Private Passenger Auto Insurance Trends in GeorgiaFrequency & Severity on the Rise

Insurance Information Institute

Atlanta, GA

May 17, 2016

Download at www.iii.org/presentations

Robert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 bobh@iii.org www.iii.org

2

A Few Factors Driving Adverse Private Passenger Auto Loss Trends

More People Driving, Lower Gas Prices, Higher Speed Limits…

Return on Net Worth: Personal Auto, 2005-2014

4.3%

14.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Personal Fortune 500

3

Auto Insurance Profitability Has Been Falling for A Decade.

SOURCE: National Association of Insurance Commissioners.

Net Combined Ratio, 2005-2015

95

.1%

95

.6%

98

.3%

10

0.2

%

10

1.3

%

10

1.0

%

10

2.0

%

10

2.1

%

10

1.6

%

10

2.5

%

10

4.6

%

85%

90%

95%

100%

105%

110%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

4

Loss Ratios Have Been Rising for A Decade. 2015 Return on Net Worth Is Likely Close to Zero or Negative.

SOURCE: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance

Information Institute.

5

More Miles Driven=> More Collisions, 2006–2015:Q4

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

5.5

5.6

5.7

5.8

5.9

6.0

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07

:Q3

08:Q

1

08:Q

3

09:Q

1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12

:Q3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) Collision Claim Frequency (right axis)

Overall Collision Claims Per 100 Insured Vehicles

The more miles people drive, the more likely they are to get in an accident, helping drive claim frequency higher.

Recession

6

More People Working and Driving=> More Collisions, 2006-2016

Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.

Number Employed,Millions

138

140

142

144

146

148

150

152

06:Q1

06:Q3

07:Q1

07:Q3

08:Q1

08:Q3

09:Q1

09:Q3

10:Q1

10:Q3

11:Q1

11:Q3

12:Q1

12:Q3

13:Q1

13:Q3

14:Q1

14:Q3

15:Q1

15:Q3

16:Q1

5.5

5.6

5.7

5.8

5.9

6.0

Number Employed (left scale) Collision Claim Frequency (right scale)

Overall Collision Claims Per 100 Insured

Vehicles

When people are out of work, they drive less. When they get jobs,they drive to work, helping drive claim frequency higher.

Recession

7

Why Are PeopleDriving More Miles? Cheap Gas?

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Energy Information Administration; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09

:Q1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) Gas PricesAvg. Price Per Gallon

Gas Prices Don’t Seem Correlated With Miles Driven.

Recession

8

Why Are PeopleDriving More Miles? Jobs?

Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); Seasonally Adjusted Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute.

Billions of Miles Driven in Prior Year

132

134

136

138

140

142

144

146

148

150

152

2850

2900

2950

3000

3050

3100

3150

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09

:Q1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14

:Q1

14:Q

3

15:Q

1

15:Q

3

Miles Driven (left axis) # EmployedMillions Employed

People Drive To and From Work and Drive to Entertainment. Out of Work, They Curtail Their Movement.

Recession

Comparing Gas Prices, Employment on Collision Frequency

5.5

5.55

5.6

5.65

5.7

5.75

5.8

5.85

5.9

5.95

6

- 1.00 2.00 3.00 4.00 5.00

Gas price vs. Collision FrequencyFreq.

5.5

5.55

5.6

5.65

5.7

5.75

5.8

5.85

5.9

5.95

6

135 140 145 150 155

Number Employed vs. Collision FrequencyFreq.

9

Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Energy Information Administration; Rolling Four-Qtr Avg. Frequency from Insurance Services Office; Insurance Information Institute.

Gas Price/Gal. Employment Level

10

Auto Fatalities Are Rising

Fatal Auto Accidents Are Rising Faster in Georgia at Nearly 3

Times the Rate Nationally

Severity: Driving Fatalities Are Rising

Sources: National Safety Council, Insurance Information Institute.

Driving Has Been Getting Safer For Decades, But Recent Trend Is Discouraging—38,300 Deaths in 2015

Change in Auto Fatalities by State: Especially Severe in Georgia

7%

11%

12%

16%

22%

-1%

8%

-5% 0% 5% 10% 15% 20% 25%

GA (1,394)

SC (954)

KY (748)

NC (1,396)

USA (38,300)

VA (755)

TN (961)

SOURCE: Estimates from National Safety Council.

