top trends in auto and home insurance underwriting insurance information institute march 5, 2010...
TRANSCRIPT
Top Trends in Auto and Home Insurance
Underwriting
Insurance Information InstituteMarch 5, 2010
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
Presentation Outline
Pricing Trends in Auto & Home Insurance
Premium and Growth Trends: Auto and Home
Exposure Trends in Auto and Home Insurance
Economic Trends Impacting Auto and Home Insurance
Key Cost Drivers in Auto Insurance
Claim Trends in Auto Insurance
BI, PD Liability, PIP, Collision and Comprehensive
Underwriting Trends in Auto and Home Insurance
Trends in Fraud and Abuse
New York Case Study: No-Fault Claims Fraud
Catastrophe Loss Trends
Demographic Trends Impact Personal Lines
Underwriting: The Technological Arms Race
Q&A
3
Pricing Trends in Auto and Home Insurance
Modest Improvements in Pricing Can Will Help Profitability Amid
Slack Demand
4
Average Expenditures on Auto Insurance
$651$668
$691$705
$726
$786
$830$842
$831$816
$795$816
$844
$878
$690$685$703
$600
$650
$700
$750
$800
$850
$900
$950
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08* 09* 10*
Countrywide Auto Insurance Expenditures Increased2.6% in 2008 and 3.5% Pace in 2009 (est.) and 4% in 2010 (est.)
* Insurance Information Institute Estimates/ForecastsSource: NAIC, Insurance Information Institute estimates 2008-2010 based on CPI data.
5
Monthly Change in Auto Insurance Prices*
(Percent)
* Percentage change from same month in prior year.Source: US Bureau of Labor Statistics
0.8
%0
.8%
0.5
%0
.4%
0.3
%0
.3%
0.5
%0
.6%
0.5
%0
.1% 0.5
% 0.9
%1
.1%
1.3
% 1.7
%2
.6%
2.6
%2
.7% 3.0
%3
.1% 3.4
% 3.7
% 4.0
%4
.0% 4.3
%4
.4% 4.7
%4
.4% 4.7
%4
.6%
4.7
%4
.5%
4.6
%4
.5%
4.7
%
0.2
%
0%
1%
2%
3%
4%
5%
6%
Jan
07
Fe
b 0
7M
ar
07
Ap
r 0
7M
ay
07
Jun
07
Jul 0
7A
ug
07
Se
p 0
7O
ct 0
7N
ov
07
De
c 0
7Ja
n 0
8F
eb
08
Ma
r 0
8A
pr
08
Ma
y 0
8Ju
n 0
8Ju
l 08
Au
g 0
8S
ep
08
Oct
08
No
v 0
8D
ec
08
Jan
09
Fe
b 0
9M
ar
09
Ap
r 0
9M
ay
09
Jun
09
Jul 0
9A
ug
09
Se
p 0
9O
ct 0
9N
ov
09
De
c 0
9
Auto Insurance Price Increases Seem to Have Leveled Off in Recent Months,
Averaging 4.5% for All of 2009
6
Average Premium forHome Insurance Policies**
* Insurance Information Institute Estimates/Forecasts **Excludes state-run insurers.Source: NAIC, Insurance Information Institute estimates 2008-2010 based on CPI data.
$508$536
$593
$668
$822$843
$868$890
$804
$764
$729
$500
$550
$600
$650
$700
$750
$800
$850
$900
$950
00 01 02 03 04 05 06 07 08* 09* 10*
Countrywide Home Insurance Expenditures Increased by an Estimated 2.5%in 2008, 3% in 2009 and 2010
7
Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2009)
-3.2
%
-5.9
%
-7.0
%
-9.4
%
-9.7
% -8.2
%
-4.6
%
-2.7
%
-3.0
%
-5.3
%
-9.6
%
-11
.3%
-11
.8%
-13
.3%
-12
.0%
-13
.5%
-12
.9% -1
1.0
%
-6.4
% -5.1
%
-4.9
%
-5.8
%
-6.0
%
-0.1
%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
Source: Council of Insurance Agents & Brokers; Insurance Information Institute
KRW Effect
Magnitude of Price Declines Shrank
During Crisis, Reflecting Shrinking
Capital, Reduced Investment Gains,
Deteriorating Underwriting
Performance, Higher Cat Losses and
Costlier Reinsurance
(Percent)
Market Remains Soft as Capital Restored and Underwriting Losses Fall
8
Exposure Trends in Auto and Home Insurance
Recession, Unemployment, Credit Crisis Have Hurt Personal Lines
Exposures, But a Gradual Recovery Is Underway
9
(Millions of Units)
New Private Housing Starts, 1990-2011F
1.4
8
1.4
7 1.6
2
1.6
4
1.5
7
1.6
0 1.7
1 1.8
5 1.9
6 2.0
7
1.8
0
1.3
6
0.9
0
0.5
6 0.7
1
0.9
6
1.3
51.4
6
1.2
9
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/10); Insurance Information Institute.
Little Exposure Growth Likely for Homeowners InsurersDue to Weak Home Construction Forecast for 2010-2011.
