WED GS 2019 Kevelighan Economic Insurance Market ... · Cyber Attacks –Ties for No. 1 Global Risk...

7/17/2019

WED_GS_2019_Kevelighan_Economic_Insurance_Market_Conditions_v07 1

2019 Economic and Insurance Market Conditions

Sean KevelighanChief Executive Officer

Insurance Information Institute

7/17/2019


How Do We Define Success?

ResilienceCapitalProtection

Community Wellbeing

EconomicGrowth

The Disruption Continuum

Geopolitical

Catastrophes Economics

Technology

7/17/2019


The Evolving Risk LandscapeTop 5 Global Risks in Terms of Likelihood

Source: World Economic Forum 2009-2019 Global Risks Report

Extreme weather events

Large-scale involuntary migration

Natural disasters

Large-scaleterrorist attacks

Massive incidentof data fraud / theft


Natural disasters

Cyber-attacks

Data fraud of theft

Failure of climate-change mitigation

and adaptation


Failure of climate-change mitigation and

adaptation

Natural disasters

Data fraud of theft

Cyber-attacks

2017 2018 2019

Economic

Environmental

Geopolitical

Societal

Technological

Short Term Risk Outlook 2019

Source: World Economic Forum 2009-2019 Global Risks Report

64

67

69

72

73

80

82

85

88

91

0 10 20 30 40 50 60 70 80 90 100

Personal identity theft

Domestic political polarization

Media echo chambers and “fake news”

Populist and nativist agendas

Loss of confidence in collective security alliances

Cyber attacks: disruption of operations and infrastructure

Cyber attacks: theft of data / money

Political confrontations / frictions between major powers

Erosion of multilateral trading rules and agreements

Economic confrontations / frictions between major powers

Percentage of respondents expecting riskto increase in 2019

7/17/2019


A world with MORE insurance

I.I.I. Mission Statement

Improving public understanding of insurance...

…what it does and how it works

Insurance Industry News Cycle Is Wide-Ranging, But CenteredAround Core Clusters Nat Cats, Auto, Tech/Innovation Continue As Biggest P/C Drivers

*Source: Quid, HPS Analysis. -Coverage excludes earnings/financials

US Media Coverage On Insurance Topics In 2018 & 2019

11% 9%

7% 7%

8%4%

6%

10%7%

6%

7%

12%17%

18% 18%

4% 9%4%

6%6%8%10%

2018

2%

Homeowner Insurance

2019

3%

InsurTech

Mortgage & Title InsuranceTravel & Pet Insurance

Insurance Lawsuits

Crop Insurance

Life Insurance & Long Term Care

Auto Insurance

Wildfires

Flood & Storms

NFIP

Cyber Insurance

41% on other P/C and life products

23% on natural catastrophe risks

16% on cyber insurance and digital trends

7/17/2019


Social Media: "Sharing Is Caring" Crop Is Outlier with Flood-Tariffs Combo – Pushing Down Nat Cats

Source: Quid, HPS Analysis

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

0 20 40 60 80 100 120 140 160 180 200 220 240

Crop Insurance

NFIP

Cyber Insurance

Publisher Count

Auto Insurance

Insurance LawsuitsInsurTech

Life Insurance & Long-Term Care

Travel & Pet

Wildfires

Ave

rag

e S

oci

al S

ha

reTraditional Media Coverage vs Social Shares 2019 (To Date)

Natural Catastrophe Cyber / Technology Auto

Flood & Storms

Homeowner Insurance

Our Priorities In 2019 Continue To Reflect Where Industry & Customer Conversations Are Focused

7/17/2019


Insurance IndustryEconomic Trends

US Inflation-Adjusted Catastrophe Losses

*2018: Inflation-adjusted estimate, subject to change. 2010s is average of 2010 to 2018. All losses are Direct.Sources: Property Claims Service, a Verisk Analytics business; Insurance Information Institute.

4037

79

104

48

1980s:$3.4 billion

1990s: $5.2 billion 2000s: $6.5 billion 2010s: $15.5 billion

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18*

Bill

ion

s, 2

01

8 $

Average for Decade

Hurricane Andrew

WTC

Katrina, Rita, Wilma

Harvey, Irma, Maria

2018 – Third worst year for US Insured catastrophe losses Average insured loss per year for 1980-2018 is $19.3 billion

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Inflation Adjusted US Catastrophe Losses by Cause of Loss1997 – 20161

Source: Property Claim Services (PCS)®, a unit of ISO®,a Verisk Analytics® business.

(1) Adjusted for inflation through 2016 by ISO using the GDP implicit price deflator. Excludes catastrophes causing direct losses less than $25 millionin 1997 dollars. Does not include flood damage covered by the federally administered National Flood Insurance Program.(2) Includes other wind, hail, and/or flood losses associated with catastrophes involving tornadoes.(3) Includes wildland fires.(4) Includes losses from civil disorders, water damage, utility service disruptions, and any workers compensation catastrophes generating lossesin excess of PCS's threshold after adjusting for inflation.

39.9%

38.2%

7.0%

6.7%

5.9%2.0%

Events Including Tornadoes2, $168.1

Fires3, $8.4

Hurricanes & Tropical Storms, $161.1

Wind / Hail / Flood, $29.7

Winter Storms, $28.2

Terrorism, $25.0 Other4, $0.8$ Million

P/C Insurance Industry Combined Ratio2000 – 2018*

* Excludes Mortgage & Financial Guaranty insurers 2008-2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012=103.2; 2013=96.1; 2014= 97.0.Sources: A.M. Best; ISO, a Verisk Analytics company; I.I.I. estimate for 2018.

110.1

115.8

107.5

100.1

98.4

100.8

92.6

95.7

101

99.3

101.1

106.5

102.5

96.4 97 97.8

100.7

104.1

97.395.6

90

100

110

120

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19:Q1

Hurricanes, wildfires drive

CR higher

Heavy use of reinsurance lowered net

losses

Best combined ratio since 1949 (87.6)

Sandy

3 consecutive years of U/W profits;

1st time since 1971-73

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P/C industry Net Income After Taxes$ Billions, 2018

Adjusted for inflation using the BLS CPI calculator, to 2018 dollars.Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

$63.62

$3.71

$32.20$37.22

$20.12

$38.42

$71.62

$64.76$58.31

$44.31$40.33

$61.38

$17.90

$0

$10

$20

$30

$40

$50

$60

$70

$80

7 8 9 10 11 12 13 14 15 16 17 18 19:Q1

Catastrophes drove earnings down in 2017, continuing a four-year slide in inflation-adjusted profits

Key Sources of P/C Insurer Profits$ Billions

Through first quarter. Data are before taxes and exclude extraordinary items.Source: NAIC data, sourced from S&P Global Market Intelligence.

$4.0

$14.6 $14.1 $14.6$20.2

$14.5 $16.8$13.6 $14.9 $16.0 $14.7

-$2.2 -$1.2-$4.2

$0.1

$5.0

$2.8$4.6

$2.9 $0.0$4.7 $5.3

-$10

$0

$10

$20

$30

09 10 11 12 13 14 15 16 17 18 19

Net investment gains Underwriting gains / losses

Strong capital gains; underwriting result lifted profits

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Commercial & Personal Lines NPW Growth1996-2018

Note: Data include state funds beginning in 1998.Sources: A.M. Best; Insurance Information Institute.

Commercial lines prone to much more cyclical volatility than personal lines

-10%

-5%

0%

5%

10%

15%

20%

25%

96 98 0 2 4 6 8 10 12 14 16 18

Commercial Lines Personal Lines

73.6%

73.5%

72.8%

73.5%

71.8%

68.7%

67.5%

68.1%

67.6%

64.7%

66.8%

12.30%

14.12%

14.20%

14.83%

16.09%

19.33%

20.02%

19.29%

19.86%

21.77%

20.52%

14.10%

12.40%

13.00%

11.70%

12.10%

12.00%

12.50%

12.60%

12.50%

13.50%

12.65%

0% 20% 40% 60% 80% 100%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Bonds Stock

The Changing Mix of Invested Assets, P/C Industry2008-2017

Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute.

• From 2008 to 2017, P/C portfolios shifted out of bonds (74% of invested assets in 2008 to 65% in 2017) into common stock (up from 12% to 22%)

• The US economy now hovers near full employment, but a slowdown is widely expected, so an increasein bond holdings—a defensive position—is understandable

7/17/2019


Catastrophes are Impacting Reinsurance RatesEstimated year-over-year property catastrophe rate movement,using 100 in 1990 as a baseline

Source: Willis Re 1st View A Discerning Market, July 1, 2019

• Recent smaller catastrophe losses from perils not fully modeled and continuing loss-creep from larger events are impacting the market

• Mid-year reinsurance renewal rates increased 25 percent (not shown on chart)

1991 93 95 97 99 2001 03 05 07 09 2011 13 15 17 2019

600

500

400

300

200

100

0

United States

Consolidation / M&A

Source: Conning Research & Consulting Inc. analysis.Note: Includes transactions where a U.S. firm was the acquirer and/or the target. Include property/ casualty, life/annuity, health and managed care and distribution and services companies.

765+7.3%

713

DEALS

$101.7billion-4.4%

$106.4billion

VALUE

2018

2017

Insurance-Related Deals Involving US Firms

7/17/2019


Cyber Insurance

Cyber Attacks – Ties for No. 1 Global Risk

Source: Allianz Risk Barometer on Business Risks 2019; Source: Deloitte LLP

9%

13%

13%

19%

19%

23%

27%

28%

37%

37%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Shortage of skilled workforce

Loss of reputation or brand value

Climate change / increasing volatility of weather

New technologies

Fire, explosion

Market developments

Changes in legislation and regulation

Natural catastrophes

Cyber incidents

Business interruption, supply chain risk

7/17/2019


0%

10%

20%

30%

40%

50%

60%

70%

80%

2011 2012 2013 2014 2015 2016 2017 2018

Percentage Answering ‘Yes’

Cyber Take-Up Rate Climbing, Approaching PeakQ: Does your company currently purchase cybersecurity insurance?

Source: Zurich and Advisen, Information Security and Cyber Risk Management Survey, 2018, Data as of August 2018.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Large Co (>$1B) Mid-Market (<$1B)

Year First Purchased Large companiesentered market

earlier

US Cyber Direct Premiums Written $ Millions

Source: AM Best data and research, Cyber Insurers are Profitable Today but Wary of Tomorrow’s Risks, June 17, 2019; Data excludes cyber written overseas.

$515 $433

$813 $922

$481$921

$990$1,108

$0

$500

$1,000

$1,500

$2,000

$2,500

2015 2016 2017 2018

Packaged Stand-alone

$996

$1,353

$1,803

$2,030

7/17/2019


Cause of Loss Cyber Claims Received by AIG EMEA (2017) – by Reported Incident

Source: AIG Cyber Claims Study 2018

8%

2%

3%

4%

4%

6%

7%

8%

9%

11%

12%

26%

0% 5% 10% 15% 20% 25% 30%

Other

Denial of service attacks

Other cyber extortions

System failure / outage

Legal / regulatory proceedings based on violation of data privacy

Physical loss or theft of information assets

Data breach due to employee negligence (e.g. sending wrong data)

Other virus / malware infections

Impersonation fraud

Other security falure / unauthorized access

Data breach by hackers

Ransomware

Major Difficulties In Writing Cyber Coverage

Complexityof Risk

• Threats are becoming more sophisticated

• Executives, boards, cyber experts, insurers and others struggle to keep up

• Cyber attacks could be massive — a 'cyber hurricane' could cause thousands of claims

• Some insurers worry that cyber is too big for private sector to handle alone

Lack ofHistorical Data

RiskAccumulation

• New coverages lack historical data, making pricing difficult

• Several insurers are developing common data requirements

7/17/2019


Financial Impact

• There is no market consensus on quantifying measures for financial losses resulting from cyber risk

• The limits sought by insureds —ranging from $2.5 million to $50 million — is a helpful proxy

The most common limitis $30 million

Excess Liability Limits

7/17/2019


Umbrella / Excess Rate Change(vs. Year Earlier)

Sources: MarketScout, Insurance Information Institute..

-3 -3 -3

-2

0 0

-3

-2 -2

0

2

3

4 4

5

4 4

3 3

1

2

1

0 0 0

-4

-2

-1 -1 -1

1 1 1 1

2 2 2 2 2

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Is Excess Liability for Utilities Facing Capacity Concerns Dueto Wildfires and Explosions?

• Location

• Market

• Governance

• Capacity

Overall Market Capacity Experiencing Stress. Key Factors Include

Source: Aon Risk Solutions

7/17/2019


Commercial Auto

Commercial Auto Rate Change (vs. Year Earlier)

Sources: MarketScout, Insurance Information Institute.

Overall commercial auto rates fell less in soft cycle and have risen more than overall property / casualty market

-4-3

-2-1 -1

0

4

6 6

43

12

0

23

67 7

-6%

-4%

-2%

0%

2%

4%

6%

8%

7/17/2019


Rates Overall

Commercial Lines Rate Change(vs. Year Earlier)

Sources: MarketScout, Insurance Information Institute.

Rates are as stable as they’ve been in 15 years but beginningto show signs of a modest increase

-20%

-15%

-10%

-5%

0%

5%

10%

Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Sep-15 16-Sep 17-Sep 18-Sep

Dec-182.0%

Not much of a hard market, by historic

standardsFeb-050%

Dec-07-16%

7/17/2019


Diversification of Insurance Products is Now More Important

• Overall market qualified as robust but not hard and adequate capacity

• Across-lines premium increasing about2% - 3.5% year-over-year; but some linesare higher and some lower

• Across-lines claims have come down overthe last three years (but wildfire claims and other natural catastrophes are driving claims faster)

• Extreme weather: multi-year programs easing severity of impact compared to personal lines

Source: J.P.Morgan; Insurance Information Institute

Workers’ Compensation and Marijuana Legalization

7/17/2019


Current Marijuana Laws by State

*CBC/Low THC medical program.Source: National Journal, Ballotpedia, 2019

Fully legal

Medical use legal and recreational possession decriminalized

Medical use legal

Recreational possession decriminalized

Fully illegal

What Do We Know About Workplace Safety in the Ageof Legal Marijuana?

• Product potency – THC levels

• Method of consumption and type of product

• User characteristics

Many factors influence impairment onset, intensity,and duration

Source: Insurance Information Institute, Haze of confusion: How employers and insurers are affected by a patchwork of state marijuana laws, June 2019

7/17/2019


THC Levels Not an Accurate Indication of Impairment

Source: Sewell, Poling, Sofuoglu, “The Effect of Cannabis Compared with Alcohol on Driving,” American Journal on Addictions, 2009.

Blood alcohol concentration and ‘feeling drunk’ rise and fall in lockstep

THC levels in blood and ‘feeling high’ rise and fall at different rates

Off-duty Medical Marijuana Use and Employment Protections

*CBD/Low THC medical program. †Oklahoma has not yet released its final medical marijuana rules. ‡Provides limited protections to state employees.Source: Insurance Information Institute, 2019.

Only 13 states have antidiscrimination / reasonable

accommodation for off-dutymarijuana use

Antidiscrimination / reasonableaccommodation for off-duty use

Laws do not protectoff-duty use

Laws do not addressoff-duty use

No medicalmarijuana program

7/17/2019


Does Workers’ Compensation Cover a Workplace Accident in Which the Injured Employee Tested Positive for Marijuana?

• Most states restrict benefits if employee was intoxicatedor if intoxication was proximate cause of injury

• Some states limit compensation if employee refusesdrug test

• Presumption of positive drug test indicating impairment

• Rebuttable presumptionRecreational marijuanaand the workplaceNo state protects on-duty recreational marijuana use. State laws will often explicitly state that recreational marijuana laws do not affect an employer’s drug-free workplace policy.

New Mexico is the Only State That Provides a Fee Schedule for Medical Marijuana1

1“Healthcare Provider Fee Schedule and Billing Instructions,” State of New Mexico Workers’ Compensation Administration.

Maximum reimbursable amount In context

7/17/2019


Reimbursement Complications

• Cash-only business

• Proper dosages poorly understood, non-standardized

• No standardized “serving” of marijuana; potency levels non-standardized

• Expenses can vary widely

The Future of Success: Resilience

7/17/2019


What do these images have in common?

It wasn’t the first time…

“Those who cannotremember the past are condemned to repeat it.”

George Santayana, The Life of Reason, 1905

7/17/2019


Extreme Events: A Troubling Trend

(1) Dollars when occurred.(2) Insurance Information Institute estimate based on data from catastrophe risk modelers, the Property Claims Services unit of Verisk Analytics, et al.Source: Insurance Information Institute, catastrophe risk modelers, The Property Claim Services® (PCS®) unit of ISO®, a Verisk Analytics® company, et al.

Rank Date Event Cause Insured Loss (1) ($ millions)

1 Aug. 2005 Hurricane Katrina Hurricane $41,100

2 Sep. 2017 Hurricane Maria (2) Hurricane 25,000-30,000

3 Sep. 2017 Hurricane Irma (2) Hurricane 20,000-25,000

4 Sep. 2001 September 11 Events Terrorism 18,779

5 Oct. 2012 Hurricane Sandy Hurricane 18,750

6 Aug. 2017 Hurricane Harvey (2) Hurricane 16,000-19,000

7 Aug. 1992 Hurricane Andrew Hurricane 15,500

8 Jan. 1994 Northridge, CA earthquake Earthquake 12,500

9 Sep. 2008 Hurricane Ike Hurricane 12,500

10 Oct. 2005 Hurricane Wilma Hurricane 10,300

Three of ten worst US catastrophes occurred in 2017

Uninformed Consumers Uninsured Closing the Coverage Gap is Key Step to Resilient Society

Source: Swiss Re; Wikimedia Commons; DOD

• 2005-2015: $1.3 trillion in uninsured losses

• 70 percent of catastrophe losses are uninsured

7/17/2019


Insurers Studying Solutions to Extreme WeatherI.I.I., actuaries, and IBHS offering resilience know-how to consumers on how to insureand protect themselves

Source: Insurance Information Institute, American Academy of Actuaries Climate Index, Insurance Institute for Business & Home Safety.

Proposed I.I.I. white paper The American Academy of Actuaries Climate Index

Insurance Institute for Business & Home Safety

(IBHS) resources

I.I.I. Resilience Project

• How prepared is each state for the natural and man-made disasters they are likely to see?

• I.I.I. and Aon to share their findings with the industry policy-makers and the general public

Forecasting powered by

7/17/2019


Phase 1: Data Visualization Tool

Data transformed to show the power of resilience

Forecasting powered by

Thank youwww.iii.org

7/17/2019


WED GS 2019 Kevelighan Economic Insurance Market ... · Cyber Attacks –Ties for No. 1 Global Risk...

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