the economic state of the p/c insurance industry focus on auto insurance markets insurance auto...
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The Economic State of theP/C Insurance Industry
Focus on Auto Insurance MarketsInsurance Auto Auctions
Industry Leadership SummitSea Island, GA
September 15, 2015Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
3
Auto Insurance Growth Analysis
Growth Trajectories Differ Substantially by State and
Over Time
4
Distribution of Direct Premiums Written by Segment/Line, 2013
Sources: A.M. Best; Insurance Information Institute research.
Personal/Commercial lines split has been about 50/50 for many years
Pvt. Passenger Auto is by far the largest line of insurance and is currently the most important source of industry profits
Commercial Auto accounts for about 5% of overall industry premium vs. 34% for Pvt. Passenger Auto
Distribution Facts
Commercial Lines$242.5B/46%
2013
Pvt. Pass Auto$180.8B/34%
Homeowners$80.7B/15%
Commercial Auto
$26.7B/5%
5
$119
.7 $128
.0 $139
.7 $151
.2 $159
.6
$158
.5
$157
.2
$160
.1
$163
.3
$168
.1
$174
.6 $183
.5
$191
.2
$197
.7
$204
.0
$160
.3
$159
.6
$157
.3
$100
$120
$140
$160
$180
$200
$220
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F
PP Auto premiums written continue to recover from a period of flat growth attributable to the weak economy impacting new vehicle sales, car choice, and increased
price sensitivity among consumers
Sources: A.M. Best (1990-2014); Conning (2015-17F); Insurance Information Institute.
Private Passenger Auto InsuranceNet Written Premium, 2000–2017F
$ Billion
PPA NWP volume in 2014 was up $26.3B or 16.7%
since the 2009 trough; By 2017 the gain is expected to
be $46.8B or 29.7%
8
Direct Premiums Written: PP AutoPercent Change by State, 2007-2014
44
.5
36
.0
33
.8
30
.9
26
.6
24
.4
24
.4
21
.1
20
.4
20
.3
19
.5
19
.4
19
.1
19
.0
18
.7
18
.7
18
.4
17
.9
17
.4
17
.2
16
.9
16
.4
15
.8
15
.7
15
.6
15
.4
0
5
10
15
20
25
30
35
40
45
50
ND
TX MI
OK
SD
CO
NE
TN
SC
UT
KS WI
NJ IA VA
LA
DE FL
GA
NY
KY
US
WY
MT
AR
AL
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Growth Benchmarks: PPA
US: 16.4%
9
Direct Premiums Written: PP AutoPercent Change by State, 2007-2014
15
.0
14
.2
14
.2
13
.9
13
.9
13
.2
12
.9
12
.2
12
.1
11
.1
11
.0
10
.6
10
.5
10
.3
10
.3
10
.0
9.9
8.3
7.3
6.5
5.6
5.5
5.3
5.1
0.2
-0.2
-2
0
2
4
6
8
10
12
14
16
MO
NC
MN IN DC
OH
MD
MS
AK
MA
WA
CT
NM
WV RI
ID IL PA
CA
US
VT
NV
NH AZ
ME HI
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Pvt. Passenger Auto premium growth was negative in Hawaii
between 2007 and 2014
10
$19.5
$21.8
$24.6$25.4 $25.8
$23.8
$22.1$21.2 $21.2
$22.1
$24.0
$25.7
$28.0
$26.6 $26.7 $26.7
$15
$17
$19
$21
$23
$25
$27
$29
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Sources: A.M. Best (2000-2014); Conning (2015F); Insurance Information Institute.
$ Billion
In contrast to positive PP Auto NPW growth, Commercial Auto premiums fell 21.3% between 2005 and 2011 due to soft market conditions in
commercial lines and negative exposure trends, though growth resumed in 2012
Commercial Auto InsuranceNet Written Premium, 2000–2015F
11
Direct Premiums Written: Comm. AutoPercent Change by State, 2007-2014
10
6.4
27
.1
18
.8
16
.9
12
.5
11
.5
11
.4
10
.2
9.3
6.0
5.9
5.2
4.9
4.8
4.6
3.7
2.7
2.5
1.3
1.1
1.1
0.7
0.7
-0.5
-0.9
-1.2
-20
0
20
40
60
80
100
120
ND
TX
NE
OK MI
MT
KS IA
WY
NY LA IL AR
MO
MN
KY WI
PA
MS IN TN
DC
US
NM
CO NJ
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Growth Benchmarks: Comm. Auto
US: 0.7%
12
Direct Premiums Written: Comm. AutoPercent Change by State, 2007-2014
-1.2
-2.3
-3.2
-3.3
-4.6
-5.1
-5.3
-5.4
-6.0
-6.4
-7.3
-7.5
-8.2
-8.2
-8.4
-8.8
-9.0
-10
.3
-10
.3
-11
.0
-12
.0
-12
.8
-17
.0
-18
.9
-28
.6
-37
.1
-40
-35
-30
-25
-20
-15
-10
-5
0
5
OH
CT
ME
WA ID VA
VT
CA
GA
MA
OR
UT FL
MD
AK
NV
WV RI
NH
SC
NC AL HI
AZ
SD
DE
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LC.; Insurance Information Institute.
Comm. Auto premium growth was negative in 29 states between 2007
and 2014
Vehicle and Driver Exposure Influences
13
Have We, Will We Hit “Peak Auto”?