Also Affects Commercial Insurers with Construction Risk Exposure, Surety
New home starts plunged 34% from 2005-2007; drop through 2009 is 72% (est.); A net annual decline of 1.49 million units,
lowest since records began
in 1959
I.I.I. estimates that each incremental 100,000 decline in housing starts costs home insurers
$87.5 million in new exposure (gross premium). The net exposure loss in 2009 vs. 2005 is
estimated at about $1.3 billion
Average Square Footage of Completed New Homes in U.S., 1973-2010:Q4
1,66
01,
695
1,64
51,
700
1,72
01,
755
1,76
01,
740
1,72
01,
710
1,72
51,
780
1,78
51,
825 1,90
5 1,99
52,
035
2,08
02,
075
2,09
52,
095
2,10
02,
095
2,12
02,
150
2,19
02,
223
2,26
62,
324
2,32
02,
330
2,34
9 2,43
42,
469
2,52
12,
519
2,56
12,
492
2,32
72,41
7
1,500
1,700
1,900
2,100
2,300
2,500
2,700
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 0809
:Q1
09:Q
209
:Q3
09:Q
4
Source: U.S. Census Bureau: http://www.census.gov/const/www/quarterly_starts_completions.pdf; Insurance Information Institute.
Square FtThe trend to building larger homes
reversed in 2008-09, impacting exposure growth beyond the
absolute decline in units
Average size of completed new homes often falls in recessions
(yellow bars), but historically bounces back in expansions
10
11
16.9
16.5
16.1
13.1
10.3
12.0
13.4
16.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10F 11F
(Millions of Units)
Auto/Light Truck Sales, 1999-2011F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (2/10); Insurance Information Institute.
Car & Truck Sales Will Begin to Recover but Weak Economy, Credit Woes Are Still Restraining Sales; Gas Prices Could Remain a Factor Too
New auto/light truck sales fell by 6 million units in
2009 vs. 2007, to the lowest level since the late 1960s. Forecast for 2010
is up 1.7 million units
Sharply lower auto sales will have a smaller effect on auto insurance
exposure level than problems in the housing market will on home insurers
“Cash for Clunkers” generated about $300M in net new personal auto premiums
12
New Boat Sales Symptomatic of Decline in Insured Exposure Growth for Luxury/Discretionary Items
59
3,0
00
57
1,4
00
58
2,5
00
57
6,8
00
88
0,3
00
84
4,1
00
83
7,9
00
87
0,6
50
86
4,4
50
91
2,1
30
84
1,8
20
70
4,8
20
$500,000
$550,000
$600,000
$650,000
$700,000
$750,000
$800,000
$850,000
$900,000
$950,000
$1,000,000
97 98 99 00 01 02 03 04 05 06 07 08
Ne
w B
oa
t S
ale
s
$8.0
$8.5
$9.0
$9.5
$10.0
$10.5
$11.0
$11.5
$12.0
$12.5
Va
lue
of B
oa
ts S
old
($ B
ill)
New Boats Sold Value of Boats Sold
Sources: National Marine Manufacturers Association, 2008 Abstract (latest available as of Feb. 2010); Insurance Information Institute.
Boat sales fell by 16% in 2008 and the value of those
sales plunged by 21%
13
Economic Trends Impacting Auto/Home Insurance Markets
Recession, Recovery Can Influence Claiming Behavior
14
Unemployment and UnderemploymentRates: Rocketing Up in 2008-09
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Traditional Unemployment Rate U-3
Unemployment + Underemployment Rate U-6
10.1% Oct 2009 unemployment rate (U-3) was
the highest monthly rate since 1983.
Peak rate in the last 30 years: 10.8% in Nov -
Dec 1982
Stood at 9.7% as of Jan. 2010
Source: US Bureau of Labor Statistics; Insurance Information Institute.
U-6 went from 9.2% in April
2008 to 17.4% in Oct . 2009.
Stood at 16.5% as of Jan. 2010
January 2000 through January 2010, Seasonally Adjusted (%)
Recession ended in
November 2001
Unemployment kept rising for
19 more months
Recession began in
December 2007
15
US Unemployment Rate
4.5
%
4.5
%
4.6
%
4.8
%
4.9
% 5.4
% 6.1
%
6.9
%
8.1
%
9.3
%
9.6
% 10
.0%
10
.2%
10
.0%
9.9
%
9.5
%
9.3
%
9.1
%
8.9
%
9.7
%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
Rising unemployment is eroding payrolls
and workers comp’s exposure base.
Unemployment is expected to peak above
10% in early 2010.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (2/10); Insurance Information Institute
2007:Q1 to 2011:Q4F*
16
Unemployment Rates by State, December 2009: Highest 25 States*
10.9
10.3
10.110
.6
10.7
10.9
9.5
9.19.4
9.09.
6
9.0
9.19.
9
11.812
.4
11.0
11.0
11.1
11.212
.113.0
12.9
12.6
14.6
0
2
4
6
8
10
12
14
16
MI NV RI SC CA DC FL NC IL OR AL OH TN KY MS GA NJ IN MO WA MA ID AZ WV NY
Une
mpl
oym
ent R
ate
(%)
*Provisional figures for December 2009, seasonally adjusted.
Sources: US Bureau of Labor Statistics; Insurance Information Institute.
The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are
doing much better than others.
17
6.9
6.9
6.7
6.6
6.66.
97.5
7.5
4.7
4.7
6.67.
07.4
4.4
6.7
8.38.
7
7.5
7.57.78.
3
8.38.
9
8.9
8.89.0
0
2
4
6
8
10
DE PA CT AK WI TX ME NM AR CO LA MD WY MN NH HI VA VT MT UT OK IA KS SD NE ND
Une
mpl
oym
ent R
ate
(%)
Unemployment Rates By State, December 2009: Lowest 25 States*
*Provisional figures for December 2009, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
The unemployment rate has been rising across the country (up in 43 out of 50 states in Dec.), but some states are
doing much better than others.
