By Max Dorfman, Investigative Writer, Triple-I
Insurers are expected to post a technical loss in 2022, after four years of modest technical gains, according to a panel at the Triple-I Joint Industry Forum.
The panel was hosted by Paul Lavelle, head of US national accounts for Zurich North America, who noted that the insurance landscape has changed dramatically over the last year.
“The biggest concerns for the world economy are rapid inflation, the debt crisis and the cost of living,” Lavelle said in his opening remarks. “I think that’s why we as an industry need to tie this together and deal with all the variables.”
The panel included Dr. Michel Léonard, Triple-I Chief Economist and Data Scientist; Dale Porfilio, director of insurance for Triple-I; and Jason Kurtz, principal and consulting actuary at actuarial consultancy Milliman Inc.
“Overall inflation is up and replacement costs are down,” Léonard said in his opening remarks. “Growth has been challenging due to federal reserve policy that has crippled the economy. Most of the growth has been disappearing in homeowners, a little bit on the commercial real estate side and on the auto side.”
Porfilio said the increase in loss trends in the insurance industry reveals a technical loss, with a projected combined ratio of approximately 105 in 2022. The combined ratio represents the difference between claims and expenses paid and premiums collected for the insurers. A combined ratio less than 100 represents a technical gain and a ratio greater than 100 represents a loss.
The 2022 technical loss comes after a small technical gain from 2018 to 2021 of 99. However, technical results are expected to improve as the industry progresses.
“The results are not similar to those of previous years,” Porfilio said. “Basic underwriting fundamentals are troubling. However, after a poor result in 2022, we expect some improvement in 2023 and 2024.”
Still, commercial lines remain relatively successful.
“Overall, commercial lines are relatively outperforming personal lines,” Kurtz said. “That was the case in 2021 and we expect that to be the case in 2022 and through our 2024 forecast period.”
This includes workers’ compensation, which is approaching eight years of underwriting earnings, according to Kurtz.
In the personal car line, the 2020 gains turned for the biggest losses in two decades.
“The personal car is very sensitive to supply and demand,” Léonard said. “In the last 24 months, there has been a historic turnaround in prices, and particularly on the used car side. It’s all about supply and demand. Those prices increased 30 to 40 percent year-over-year. Recently, however, prices have come down a bit.”
“The industry experienced high profitability in 2020 due to fewer drivers,” added Porfilio. “Fourteen billion were returned to customers that year.”
However, due to the increase in driving and reckless driving, accident rates have increased.
The combined index in 2021 was 101 and surpassed 108 in 2022, according to Porfilio. Still, loss trends are expected to return to normal in 2023 and 2024.
Interest rates have also hit homeowners’ lines.
“Federal policies have been punishing growth,” Léonard said.
“Underlying stall pressure and Hurricane Ian have created challenging results,” Porfilio added.
However, the hard market has sparked 10 percent growth in 2022, partly due to exposure deals as well as rate increases.
The combined index for 2022 is expected to be around 115, falling to around 106 in 2023, before an expected decline to around 104 percent in 2024.
On the commercial auto side, panelists predict a technical gain with a combined index of 99 in 2021, but there was a four-point loss in 2022. This is expected to improve in 2023, with an index forecast of 102 and 101 in 2024.
In the commercial property lines, markets are facing shortages of steel, glass and copper, according to Leonard, and labor challenges are contributing to low to mid-double digit time percentage increases for some tasks.
“One of the most important factors in this is work. It is highly unlikely that work will return to where it was,” Léonard said. “We have estimated that it will take 30 percent more in repairs, reconstruction and construction, and five percent in terms of cost.”
However, Kurtz said the net combined ratio for the commercial property markets is projected to be about 99.1 in 2022, a small technical gain despite the losses tied to Hurricane Ian. By 2023, the combined index is expected to be approximately 94 and 92 in 2024.
“We anticipate further rate increases and further premium growth,” Kurtz added.
In fact, insurers continue to adapt to these new challenges. Although 2022 is anticipated to result in small losses, the industry continues to evolve.
As Lavelle said in his introduction, “insurance companies can no longer simply assess the risk, collect the premium, and pay the loss. We are being watched to find answers.”