14
16.9
16.5
16.1
13.2
10.4
11.6
12.7
14.4
15.5 16
.4 17.0
17.1
16.9
16.8
16.9
16.8
16.7
16.9
16.617
.117.5
17.8
17.4
9
10
11
12
13
14
15
16
17
18
19
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F 20F 21F
(Millions of Units)
Auto/Light Truck Sales, 1999-2021F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (8/15 and 3/15); Insurance Information Institute.
New auto/light truck sales fell to the lowest level since the late 1960s. Forecast for 2014-15 is
still below 1999-2007 average of 17 million units, but a robust recovery is well underway.
Job growth and improved credit market conditions will boost auto sales in
2014 and beyond
Truck, SUV purchases by
contractors are especially strong
Yearly car/light truck sales will likely continue at current levels, in part replacing cars that were held onto in 2008-12. New vehicles will generate more physical damage insurance coverage but will be more expensive to
repair. PP Auto premium might grow by 5% - 6%.
Sales have returned to pre-
crisis levels
16
210.
4
211.
6
215.
5 220.
5 225.
8 235.
3
234.
6
236.
8 243.
0
247.
4
250.
8
254.
4
255.
9
254.
2
250.
1
253.
2
253.
6
255.
9
205.
4
201.
8
198.
0
194.
4
192.
3
193.
1
180
200
220
240
260
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
(Millions)
Registered Passenger Vehicles,1990-2013
Sources: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_11.html Insurance Information Institute.
The number of registered vehicles grew consistently (except following recessions) from 1990-2007. It has been flat (through 2013) since then.
Recession Recession
Number of Registered Passenger Vehicles in US, 1999 – 2015E
Sources: Bureau of Transportation Statistics; Barclays Capital estimates, August 2015. 17
Vehicle registrations are growing once
again and now finally exceed pre-crisis
peak
Vehicle registrations are expected to increase at an
annual rate of about 1.5% per year in 2015
and 2016
New Vehicle Registrations in the US, Dec. 2005 – Dec. 2014
Sources: Haver, CEIC; Barclays Capital. 18
New Vehicle registrations are
close to their pre-crisis peak
19
Number of Licensed Drivers, 1984-2013
150
160
170
180
190
200
210
220
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: 2015 Ward’s Motor Vehicle Facts & Figures, p. 53; l I.I.
# of Licensed Drivers (millions)
Since 2009, virtually no growth in the
number of licensed drivers (through 2013)
Average Vehicle Age, 2002 - 2014
Sources: HIS; Barclays Capital. 20
Average age is still increasing but at a slower pace as new
vehicles sales growth remains strong
21
4.26
4.18
4.07
3.98
3.76 3.90
3.87
3.83
3.88 4.
15 4.35 4.
90 5.00 5.
37 5.77 6.
23 6.68 7.
14 7.75 7.93 8.01 8.
44
8.45
8.40
0
2
4
6
8
10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
(Millions)
Registered Motorcycles,1990-2013
Sources: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_11.html Insurance Information Institute.
The number of registered motorcycles grew dramatically in the first decade of the 21st century. Baby boomers? Millennials?
No growth, 1990-1999
103.6% growth, 2000-2011
22
0.57
1.38
2.82
4.96
5.69 5.44
4.263.90
4.35
6.23
8.018.44 8.45
0
2
4
6
8
10
60 65 70 75 80 85 90 95 00 05 10 11 12
(Millions)
Registered Motorcycles,1960-2012:A Changing Exposure Base
Sources: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_11.html Insurance Information Institute.
The number of registered motorcycles grew dramatically in the first decade of the 21st century. Baby boomers? Millennials?
Shrinkage, 1985-1990
Growth, 2000-2011
Growth, 1960-1980
23
Personal Auto Ad Spend Trends
Growth in Ad Spend Remains Robust Among Many Top
Auto Insurers
Advertising Expenditures by P/C Insurance Industry, 1999-2014E
$1.736$1.737$1.803$1.708
$3.426
$4.102$4.354
$4.103
$5.079
$5.883$6.088$6.186
$6.000
$2.975
$2.111$1.882
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
$5.5
$6.0
$6.5
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E
Source: Insurance Information Institute from consolidated P/C Annual Statement data, Insurance Expense Exhibit (Part I, Line 4).
$ BillionsP/C ad spend hit an all
time record high of $6.186 billion in 2013 up 1.6% over 2012 but fell about 3% in 2014 to an
estimated $6 billion
P/C ad spending more than tripled since 2002 (up
~251% from 2002-2014E)
Auto Insurance Macro Growth Drivers: The Economy Is
Supporting Growth in Personal and Commercial Auto
25
The Economy and Consumer Sentiment Remain Sufficient to Propel Auto Sales
into 2016
25
26
US Real GDP Growth*
* Estimates/Forecasts from Blue Chip Economic Indicators.Source: US Department of Commerce, Blue Economic Indicators 8/15; Insurance Information Institute.
2.7%
1.8%
-1.8
%1.
3%-3
.7%
-5.3
%-0
.3%
5.0%
2.3%
2.2% 2.6%
2.4%
0.1%
2.5%
1.3%
4.1%
2.0%
1.3%
3.1%
0.4%
2.7%
1.8%
3.5%
-0.9
%4.
6%4.
3%2.
1%0.
6%2.