Do Changes in Miles Driven AffectAuto Collision Claim Frequency?
7.00
6.81
6.59
6.80 6.78
6.91
6.65
6.32
6.025.94
5.73
5.86
5.715.64
5.5
6.0
6.5
7.0
96 97 98 99 00 01 02 03 04 05 06 07 08 09*
Pa
id C
laim
Fre
q
2400
2500
2600
2700
2800
2900
3000
3100
Bil
lio
ns
of
Mil
es D
rive
n
Collision Claim FrequencyBillions of Vehicle Miles
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/09dectvt/page2.cfm; ISO Fast Track Monitoring System, Private Passenger Automobile Fast Track Data: 3rd Qtr. 2009, published Dec. 31, 2009 and earlier reports. *2009 ISO/FHWA figure is for 12 months ending 9/30/2009.
Paid Claim Frequency = (No. of paid claims)/(Earned Car Years) x 100
Miles driven fell 0.4% for 12 mos. Ended 09Q3 while collision claim
freq was down 1.6%
People are beginning to drive more
Unemployment’s Effect on Percent of Uninsured Motorists, 1989-2014F
12%
13%
14%
15%
16%
17%
18%
19%
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
E
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
3%
6%
9%
12%
Uninsured Motorist Percentage National Unemployment Percentage
Source: Uninsured Motorists, 2008 Edition, Insurance Research Council; Blue Chip Economic Indicators (Unemployment data, including forecasts); Insurance Information Institute.
Unemployment% Uninsured
The unemployment rate appears to be closely
correlated with the uninsured motorist
percentage.
In 2010 roughly 18% of motorists are expected
to be driving without insurance as high
unemployment prompts some people
to drop coverage
19
Source: ISO, US DOT.
Oct. 17, 1973: Arab
oil embargo begins
Frequency Impacts
Collision: -7.7%PD: -9.5%BI: -13.3%
March 17, 1974: Arab oil states announce
end to embargo
Driving StatsGas prices rose 35-40%Miles driven fell 6.7% in
1974
Frequency began to rebound almost
immediately after the embargo
ended
Auto Insurance: Claim Frequency Impacts of Energy Crisis/Recession of 1973/74
Source: ISO.
Severity Impacts
Collision: -7.5%
PD: +15.9%BI: N/A*
Driving StatsGas prices rose 35-40%Miles driven fell 6.7% in
1974
Oct. 17, 1973: Arab
oil embargo begins
March 17, 1974: Arab oil states announce
end to embargo
Collision severity began to rebound almost
immediately after the embargo
ended; PD accelerated as inflation
rose; No discernable
trend change in BI.
Auto Insurance: Claim Severity Impacts of Energy Crisis/Recession of 1973/74
1.0%
1.5%
2.0%
2.5%
3.0%
1991
:Q1
1992
:Q1
1993
:Q1
1994
:Q1
1995
:Q1
1996
:Q1
1997
:Q1
1998
:Q1
1999
:Q1
2000
:Q1
2001
:Q1
2002
:Q1
2003
:Q1
2004
:Q1
2005
:Q1
2006
:Q1
2007
:Q1
2008
:Q1
2009
:Q1
Estimated Homeowner Vacancy Rates, Quarterly, 1991-2009:Q3
Source: U.S. Census Bureau, http://www.census.gov/hhes/www/housing/hvs/qtr309/files/tab1.xls
March 2001-November 2001
recession
July 1990-March 1991
recession
Vacancy rates began rising in
2005:Q3
22
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
1990
:Q1
1991
:Q1
1992
:Q1
1993
:Q1
1994
:Q1
1995
:Q1
1996
:Q1
1997
:Q1
1998
:Q1
1999
:Q1
2000
:Q1
2001
:Q1
2002
:Q1
2003
:Q1
2004
:Q1
2005
:Q1
2006
:Q1
2007
:Q1
2008
:Q1
2009
:Q1
Estimated Rental Vacancy Rates,Quarterly, 1991-2008:Q3
Source: U.S. Census Bureau, http://www.census.gov/hhes/www/housing/hvs/qtr309/files/tab1.xls
March 2001-November
2001 recession
July 1990-March 1991
recession
10.4% peak in 2004:Q1. Vacancy rates began falling in 2004:Q2
11.1%: Highest recorded
quarterly rental vacancy rate
Probably few rental units will be built until the vacancy rate
comes sharply down.
23
24
Value of Claims Paid to Policyholders with Creditor-Placed Homeowners Insurance, 2004-2008
Source: Insurance Information Institute calculations based on data from NAIC Credit Insurance Experience Exhibit.
$491.5
$980.1
$609.3 $626.9
$925.0
$0
$200
$400
$600
$800
$1,000
$1,200
2004 2005 2006 2007 2008
Creditor-Placed insurers paid nearly $1 billion in
2008, rising as more homeowners stopped
paying their home insurance premiums along
with their mortgage
(Millions)
Creditor-Placed Home Insurers paid $3.6 billion in claims on behalf of policyholders from 2004-2008. If lenders had not purchased this coverage on
behalf of homeowners, tens of thousands of families would have had no source of recovery and would still be responsible for mortgage payments.
25
Premium Growth Trends in Auto and Home Insurance
Modest Improvements in Pricing Can Will Help Profitability Amid
Slack Demand
26
-10%
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0910
F
Strength of Recent HardMarkets by NWP Growth
(Percent)1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute
Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33
During the Great Depression. Expected decline of 1.6% in 2010.
