Latest Studies - April 2017

Each month the Insurance Information Institute compiles recent studies from industry, government, academic and other sources. Topics include consumer issues, industry trends, climate and environment, and studies covering individual lines of business like automobile liability and workers compensation.

1. J.D. POWER 2017 U.S. PROPERTY CLAIMS SATISFACTION SURVEY
J.D. Power; Page N/A
March 1, 2017

Catastrophic events rose to a 10-year high in 2016, giving insurers an opportunity to demonstrate how much they help their policyholders. The response from their customers was favorable, with overall policyholder satisfaction with those filing claims up 1.5 percent. The latest survey asked about the experience of 6,645 policyholders who filed claims in 2016 and measured the responses in five areas: settlement, first notice of loss, estimation process, service interaction and repair process. The overall satisfaction score on a 1,000-point scale increased 13 points to 859, which was an all-time high. The increase is attributed primarily to settlement factors, which include settlement amount, estimation process and service interaction. Amica Mutual Insurance Co. was ranked the top company for the sixth consecutive year, and tied with the Hanover Insurance Group, Inc. for the top spot. Amica scored 893, and ranked highest in settlement, estimation process and the repair process. They are followed closely by Nationwide Mutual Insurance Co., Encompass Insurance Co. and Chubb Ltd. News Release


2. ALLIANZ GLOBAL INSURANCE MAP
Allianz Research; Page N/A
March 1, 2017

This interactive map can be used to navigate the characteristics of national markets by choosing countries from a list. Data for each country include premium growth for the life and property/casualty sectors, volume per capita, economic growth and inflation for the period of 2000 to 2016. Total global premium income (excluding health insurance), rose to 3.7 billion euros ($3.9 billion) in 2016, an all-time high. This amounts to 5.7 percent of the global economic output. In a year-on-year comparison, the nominal increase in premium income – after adjustments to reflect foreign currency translation effects – comes to an estimated 4.4 percent. However, this global figure masks huge differences among markets: whereas some markets in Europe are shrinking, China is booming with a growth rate of more than 20 percent. Click here for the interactive map.


3. THE STATE OF RISK OVERSIGHT: AN OVERVIEW OF ENTERPRISE RISK MANAGEMENT PRACTICES
The ERM Initiative in the Poole College of Management at North Carolina State University; 41 pages
March 1, 2017

This study analyzes the results of a survey conducted jointly by the North Carolina State University’s Enterprise Risk Management (ERM) Initiative and the American Institute of CPAs, and concludes that most executives consider risks to be increasing in both number and complexity, but acknowledge that their organizations’ work on risk management may not be taking account of some developing risks. Nearly 70 percent of the 432 chief financial officers and other senior executives of large, public and financial service companies who responded to the survey said that risks have been more numerous and more complex over the last five years. Fewer than half of these organizations, and only about a quarter of the respondents, consider their risk management processes to be mature or robust. The study found that approximately 28 percent of organizations have complete ERM processes in place, compared with 19 percent in 2009; that nearly half of organizations communicate crucial risks only when they are referred to in meetings; and that the risk management activities of nearly two-thirds of organizations were minimal or non-existent. Full report


4. NATURAL CATASTROPHES AND MAN-MADE DISASTERS IN 2016: A YEAR OF WIDESPREAD DAMAGES
Swiss Re sigma 2/2017; Page N/A
March 1, 2017

Insurers lost $54 billion in 2016 due to natural and man-made disasters, which caused total economic losses of $175 billion. According to the report, both economic and insured losses were the highest of any year since 2012, reversing a trend toward lower losses over the last four years. Globally, about 11,000 people lost their lives or went missing in disasters. Large-scale disasters across the world included earthquakes in Japan, Ecuador, Tanzania, Italy and New Zealand. There were also several severe floods in the U.S. and across Europe and Asia.  A record high number of weather events in the U.S. included Hurricane Matthew, which became the first Category 5 storm to form over the North Atlantic since 2007. It caused the largest loss of life – more than 700 victims, mostly in Haiti – of a single event in the year. Another expansive and costly disaster was the wildfire that spread through Alberta and Saskatchewan in Canada from May to July. In total, there were 327 disaster events in 2016, of which 191 were natural catastrophes and 136 were man-made.  As in the previous four years, Asia was hardest hit. The earthquake that hit Japan’s Kyushu Island inflicted the heaviest economic losses, estimated to be between $25 billion and $30 billion. Full Report


