At the 2017 Advisen Casualty Insights Conference, a panel of industry executives discussed trends and developments in the casualty insurance industry.
The panel included:
- Tony DeFelice – Managing Director and Casualty Practice Leader, AON (moderator)
- Keith Wolfe – President U.S. P&C Regional and National, Swiss Re
- Alexander Baugh – President Liability and Financial Lines, AIG
- Jonathan Zaffinno – President, Everest Insurance
- Paul Horgan – Head of North America Commercial Insurance, Zurich
Several large casualty carriers posted significant reserve increases in the last couple years. What is the reason for the deterioration of the commercial insurance loss ratios?
- In the last two years, we have seen the biggest increase in auto severity within the last fifty years. Add to that increases in jury awards and costs of physical damage repairs, and the auto line of business has been performing much worse than expected. The actuarial triangles need to be adjusted for this, but that takes years. The industry is trying to figure out if these new loss trends is a blip or a fundamental change in loss trends.
- Yes, there have been reserve increases posted, but it is important not to overstate them. In context to the amount of business written in certain lines, the impact of additional losses posted have not been as significant as sometimes reported.
What other trends are you seeing in the auto insurance industry?
- Telematics are more widespread in Europe and that experience has shown those, alone, are not having a significant impact on accidents.
- Auto physical damage repair costs keep increasing as cars have newer technology, which costs more money to repair.
- There needs to be a collective push in the industry to increase auto rates – perhaps as much as 20% higher. Rate increases, alone, are not the only way to address the increase in accident frequency and severity, but carriers cannot ignore the loss trends in this line from a rate standpoint.
- One of the problems with addressing trends in commercial auto is that carriers do not readily share data with each other. This makes it difficult to do in-depth analysis that could lower losses.
Some carriers have stepped out of certain market segments because of losses. Was this a knee-jerk reaction?
- Decisions to reduce underwriting in a market segment are very thought through and losses, alone, are not the sole reason for such a decision. Carriers also look at competition in the marketplace and medical inflation trends that affect losses. Carriers do not take the decision to exit a marketplace lightly.
- The negative trends in the auto industry continues, so the decision to reduce underwriting in that area was appropriate.
The Fed is increasing interest rates and the industry has high surplus levels. Will this lead to rate reductions?
- There remains significant competition in the casualty insurance marketplace, which will prevent a hard market cycle from taking hold. There could be isolated pockets of hard markets, but overall I do not see this happening because of competition.
- With the ample capital in the marketplace, plus capital that could be invested in the marketplace, even shock losses would not have a lasting impact rates. Expect rates to remain competitive in the future.
What trends do you see emerging in the cyber marketplace, particularly with the internet of things?
- Until about a year ago, none of us predicted that a cyber denial of service attack would result in product liability claims, but that has happened with hackers showing they can access control systems for automobiles, factories, etc.
- We, as an industry, feel that about 70% of what we insure against is human error. The internet of things is changing that by taking the human out of the equation. That shifts the liability to a products claim when machines do not function correctly because of a cyber attack.
- The internet of things is going to become one of the most-significant areas of risk management and loss control. Wearable technology could do a lot to prevent accidents if fully utilized.
- There is no federal standard as to what constitutes liability with the internet of things so this is being defined on a state-by-state basis, often in the courts.
Do you think that the industry is missing loss trends on the general liability side because we are so focused on auto losses?
- Trends show that increased frequency of losses is confined to the auto space. However, the increase in frequency of high-severity lines is across all liability lines.
- Some of our largest losses occur with clients who have not had a loss for over five years. It is very difficult to predict the large losses.
- It is difficult to push rate increases on liability lines as this causes rate increases throughout the umbrella tower because those rates are tied to the underlying liability rates.