27
Auto & Home vs. All Lines, Net WrittenPremium Growth, 2000–2009P*
14.4%
0.5%0.9%
9.2%
3.0%
5.7%
-4.2%
15.3%
5.0%
-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
00 01 02 03 04 05 06 07 08 09P
Private Passenger AutoHomeownersAll Lines
*2009 figure is preliminary.Sources: A.M. Best; Insurance Information Institute.
Average 2000-2009PAuto = 3.0
Home = 6.5%All Lines = 3.9%
While homeowners insurance has grown faster than auto over the past decade, auto is
generally more profitable
28
Net Written Premium Growth by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
-1.1%
-7.9%
-1.5%
1.8%
-5.6%
-2.0%
3.5%
-4.0%
-0.7%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Rate and exposure are more favorable in personal lines, whereas a prolonged soft market and sluggish recovery from the recession weigh on commercial lines. Low catastrophe losses and ample
capacity are holding down reinsurance prices while higher insurer retentions impact premiums
Personal lines will return to growth in 2010 while commercial lines and reinsurance are
expected to continue to shrink
29
Auto Insurers Experience Inflation Very Differently
Than the Overall Economy
Cost Drivers in Auto Insurance
30
Annual Inflation Rates(CPI-U, %), 1990–2011F
2.8 2.6
1.51.9
3.3 3.4
1.3
2.5 2.3
3.0
3.8
2.8
3.8
-0.4
2.2 2.0
2.92.4
3.23.0
5.14.9
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F11F
Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, Feb. 10, 2010 (forecasts).
Low Overall Inflation Does Not Imply Any Lack of Cost Pressure on Auto Insurers
Annual Inflation Rates (%)
Inflation was negative in 2009 and overall should remain tame in 2010 and 2011, but
that means little to auto insurers
P/C Insurers Experience Inflation More Intensely than 2009 CPI Suggests
Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg. monthly year-over-year change from BLS; BI and no-fault figures from ISO Fast Track data for 4 quarters ending 09:Q3. Tort costs is 2009 Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data.
-0.4%
2.7% 3.0% 3.1%3.8%
4.3%
5.5%6.2%
-2%
0%
2%
4%
6%
8%
OverallCPI
LegalServices
US TortCosts
MedicalCare
MotorVehicleBodyWork
BodilyInjury
Severity
WC MedSeverity
No-FaultClaim
Severity
(Percent)
Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely
31
32
Top Concerns/Risks for Insurersif Inflation Is Reignited
Source: Insurance Information Institute.
What are the potential impacts for insurers?
What can/should insurers do to protect themselves from the risks of inflation?
ConcernsThe Federal Reserve Has Flooded Financial System with Cash (Turned on the Printing Presses), the Federal Gov’t Has Approved a $787B Stimulus and the Deficit is Expected to Mushroom to $1.8 Trillion. All Are Potentially Inflationary.
Rising Claim Severities Cost of claims settlement rises across the board (property and liability)
Rate Inadequacy Rates inadequate due to low trend assumptions arising from use of historical data
Reserve Inadequacy Reserves may develop adversely and become inadequate (deficient)
Burn Through on Retentions Retentions, deductibles burned through more quickly
Reinsurance Penetration/Exhaustion Higher costs risks burn through their retentions more quickly, tapping into reinsurance
more quickly and potentially exhausting their reinsurance more quickly
Key Risks From Sustained/Accelerating Inflation
33
Over the Last Three Decades, Total Tort Costs* as a % of GDP Appear Somewhat Cyclical
$0
$50
$100
$150
$200
$250
$300
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08E 10E
To
rt S
ys
tem
Co
sts
1.50%
1.75%
2.00%
2.25%
2.50%
To
rt Co
sts
as
% o
f GD
P
Tort Sytem Costs Tort Costs as % of GDP
($ Billions)
* Excludes the tobacco settlement, medical malpracticeSources: Tillinghast-Towers Perrin, 2008 Update on US Tort Cost Trends, Appendix 1A; I.I.I. calculations/estimates for 2009 and 2010
2009–2010 Growth in Tort Costs as % of GDP is Due in
Part to Shrinking GDP
34
The Nation’s Judicial Hellholes: 2010
Source: American Tort Reform Association; Insurance Information Institute
South Florida
West VirginiaIllinoisCook County
New MexicoAppellate
Courts
Watch List
California Alabama Madison County, IL Jefferson County, MS Texas Gulf Coast Rio Grande Valley,
TX
Dishonorable Mention
AR Supreme Court MN Supreme Court ND Supreme Court PA Governor MA Supreme
Judicial Court Sacramento County
New JerseyAtlantic County (Atlantic City)
New York City
35
Claim Trends in Auto Insurance
Rising Costs Held in Check by Falling Frequency:
Can That Pattern Be Sustained?
36
Bodily Injury: Severity Trends Above Decline in Frequency
-5.4%
-3.8%-5.0%
-4.2%-3.2%
2.9%
4.8%6.0% 6.1%
4.3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009*
Severity Frequency
*2009 figure is for the 4 quarters ending 2009:Q3Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2009*
Cost Pressures Will Increase if Current BI Frequency and Severity Trends Continue
37
Property Damage Liability: Frequency Trends Offsetting Rising Severity
-1.6%
-3.3%
0.6%
-3.4%
-1.7%
2.9%3.7%
2.1% 2.0%
0.4%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2005 2006 2007 2008 2009*
Severity Frequency
*2009 figure is for the 4 quarters ending 2009:Q3Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2009*
Favorable Frequency Trend is Keeping PD Costs in Check, But Is the Trends Sustainable?
