Property/Casualty Insurance in West Virginia: Review & Preview

Transcription

1 Property/Casualty Insurance in West Virginia: Review & Preview Presentation to the Professional Independent Insurance Agents of West Virginia Charleston Marriot Charleston, WV September 14, 1999 Robert P. Hartwig, Ph.D., Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY Tel: (212) Fax: (212) Download this presentation at:

2 SCALE AND SCOPE OF THE WEST VIRGINIA P/C MARKETPLACE Market and Economic Overview Auto Home Commercial

3 $ billion 99.5% United States Insurance Market Place 1998 Direct Premiums Written $1.52 billion 0.5% Source: Insurance Information Institute, A.M. Best

4 States with Largest Number of P/C Insurance Domiciles vs. WV Number of Companies in 1997 Vermont Texas Pennsylvania New York IL/WI W. Virginia Source: NAIC, Insurance Information Institute

5 Growth in Direct Written Premiums: WV and US 10% 5% 0% -5% * West Virginia US Source: A.M. Best, Insurance Information Institute; *III Estimate

6 Direct Loss Ratio Trends, Selected Lines in WV 100% 90% 80% 70% 60% 50% 40% 30% Auto Homeowners Commercial Multi-Peril Source: NAIC, Insurance Information Institute

7 Return on Net Worth, Selected Lines in W. Virginia 50% 40% 30% 20% 10% 0% -10% -20% -30% Auto Homeowners Commercial Multi-Peril Source: NAIC, Insurance Information Institute

8 Employment Growth: Ahead of the Pack 6% 4% 2% 0% -2% US West Virginia Source: III, BLS, RFA, WV Development Office.

9 Real Economic Growth: A Bit Behind the Curve 8% 6% 4% 2% 0% -2% US GDP West Virginia GSP Source: III, BLS, RFA

10 Unemployment: The Silver Lining 12% 9% 6% 3% * * As of July 1999 US West Virginia Source: III, BLS, RFA, WV Development Office.

11 Growth in Net Premiums Written (by Line) % 5.2% 3.3% 1.8% 1.6% 0.4% 0.1% 0.0% -3.6% -5.3% -6.5% Homeowners Medical Malpractice Personal Auto All Other Lines Inland Marine Commercial Auto Commercial Package Fire & Allied Workers' Comp General and Products Liab Reinsurance -8% -6% -4% -2% 0% 2% 4% 6% 8% Source: A.M. Best, Insurance Information Institute.

12 Net Investment Income Billions ($) Peak = $41.5B 1998 = $39.9B 1999 (Estimate) = $38B 2000 (Forecast) = $37B Net Investment Income

13 Premiums-to-Surplus Ratio (Est./Forecast) = Ratio of Net Premiums Written to Policyholder Surplus

14 P/C Industry Combined Ratio = (Estimate) = (Forecast) = Combined Ratio

15 U.S. Insured Catastrophe Losses 25 $ $ $1.3 $7.5 $2.7 $8.3 $4.7 $5.5 Nominal ($ Billions) $7.3 $2.6 $ Source: Property Claims Service, Insurance Information Institute

16 1999 Stock Market Performance, by Segment Year to Date through 08/27/ % 20.11% 16.02% 10.53% 2.58% -2.12% -2.12% % % % Brokers Multiline Mort. Guar. S&P 500 Banks L/H All Insurers P/C Fin. Guar. Title -40% -20% 0% 20% 40% Source: SNL Securities, Insurance Information Institute

17 AUTO INSURANCE

18 Direct Written Premium Growth: PP Auto 12% 9% 6% 3% US West Virginia Source: A.M. Best, Insurance Information Institute

19 Average Expenditures on Auto Insurance $ $ $ $ $ $500 $ * 1999* US * III estimates. Source: NAIC, Insurance Information Institute West Virginia

20 Attorney Involvement by Type of Claim (1997) US West Virginia 52% Overall: US 46% 41% WV 31% 21% 27% Source: Insurance Research Council Bodily Injury