5. RAA RELEASES NEW FLOOD LAWS COMPENDIUM CHART
Reinsurance Association of America; Page N/A
March 9, 2017

Major flooding is a critical problem across the U.S. as a result of urbanization and rising sea levels. Such flooding is now involved in 90 percent of all natural disasters in the U.S., with average damages nearly doubling over the past two decades to more than $10 billion per year in the 2000s. Given the importance of this issue for reinsurers, the RAA has created a Flood Laws chart for the Compendium of Reinsurance Laws and Regulations. This newly created chart details the individual state flood insurance laws regarding surplus lines and export lists, and provides the reader with context for the private flood insurance market across the 50 states. RAA’s Compendium is a comprehensive state-by-state summary of reinsurance law and regulation with charts summarizing the laws and regulations for key reinsurance topics. The Compendium is available free of charge to RAA members and subscribers and for purchase for non-members and non-subscribers. For a complete list of the Compendium’s charts, and to order this resource, go to Compendium of Reinsurance Laws and Regulations or contact Pat Cheetham at the RAA, by emailing Cheetham@reinsurance.org or by telephone at 202-783-8382.


6. HUMAN-STARTED WILDFIRES EXPAND THE FIRE NICHE ACROSS THE UNITED STATES
Jennifer Balch et al.
Proceedings of the National Academy of Sciences of the United States of America; Page N/A
January 1, 2017

The authors of this study evaluated more than 1.5 million government records of wildfires that had to be extinguished or managed by state or federal agencies from 1992 to 2012, and examined geographic and seasonal extents of human-ignited wildfires compared to lightning-ignited wildfires. The study found that humans have vastly expanded the spatial and seasonal “fire niche” in the United States, accounting for 84 percent of all wildfires and 44 percent of total area burned. During the 21-year time period, the human-caused fire season was three times longer than the lightning-caused fire season and added an average of 40,000 wildfires per year. Human-started wildfires disproportionally occurred where fuel moisture was higher than lightning-started fires, thereby helping expand the geographic and seasonal niche of wildfire. Human-started wildfires were dominant (>80 percent of ignitions) in over 5.1 million square kilometers, the vast majority of the United States, whereas lightning-started fires were dominant in only 0.7 million square kilometers, primarily in sparsely populated areas of the mountainous western United States. Full Study


7. MANAGING SEVERE THUNDERSTORM RISK
Willis Re; 5 pages
March 1, 2017

According to this report, annual aggregated risk to the U.S. property industry from severe convective storms (SCS) is as high as the risk from hurricanes, based on 2003 to 2015 Verisk Analytics’® Property Claim Services® (PCS) loss statistics. Average annual loss (in 2016 USD) from severe convective storms is $11.23 billion compared to $11.28 billion from hurricanes. Considering loss history from the last decade only, SCSs is the largest annual aggregated risk peril to the insurance industry. The latest science indicates that U.S. SCS frequency is relatively higher following La Niña and lower following El Niño, and storm location is affected as well. A chart tracks insured losses for hurricanes and SCS from 2003 to 2015. Another chart tracks tornado and hail observations during El Niño and La Niña. Full report


8. CYBER: GETTING TO GRIPS WITH A COMPLEX RISK
Swiss Re Institute. Sigma 1/2017; Page N/A
March 1, 2017

A dedicated cyber insurance market is developing quickly, but the scope of cover is modest relative to potential exposure. “A dedicated cyber insurance market is developing, and an increasing number of insurers are looking to write more business in this specialty line,” says Swiss Re Chief Economist Kurt Karl. Dedicated cyber insurance typically provides core protection against data and network security breaches and associated losses, with capacity limits in the market today ranging from around $5 million to $100 million. However, some significant cyber-related risks remain largely uninsured, and the scale of existing cover is modest relative to companies’ overall potential exposures. A key constraint on the development of insurance solutions is linked to the complexity of cyberrisk, which is difficult to quantify. Insurers and risk analytics vendors are experimenting with different approaches to risk modelling, including deterministic scenario analyses and probabilistic models. Product and process innovation in insurance and other risk transfer mechanisms will play an important role in upgrading cyber risk management capabilities. A crucial factor influencing the pace of innovation will be the capture and analysis of relevant data and threat intelligence needed to underwrite cyberrisks accurately. There are ongoing industry developments to upgrade information collection and dissemination. For example, various risk analytics vendors have built data schema that provide firms with a standardized approach to identify, quantify and report cyber exposure to insurers. Similarly, the CRO Forum is promoting a common language and framework for firms to capture salient information about cyber incidents and vulnerabilities. For their part, insurers are looking to develop less complex and more flexible insurance products. These include covers that can be tailored to small and medium-sized businesses, which have hitherto been underserved. Further, some reinsurers are seeking partnerships with cyber security firms and data analytics vendors to fill knowledge gaps and scale up/provide additional services to their clients. There are also initiatives to develop insurance-linked securities (ILS) that cover operational-type risks like cyber. The ILS market for cyberrisk remains nascent, but could possibly grow. Governments also have an important role in promoting cyber resilience, including measures to improve cyber information capture and diffusion, and setting laws and regulations about how cyberspace is used and protected. This is the first report published by the Swiss Re Institute, which officially launched on March 1, 2017. Full Report