38
No-Fault (PIP) Liability: Frequency and Severity Trends Are Adverse*
-4.8%-5.7%
-2.7%
-6.9%
2.9%
4.7%
2.5%
6.3% 6.5% 6.2%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009*
Severity Frequency
*2009 figure is for the 4 quarters ending 2009:Q3. No-fault states included are: FL, HI, KS, KY, MA, MI, MN, NY, ND and UT.Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2009*
Multiple States Are Experiencing Severe Fraud and Abuse Problems in their No-Fault Systems, Especially FL, MI, NY and NJ
39
Collision Coverage: Frequency and Severity Trends Have Been Favorable*
-1.8%
-3.5%
2.3%
-2.6% -2.6%
3.9%3.1%
0.0%0.5%
-1.4%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2005 2006 2007 2008 2009*
Severity Frequency
*2009 figure is for the 4 quarters ending 2009:Q3Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2009*
The Recession, High Fuel Prices Have Helped Push Down Frequency and Temper Severity, But this Trend Will Likely Be
Reversed Based on Evidence from Past Recoveries
40
Comprehensive Coverage: Frequency and Severity Trends Favorable in 2009*
-3.1%
-9.8%-6.6%
1.6%
-1.6%
15.5%
-1.4% -1.4%
13.0%
-2.0%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008 2009*
Severity Frequency
*2009 figure is for the 4 quarters ending 2009:Q3Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2009*
Weather Creates Volatility for Comprehensive Coverage; Recession Has Helped Push Down Frequency and Temper
Severity, But This Factors Will Weaken as Economy Recovers
41
Underwriting Trends in Auto and Home Insurance
Modest Improvements in Pricing Can Will Help Profitability Amid
Slack Demand
42
Calendar Year Combined Ratios by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
101.0 101.2
92.2
100.3
103.7
100.599.8
107.2
103.6
9092949698
100102104106108110
Personal Lines Commercial Lines US Reinsurance
2008 2009E 2010P
Overall deterioration in 2010 underwriting performance is due to expected return to normal catastrophe activity along with deteriorating underwriting
performance related to the prolonged commercial soft market
Personal lines combined ratio is expected to improve in 2010 while commercial lines
and reinsurance deteriorate
43
After-Tax Return on Surplus (ROE) by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
5.3%
7.3%
5.2%
6.6%7.1%
5.3%
3.9%
-1.3%
1.7%
-2%-1%0%1%2%3%4%5%6%7%8%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Profitability will rise or stabilize across most p/c lines, barring a financial crisis relapse or major catastrophic losses
Personal lines ROEs should improve in 2010 and remain flat in
commercial lines and reinsurance
44
Change in Policyholder Surplus by Segment: 2008-2010P
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
8.0% 7.0%
19.0%
5.0% 6.0%
21.0%
-12.3%-12.1%-11.5%-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Rapid growth in policyholder surplus to pre-crisis levels combined with ongoing slow growth or declines in premiums (esp. in
commercial lines) implies a build-up of excess capacity—a major factor in weak commercial lines and reinsurance pricing
After a steep decline in capacity during the crisis, most of that capacity was
restored in 2009. Virtually all is expected to be restored in 2010.
45
Change in Net Investment Income by Segment: 2008-2010P*
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
-4.1%
-16.1%
1.9%3.4% 1.9%
10.7%
-13.4%
-0.8%
-12.8%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
Investment income consists primarily of interest on bonds and stock dividends. Both were hit hard during the financial crisis as the Fed slashed
interest rates to near zero and corporations cut dividends. A recovery in investment asset values beginning in Q2 2009—which reduced realized capital
losses—has helped offset some of the decrease in investment income.
Net investment income is expected to begin to recover in all segments in 2010
46
Investment Yield by Segment: 2008-2010P*
Sources: A.M. Best (historical and estimates/projected for 2009 and 2010); Insurance Information Institute.
3.5%3.7%
3.9%
3.3%3.6%
3.8%3.9%
4.6%
3.8%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Personal Lines Commercial Lines Reinsurance
2008 2009E 2010P
The Fed slashed interest rates in 2008 and has kept them low since, eroding the yield on all types of bonds, especially US Treasury securities. Yields will
not recover until the Fed begins monetary policy tightening.
Investment yields are shrinking across all segments—down 10 to 100 bases points since 2008
47
Auto & Home Combined Ratios vs. All Lines, 2000–2010P*
95
.5 98
.3 10
0.3
99
.3
98
.5
11
1.4
12
1.7
10
9.3
98
.2
94
.4
10
0.1
89
.4
95
.7
11
7.0
10
5.5
10
5.0
11
0.1
11
5.8
10
7.5
10
0.1
98
.4 10
0.8
92
.6 95
.7
10
1.0
10
0.6
10
1.7
10
3.5
10
9.5
10
7.9
10
4.2
98
.4
95
.1
85
95
105
115
125
00 01 02 03 04 05 06 07 08 09 10P
Month Recession Started
Private Passenger AutoHomeownersAll Lines
Sources: A.M. Best; Insurance Information Institute.
Average 2000-2010PAuto = 101.0Home = 104.3
All Lines = 102.2
Homeowners has been the most volatile component of personal lines,
but can be profitable
Countrywide Home Insurance Expenditures Increased by an Estimated 2.5%in 2008, 3% in 2009 and 2010
48
Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*
*Based on 2008 Invested Assets and Earned Premiums**US domestic reinsurance only.Source: A.M. Best; Insurance Information Institute.
Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline
-3.1%-3.3%-3.3%-3.7%
-4.3%
-5.2%-5.7%
-7.3%
-1.8%-1.8%-2.0%
-3.6%
-1.9%-2.1%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
49
Fraud & Abuse in Private Passenger Auto Insurance
Skyrocketing No-Fault (PIP) Claim Costs Are a Major Concern in
Several States
50
Average No-Fault Claim Severity, 2009:Q3
$1
6,6
37
$8
,69
0
$7
,56
6
$5
,57
8
$4
,99
9
$4
,26
8
$4
,12
5
$3
,95
4
$3
,95
1
$2
,92
4
$2
,86
2
$2
,85
1
$2
,44
5
$2
,08
7
$1
,79
7
$30,856
$6
,67
8
$6
,34
3
$6
,29
8
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
MI NJ NY FL MN DC DE KY ND PA OR WA HI TX MD KS SC UT MA
Several States Have Severe and Growing Problems With Rampant Fraud and Abuse in their No-Fault Systems. Claim Severities Are Up Sharply.
Source: ISO/PCI Fast Track data; Insurance Information Institute.
MI, NJ, NY and FL currently have the most severe problems in
their no-fault system
51
Increase in No-Fault Claim Severity: 2004-2009*
*2009 figure is for the 4 quarters ending 2009:Q3.**Since 2006 the increase in Florida was 17.3% (average severity that year was $6,674). Sources: Insurance Information Institute research from ISO/PCI Fast Track data.
$32,490
$16,640
$8,504 $7,441$6,674$5,871
$12,136
$24,385
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Michigan New Jersey New York Florida
2004 2009
The no-fault systems in MI, NJ, NY and FL are under stress due to rising fraud and abuse which will ultimately lead to higher premiums for drivers
+33.2%
+37.1%
+44.8% +11.5%**
52
New York State No-Fault Claim Severity, 1997–2009:Q3
Sources: ISO/PCI Fast Track data; Insurance Information Institute.
$5,6
75 $6,0
63$6
,699
$8,3
47$8
,327
$7,8
88$7
,507
$8,2
34
$9,2
35$8
,727
$8,5
77$7
,773
$7,3
11$6
,958
$6,8
70$6
,156
$6,0
52
$5,8
20$5
,991
$5,6
15$6
,094
$5,9
14 $6,2
50$6
,269 $6
,530
$6,6
06
$7,0
63 $7,3
23
$7,3
78$7
,297 $7
,670
$7,7
40$8
,443
$8,1
77 $8,5
07
$8,0
25$8
,562
$8,7
48$8
,690
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
$8,000
$8,500
$9,000
$9,500
1997
1999
1:01
1:03
2:01
2:03
3:01
3:03
4:01
4:03
5:01
5:03
6:01
6:03
7:01
7:03
8:01
8:03
9:01
9:03
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%Avg. Claim Severity
Frequency
About 20% of No-Fault Claim Costs Are Attributable to Fraud and Abuse
No-Fault Claim Severity
Avg. Claim Severity is at its 3rd Highest Level
in History = $8,690
Avg. Claim Severity Rose 63% in 5 years
after 1997 Presbyterian
Decision
53
$1.7
$70.5
$120.4
$195.3
$229.1$241.2
$0
$50
$100
$150
$200
$250
$300
2005 2006 2007 2008 2009** 2010F
Estimated Cost of No-Fault Fraud in New York State, 2005-2009*
($ Millions)
The cost of no-fault fraud could rise to $241 million in
2010 if no reforms are enacted
*No-fault severity reached a post-reform low in 2004 before, hence selection of 2005 as the first year of analysis. Actual no-fault losses in 2005 and beyond are higher than estimates indicate due to baselevel of fraud imbedded in 2004 data.**2009 figure is estimated based on 4 quarters ending 2009:Q3 (latest available).Source: Insurance Information Institute analysis and research.
No-fault fraud cost NY drivers and their insurers an
estimated $229 million in 2009, up 17.3% from 2008 and 90.3%
from 2007
54
$2$72
$193
$388
$617
$858
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2005 2006 2007 2008 2009** 2010F
Estimated Cumulative Cost of No-Fault Fraud in New York State, 2005-2010F*
($ Millions)
*No-fault severity reached a post-reform low in 2004 before, hence selection of 2005 as the first year of analysis. Actual no-fault losses in 2005 and beyond are higher than estimates indicate due to baselevel of fraud imbedded in 2004 data.**2009 figure is estimated based on 4 quarters ending 2009:Q3 (latest available).Source: Insurance Information Institute analysis and research.
No-fault fraud cost NY drivers and their insurers totaled an estimated $617 million from
2005 through 2009
The cumulative cost of no-fault fraud in NY state could rise to $858 in 2010
and more than $1 billion by early 2011 if no reforms are enacted
55
$12
$504
$875
$1,390
$1,561$1,644
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2005 2006 2007 2008 2009** 2010F
Estimated Per-Claim Cost of No-Fault Fraud in New York State, 2005-2010F*
*No-fault severity reached a post-reform low in 2004 before, hence selection of 2005 as the first year of analysis. Actual no-fault losses in 2005 and beyond are higher than estimates indicate due to baselevel of fraud imbedded in 2004 data.**2009 figure is estimated based on 4 quarters ending 2009:Q3 (latest available).Source: Insurance Information Institute analysis and research.