3% 2.7%
2.8%
2.7%
2.7%
2.7%
2.6%
-8.9%
4.5%
1.4%
4.1%
1.1% 1.
8% 2.5% 3.
6%3.
1%
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
2
00
0
2
00
1
2
00
2
2
00
3
2
00
4
2
00
5
2
00
6
2
00
7
08
:1Q
08
:2Q
08
:3Q
08
:4Q
09
:1Q
09
:2Q
09
:3Q
09
:4Q
10
:1Q
10
:2Q
10
:3Q
10
:4Q
11
:1Q
11
:2Q
11
:3Q
11
:4Q
12
:1Q
12
:2Q
12
:3Q
12
:4Q
13
:1Q
13
:2Q
13
:3Q
13
:4Q
14
:1Q
14
:2Q
14
:3Q
14
:4Q
15
:1Q
15
:2Q
15
:3Q
15
:4Q
16
:1Q
16
:2Q
16
:3Q
16
:4Q
Demand for Insurance Should Increase in 2015 as GDP Growth Accelerates Modestly and Gradually Benefits the Economy Broadly
Real GDP Growth (%)
Recession began in in June
2009
The Q4:2008 decline was the steepest since the Q1:1982 drop of 6.8%
Q1 2014/15 GDP data were hit hard by this
year’s “Polar Vortex” and harsh
winter
State Leading Economic Indicators through November 2015
Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute. 27
Growth in the West is
finally beginning to pick up
The economic outlook for most of the US is generally
positive, though flat-to-negative for 10 states, several
of them energy dependent
28
Real GDP by State Percent Change, 2014*:Highest 25 States
6.3
5.2
5.1
5.1
4.7
3.6
3.1
3.0
2.8
2.8
2.7
2.7
2.5
2.3
2.3
2.3
2.2
2.2
2.1
1.9
1.9
1.9
1.8
1.8
1.8
1.7
0
1
2
3
4
5
6
7
ND TX WY WV CO OR UT WA OK CA ID FL NY GA NH MA US SC OH MI MN LA MT KS PA TN
Pe
rce
nt
Ch
an
ge
(%
)
*Advance statisticsSources: U.S. Bureau of Economic Analysis; Insurance Information Institute.
North Dakota was the economic growth juggernaut of the US
in 2014—by far
Only 7 states experienced growth in excess of 3% in 2014, which is a
growth rate we would see nationally in a more typical recovery
Growth Benchmarks: Real GDP
US: 2.2%
29
1.6
1.4
1.4
1.2
1.2
1.2
1.0
1.0
1.0
1.0
0.9
0.8
0.8
0.8
0.7
0.7
0.6
0.6
0.6
0.4
0.4
0.4
0.2
0.0
-1.2
-1.3-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
DC NC AZ IL RI DE WI KY NM NV MO AR HI MD NE AL SD VT CT IA IN NJ ME VA MS AK
Pe
rce
nt
Ch
an
ge
(%
)Real GDP by State Percent Change, 2014*: Lowest 25 States
*Advance statisticsSources: US Bureau of Economic Analysis; Insurance Information Institute.
Mississippi and Alaska were the
only states to shrink in 2014
Growth rates in 16 states were still below 1% in
2014
74.4
73.6
73.6
72.2 73.6 76
67.8
68.9
68.2
67.7 71
.6 74.5
74.2 77
.567
.5 69.8
74.3
71.5
63.7
55.7 59
.5 60.9 64
.169
.975
.075
.376
.276
.4 79.3
73.2
72.3 74
.382
.682
.774
.573
.8 77.6
78.6
84.5
84.1
85.1
82.1
77.5
73.2 75
.182
.581
.281
.680
.0 84.1
81.9
82.5
81.8
82.5 84
.6 86.9 88
.893
.698
.195
.493
.0 95.9
90.7
96.1
93.1
92.9
76.4
40
50
60
70
80
90
100
110
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
12F
eb-1
2M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
ov-1
4D
ec-1
4Ja
n-15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15Ju
l-15
Aug
-15
Consumer Sentiment Survey (1966 = 100)
January 2010 through August 2015
Consumer confidence has experienced a substantial recovery from its crisis and post-crisis lows, substantially contributing to increased
demand for vehicles and homes.
Source: University of Michigan; Insurance Information Institute
Optimism among consumers dropped in August fell but
remains fairly strong
30
Impact of 2011 budget impasse
31
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
Jan15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.3% in July 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through July 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.
31
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.4% in June 2015.8% to 10% is
“normal.”
