Latest Studies

Rating Variables: What they are and why they matter
Insurance Information Institute (I.I.I.) and Casualty Actuarial Society (CAS) ;
July 24, 2019

This paper, published jointly by the Insurance Information Institute (I.I.I.) and the Casualty Actuarial Society (CAS), explains why actuaries apply variables when setting rates — for example using a driver's age and gender, accident history and vehicle model year to calculate the premium on an auto policy. Rating variables are basically the characteristics of individual policyholders that can help approximate the cost of their risks. Insurance companies have been using rating variables to help set rates (and thereby price their policies) for decades. However, the use of some rating variables has recently generated discussion within the United States. Some states have even passed legislation controlling the use of certain variables, such as gender. "Variables are designed to make insurance affordable and available to everyone," said Ken Williams, FCAS, CAS staff actuary. "When a variable is removed from rate setting, the consumer stands to lose the most because lower-risk individuals will end up subsidizing higher-risk individuals; or, insurance companies may choose to accept fewer applications from consumers who might cause them to lose money." It is important to note that all rating variables are regulated in every state and cannot directly or indirectly impact groups based on certain characteristics, such as race. The paper notes that the use of rating variables has resulted in a drastic reduction in the number of consumers seeking coverage in state-supported auto risk pools. Full Report

Quarterly insurtech briefing Q2 2019
Willis Towers Watson;
July 25, 2019

Global insurtech investment reached $1.4 billion in Q2 2019, the fourth quarter in a row when investment exceeded $1.2 billion, according to this report. The report notes a shift to later-stage investments, with early-stage investment at its lowest point since Q3 2017. In Q2 2019, 59 percent of early-stage deals went into insurtechs primarily focused on distribution, and 54 percent of early-stage insurtech deals went to startups outside the U.S. and the U.K. The largest deals included a $75 million round into online investment management platform Wealthsimple by Allianz X and a $74 million investment into online health management firm More Health by China Pacific Insurance. Full Report

Sharpened focus on core business favors higher M&A activity
Moody's Investors Services;
July 10, 2019

This report discusses the increase in merger and acquisition (M&A) activity that reflects the insurance industry's focus on primary or core businesses during a persistent period of low interest rates. However, the economic outlook of the U.S. is uncertain, and an economic slowdown in the nation would hamper M&A activity but could possibly present opportunities for buyers who are willing to wait. Persistent low interest rates and excess capacity are encouraging consolidation and dispositions as exiting old businesses allows insurers to redeploy capital in segments where returns are higher. Share buybacks are also being used by insurers to free up capital in non-core insurance blocks. Finally, M&A activity is supported by dependable reinsurance capital and the evolution of alternative capital. The report includes multiple exhibits. Full report (Subscription required)

Higher-revenue companies more likely to buy small biz insurance directly
Thomas Mason
S&P Global Market Intelligence;
July 08, 2019

Higher-revenue businesses were more likely to purchase small business insurance online directly from an insurance carrier than their lower-revenue counterparts, according to a survey commissioned by S&P Global Market Intelligence. The survey polled 1,371 U.S. small businesses that had insurance. About 20 percent of businesses with annual revenues of $50,000 to $99,999 purchased directly, whereas a little over 30 percent in the $5 million to $10 million revenue range had done so. The trend might suggest that even larger companies are open to buying directly. Of the survey respondents that said they purchased insurance directly, 23 percent indicated that they also purchased insurance through an agent (survey takers could choose more than one response). The percentage of multichannel customers trended upward with the revenue of the company. Age was also a relevant factor in whether a company bought directly or not, as younger people tended to buy online more. The median age of respondents was lowest in the $5 million to $10 million revenue group. The article speculates that larger companies were able to hire more employees, including younger ones, who were in charge of insurance purchases. A smaller institution, by contrast, might still be relying on the founder to make such decisions. Full Text

Nontraditional Work Arrangements and the Gig Economy
National Council on Compensation Insurance (NCCI) Quarterly Economics Briefing 2019 Q2;
July 09, 2019

There has been little increase in the number of Americans who derive their primary income from alternative work arrangements, according to evidence gathered by the NCCI. Between 2005 and 2018, about 15 million people had alternative work arrangements as their primary job. But increasing numbers of workers are engaging in alternative work arrangements to generate supplemental income, with as many as 30 percent of American adults doing some informal work. Most workers in nontraditional work arrangements earn less than one-quarter of their annual income from these sources. The number of people doing electronically mediated work has tripled in the past five years, but income from this work still accounts for less than 1 percent of total income. Nontraditional work deserves continued attention as a workers compensation issue because of ease of entry, especially for electronically mediated work. Another factor that bears scrutiny is that the risk of workers compensation leakage is likely to rise during and after the next recession. In a future downturn workers who have difficulty finding traditional jobs are expected to seek nontraditional work. At the same time, cost-cutting firms will have incentive to experiment. If firms and at least some workers favor new arrangements, then payroll lost in a recession is likely to shift to nontraditional work during recovery. While NCCI does not expect a rapid change in covered wage and salary employment, the proportion of independent work that falls outside of traditional workers compensation will likely increase in coming years. Full Report

World insurance: The great pivot East continues
Swiss Re Institute sigma No. 3/2019;
July 04, 2019

This report discusses how the insurance sector benefited from global economic growth in 2018. During that year, real gross domestic product rose by 3.2 percent, however the report predicts that global growth will slow to approximately 2.8 percent in 2020. Emerging economies are expected to strengthen as advanced markets and China, which was the largest contributor to last year's global growth, show more modest growth. China is expected to continue its role as the major contributor to growth in 2019 and 2020. Despite the slowing of the global economic environment, the demand for insurance is expected to strengthen during the next two years, with emerging markets are expected to account for a greater share of global direct insurance premiums written. Emerging markets represented an estimated 21 percent of these premiums in 2018 and are projected as representing 34 percent of direct insurance premiums written by 2029, when the Asia-Pacific market alone is expected to account for 42 percent of global premiums. In 2018, global direct premiums totaled more than $5 trillion for the first time, representing 6.1 percent of global GDP. The report includes multiple exhibits. Full report

U.S. Wildfire Risk Insight: An analysis of property exposure and wildfire damage in 2018
Arindam Samanta, Kaitlyn Perham and Brad Bain
July 01, 2019

Verisk's annual wildfire risk report estimates that over 4.5 million properties in the United States are at high to extreme wildfire risk. California tops the list of states with 2.1 million properties at high to extreme risk; followed by Texas (715,300); Colorado (366,200); Arizona (234,600); and Idaho (171,200). The report includes an analysis of significant 2018 wildfires with a spotlight on California's record-breaking Mendocino Complex, Camp and Woolsey Fires. The report concludes that continual study of wildfire events is necessary to stay ahead of the increasingly year-round threat. Full Report

High density oilfield wastewater disposal causes deeper, stronger, and more persistent earthquakes
Ryan M. Pollyea, Martin C. Chapman, Richard S. Jayne and Hao Wu
Nature Communications;
July 16, 2019

Researchers at Virginia Polytechnic and State University found that the higher-density wastewater from fracking injected deep underground displaces existing groundwater that keeps the ground stable and alters the subterranean water pressure to the extent that it poses a quake risk for decades. The authors had developed a model based on wastewater flows from fracking operations in Kansas and Oklahoma. The findings suggest that wastewater from oil and gas production injected deep into wells could pose an earthquake risk for years to come. Full text

Working on it: Occupations with the best and worst drivers
July 10, 2019

This study examined 1.6 million car insurance applications to determine what professions were most likely to have had moving violations, including speeding, driving under the influence or driving with suspended licenses. Bartenders, ticket sales representatives and journalists were found to be among the nation’s worst drivers, while postmasters and music composers were among the best. The jobs with the worst drivers tended to have unconventional hours including working late into the night or involve exhausting or stressful work. Of the people working in ticket and membership sales, 43 percent had traffic violations. Some jobs with a higher percentage of poor drivers are part of the "gig economy," which has more irregular hours and lower pay. Other bad drivers were fitness club managers, film production crew workers, bartenders, chiropractors, welders, metalworkers, masseuses, journalists and sales representatives. Professions with good driving records include postmasters, fishermen, dry cleaners, park rangers, agricultural inspectors, federal agents, music composers or directors, police detectives, real estate appraisers and executives. Full Report

Marijuana Use and Highway Safety
David Randall Peterman
Congressional Research Service;
May 14, 2019

As a growing number of Americans report that they use marijuana and the opportunity for legal use grows, there is concern about the impact of marijuana usage on highway safety. Although laboratory studies have shown that marijuana consumption can affect a person’s response times and motor performance, studies of the impact of marijuana consumption on a driver’s risk of being involved in a crash have produced conflicting results, with some studies finding little or no increased risk of a crash from marijuana usage. This report, written by a transportation policy analyst, suggests that there are several subjects on which better information may aid policymaking around the issue of marijuana and impairment. These include continued research into whether a quantitative standard can be established that correlates the level of THC in a person’s body and the level of impairment, and better data on the prevalence of marijuana use by drivers, especially among drivers involved in crashes and drivers arrested for impaired driving. The Congressional Research Service could not identify any data on how many safety-sensitive transportation employees have lost their jobs as a result of positive tests for marijuana use. Considering the length of time that marijuana is detectable in the body after usage, and the uncertainty about the impairing effect of marijuana on driving performance, Congress and other federal policymakers may elect to reexamine the rationale for testing all safety-sensitive transportation workers for marijuana usage. Alternatively, Congress and federal policymakers may opt to maintain the status quo until more research results become available. Regulations that apply to safety-sensitive employees do provide an avenue for an employee who has tested positive to regain a safety-sensitive position. Full report

2018 Traffic safety culture Index
AAA Foundation for Traffic Safety;
June 01, 2019

This annual survey of public attitudes about traffic safety found that people in the United States value traveling safely and support strengthened laws that promote safer roads, but like prior years, the survey highlights the disparity between drivers’ attitudes and their behaviors. For example, many drivers noted the serious dangers associated with holding and talking on cellphones while driving but admitted to having done so in the past month. A majority of drivers support laws restricting distracted driving, with almost 75 percent supporting a law against holding and talking on a cellphone and about 88 percent supporting a law against reading, typing, or sending a text or email while driving. Nevertheless, more than half of drivers (52.1 percent) report having driven while talking on a hand-held cellphone at least once in the past 30 days. Fewer respondents report engaging in distracted driving by reading (41.3 percent) and typing a text or email (32.1 percent) on a hand-held cellphone while driving. The survey also included question about speeding, drowsy driving, aggressive driving and impaired driving. With respect to marijuana use, 70 percent of respondents consider driving shortly (within an hour) after using marijuana to be very or extremely dangerous. However, more than 7 percent of drivers personally approve of driving shortly after using marijuana. More than 81 percent of respondents support laws making it illegal to drive with a certain amount of marijuana in the system. Full report

Hacked Autonomous Vehicles: Who May Be Liable for Damages?
Zev Winkelman et al.
Rand Corporation Research Brief;
July 01, 2019

This Rand brief examines the implications of criminal hacks on autonomous vehicles (AVs). Hacks on AVs could lead to fatalities, property damage, ransomware attacks, or theft of information. The Rand researchers found that existing civil liability law will be flexible enough to adapt to most legal claims arising from hacked AVs, at least initially. Nevertheless, manufacturers, owners, insurers, policymakers and others would be wise to start thinking now about liability implications and both regulatory and statutory policy responses. A few key findings from the brief include: Makers of AVs and their component parts and software may face civil liability for criminal hacks on AVs; product liability laws — along with warranty law and state and federal privacy laws — are the most relevant bodies of law; manufacturers and operators should be aware of attacks on AVs and take precautions; government agencies and infrastructure providers may also be found liable if their negligence creates an opportunity for a cyberattack; and some large-scale cyberattacks on AVs may not be insurable and could lead to uncompensated losses. Policymakers may want to consider a government reinsurance backstop. Full Report