No-fault fraud costs per claim could rise
to $1,644 in 2010 without reform
The estimated per claim cost of no-fault fraud (a.k.a. Fraud Tax) in NY state was $1,561 in 2009, up 12.3% from 2008 and
78.4% from 2007
56
Average Expenditure on Auto Insurance In NY State, 1997-2007*
$1
,16
8
$1
,17
2
$1
,12
2
$1
,08
3
$1
,04
7
$7
05
$7
03
$6
86
$7
18
$7
26 $7
81
$8
24
$8
40
$8
29
$8
16
$7
95
$9
59
$9
60
$9
30
$9
39 $
1,0
15
$1
,10
0
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
NY US
*Latest available.Sources: NAIC; Insurance Information Institute.
NY ranked as the 2nd most expensive state during its previous
crisis, falling to 4th by 2007
In the wake of NY’s first no-fault crisis, the avgerage expenditure on auto insurance fell by $125 or 10.7% between
2004 and 2007, twice the 5.4% drop in the US overall
57
Catastrophic Loss –Catastrophe Losses Trends Are
Trending Adversely
58
$8
.3
$7
.4
$2
.6 $1
0.1
$8
.3
$4
.6
$2
6.5
$5
.9 $1
2.9 $
27
.5
$6
1.9
$9
.2
$6
.7
$2
6.0
$1
0.6
$1
00
.0
$7
.5
$2
.7
$4
.7
$2
2.9
$5
.5 $1
6.9
$0
$20
$40
$60
$80
$100
$120
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09*20??
US Insured Catastrophe Losses
* 2009 figure is Munich Re estimate.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Insurance Information Institute.
2009 CAT Losses Were Less than Half of 2008. 2005 Was by Far the Worst Year Ever for Insured Catastrophe
Losses in the Decade of the 2000s Were More than Double the 1990s, But the Worst Has Yet to Come
$100 Billion CAT Year is Coming Eventually
2009 CAT Losses
Were Down 48% though
Q3 from $21.1B 2008
($ Billions)
2000s: A Decade of Disaster
2000s: $193B (up 117%)
1990s: $89B
59
$2,458.0
$1,319.0
$821.9 $776.9$604.5
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Texas Colorado Georgia Kentucky Oklahoma
States with Highest Insured Catastrophe Losses in 2009
($ Millions)
US insured catastrophe
losses totaled $10.57 billion
from 28 events in 2009, down from
$26 billion in 2008.
*As of February 22, 2010.Source: PCS/ISO
Texas led the US with $2.458 billion in catastrophe losses
in 2009 even with no hurricanes hitting the state. Texas also led the US with
$10.2 billion in insured in 2008 due largely to Hurricane Ike.
Insured Property Catastrophe Losses as % Net Premiums Earned, 1984–2008
0%
2%
4%
6%
8%
10%
12%
14%
16%
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
US
US average: 1984-2008
Sources: ISO, A.M. Best, Swiss Re Economic Research & Consulting; Insurance Information Institute.
US CAT losses were a record 14.4% of net
premiums earned in 2005 and were 4
times the 1984-2008 average of
3.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09P
Source: A.M. Best; Insurance Information Institute.
(Percent)
There is an Upward Trend in the Share of Premiums Needed to Finance Catastrophe Losses
Catastrophe losses consumed an average of 3.6% of all premiums earned from 1987
through 2009, though the share is highly variable from year to year
Insured Property Catastrophe Losses as % Net Premiums Earned, 1984–2009P
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Global Natural Catastrophes 1980–2009Overall and insured losses with trend
US
$bn
Overall losses (in 2009 values) Insured losses (in 2009 values)
Trend insured lossesTrend overall losses
Source: Munich Re NatCatSERVICE; Insurance Information Institute.
MEGATREND
Global natural catastrophe loss trends are ominous and
portend an even more disastrous decade ahead. Terrorism and other man-
made disasters could exacerbate the trend.
Sources: (unmarked) - MR NatCatSERVICE, † - Property Claims Services (PCS)
Fatalities Estimated Overall Losses (US $m)
Estimated Insured Losses (US $m)
Tropical Cyclones
8 Minor Minor
Severe Thunderstorms
21 13,710 9,625†
Winter Storms 70 1,600 770†
Wildfires 6 280 185
Floods 22 1,600 232
As of January 2010
Natural Catastrophe Losses in the U.S. 2009
2009 was a near record
year for thunderstorm
losses
U.S. Significant Natural Catastrophes in 2009
Date Event Est. Economic Losses (US $m)
Estimated Insured Losses (US $m)
January 26 - 28 Winter Storm 1,100 565†
February 10 - 13 Thunderstorms 2,500 1,350†
March 25 - 26 Thunderstorms 1,500 995†
March – April Flood 1,000 75
April 9 -11 Thunderstorms 1,700 1,150†
June 10 -18 Thunderstorms 2,000 1,100†
July 20 -21 Thunderstorms 1,000 800†
$1+ billion economic loss and/or 50+ fatalities (as of Jan. 2010)
Sources: (unmarked) - MR NatCatSERVICE,
† - Property Claims Services (PCS)
Sources: MR NatCatSERVICE
U.S. Significant Natural Catastrophes, 1950 – 2009
Number of Events ($1+ Bill economic loss and/or 50+ fatalities)
There were 7 Significant Natural Catastrophes in
the United States in 2009
Losses from U.S. Significant Natural Catastrophes 1950 – 2009
($1+ billion economic loss and/or 50+ fatalities)
Sources: MR NatCatSERVICE
Overall losses from U.S. significant
catastrophes totaled $10.8 billion;
insured losses totaled $5.9 billion
Insured Losses Due to Weather Perils in the U.S.: 1980 – 2009
(Tropical Cyclone, Thunderstorm, and Winter Storm only)
Sources: MR NatCatSERVICE, Property Claims Services
Insured losses due to weather perils in the U.S. in 2009 were
the highest on record for a year without a hurricane landfall
68
Distribution of US Insured CAT Losses: TX, FL, LA vs. US, 1980-2008*
($ Billions)
* All figures (except 2006-2008 loss) have been adjusted to 2005 dollars.Source: PCS division of ISO.
Florida Accounted for 19% of All US Insured CAT Losses from 1980-2008: $57.1B out of $297.9B
$176 , 60% $57.10 ,
19%
$31.20 , 10%
$33.60 , 11%
Florida
Texas
Louisiana
Rest of US
69
Top 12 Most Costly Disastersin US History
(Insured Losses, 2008, $ Billions)
* PCS estimate as of August 1, 2009.Sources: PCS; Insurance Information Institute inflation adjustments.
$11.3 $11.3 $12.5
$22.8 $23.8
$45.3
$8.5$8.1$7.3$6.2$5.2$4.2
$0$5
$10$15$20$25$30$35$40$45$50
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo(1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Northridge(1994)
Ike(2008)*
9/11Attacks(2001)
Andrew(1992)
Katrina(2005)
8 of the 12 Most Expensive Disasters in US History Have Occurred Since 2004;
8 of the Top 12 Disasters Affected FL
In 2008, Ike Became the 4th Most Expensive Insurance Event and 3rd Most Expensive
Hurricane in US History Arising from About 1.35MM Claims
70
Total Value of Insured Coastal Exposure
(2007, $ Billions)
Source: AIR Worldwide
$224.4$191.9
$158.8$146.9$132.8
$92.5$85.6$60.6$55.7$51.8$54.1
$14.9
$479.9$635.5
$772.8$895.1
$2,378.9$2,458.6
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000
FloridaNew York
TexasMassachusetts
New JerseyConnecticut
LouisianaS. Carolina
VirginiaMaine
North CarolinaAlabamaGeorgia
DelawareNew Hampshire
MississippiRhode Island
Maryland
$522B Increase Since 2004,
Up 27%
In 2007, Florida Still Ranked as the #1 Most Exposed State to Hurricane Loss, with
$2.459 Trillion Exposure, an Increase of $522B or 27% from $1.937 Trillion in 2004
The Insured Value of All Coastal Property Was $8.9 Trillion in 2007, Up 24% from $7.2 Trillion in 2004
71
Demographic Trends Impacting Auto/Home
Insurance Markets
Aging, Immigration Will Influence Insurance Demand
72
6.468
10.110
14.575
0
2
4
6
8
10
12
14
16
Under 18 18-64 65+
Increase in Population by Age Category, 2010 to 2020
(Millions)
Source: US Census Bureau
Over the next decade, the demand for personal lines
insurance will be driven by an increasingly older population
Claim Trends in Personal Lines Will Shift With Demographics; Insurers Must Adapt
Younger and Older Drivers Are Over- Represented in Fatal Crashes
Share of Drivers in Age Group
Sources: US DOT, NHTSA, Federal Highway Administration; Insurance Information Institute
0.1%
6.3% 6.7%
17.4%19.2%
15.2%
8.6%6.5%
20.0%
21.37
17.10
19.28
29.89
52.80
24.93
21.86
45.06
0%
5%
10%
15%
20%
25%
Under 16 16 to 20 21 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 75+0
10
20
30
40
50
60
Percent of Licensed Total Drivers in Age GroupInvolvement Rate in Fatal Crashes
Immigration and High Birth Rates in Some Demographic Groups, Combined With Baby Boomers Aging Creates Challenges for Insurers and Auto Safety Experts
Involvement Rate per 100,000 Drivers
Motor Vehicle Deaths per 100,000 Persons by Age, 2008
Problem: How to Keep the Elderly Safe in Cars (Not Just When They’re Behind the Wheel)
Sources: Insurance Institute for Highway Safety; Insurance Information Institute
The elderly are almost as likely to be killed in a motor vehicle
accident as a teenager. As the Baby Boomers age, this is a looming public health crisis
75
Underwriting Technology: The Competitive Front Line
Underwriting Acumen Will Determine Long-Run SuccessA Technological Arms Race?
76
Competition: Success Defined More by Underwriting Acumen than by Price Consumers see competition mostly in terms of price and service
While personal lines insurance is generally very price competitive, long-run success for insurers is not solely correlated with the lowest price
Underwriting is the key to accurate risk assessment and pricing
An insurer that systematically prices business more accurately will turn in a better financial performance and lead competitors misprice
There are theoretically no boundaries when it comes to underwriting
The past 15 years launched a technological revolution in underwriting
Now we’re in the midst of a Technological Arms Race
From Credit, to Predictive Modeling to Telematics to….???
Next Wave of Innovations Will Include Integration of Real-Time Information About the Vehicle and Driver
Interactive Technologies Allows drivers to “log on” to view how driving behaviors influence risk and price
Ability for Consumer to Adjust Behaviors
Tremendous public policy, public safety implications
www.iii.org
Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwig
Insurance Information Institute Online: