Impact of Economy and Technology on Insurance and Workers’ Compensation
At the 2017 NCCI Annual Issues Symposium, Kurt Carl, Chief Economist for Swiss Re, talked about the impact of the economy and technology on insurance and workers compensation. The highlights:
- There are several factors that has lead to disappointing economic growth the last few years. This includes commodity price bust, slowdown in trade growth and slowdown in productivity growth. The recovery from the recession has been slower than hoped.
- With regard to interest rates, the U.S. Fed is looking to gradually raise the policy rate which will lift long-term government bond yields. One thing impacting these bond rates is that they are lower in other countries than in the United States. It is difficult to get people to invest in US government bonds when banks in Asia are loaning money at nearly zero percent interest. Pre-recession rates over 9% seem a distant memory and are very unlikely to happen again any time in the near future.
- The uncertainty around the U.S. Administration’s policy is also impacting economic growth. Ultimately, policy decisions on fiscal spending, taxes, deregulation, trade, immigration, security issues, and the budget deficit will impact the economy. Globally, there are concerns about the EU, China, and Latin America. It is hoped that any trade wars can be avoided as they would have a negative impact on our economy.
- Globally, growth is expected to remain moderate in the immediate future.
- For insurance markets, the low interest rates are very slowly trending upwards. Reserve releases seem to be fading replaced by some adverse reserve development. The marketplace is very well capitalized. One area impossible to predict is the impact of natural disasters which can cause huge swings in industry profitability. In commercial lines premium has been declining even with increasing risks because of the soft market conditions.
- China is the fastest growing insurance marketplace with them taking on an increasing level of global premiums. This is both because of domestic growth in China and Chinese capital investing in insurers around the world.
- On the liability line, claims traditionally grow faster than the GDP. Claims trends are likely to rise with stronger economic growth pushing up medical costs. It takes a few years for premium growth to catch up with higher claims costs.
- Wage gains are expected to be around 3.5% in the next few years with medical expenditures increasing around 6%. These numbers forecast increasing claims costs.
- The rate of workplace fatalities has been flat across most industries, but trending higher among self-employed. Transportation incidents account for 42% of total occupational fatalities. There has been a sharp increase in vehicle use levels use which has led to the corresponding increase in vehicular fatalities.
- Manufacturing employment continues to recover but it is significantly less than the pre-recession levels and is not expected to return to those levels.
- Construction has been trending steadily upward since the recession and that industry seems to have recovered well.
- Technology and automation will continue to have an impact on the workforce. As more companies automate, it decreases the payroll and the corresponding workers’ compensation premiums.
- Workers’ compensation can benefit from technology that leads to behavior modifications such as real-time alerts for hazards, and monitoring worker posture and fatigue.
- Telemedicine could speed time for treatment and ultimately lead to faster return to work from injuries.
- Technology also leads to new risks including data privacy, health risks, and cyber risks.
- Some feel robotics will increase employment, others are a bit skeptical on that claim.
- According to a McKinsey report, the jobs with the highest workers’ compensation frequency are the most likely to be replaced by automation. This includes predictable physical work, data processing, and data collection. Only about 9% of managers can be replaced by automation but 78% of factory workers can.
- Advances in technology can impact the insurance business across all areas of the industry including underwriting, billings, and claims.
- Most technology investments right now are on the personal lines and focused on distribution. Apps to interact with customers as an example.
- Huge gains in technology advances are expected on the medical side. These will impact accuracy of diagnostics, reduce medical errors.
- Expect the push for autonomous vehicles to come on the commercial side not the personal side. This would reduce payroll costs and accidents.