9. CRACKING THE CODE ON CYBER INSURANCE
Deloitte Center for Financial Services; 24 pages
March 1, 2017

According to this report, increased attention given to cyberrisk has done little to stimulate the sale of cyber coverage. The report warned that if many insurance buyers continue to see cyber coverage as insufficient, uncertain, overly complicated and too costly, alternative markets may compete with insurance companies to provide cyber coverage. Deloitte calls attention to the enormous potential for growth in cyber coverage and also recommends several courses of action to close the cyberrisk exposure gap. The report estimates that cyber insurance generates as little as $1.5 billion to $3 billion in premiums in the U.S. annually, a fraction of the $505.8 billion in premiums written by U.S. insurers in 2015. The report discusses the obstacles to cyber market growth from the perspective of insurers, particularly the dearth of data, the continuing evolution of cyberattacks and the potential catastrophic accumulation from cascading events that trigger a broad range of policies. From a buyers’ perspective, a lack of understanding of cyberrisks and insurance options appear to inhibit purchase. Full Report


10. COMMERCIAL AUTOMOBILE INSURANCE: FIX ME, PLEASE
Conning; Page N/A
January 30, 2017

The commercial automobile insurance line has been suffering for five years, and has yet to show significant improvement, despite insurer efforts, according to a new study by Conning. “Underwriting results for the commercial automobile insurance market are the worst in the industry in recent years,” said Jerry Theodorou, a vice president of the Insurance Research division at Conning. “The downturn in performance that began in 2011 was abrupt, and was followed by rate increases, attempts at improved underwriting and pullbacks from the line or its segments by major insurers. However, these actions have yet to result in significant improvements for the industry.” The study reviews the drivers of commercial automobile insurance’s recent results, analyzes the issues that led to the troubled market performance and explores what it will take to restore profitability to the line. “While the commercial automobile insurance industry has suffered as a whole, the top quintile of large insurers outperformed the bottom by almost 30 points in combined ratio over the past decade,” said Steve Webersen, head of Insurance Research at Conning. “As we analyzed insurer performance metrics and market conditions, it became clear that despite the precipitate deterioration in performance, there were actually many factors that combined to overwhelm the line. Leading insurers have begun to undertake a variety of corrective approaches: from selective withdrawals of difficult market segments, to exploiting enhanced data sources and analytics and technologies, to rethinking rating basis, and more. Looking forward, success in commercial automobile insurance will clearly demand increased sophistication from insurers.” The report is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com


11. THE HEALTH EFFECTS OF CANNABIS AND CANNABINOIDS: THE CURRENT STATE OF EVIDENCE AND RECOMMENDATIONS FOR RESEARCH
The National Academies of Sciences Engineering and Medicine; 395 pages
January 12, 2017

This report offers a thorough review of scientific research published since 1999 on the health effects of recreational and medical cannabis use. It summarizes the current state of evidence regarding what is known about the health impacts of cannabis and cannabis-derived products, including effects related to therapeutic uses and potential health risks related to certain cancers, diseases, mental health disorders and injuries. The report found that there is moderate evidence to show that cannabis is effective for treating chronic pain. A chapter is devoted to the association between cannabis use and all-cause mortality, occupational injury, motor vehicle accidents and overdose injuries and death. There is not enough evidence to support or refute that non-medical marijuana use contributes to occupational accidents or injuries. However, there is substantial evidence that cannabis use leads to an increased risk of motor vehicle crashes. The report suggests enacting policies, such as checkpoints for driving while under the influence of cannabis (DUIC), in conjunction with those for sobriety, the development of kits for DUIC testing, and a consideration of zero tolerance laws would be beneficial. The report also found moderate evidence of a statistical association between cannabis use and increased risk of overdose injuries, including respiratory distress, among children in states where cannabis is legal. Full Study


12. WORKING THROUGH THE HAZE. IMPLICATIONS FOR LEGALIZED MARIJUANA FOR CALIFORNIA WORKERS COMPENSATION SYSTEM
Ellen Sims Langille
California Workers Compensation Institute; 18 pages
November 1, 2016

