Recent Evolution in Non-Life Insurance in the USA

Transcription

1 Recent Evolution in Non-Life Insurance in the USA Christopher S. Carlson, Pinnacle Actuarial Resources, Inc. Fellow of the Casualty Actuarial Society, Member of the American Academy of Actuaries

2 Recent Evolution in Non-Life Insurance in the USA Regulation of Rates in the US Property Lines Catastrophe Exposures Auto (Motor) Insurance Property Lines Non-Cat Exposures

3 Regulation of Rates in the USA Individual State Regulation of Rates Four Styles of Regulation Prior Approval File & Use Use & File Open Competition National Data Collection Agencies develop advisory loss costs with standard rate plan

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5 American Insurance Market Many participants Company Groups writing in the US Personal Auto 308 Homeowners 286 Dominated by few large National Insurers

6 State Farm Allstate Progressive GEICO (STP) Farmers Nationwide USAA Liberty All Other Total Personal Auto Prem $B % $ $ Homeowners Prem $B % $ N/A $

7 US Homeowners Insurance Industry Combined Ratios

8 Property Lines Various USA Catastrophe Exposures Hurricane Tornado Hail Storm Earthquake * Winter Storm Terrorist Attack * Riot * Mold Flood * Sinkhole - Florida * Some Government involvement

9 Property Lines Catastrophe Exposures Wake Up Call 1989 Hurricane Hugo & Loma Prieta EQ 1992 Hurricane Andrew 1994 Northridge Earthquake More Recent Enlightenments Major Hurricanes 2005 Hurricane Katrina Wind and Water

10 Hugo Travels Well Inland

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12 Loma Prieta Earthquake Damage in San Francisco Area

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14 Hurricane Andrew levels complete neighborhoods

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16 Early 1990s Property Lines Catastrophe Exposures Introduction of output from Hurricane Catastrophe Models to replace limited amount of historic hurricane experience in rate development More attention to exposure accumulation Use of Earthquake model in California State EQ Program rates Restriction of coverage - mold

17 Wind and Water Damage from Hurricane Katrina

18 New Orleans Underwater

19 Mississippi Rescue from Storm Surge

20 Mississippi Homes after Katrina Damage caused by wind or water?

21 Property Lines Catastrophe Exposures More recently (2004 and beyond) Increased scrutiny of model input output Greater attention to exposure accumulation and the risk of ruin Use of severe thunderstorm (tornado/hail) and winter storm models in rate development Appreciation of storm surge especially since flood is not a covered cause of loss in the Homeowners policy Flood Insurance sold by US Governmental agency

22 Catastrophe Models Brings the expertise from a number of disciplines such as: Meteorology (weather) Structural Engineers (building) Oceanographers (storm surge) Seismologists (earth movement) Statistical modelers (Monte Carlo simulation and other simulation techniques) Actuaries required to understand modeling process rather than blindly adopt output

23 Personal Auto (Motor) Coverages Six major coverages Liability (3 rd Party Coverage) Bodily Injury (BI) Property Damage (PD) Physical Damage (1 st Party cover of auto) Collision Other than Collision (Comprehensive) 1 st Party Medical State Dependant Medical Payments Personal Injury Protection (PIP) Uninsured Motorist Coverage (UMC)

24 Personal Auto (Motor) Insurance Pre Mid 1990s Fairly consistent rating plans among insurers (rate bureau standard) Sharing of Risk philosophy Univariate review of rating variables Competition based upon price and service

25 Personal Auto Insurance Post Mid 1990s (Progressive Impact) Widely differing rating plans Attempt to more closely match exposure with future risk using predictive models Multivariate analysis of rating variables Introduction of policyholder financial responsibility as a rating variable Competition based upon segmentation of market

26 Personal Auto Insurance Change from Causality to Correlation Introduction of more inter-variable correlations # of cars vs. # of drivers Current and prior liability limits Liability factors based upon car driven Increase distinction within old structure Rates by age of driver (more continuous) Territories based on zip code

27 Financial Responsibility Rating Based on person s prudent use of credit rather than the available amount Uses a number of credit related variables such as: # of credit cards and revolving accounts Amount of balances more than x days old # of late payments in past y months Bankruptcies or defaults Insurance Score based on Credit Usage Used in both Motor and Home

28 Homeowners Insurance Rating basis - all perils combined Rate based on characteristic of home Replacement or Market Value Location Distance to fire department and water source Age of structure Type of Construction (Frame, Masonry) Other coverages related to value of structure Contents Additional Structures Additional Living Expenses Liability Coverage included in basic policy premium

29 Property Lines Non-Catastrophe Exposures Early 2000s Increased rate levels in search of adequacy Introduction of policyholder financial responsibility as a rating variable Historically rating based solely upon structure Now rating also takes into account who lives in the home.

30 Property Lines Newly Introduced Variables Amount of Insurance by Construction Class Multi-Line Discounts based on # of Auto Accidents & Violations Rates based on # of prior claims by Type of Loss or Size of Loss Presence of Attractive Nuisances Presence of Pets Pools Trampolines

31 Property Lines Newly Introduced Variables Insured Specific Factors Named Insured Age Occupation Marital Status Number of Occupants Presence of Children Original Owner of home

32 Property Lines Expanded Rating Sequence Separate rates for Hurricane or Wind perils Expansion to develop rates separately for Fire Theft Liability Non-catastrophic weather All other

33 Please Join Us at Disney World Resort

34 ASTIN June

35 Christopher S. Carlson, FCAS, MAAA 5650 Blazer Parkway, Suite 179 Dublin, Ohio, USA, (614) voice (614) fax pinnacleactuaries.com website