

4

5

States w/SameLimits

States that RaisedSpeed Limits

Vehicle Damage Claim Frequency2013-2015

35

Speed Limit Increase Impact on Accident Frequency: Unclear/Mixed

[VALUE]%

[VALUE]%-1

-0.5

0

0.5

States w/SameLimits


Injury Claim Frequency2013-2015

Note: States that raised their speed limits since 2013 are AK, GA, ID, IL, KY, ME, NH, NC, OH, PA, SD, UT and WY. Those that changed in 2015 are not included since their new limits have been in effect for only a short time. States with same limits did not make any changes during 2011-2015.

[VALUE]%

[VALUE]%

0

2

4

6

8

10

States w/SameLimits


Vehicle Damage Claim Severity2013-2015

36

Note: States that raised their speed limits since 2013 are AK, GA, ID, IL, KY, ME, NH, NC, OH, PA, SD, UT and WY. Those that changed in 2015 are not included since their new limits have been in effect for only a short time. States with same limits did not make any changes during 2011-2015.

Speed Limit Impact on Severity: Slight Increase

[VALUE]%

[VALUE]%

0

2

4

6

8

10

States w/SameLimits


Injury Claim Severity2013-2015

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Speed Limit Impact on Traffic Deaths: Significant

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

[VALUE]

20

40

60

80

100

‘12 ‘13 ‘14 ‘10 ‘12 ‘13 ‘14

No. of Speed-Related Deaths

UT changes, eff. 2013 and

2014

WY change, eff. 2014

‘10 ‘11 ‘11

UTAH WYOMING

37

Uninsured Motorist Bodily Injury/Property DamageLoss Experience Has Grown Since 2012

0123456789

10

2012 2013 2014

UM(BI/PD) Frequency UM(BI/PD) Severity UM(BI/PD) Loss Cost

38

9.0%

6.7%

2.1%

Source: PCI using projected Independent Statistical Service claims data

% Change since 2012

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Auto Medical Increasing + Worse than Medical CPI

0

1

2

3

4

5

6

7

8

2013 2014 2015

Auto Injury Severity and Medical Cost CPI Indices

Med CPI BI Sev PIP Sev

39

7.3%

6.7%

5.1%

Source: PCI using1. Auto: PPA Fast Track Monitoring System, ISS, NISS and ISO2. Medical CPI: Bureau of Labor Statistics

% Change since 2013

Commercial Auto Best/Worst 10 Statesby Loss Ratio

40

D.C.

Best Performing

Worst Performing

Sources: PCI via NAIC and SNL Financial

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Commercial Auto: Average Loss Ratios

41

43.6

70.5

0

20

40

60

80

100

Best 10 L/R States Worst 10 L/R States

62 pct. higher

Sources: PCI via NAIC and SNL Financial

Trucking Congestion vs.Top 10 Best/Worst Loss Ratio States

42Sources: PCI and American Trucking Research Institute

0

5

0

1

2

3

4

5

6

7

8

9

10


Nu

mb

er o

f C

on

ges

ted

Sta

tes

ATRI Cost of Congestion Top Ten Statesvs. Best and Worst Loss Ratio States

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Commercial AutoLitigation Environment Ranking

43

14

33

0

10

20

30

40

50


Worst loss ratio states average rank is more than double the best loss ratio states

Sources: PCI and Institute for Legal Reform

Avg

. S

tate

Ran

k 50

= W

ors

t

Commercial Auto vs. Personal AutoFinancial Responsibility

44

$750,000

$50,000

$0

$250,000

$500,000

$750,000

$1,000,000

Motor Carrier Personal Auto

Co

vera

ge

Lim

it R

equ

ired

15X Higher for motor carriers

Sources: USDOT and PCI

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Medical Cost Inflation

45

Source: Bureau of Labor Statistics

46

PCI Raises Awareness

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Congressional/Legislative Activity

PCI Supporting Passage/Implementation of the FAST Act

• House and Senate letters to the Department of Transportation

• Congressional hearings and PCI Hill briefings

• Appropriations progress

PCI Study of Distracted Driving Laws/Gaps

• Identify and update state laws where distracted driving is not a primary offense or where the laws do not clearly encompass smart (“dumb”) phones

State Auto Safety Legislation

• Working with auto safety advocates and insurers to improve state laws and prevent rollbacks of existing laws.

47

We Need Your Leadership!

• Be vocal policy leaders in your state

– Laws/enforcement against distracted driving

– Robust drunk/drugged driving limits

– Licensing renewals/vision testing

– Help identify and highlight causal factors

48

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• Support risk based pricing / actuarially sound rates

– Sends accurate price signals

– Ensures availability

• Education:

– Help policymakers understand trends

– Encourage better broadcast warnings • Distracted driving/walking (Pokémon Go)

• Bad weather caution/closings

49

We Need Your Leadership!

the changing auto safety landscape...8/24/2016 1 the changing auto safety landscape naic cipr august...

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