2015 vs. 2014

Fatalities in Southeast Rising Faster Than USA

as a Whole

GA’s auto fatality rate has increased at a pace nearly 3 times that of the US overall

and far in excess of any other state in the region

13

Private Passenger Auto Profitability in Southeast States vs. US

Georgia is Profitability Laggard in the Region and

Among the 50 States

14

RNW PP Auto: NC, SC and GA vs. U.S., 2005-2014

Source: NAIC.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

05 06 07 08 09 10 11 12 13 14

US NC SC GA

Average 2005-2014

US: 6.2%NC: 6.4%SC: 5.8%GA: 4.7%

15

RNW PP Auto: TN, FL, MS, AL vs. U.S., 2005-2014

Source: NAIC.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

05 06 07 08 09 10 11 12 13 14

US TN FL MS AL GA

Average 2005-2014

US: 6.2%AL: 6.7% TN:5.8%GA: 4.7% FL: 3.9%MS: 3.6%

16

Private Passenger Auto Frequency & Severity Trends in Georgia vs. Southeast

States and US

Frequency, Severity and Loss Ratios Are Up in Georgia

17

Georgia Coverage: BI Severity & Frequency Trends Are Both Higher in 2015

3.9

%

4.5

%

2.7

% 4.2

%

4.7

%

4.2

%

-5.7

%

-5.2

%

-0.9

%

0.0

%

3.5

% 5.0

%

0.2

%

6.6

% 8.5

%

5.4

%

4.5

%

7.2

%

0.9

%

5.6

%

2.7

%

1.8

%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with

Experience from Past Recoveries

Source: ISO/PCI Fast Track data; Insurance Information Institute

18

Georgia Coverage: PD Frequency Trends Are Higher in 2014-2015

3.6

% 4.8

%

5.6

%

3.6

%

3.6

%

-1.5

%

-2.0

%

-3.4

%

-6.6

%

2.9

%

2.0

%

2.0

%

5.2

%

1.6

%

1.6

%

1.3

%

-0.6

%

-0.9

%

1.6

%

-0.3

%

-2.3

%

-0.5

%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with

Experience from Past Recoveries

Source: ISO/PCI Fast Track data; Insurance Information Institute

19

Georgia Coverage: Collision Frequency Trends Are Higher in 2014-2015

3.5

%

1.2

% 2.6

%

0.6

%

0.0

%

1.1

%

-2.4

%

-3.1

%

-6.1

%

1.4

%

6.2

%

5.1

%

7.6

%

-1.3

%

-2.0

%

1.0

%

-1.7

%

-3.3

%

0.6

%

-0.8

%

-0.2

%

1.9

%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with

Experience from Past Recoveries

Source: ISO/PCI Fast Track data; Insurance Information Institute

GA’s Collision claim frequency is up

sharply over the past two years

20

Collision Loss Ratio Trending Upward:Pvt. Passenger Auto, GA vs. US, 2010 – 2015

57.0% 57.0%

63.5%

69.8%

73.4%

80.7%

67.7%

71.5% 71.5%

75.7%77.1%

78.9%

50%

55%

60%

65%

70%

75%

80%

85%

2010 2011 2012 2013 2014 2015

US GA

Loss Ratio

Collision Loss Ratios are Rising Much Faster in Georgia than the US Overall

Source: ISO/PCI Fast Track data; Insurance Information Institute.

GA’s Collision loss ratio is up 23.7 percentage points since 2010, more

than double the 11.2 percentage point increase nationally. For the first time in recent history, GA’s collision loss

ratio is above the US average.

21

Georgia Coverage: Comp Frequency, Severity Typically Tied to Weather Events

6.1

%

-7.6

%

44

.0%

-17

.8%

-17

.8%

9.2

%

-10

.5%

-8.4

%

15

.7%

-6.3

%

0.2

%

-13

.1%

20

.2%

-6.4

%

4.3

%

18

.9%

-5.1

%

-26

.0%

-3.5

%

-4.1

%

16

.0%

6.4

%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

Weather Events Drive Volatility in Comprehensive Coverage

Source: ISO/PCI Fast Track data; Insurance Information Institute

22

Georgia Coverage: Comp Frequency, Severity Typically Tied to Weather Events

6.1

%

-7.6

%

44

.0%

-17

.8%

-17

.8%

9.2

%

-10

.5%

-8.4

%

15

.7%

-6.3

%

0.2

%

-13

.1%

20

.2%

-6.4

%

4.3

%

18

.9%

-5.1

%

-26

.0%

-3.5

%

-4.1

%

16

.0%

6.4

%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Severity Frequency

Annual Change, 2005 through 2015

The Recession, High Fuel Prices Helped Temper Frequency and Severity, But this Trend Has Clearly Reversed, Consistent with

Experience from Past Recoveries

Source: ISO/PCI Fast Track data; Insurance Information Institute

23

Speed Limits Are Up All Over Metro Atlanta

Force = Mass x Acceleration*

The Laws of Physics Apply Everywhere, including Georgia

*Newton’s Second Law of Motion

24

Partnerships with Insurers: Selling Safety and Savings Simultaneously

Source: WABE at http://news.wabe.org/post/65-too-slow-try-70-miles-hour-gdot-increases-speed-limits-metro-atlanta

Insurance Information Institute research.

Speed limits are up all around the densely

populated metro Atlanta area—to as high as 70 mph in

some areas

25

Partnerships with Insurers: Selling Safety and Savings Simultaneously

Source: WABE at http://news.wabe.org/post/65-too-slow-try-70-miles-hour-gdot-increases-speed-limits-metro-atlanta

Insurance Information Institute research.

Speed limits are up all around the densely

populated metro Atlanta area—to as high as 70 mph in

some areas

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_Hartwig

Download at www.iii.org/presentations

Insurance Information Institute Online:

26