This paper discusses the impact of the law (Prop 64) legalizing recreational marijuana use in California on workers compensation carriers and self-employed insurers. The report reviews the history of marijuana laws in the United States and points out that federal law still prohibits marijuana use for both medical and recreational purposes. The legalization of recreational marijuana has been shown to affect individual use. For example, the number of people using marijuana increased by more than 45 percent in Colorado within 2 years of recreational use of the substance becoming legal. The author delves into the question of compensability of medical marijuana by workers compensation insurers. The question of marijuana compensability comes into play as reimbursement for medical treatment and in cases of injuries when a post-accident drug test indicates the presence of the drug. The paper discusses how different states handle compensation in these cases. The author points out that regardless of claim compensability, employers can still discipline workers for marijuana use on the job and enforce drug free workplace policies. The paper sites several court decisions, laws and studies pertaining to the subject. Full Text


13. HOW THE PRESCRIPTION DRUG CRISIS IS IMPACTING AMERICAN EMPLOYERS
National Safety Council Survey; Page N/A
March 1, 2017

According to this survey more than 70 percent of United States employers are feeling the impact of prescription drug misuse in their workplaces. The survey found that although 71 percent of employers agree that prescription drug misuse is a disease that requires treatment, 65 percent feel it is a justifiable reason to fire an employee. Only 19 percent of employers feel “extremely prepared” to deal with prescription drug misuse in the workplace. About 57 percent are drug testing all employees. Of those employers who conduct drug testing, 41 percent are not testing for synthetic opioids. Drug poisonings, largely from opioid painkillers, now eclipse car crashes as the leading cause of preventable death among adults. Nearly half of Americans are personally impacted by prescription drug addiction, with 44 percent knowing someone who is addicted to a prescription pain reliever. Seventy-five percent of those struggling with a substance use disorder are in the workforce, revealing a hidden epidemic that many employers are struggling to address. Although just 13 percent are “very confident” that employees can spot the signs of misuse, 76 percent do not offer training to help close that knowledge gap. Eighty-one percent of respondents’ policies are lacking at least one critical element of an effective drug-free workplace program, 88 percent are interested in their insurer covering alternatives to pain relief treatment so that employees can avoid taking opioids, and nearly 60 percent believe the insurance company will be responsive. However, 30 percent of those employers will not act on that interest. Encouragingly, 70 percent would like to help employees who are struggling with prescription drug misuse return to their positions after completing treatment. Survey Results


14. AMERICANS FEEL UNSAFE SHARING THE ROAD WITH FULLY SELF-DRIVING CARS
American Automobile Association; Page N/A
March 7, 2017

According to this national survey, 75 percent of drivers are afraid of self-driving cars becoming common on the road. The survey showed that drivers want the technology to be introduced in increments, with approximately 54 percent of respondents (58 percent of women drivers and 49 percent of men) saying that sharing a road with self-driving vehicles would make them feel less safe. While 60 percent of baby boomers said that self-driving cars made them feel less safe, only 41 percent of millennials expressed such concerns. News Release


15. AIPSO FACTS 2016/17
AIPSO; 68 pages
March 1, 2017

This annual publication provides state and national data on automobile insurance shared market operations, including automobile insurance plans (AIPs), joint underwriting associations (JUAs), reinsurance facilities, state funds, and other mechanisms. AIPSO is a management organization and service provider for various insurance industry groups responsible for administering the residual market. The publication is available to registered users of AIPSO.com.


16. APPLICATION INTEGRITY: THE WHOLE TRUTH. SOLVING THE MYSTERY OF DETERIORATING LOSS RATIOS
Verisk Insurance Solutions; 10 pages
March 1, 2017

This Verisk Insurance Solutions report, based on an industry survey that accounted for 58 percent of personal auto direct premiums written and an analysis of millions of policies, found that alarming amounts of policy information were wrong or missing on insurance applications. The misrepresentation of risk was flowing through to underwriting results, and Verisk estimates that personal lines automobile insurers face at least a $29 billion annual problem  from inaccurate rates based on the omitted or misstated underwriting information. The report found that application integrity has declined by more than 15 percent in the past four years. Potential explanations for the decline include: consumers’ inability to accurately fill in some of the fields (mileage for example); fraud; agent manipulation to lower rates to win new business; increased tolerance of application gaps during soft markets; incomplete third-party prefill data; growth in remote transactions; rise in title, insurable-interest and commercial-use defects; and a rise in pretender “foreign drivers,” to mask violation or DUIs. To download the paper, visit www.verisk.com/premium-leakage.


If you have a suggestion for a study to be included in this section please email info@iii.org.