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
81
92
94 11
01
20
11
71
07
19
91
49
94
72
22
32
31 3
20
16
61
86
21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
8 22
22
01
17
01
80
15
32
47
27
28
61
83
17
5 22
33
13
23
8 27
22
43
20
92
35
21
84
14
31
92
02 2
61
11
7 18
9 25
22
27
21
0
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-
07F
eb-0
7M
ar-0
7A
pr-0
7M
ay-
Jun-
07Ju
l-07
Aug
-S
ep-
Oct
-07
Nov
-D
ec-
Jan-
08F
eb-0
8M
ar-0
8A
pr-0
8M
ay-
Jun-
08Ju
l-08
Aug
-S
ep-
Oct
-08
Nov
-D
ec-
Jan-
09F
eb-0
9M
ar-0
9A
pr-0
9M
ay-
Jun-
09Ju
l-09
Aug
-S
ep-
Oct
-09
Nov
-D
ec-
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-
Jun-
10Ju
l-10
Aug
-S
ep-
Oct
-10
Nov
-D
ec-
Jan-
11F
eb-1
1M
ar-1
1A
pr-1
1M
ay-
Jun-
11Ju
l-11
Aug
-S
ep-
Oct
-11
Nov
-D
ec-
Jan-
12F
eb-1
2M
ar-1
2A
pr-1
2M
ay-
Jun-
12Ju
l-12
Aug
-S
ep-
Oct
-12
Nov
-D
ec-
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-
Jun-
13Ju
l-13
Aug
-S
ep-
Oct
-13
Nov
-D
ec-
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-
Jun-
14Ju
l-14
Aug
-S
ep-
Oct
-14
Nov
-D
ec-
Jan-
15F
eb-1
5M
ar-1
5A
pr-1
5M
ay-
Jun-
15Ju
l-15
Monthly Change in Private Employment
January 2007 through July 2015 (000s, Seasonally Adj.)
Private Employers Added 12.84 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar.
09 were the largest in the
post-WW II period
210,000 private sector jobs were created in July.
32
Jobs Created2014: 3.042 Mill2013: 2.452 Mill2012: 2.315 Mill2011: 2.396 Mill2010: 1.282 Mill
3,042,000 jobs were created in 2014, the most since 1997
33
US Unemployment Rate Forecast4
.5%
4.5
%4
.6%
4.8
%4
.9% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.3
%7
.0%
6.6
%6
.2%
6.1
%5
.7%
5.6
%5
.4%
5.3
%5
.1%
5.0
%4
.9%
4.8
%4
.8%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
16
:Q1
16
:Q2
16
:Q3
16
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (8/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
38
Household Balance Sheets Are Relatively Strong
Auto Loan Market is Strong: Default Rates Remain Low
$0
$10
$20
$30
$40
$50
$60
$70
$80
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Net Worth of Households*Recently Hit A Historic High
*and nonprofit organizations. Data are as of year-end, except in 2015:Q1 (data posted on June 11, 2015. Data not seasonally adjusted or inflation-adjusted; http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf Source: Federal Reserve Board at http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf
2008-09 Recession:
-15.7%
$ Trillions
2001 recession
1992 recession
1982 recession
Housing “bubble”Adjusted for
population growth, net worth is now
comparable to its pre-crisis peak
Rising net worth fuels a “wealth affect” that helps fuel consumer
spending, which accounts for 70% of spending in the U.S. economy
Auto Loans and Other Non-Housing Debt, 2004 – 2015:Q1
41
Banks are becoming increasingly aggressive in marketing auto loans
Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.
Auto loan debt outstanding
reached $1T for the first time ever
in Q1 2015
Lenders are Issuing a Rising Number of New Auto Loans, Even for People with Poor Credit Scores
42
For the past several years, auto loans in nonaccrual status remained at roughly 0.25% of outstanding loans.
Auto loan originations reached a 10-year high in 2015:Q2
Auto Loan and Other Non-Housing Deliquencies, 2004 – 2015:Q1
43
So far, increasingly aggressive marketing of auto loans has not resulting in a surge in loan delinquencies and defaults
Source: Federal Reserve Bank of NY Consumer Credit Panel/Equifax; l. I.I.
Auto loan delinquencies have improved
dramatically since their crisis peak but remain above pre-crisis
levels
44
Rate and Exposure Trends for Private Passenger Auto
Rate and Exposure Are Both Important Drivers of Growth
45
Monthly Change in Auto Insurance Prices, 1991–2015*
*Percentage change from same month in prior year; through July 2015; seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.
-2%
0%
2%
4%
6%
8%
10%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Cyclical peaks in PP Auto tend to occur roughly every 10 years (early
1990s, early 2000s and likely the early 2010s)
“Hard” markets tend to occur
during recessionary
periods
Pricing peak occurred in late
2010 at 5.3%, falling to 2.8% by Mar. 2012
July 2015 reading of 5.4% is up from 4.2%
a year earlier
47
Change in Commercial Rate Renewals, by Line: 2015:Q1
Source: Council of Insurance Agents and Brokers; Insurance Information Institute.
Major Commercial Lines Renewals Were Mixed to Flat in Q1:2015; EPL and Commercial Auto Led the Way
Percentage Change (%)
-0.2%
1.4% 1.5%
2.4%
-4.0%
-2.2% -2.2% -2.1%
-0.7% -0.4%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Co
mm
erc
ial
Pro
pe
rty
Bu
sin
ess
Inte
rru
ptio
n
Ge
ne
ral
Lia
bili
ty
Um
bre
lla
Co
nst
ruct
ion
Wo
rke
rsC
om
p
Su
rety
D&
O
Co
mm
erc
ial
Au
to EP
L
Commercial Auto rate increases remain
positive
Note: CIAB data cited here are based on a survey. Rate changes earned by individual insurers can and do vary, potentially substantially.
Auto Insurance Claim Cost Drivers Continue to Grow Faster than CPI
Sources: Bureau of Labor Statistics; Insurance Information Institute.
1.8%
5.4%
2.5%
3.3%
1.0%
0.0%0.2%
1.5%
2.5%
-2%
0%
2%
3%
5%
6%
Overall CPI "Core" CPI MotorVehicle
Insurance
TotalMedical
Care
Physicians'Services
HospitalServices
MotorVehicle
Body Work
New Cars NewTrucks
Healthcare costs are a major cost driver and are expected to accelerate in the years ahead
50
Excludes Food and Energy
Price Level Change: July 2015 vs. July 2014
50
Private Passenger Auto: Premium Growth vs. Loss Cost Spread
Sources: Barclays Capital, August 2015. 51
Pure Premium Spread in 2015 Q1 was 0.0%
meaning that rate gains were exactly offset by
loss cost inflation
The Pure Premium Spread is the difference between price increases and loss
cost inflation adjusted for frequency trends
52
Average Expenditures* on Auto Insurance, 1994-2014E
$651 $6
68 $691 $7
05 $726
$786
$830 $8
42
$831
$816
$799
$791
$787
$792
$797 $8
15 $836 $8
60
$690
$685$7
03
$600
$650
$700
$750
$800
$850
$900
$950
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
13E
14E
Across the U.S., auto insurance expenditures fell by 0.8% in 2008and 0.5% in 2009 but rose 0.5% in 2010, 0.8% in 2011 and 2.3% in 2012
I.I.I. estimate for 2013 is +2.6% and +2.9 in 2014%.* The NAIC data are per-vehicle (actually, per car-year)
Sources: NAIC for 1994-2012; Insurance Information Institute estimates for 2013-2014 based on CPI and other data.
The average expenditure on auto insurance in 2014 likely finally
exceeded the pre-crisis high of $842 recorded in 2004—a full decade earlier
Annual Pct Changes 2001: 5.2%2002: 8.6%2003: 5.6%2004: 1.5%2005: -1.3%2006: -1.8%2007: -2.1%2008: -1.0%2009: -0.5%2010: 0.6%2011: 0.6%2012: 2.3%
53
Average Expenditures for Auto Insurance By State, 2012*
1,2
20
1,1
55
1,1
52
1,1
28
1,1
13
1,0
65
1,0
49
1,0
35
98
7
97
7
96
6
90
6
87
3
85
9
84
7
82
8
81
5
81
0
78
2
77
2
76
8
76
0
75
0
74
8
74
2
73
8
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
NJ
DC
NY FL
LA
DE MI
RI
CT
MA
MD
NV
AK
TX
WV
PA
US
WA
AZ
SC
GA
KY
CA
*
MS
OR
CO
Av
era
ge
Ex
pe
nd
itu
re $
*Latest available.Sources: NAIC; Insurance Information Institute.
Note: * California’s figure is preliminary
Top 25 States US Average:
$814.99
54
Average Expenditures for Auto Insurance By State, 2012*
73
7
73
5
73
1
71
9
71
7
71
3
69
5
69
2
68
4
67
9
67
4
65
9
65
8
64
2
63
7
63
5
63
2
61
9
61
7
61
1
59
9
58
2
57
6
56
1
55
7
53
5
$0
$100
$200
$300
$400
$500
$600
$700
$800
OK HI
IL
MN
NH
UT
NM V
I
MO AR
TN AL
MT
VT IN OH
KS
WY
NE
NC WI
ME
ND IA SD ID
Av
era
ge
Ex
pe
nd
itu
re $
*Latest available.Sources: NAIC; Insurance Information Institute.
Bottom 25 States
55
Annual Pct. Change in Avg. Expenditures on Auto Insurance, vs. Auto Insurance Prices, 1995-2015E
2.6%3.4%
2.0%
-0.3%
-2.6%
0.7%
5.2%
8.3%
5.6%
1.5%
-1.3%-1.8%-2.1%
-1.0%-0.5%
0.6% 0.6%
2.3%2.9%
4.2% 4.1%
3.2%
1.1%
-0.2%
1.1%
4.4%
8.8%
7.8%
2.8%2.1%
0.6% 0.4%
2.5%
4.5%5.1%
3.6% 3.6%
4.9%
2.6%
3.3%
-3%
0%
3%
6%
9%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Avg. Exp Prices
The gap since 2005 between price changes and expenditures on auto insurance might be due to buyers increasing deductibles,
obtaining discounts, and other premium-reducing behavior.Sources: NAIC for 1994-2012; BLS for auto price changes; I.I.I.
Since 2005 the gap between annual auto insurance price changes as measured by the
BLS has increased, suggesting increased consumer price
sensitivity
Annual auto insurance price changes, as measured by the BLS, roughly matched
NAIC expenditure data from 1995-2004
56
Underwriting and Profitability Performance
in Auto Insurance
Significant Variability and Volatility Over Time and
Across States
Private Passenger Auto Combined Ratio: 1993–2017F
10
1.7
10
1.3
10
1.3
10
1.0
10
9.5
10
7.9
10
4.2
98
.4
94
.3
95
.1
95
.5 98
.3 10
0.2
10
1.3
10
1.0
10
2.0
10
2.1
10
1.6
10
2.4
10
2.2
10
2.3
10
2.4
99
.5 10
1.1
10
3.5
80
85
90
95
100
105
110
115
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14P 15F 16F 17F
Private Passenger Auto Underwriitng Performance Is Exhibiting Remarkable Stability
57Sources: A.M. Best (1990-2013); Conning (2014P – 2017F); Insurance Information Institute.
Commercial Auto Combined Ratio: 1993–2015F
11
2.1
11
2.0
11
3.0
11
5.9
10
2.7
95
.2
92
.9
92
.1
92
.4
94
.1 96
.8 99
.1
97
.8
10
3.4 10
6.8
10
6.5
10
3.0
10
5.2
11
8.1
11
5.7
11
6.2
80
85
90
95
100
105
110
115
120
125
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E 15F
Commercial Auto is Expected to Improve Only Slowly as Rate Gains Barely Offset Adverse Frequency and Severity Trends
58Sources: A.M. Best (1990-2014E);Conning (2015F); Insurance Information Institute.
60
Return on Net Worth: All P-C Lines vs. Pvt. Pass. Auto, 1990-2013*
*Latest available. Sources: NAIC.
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
US All Lines US PP Auto(Percent)
Average RNW: 1990-2013*
All P-C Lines: 7.8% PP Auto: 8.3%
Pvt.Pass. Auto Profitability Has Exceeded the P-C Industry as a Whole in 13 of the 24 Years from 1990-2013 (Inclusive)
61
Return on Net Worth: All P-C Lines vs. Homeowners & Pvt. Pass. Auto, 1990-2013*
*Latest available.**Excludes 1992, the year of Hurricane Andrew. If 1992 is included the resulting homeowners RNW is 1.5%Sources: NAIC; Insurance Information Institute.
-10%
-5%
0%
5%
10%
15%
20%
25%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
US All LinesUS HomeUS PP Auto
(Percent)Average RNW: 1990-2013*
All P-C Lines: 7.8% PP Auto: 8.3% Homeowners: 3.9%**
Pvt.Pass. Auto Has Consistently Outperformed the P-C Industry as a Whole. Homeowners Volatility is Associated Primarily With Coastal Exposure Issues
Excluding 1992’s Hurricane Andrew
62
19
.0
14
.3
14
.2
13
.9
13
.7
13
.5
12
.4
12
.1
11
.3
11
.3
10
.8
10
.7
10
.5
9.9
9.9
9.9
9.7
9.6
9.5
9.3
9.2
9.2
9.1
9.0
8.9
8.8
02468
10121416182022
HI ME DC ID VT ND AK NH IA WY OH MN WV AZ OR VA CA RI CO KS CT WI NM MT UT IN
RN
W P
PA
*Latest available.Sources: NAIC.
Hawaii was the most profitable state for auto insurers from 2004-2013
Return on Net Worth: Pvt. Passenger Auto, 10-Year Average (2004-2013*)
Top 25 States(Percent)
63
8.8
8.6
8.6
8.6
8.5
8.3
8.1
7.8
7.7
7.6
7.5
7.5
7.4
7.1
6.3
6.2
6.1
5.9
5.8
5.6
5.0
4.5
4.4
3.8
3.3
-2.5
-3
-1
1
3
5
7
9
NE
MD
SD
WA IL NY
MA
TX
PA
AL
AR
MO
SC
US
NC
TN NJ
DE
GA
KY
OK
MS FL
NV
LA MI
RN
W A
uto
Return on Net Worth: Pvt. Passenger Auto, 10-Year Average (2004-2013*)
*Latest available.Sources: NAIC
Michigan was the least profitable state for auto insurers from
2004-2013
(Percent) Bottom 25 States
64
Return on Net Worth (RNW) All Lines:2004-2013 Average
25
.6
18
.4
13
.4
13
.2
9.2
8.9
7.9
7.8
7.1
7.1
6.6
4.9
-1.0
-5
0
5
10
15
20
25
30
Fire
Inla
nd Mar
ine
All O
ther
Med
ical
Pro
f Lia
bility
Comm
Auto
Tota
l
Comm
erci
al MP
All Lin
es
Oth
er L
iabili
ty
Work
ers
Comp
PP Auto
Tota
l
Homeow
ners
MP
Farmow
ners
MP
Allied L
ines
Source: NAIC; Insurance Information Institute.
Commercial auto has tended to be more profitable than
personal auto over the past decade
INVESTMENTS: LOW YIELDS EXERT RATE PRESSURE
65
Investment Performance is a Key Driver of Profitability
Depressed Yields Will Necessarily Influence Underwriting & Pricing
65
Property/Casualty Insurance Industry Investment Income: 2000–2015E1
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2 $46.7
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *2015 figure is estimated based on annualized data through Q1.Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007 pre-crisis peak
67
Claim Trends in Private Passenger Auto Insurance
Rising Frequencies and Severities in Many Coverages
Will that Pattern Be Sustained?
68
Number of Motor Vehicle Deaths,1990- First Half 2015
Source: National Safety Council; Insurance Information Institute.
46,8
14
43,5
36
40,9
82
41,8
93
42,5
24
43,3
63
43,6
49
43,4
58
43,5
01
42,4
01
43,3
54
43,7
88
45,3
80
44,7
57
44,9
33
45,3
43
45,3
16
43,9
45
39,7
90
36,2
16
35,3
32
35,3
03
36,4
15
35,3
69
35,4
00
18,6
30
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Total motor-vehicle fatalities in 2015 could possibly exceed 40,000
for the first time in eight years according
to the NSC.
NSC counts both traffic and nontraffic deaths that occur within a year of the accident.
The recession and high gas prices reduced
miles driven, leading to fewer vehicle deaths
69
Death Rates per 100,000,000 Vehicle miles, 1990-2015*
*Projected rate for 2015 based on date through June 2015.Source: National Safety Council; Insurance Information Institute.