21 Where the U.S. Auto Premium Dollar Goes, 1997 (per $100 written premium) Claims $75 Pmts. to Inj. Persons $33 Medical 8 Wage loss/other econ. 2 Pain/suffering/non-econ. 7 Lawyer fees 13 Other settlement costs 3 Pmts for Damage to Cars $42 Prop. Damage Liab. 15 Collision & Comp. 24 Other 3 Expenses $25 Comm./Selling exp. $16 General exp. 5 State prem tax/lic./fees 2 Policyholder dividends 2 Claim/Expense Subtotal $100 Bottom Line Investment Gain $11 PT Inc. ( ) 11 Federal Taxes 4 After-Tax Profit $7 Sources: Insurance Information Institute based on data from ISO, IRC and NAIC

22 July 1, 1999 The Meanest Streets 3 Dallas-area Intersections Among Most Dangerous in U.S. By Tony Hartzel and Curtis Howell --The Dallas Morning News Belt Line & Midway in Addison: 263 crashes in 1998 Park & Preston in Plano: 249 accidents in 1998 Belt Line & Preston in Dallas: 241 accidents in 1998 State Farm will contribute $120,000 toward improvements at each intersection

23 HOMEOWNERS INSURANCE

24 Direct Written Premium Growth: Homeowners 12% 10% 8% 6% 4% 2% 0% US West Virginia Source: A.M. Best, Insurance Information Institute

25 States with Highest Homeowners Insurance Expenditures vs. US & WV $ Wisconsin had the lowest expenditures: $237 $ $300 $ Expenditures Texas Hawaii Louisiana Alaska Florida US W. Virginia Source: NAIC (May 1999 release), Insurance Information Institute

26 COMMERCIAL LINES

27 Direct Written Premium Growth: Commercial Multi Peril 12% 9% 6% 3% 0% -3% -6% -9% -12% US West Virginia Source: A.M. Best, Insurance Information Institute

28 Direct Written Premium Growth: Workers Compensation 30% 15% 0% Privatization of WV s workers comp market could add $150 million to P/C premium base. -15% -30% Nevada s privatization put $372 million up for grabs as of July 1, % US Source: A.M. Best, Insurance Information Institute

29 MERGER & ACQUISTION ACTIVITY: INDUSTRY IMPACTS

30 Insurance Mergers and Acquisitions Value of M & As ($billions) $180 $160 $140 $120 $100 $80 $60 $40 $ : 565 deals valued at $165.4 B Number of M & As $ (1st Half) 0 Value of Deals Number of Deals Source: Compiled from Conning & Company reports.

31 M&As by Segment/#Deals Health 18% 1998 = 565 Deals Life 12% Distribution 43% P/C 27% Source: Conning & Co.

32 M&As by Segment/Value 1998 = $165.4 Billion Life 22% Health 3% Distribution 37% P/C 38% Source: Conning & Co.

33 DISTRIBUTION

34 Personal Lines ($146B) Ind.. Agents/ Brokers 27% Direct Response 9.8% P/C Premium Distribution 1998 $39.5B Banks 2.8% ($4.1B) Internet 0.9% ($1.3B) $14.3 Other 3.0% ($4.4B) Captive Agents 56.5% $82.6B Source: Insurance Information Institute, A.M. Best, Datamonitor

35 P/C Premium Distribution 1998 Commercial Lines ($135B) Ind.. Agents/ Brokers 73% $99B $36B Captive Agents 27% Direct Response 0.3% ($0.4B) Source: Insurance Information Institute, A.M. Best

36 Distribution Methods of Top 10 U.S. Market Leaders Independent Agency/Broker Direct Response Captive Agency Banks/E-Commerce 100% 80% 60% 40% 20% % Source: A.M. Best, Insurance Information Institute.

