Speaking at ACORD LOMA 2014 in Orlando, Fla., Steven Weisbart, chief economist for the Insurance Information Institute, details 2014's challenges and opportunities for P&C insurers, as part of the State of the Industry Address on Tuesday, May 6.
2014's CHALLENGES:
Persistently low interest rates: Low rates come amid intense industry competition, which makes it difficult to raise policy rates to cover investment shortfalls.
Significant catastrophe claims: Since 2001, sixyears have had $30 billion in cat claims. 2013 was the best year, by far, in the post-financial crisis era, with $13 billion in total catastrophe losses, a number which would have been considered high before 2001. If 2014 turns out to be a typical cat year, expect $25 to $35 billion in catastrophe claims.
Adapting to tech developments/trends: Particularly in claims, underwriting and back-office operations, this won't be an easy thing to maintain because the target is moving, Weisbart says.
Affordability: This a new idea gaining ground among regulators and legislators, he says. What does it mean to have an "affordable" auto insurance premium, and what does it mean if it's not affordable? Weisbart points out that flood insurance and healthcare are subsidized, so as far as auto insurance affordability, this may grow to a broader concept.
Spillover from the Affordable Care Act: ACA stipulates that if loss ratios are not high enough, you are charging too much in relation to the premiums that you collect. This concept of affordability, if it leaks over to private insurance, homeowners and auto, could have a major impact, Weisbart says.
A black swan: Covering his bases against the unexpected, Weisbart says a black swan event "is something I never expect to see, but is devastating and does occur."
2014′s OPPORTUNITIES
New exposures to be insured: People are beginning to recognize cyber exposures and identity theft as massive interruptions. "This is the nature of insurance to protect against a large, not terribly frequent, financial-based interruption," Weisbart says. Buying insurance against these perils is a rational way to behave.
Current exposures and current underinsured: In particular, business interruption and flood insurance. "Flood insurance continues to be a mystery to me," Weisbart says. "When Sandy hit, a map of the most affected coastal areas showed that less than 15% of people on the shore had flood insurance."
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