2
1.8
3
1.8
2
1.8
1.7
9
1.7
6
1.7
1.6
5
1.5
8
1.5
8
1.5
7
1.5
9
1.5
5
1.5
2
1.5
2
1.5
1.4
5
1.3
4
1.2
2
1.1
9
1.2
0 1.3
5
1.2
0
1.2
0
1.3
0
2.1
8
0.00
0.50
1.00
1.50
2.00
2.50
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
*
death rates per 100,000,000 vehicle miles
The recession and high gas prices reduced
miles driven, accelerating the drop in
death rates
Motor vehicle fatality rates appear to be ticking up in 2015
Vehicle death rates fell by nearly half between 1990 and 2010
70
Bodily Injury: Severity Trend Is Up, Frequency Decline Has Ended—Rising?
2.1% 1.7%
3.8%
2.0%
4.2%
-5.4%
-3.8% -4.0% -4.2%
-2.2%
0.0%
-1.1%
3.4%3.0%2.0%
5.9%5.7%4.7%
2.9%
1.1%0.0% 0.0%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Severity Frequency
*2015 figure is for Q1 2015 over Q1 2014.Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2015:Q1*
Cost Pressures Will Increase if BI Frequency and Severity Trends Persist
71
Property Damage Liability: Severity and Frequency Are Up
1.8% 1.8%
4.2%3.5%
4.6%
-1.6%
-3.5% -3.4%
0.6% 0.6%
-0.6%
1.7%0.9%
2.9%3.6%
2.0% 2.0%
-0.4%
0.4%0.9%1.5%
0.3%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Severity Frequency
Annual Change, 2005 through 2015*
Severity/Frequency Trends Have Been Volatile, But Rising Severity since 2011 Is a Concern
*2015 figure is for the four quarters ending in 2015:Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute
72
No-Fault (PIP) Liability: Severity is Up, Frequency Relatively Flat*
3.2% 2.8% 3.4% 3.1%
-4.8%-5.7%
-4.1%
-6.4%
6.6%
-3.4%-2.1%
-5.8%
-0.8%
1.6%
-0.9%
4.7%
2.4%
6.4% 6.5% 6.8%
5.2%5.4%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015**
Severity Frequency
*No-fault states included are: FL, HI, KS, KY, MA, MI, MN, NY, ND and UT.**2015 figure is for the 4 quarters ending in 2015:Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute
Annual Change, 2005 through 2015**
No-Fault Systems Are Less Problematic in Some States but Still of Concern in Some, Such as MI
73
Collision Coverage: Severity & Frequency Trends Are Both Higher in 2015*
2.8%
1.3%
4.2%
1.6%
3.0%
-1.8%
-3.6%
2.5%
-2.4%
-1.4%
4.2%
1.7%
3.9%3.1%
0.1%0.5%
-2.3%
-0.1%
-1.4%-0.5%
0.9%
2.3%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
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 Will Likely Be Reversed Based on
Evidence from Past Recoveries*2015 figure is for the 4 quarters ending with 2015:Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute
74
Comprehensive Coverage: Severity Trends Are Unfavorable
15.4% 15.0%
-13.9%
7.2% 8.4%
-9.8%-6.3%
1.3%
5.8%
-8.6%-5.8%
2.3% 2.3%
15.5%
-1.4% -1.5%
12.6%
-8.1%-5.9%
-3.1%
1.8%
6.2%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Severity Frequency
Annual Change, 2005 through 2015*
Weather Creates Volatility for Comprehensive Coverage
Severe weather is a principal cause of the spikes in both
frequency and severity
*2015 figure is for the 4 quarters ending with 2015:Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute
75
Driving Trends, Gas Prices
America’s Love Affair with their Cars Is Far from Over
76
America is Driving More Again:Total Miles Driven*, 1990–2015
*Moving 12-month total. The 2015 data are through May 2015, the latest available.Note: Recessions indicated by gray shaded columns.Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm ); National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
2,100
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
From November 2007 until January 2015, miles driven was
below the prior peak for 87 straight months—
over 7 years! Previous record was in the early 1980s (39 months).
Some of the 1990-2007 growth in miles driven (+43.9%) is due to population growth (+20.7%)…
New records in 2015
…but the population grew by 6.6% from 2007-2015 and miles driven didn’t grow at all.
Do Changes in Miles Driven AffectAuto Collision Claim Frequency?
7.00
6.81
6.59
6.80 6.78
6.91
6.65
6.32
6.025.94
5.71
5.85
5.705.62 5.60
5.655.57
5.70
5.94 5.92
5.5
6.0
6.5
7.0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*
Pa
id C
laim
Fre
q
2400
2500
2600
2700
2800
2900
3000
3100
Bil
lio
ns
of
Mil
es D
rive
n
Collision Claim FrequencyBillions of Vehicle Miles
Sources: Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm; ISO Fast Track Monitoring System, Private Passenger Automobile Fast Track Data: 1st Qtr. 2015 and earlier reports. *2015 ISO figure is for 12 months ending 2015 Q1. FHA data for 2015 is 12-month moving average ending May 2015.
Paid Claim Frequency = (No. of paid claims)/(Earned Car Years) x 100
People drove 2.8% more miles through
May 2015 than through May 2014.
78
% Change in Real US GDPvs. % Change in Total Miles Driven
-2%
-1%
0%
1%
2%
3%
4%
5%
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
% change in total miles driven % change in real US GDP
The percent change in miles driven tracked the growth of the national economy fairly well. If this holds, miles driven will continue to rise.
*Data are annual ratesSources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm );
www.bea.gov (real GDP); l I.I.
Percent Change in Total Miles Driven
% Change in Real US GDP*
1/6/
...
2/3/
...
3/3/
...
4/7/
...
5/5/
...
6/2/
...
7/7/
...
8/4/
...
9/1/
...
10/6
...
11/3
...
12/1
...
1/5/
...
2/2/
...
3/2/
...
4/6/
...
5/4/
...
6/1/
...
7/6/
...
8/3/
...$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
$4.00
80
Avg. Price /Gallon
The Price of Gas, Weekly, 2014-2015
Price is U.S. All Grades All Formulations Retail Gasoline Prices, through August 10, 2015Sources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); I.I.I.
Gas Prices Fell 34% Over the Second Half of the 2014
From July through December, gas prices
fell virtually every week
Even after the rebound, prices remain 30% below
the July 2014 peak.
Until July 2014, gas prices were persistently high
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
$4.00
0.0%
0.5%
1.0%
1.5%
2.0%
Monthly Avg Gas Price
Chg in 12-mo Avg. Miles Driven Vs. 2013
82
Avg. Price
Did Changes in Gas Prices Affect Miles Driven? A Closer Look at 2014
Sources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); *gas prices and miles driven through DecemberFederal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm ); I.I.I.
Prior research on the relationship between gas prices and miles driven says that, in the short run, an increase in gas prices produces little change
in miles driven. No recent research on the effect of price drops.
/Gallon% Chg. in
Miles Driven… Four
Months Later, Mileage Starts
to Surge.
June-July: Gas Prices Peak …
Still Lower Gas Prices Imply Surge Will Continue.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
$4.00
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Monthly Avg Gas Price Monthly Y-o-Y Change in Miles Driven
83
Avg. Price
Do Changes in Gas Prices Affect Miles Driven? A Closer Look at 2014-15
Sources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); *gas prices through July 2015Federal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm ) miles driven through May 2015; I.I.I.
Research on the relationship between gas prices and miles driven says that, in the short run, an increase in gas prices produces little change in
miles driven. No recent research on the effect of price drops.
/Gallon% Chg. in
Miles Driven
… Four Months Later, Miles Driven Starts to Surge.
June-July 2014: Gas Prices Peak …
The Surge Continues Despite a
Modest Gas Price Rebound
85
The Future of Auto Insurance?
Some Analysts and Many in Silicon Valley Are Predicting
Doom for Auto InsurersNot So Fast!
Impact of Forward Collision Warning With and Without Auto Brake
86Source: Highway Loss Data Institute and Insurance Institute for Highway Safety presentation by Matthew Moore, Measuring Crash Avoidance System Effectiveness with Insurance Data,” January 30 2013; Insurance Information Institute.
Property Damage
Liability Claim Frequency by Manufacturer
Collision Claim
Frequency by Manufacturer
Forward collision warning systems have a material
impact on PD liability claim frequency, especially when paired with auto braking
Collision frequency
falls as well
87
Media is Obsessed with Driverless Vehicles: Often Predicting the Demise of Auto Insurance
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models
Source: Boston Consulting Group; Insurance Information Institute.
Questions
Are auto insurers monitoring these trends?
How are they reacting?
Will take over the industry? (cars/sales)
Will the number of auto insurers shrink?
How will liability shift?
88
A Few Thoughts on the Future of Auto Insurance Global auto insurance premiums written total about $600B
~80% personal, 20% commercial
US accounts for more than 1/3 of this total (about $210B in 2014)
Innovations in automobile safety will, over time, reduced claim frequency but severities could still rise as repair costs escalate Claim activity clearly not immune to economy
Frequency declines could lead price declines, aiding profitability More cars, not fewer will be on highways in the US, world
Exposure (insured car years) grows even as frequency declines
Timeline for large numbers of mass produced autonomous vehicles on American highways is wildly optimistic Mid-2030s is more likely timeframe; Transition occurring through mid-century
Tech media is enamored with anything involving Google, Apple
Auto insurance will be the largest, most important of all P/C lines for many years to come
89
Cyber Threats, Motor Vehicles and Auto Insurance
Who Bears Liability for the Costs of Fixing Defects,
Resulting Damage?Auto Claims:
The Next Generation?
90
Hackers’ on the Highway: The ‘Internet of Things’ Now Includes Motor Vehicles An increasing number of passenger and commercial vehicles now
have Internet connectivity
In July 2015, researchers successfully took control of the engine and braking functions of a Jeep Cherokee
Regulators request recall
Chrysler recalls 1.4 Jeeps and similarly vulnerable vehicles Fix is software driven
In recall notice, Chrysler asserts cyber risk is not a safety defect
NHSTA disagrees with Chrysler disclaimer
Debate is ongoing
“A cybersecurity vulnerability is a safety defect in the same way an exploding airbag or malfunction ignition is a safety defect.,,,Auto makers cannot ignore their responsibility to ensure the cars they sell are safe from hacking” [Sen. Edward Markey, D-MA]
Auto manufacturers disagree…
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