37 Shifting Distribution Channels: Property/Casualty Insurers Captive Agents 56.5% Independent Agents 27.0% Captive Agents 48.8% Independent Agents 23.3% Other 3.0% Internet 0.9% Banks 2.8% Direct Response 9.8% Other 2.5% Internet 7.3% Banks 8.1% Direct Response 10.0% Source: Datamonitor

38 Shifting Distribution Channels: Life/Health Insurers Captive Agents 45.0% Independent Agents 35.5% Captive Agents 40.1% Independent Agents 31.9% Direct Response 3.9% Other 7.0% Internet 0.5% Direct Response 2.8% Banks 9.2% Other 6.3% Internet 2.9% Banks 14.9% Source: Datamonitor

39 Respondents Extremely/Very Comfortable Purchasing Auto Insurance(%), by Outlet Through Agent From a Bank By Phone On Internet Source: Insurance Information Institute s 1999 Insurance Pulse

40 Persons Not Very/Not At All Comfortable Purchasing Auto Insurance(%), by Outlet Through Agent From a Bank By Phone On Internet Source: Insurance Information Institute s 1999 Insurance Pulse

41 Respondents Having Better Relationship with Agents, Banks, or Neither Agent/Rep Bank Neither Don't Know Source: Insurance Information Institute s 1999 Insurance Pulse

42 Changing Channels Direct Channels Channel Outputs Traditional Channels Direct Mail Brand Awareness Leads Internet Information Agents Tele-insurance Source: Datamonitor Sales Cross-Sell generates effectively

43 Super-Channel 20% 18% 82.0% 85% 16% Agents 80% Total Market Share for Direct Channels 14% 12% 10% 8% 6% Direct Channels Agents Direct Channels 13.0% 71.0% 75% 70% Total Market Share for Agents 4% 6.0% 65% 2% 0% 60% Projections if current conditions stay same for next five years. Projections for next five years if large-scale technological innovations are put in place. Source: Datamonitor 1999 Distribution Survey.

44 Distribution Channels Continue to Proliferate Customer Agent Broker Mail Telephone Bank Insurer Internet Dealerships Payroll Plans???

45 The Electrons Are Coming...

46 E-Agencies (As of Jan. 1999) Just 3% (1,200) of the 42,000 independent agencies in the US have a web site

47 EMERGING ISSUES Y2K Financial Services Reform Banks and Insurance Firearms Exposure? Fraud

48 Insurers Estimated Y2K Exposure: Worst Case Scenario* General Liability $8 billion 22.9% Directors & Officers $5 billion 14.3% Business Interruption $4 billion 11.4% Errors and Ommissions $4 billion 11.4% Declaratory Judgment Expenses $10 billion 28.6% Miscellaneous $4 billion 11.4% *High estimate ($35 billion); M&R estimates range from $15 - $35 billion. Source: Milliman & Robertson

49 Financial Services Reform: Work (Still) in Progress Senate Banks, securities firms & insurers must operate as holding cos. Fed oversight Bar banks from entering commercial businesses/bar non-fin. cos. from thrifts Small, rural banks exempt from CRA Criminalize privacy breaches House Holding cos/national bank subsidiary structures permitted Fed/OCC oversight Banks can enter commercial services/non-fin. cos can own thrifts Extend CRA to holding companies Disclosure policies, customer consent

50 1997 Bank Insurance Premiums Total = $27.8 Billion Credit $2.8 billion 10% Commercial $2.8 billion 10% Annuities $18.8 billion 68% Personal $2.0 billion 7% Life $1.4 billion 5% Source: Association of Banks-in-Insurance

51 Firearms Exposure: Long Shot or Bull s-eye? Rate per 100,000 population (1997) Aggravated Assaults with Firearms Murder with Handguns 0.0 West Virginia US West Virginia US Source: FBI

52 Raises questions for insurance regulators in small states Adds fuel to federal v. state oversight debate Current safeguards designed to minimize insolvency risk, not risk of financial fraud. NAIC role/position Martin Frankel: Disappeared with $215 million in policyholder funds

53 Insurance Information Institute On-Line Tips on safety, disaster preparedness Consumer advice Information for Insurance Professionals Media Resources Industry Financial Results, Surveys & Polls Download this presentation at: