by Moshe Beauford, ProperyCasualty360.com, December 19, 2017
Looking Back on 2017 Provides Indicators of What’s Ahead for the Industry
A review of 2017 finds it was littered with everything from natural disasters to large-scale public acts of terror that injured and claimed the lives of thousands in the U.S. alone.
Swiss Re, a wholesale provider of reinsurance, released a study showing that weather extremes like thunderstorms and tornadoes accounted for some of the heftiest losses, with four weather events creating more than $1 billion in damage. According to its preliminary assessment of loss for the first half of 2017 – total economic losses of global natural and man-made catastrophes resulted in $44 billion in losses, although the majority of damage was covered by insurers.
This is lower than the first half of 2016, where losses reached well over $100 billion. However, the second half of the year will see significantly higher numbers as loss totals from multiple hurricanes, wildfires and various acts of terror are tallied.
The study also found that total insured losses for the first half of 2017 reached $23 billion. The human cost was high as well, as nearly 4,400 people lost their lives or went missing during natural disasters, however it was still lower than the 4,800 losses that occurred during the first half of 2016.
There were a number of other contributing factors that impacted the industry, including acts of terror, the now 29 states where marijuana is legal for either recreational or medicinal purposes, cyber security, travel, short-term medical coverage, auto insurance and autonomous vehicles. Each of these will influence the insurance landscape in the coming year.
Acts of Terror
Terrorism is on a steady rise worldwide, increasing by 25% each year, and in October, we witnessed one of the most heinous acts of domestic terror on U.S. soil. In the attack, a lone gunman opened fire during a Las Vegas, Nevada, country music concert. The shooter, Stephen Paddock, killed 58 and injured more than 500 others before taking his own life.
For insurers, this incident raised a whole new set of questions that could one day lead to an all-inclusive terrorism insurance package that extends beyond property damage and loss of business to include coverage for loss of life, limb and more. Early estimates indicate that this event alone could cost insurers more than $1 billion.
This was followed several weeks later by a truck attack in lower Manhattan that killed eight people and injured almost a dozen more along a bike path. The ISIS-inspired terror attack was the worst one New York City had seen since 9/11.
Less than a week later, a lone gunman killed 26 people in a tiny church in Sutherland Springs, Texas. While not deemed a “terrorist” attack, the shooter killed almost half of the church's congregation. (Insurance exposures for either event had not been released by press time.)
With the legalization of marijuana in 29 states and the District of Columbia for either medicinal or recreational purposes, it seems the U.S. is on track to legalize the substance in every state over the next few years. This is because cannabis has many proponents, but seemingly far more who oppose its legalization.
Attorney General Jeff Sessions is one such opponent, and has been described by the LA Times as “fiercely anti-marijuana.” This seems to be the antithesis of popular public opinion following votes in multiple states to legalize the use of marijuana for medical or recreational purposes. According to Pew Research Institute, 57% of Americans say marijuana should be legal.
Intensive care specialist Dr. Ariel Steinberg says cannabis advocates have to do their due-diligence before the substance is fully-approved for medical purposes. He also says that when it is legalized, insurers would be wise to offer coverage to policyholders, as it has many inherent medical benefits.
“Regarding the use of medical cannabis – it has some time before it is fully-legalized, but there is evidence that clearly spells out its many medicinal benefits. Things like seizures have been treated with cannabis, but documented cases are isolated, and before a full medical recommendation is issued, larger and more thorough evaluations are needed. On the other hand, there has been more concrete evidence in cases of terminally-ill patients and the treatment of patients with chronic pain. Cannabis has even been known to improve the quality of life for those with eating disorders, anxiety, etc.,” Steinberg said.
Nationwide recently revealed that 58% of companies were affected by some form of a cyberattack in 2017, yet many were unaware of it. Among the companies hit were a number in the insurance industry.
Cyber security experts at Sixgill, a company that specializes in monitoring and interpreting activity on the Dark Web, say insurance companies are at risk of further attacks, and the number of attacks will only continue to rise.
“Insurance companies are at risk, as are other financial institutions. In fact, the amount of breaches only continues to rise, with records set in 2017, and currently on track to be worse in 2018. In 2017, insurance companies were among the worst-hit industries in terms of attacks. We saw things like data leaks and data being sold for extortion purposes on the Dark Web. Recently, we learned of an attempt to blackmail a major financial institution in Israel," said Avi Kasztan, co-founder and CEO of Sixgill.
"The main threat was to divulge client identification details. There was also a large healthcare breach in Australia where user identities were put up for sale on the Dark Web. While not an insurance company in this case, the risk, threat and outcome are exactly the same. There are numerous dumps of such information for sale on Dark Web sites literally all the time," says Kasztan.
Kasztan further warns insurers of the dangers of the ever-growing Dark Web, and how its constant monitoring can contribute to catching criminals red-handed with stolen information.
“One of the main places that needs to be monitored and analyzed to receive this sort of intelligence picture is the Dark Web, which is perhaps the place where cyber criminal activity can be detected the earliest. It is also the place where stolen or leaked data can turn up for sale, and relatively quickly after a breach. Even if it is too late to prevent an attack – it is good for organizations to have the intelligence so they can take the appropriate measures and begin to mitigate the damage,” Kasztan added.
Travel Medical Insurance
“With a rise in terror, world-wide travel still hasn't seen much of a drop,” said Andrew Bard, senior vice president and general manager Americas at travel medical insurance provider Tokio Marine HCC - MIS Group.
With his office seeing over 300,000 claims annually, he says its international travel plan for both students and non-students has seen the largest increase over the past year, with inpatient and emergency room visits seeing the greatest spike. Bard says it should not only be insurer's goal to reduce claims, but to accurately adjudicate them in a timely manner as well.
“The claims process should be simple, and we have been able to expedite the process through our electronic claims form submission. We also see value in updating policyholders throughout the claims process, and have created a unique portal for just that. I also think we will see insurers focusing on improving the customer experience in 2018 – from initial shopping and purchase to claims settlement – making it easier, less confusing and producing better overall response times,” Bard said.
Alexandra Wallach owns the Indianapolis-based Farmer's Insurance agency, and says her company sees 900 claims each year. The majority are related to auto, home, life and luxury items such as boats, as well as commercial and business insurance (like workers’ compensation).
From all of the claims that came through her office in 2017, severe weather claims were among the agency's highest, which in Indiana, means water damage, tornadoes and other natural disasters. Looking at the country as a whole, we also saw destruction from an overactive hurricane season, where Harvey and Irma caused billions in damage, displacement and a plenty of claims. Analysts from IHS Market estimate damage caused by Harvey will eventually total somewhere between $60 and $100 billion USD, and that Irma will total roughly $30 billion.
“Oftentimes when a client receives an estimate of damage done to their property (whether it's an auto accident or hail damage), the damage is typically only slightly more expensive than their deductible, although it is often less. If these policyholders chose then not to file a claim and pay out of pocket for damage – their next insurance renewal would not be affected,” Wallach said.
Looking to 2018, Wallach says although her agency doesn't deal directly with autonomous vehicles, she is creating a plan of action that consists of educating actuaries and insurers about the risks involved in insuring autonomous vehicles.
“Although we could likely see a decrease in accidents, and the price of auto insurance will likely begin to decrease accordingly – we may also witness a rise in cyber liability coverage. The more integrated technology becomes in vehicles, we simply run a higher risk of cyber attacks. Thieves could theoretically remotely unlock a car or take the computer system for ransom by blocking it from starting,” Wallach said.
For insurers, closing 2017 should be bittersweet after seeing billions in losses, although 2018 is already positioned to be an interesting year as insurers continue dealing with the aftermath of many of these issues.