Economic Trends Affecting Automobile Insurance

Transcription

1 Economic Trends Affecting Automobile Insurance AIPSO 10 th Residual Market Planning Conference Providence, RI April 10, 2012 Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY Office: Cell: (917)

2 The Strength of the Economy Will Affect P/C Insurer Growth Opportunities Growth Will Expand Insurable Exposures and Help Absorb Excess Capital 2

3 Real GDP Growth: Past Recessions and Recoveries, Yearly, Real GDP Growth (%) 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% In most recoveries, real yearly GDP growth is often 4% or more But, following the 1991 and 2001 recessions, real yearly GDP growth was weaker than 4% In the current recovery, real yearly GDP growth has been 2.4% or less Source: (GDP) U.S. Department of Commerce at 3

4 March 2013 Forecasts of Quarterly US Real GDP for Real GDP Growth Rate 4% 3% 2% 1% 0% 3.5% 3.6% 3.6% 3.7% 3.7% 3.4% 2.9% 2.8% 2.9% 3.0% 2.7% 2.5% 2.6% 2.0% 2.0% 2.1% 2.2% 1.6% 1.7% 1.7% 1.1% 10 Most Pessimistic Median 10 Most Optimistic 13:Q2 13:Q3 13:Q4 14:Q1 14:Q2 14:Q3 14:Q4 Sources: Blue Chip Economic Indicators (3/13); Insurance Information Institute 4

5 Personal Auto Insurance Premium Growth Depends on Exposure Growth, Price Level Changes, and Other Factors 5

6 Loss + LAE Ratio Change in NPW PP Auto Liability: Loss + LAE Ratio vs. Change in Net Premiums Written, Loss & LAE Ratio NPW Growth 12% 95 10% 90 8% 6% 85 4% 80 2% 75 0% 70-2% Historically, loss trends are a main driver of premium volume changes. Sources: A.M. Best; Insurance Information Institute 6

7 Monthly Change* in Auto Insurance Prices, % 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Hard markets tend to occur during recessions A pricing peak, at a 5.4% rate '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Cyclical peaks in PP Auto tend to occur approximately every 10 years (early 1990s, early 2000s, and possibly the early 2010s) Latest (Jan 2013) at 4.9% *Percentage change from same month in prior year; through January 2013; seasonally adjusted Note: Recessions indicated by gray shaded columns. Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 7

8 Auto Loans and other Nonrevolving Credit Outstanding, * $ Billions $2,000 $1,750 No growth in outstanding nonrevolving credit for three years $1,500 $1,250 $1,000 $750 Spurt began in Dec $500 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Note: Recessions indicated by gray shaded columns. *Latest data is for January 2013, preliminary Sources: Federal Reserve at m=&to=&filetype=csv&label=include&layout=seriescolumn&type=package National Bureau of Economic Research (recession dates); Insurance Information Institutes. 8

9 E 2013F 2014F Millions of Units 20 Auto/Light Truck Exposure Changes, F new vehicle registrations scrappage (5) (10) (15) In a normal 2-year span, new cars would replace about 25 million old cars, but in only about 17 million old cars were replaced Sources: NADA, State of the Industry Report 2012, p. 16, at citing R. L. Polk; new vehicle estimate/forecasts from Blue Chip Economic Indicators, 3/2013 issue; scrappage estimates/forecasts from Insurance Information Institute. 9

10 $ Billion PP Auto NWP vs. # of Vehicles in Operation, Private Passenger Auto Premium No. of Vehicles in Operation (millions) $ $155 $145 $ $ PP Auto premiums written are recovering from a period of no growth attributable to the weak economy affecting new vehicle sales, car choice, and increased price sensitivity among consumers Sources: A.M. Best; NADA, State of the Industry Report 2012, p. 16, at citing R. L. Polk; Insurance Information Institute. 10

11 Billions 3,100 3,000 2,900 Something Unusual is Happening: Miles Driven*, Miles Driven Growth per 5-Yr Span 1997 vs. 1992: 13.9% 2002 vs. 1997: 11.5% 2007 vs. 2002: 6.1% 2012 vs. 2007: -3.0% 2,800 2,700 2,600 2,500 Some of the growth in miles driven is due to population growth: 1997 vs. 1992: +5.1% 2002 vs. 1997: +7.4% 2007 vs. 2002: +4.7% 2012 vs. 2007: +3.4% A record: miles driven has been below the prior peak for 62 straight months. Previous record was in the early 1980s (39 months) 2,400 2,300 2,200 2,100 Will the trend toward hybrid and non-gasolinepowered vehicles affect miles driven? What about the aging and retirement of the baby boomers? '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 *Moving 12-month total. The latest data is for January Note: Recessions indicated by gray shaded columns.. Sources: Federal Highway Administration ( ); National Bureau of Economic Research (recession dates); Insurance Information Institute. 11

12 Paid Claim Freq Billions of Miles Driven Do Changes in Miles Driven Affect Auto Collision Claim Frequency? Paid Claim Frequency = (# of paid claims)/(earned Car Years) x Collision Claim Frequency Billions of Vehicle Miles Has the drop in frequency ended? * 2750 Pay-As-You-Go Auto Insurance: Fluctuations in miles driven will affect exposure *2012 collision claim frequency data is for twelve months ending September Sources: Federal Highway Administration ( ISO Fast Track Monitoring System, Private Passenger Automobile Fast Track Data: 3 rd Qtr. 2012, published January 8, 2013, and earlier reports.

13 Billions of Miles Driven Do Changes in Miles Driven Affect Auto Claims Payments (BI+PhysDam)? Incurred Losses ($ Billions) $85 Incurred Losses Billions of Vehicle Miles 3050 $80 $75 $70 $67.14 $70.36 $68.98 $72.89 $74.92 $76.98 $77.23 $80.91 $ $ * The sharp drop in miles driven in 2008 and the smaller drop in 2011 didn t slow the growth of auto insurance incurred losses 2925 *2012 claims data is for twelve months ending September Sources: Federal Highway Administration ( ISO Fast Track Monitoring System, Private Passenger Automobile Fast Track Data: 3 rd Qtr. 2011, published January 8, 2013, and earlier reports.

14 Inflation and Claims Trends 14

15 Prices for Hospital Services: 12-Month Change,* % 12% 10% 8% 6% 4% 2% 0% Recession Outpatient Services Inpatient Services '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Cyclical peaks in PP Auto tend to occur approximately every 10 years (early 1990s, early 2000s, and possibly the early 2010s) *Percentage change from same month in prior year; through January 2013; seasonally adjusted Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 15

16 Forces that Drive Car Repair Costs: 12-Month Change,* % 12% 10% 8% 6% 4% 2% 0% Recession Auto repair Auto body work '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Cyclical peaks in PP Auto tend to occur approximately every 10 years (early 1990s, early 2000s, and possibly the early 2010s) *Percentage change from same month in prior year; through January 2013; seasonally adjusted Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institute. 16

17 2004:Q1 2004:Q2 2004:Q3 2004:Q4 2005:Q1 2005:Q2 2005:Q3 2005:Q4 2006:Q1 2006:Q2 2006:Q3 2006:Q4 2007:Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3 2008:Q4 2009:Q1 2009:Q2 2009:Q3 2009:Q4 2010:Q1 2010:Q2 2010:Q3 2010:Q4 2011:Q1 2011:Q2 2011:Q3 2011:Q4 2012:Q1 2012:Q2 2012:Q3 3% PP Auto BI Liability Paid Claim Frequency*, 2004:Q1-2012:Q3 % Change from same quarter, prior year 0% -3% -6% -9% The frequency of PP Auto BI paid claims (paid claims as a percent of earnedcar-years) fell (at a slowing rate) from , rose in 2011, fell again. *measured as % change from same quarter, prior year Source: ISO Fast Track data.

18 Trend in PP Auto BI Liability Average Loss* 2008:Q4-2012:Q3 2008:Q4 2009:Q1 2009:Q2 2009:Q3 2009:Q4 2010:Q1 2010:Q2 2010:Q3 2010:Q4 2011:Q1 2011:Q2 2011:Q3 2011:Q4 2012:Q1 2012:Q2 2012:Q3 % Change from same quarter, prior year 7% 6% BI liability average loss seems to be moderating. 5% 4% 3% 2% 1% 0% *measured as % change from same quarter, prior year Source: ISO Fast Track data.

19 2008:Q4 2009:Q1 2009:Q2 2009:Q3 2009:Q4 2010:Q1 2010:Q2 2010:Q3 2010:Q4 2011:Q1 2011:Q2 2011:Q3 2011:Q4 2012:Q1 2012:Q2 2012:Q3 3% 2% 1% 0% -1% -2% -3% -4% -5% PP Auto PD Liability Paid Claim Frequency*, 2008:Q4-2012:Q3 % Change from same quarter, prior year The frequency of PP Auto PD liability paid claims fell in but has been essentially flat 10 the last 12 quarters. *measured as % change from same quarter, prior year Source: ISO Fast Track data.

20 Trend in PP Auto PD Liability Average Loss 2008:Q4-2012:Q3 2008:Q4 2009:Q1 2009:Q2 2009:Q3 2009:Q4 2010:Q1 2010:Q2 2010:Q3 2010:Q4 2011:Q1 2011:Q2 2011:Q3 2011:Q4 2012:Q1 2012:Q2 2012:Q3 % Change from same quarter, prior year 3.0% 2.5% 2.0% 1.5% PD growth in average loss trending down until 2010:Q3 1.0% 0.5% Then rising fairly steadily until 2012:Q2 0.0% -0.5% -1.0% *measured as % change from same quarter, prior year Source: ISO Fast Track data.

21 CDC Report: Cell Phone Use While Driving, US and Europe, Fall 2011 Percent saying regularly or fairly often 30% 20% 27.5% In the past 30 days, how often have you talked on the phone while you were driving? 15.7% 19.5% 20.4% In the past 30 days, how often have you sent a text message or while you were driving? 10% 7.8% 8.8% 12.8% 10.4% 7.7% 2.5% 4.3% 5.2% 2.8% 8.1% 5.9% 6.5% 0% Talked on cell Texted/ ed U.S. U.K. Germany France Spain Belgium Netherlands Portugal Sources: Mobile Device Use While Driving United States and Seven European Countries, 2011, in Morbidity and Mortality Weekly Report, Centers for Disease Control and Prevention, Vol. 62, No. 10, (March 15, 2013) available at ;Insurance Information Institute 21

22 Investments 22

23 U.S. Treasury Security Yields*: A Long Downward Trend, % 8% 7% 6% Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade. U.S. Treasury security yields recently plunged to record lows 5% 4% 3% 2% 1% 0% Recession 2-Yr Yield 10-Yr Yield '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come. *Monthly, constant maturity, nominal rates, through Feb Sources: Federal Reserve Bank at National Bureau of Economic Research (recession dates); Insurance Information Institutes. 23

24 Distribution of Bond Maturities, P/C Insurance Industry, % 41.4% 26.8% 10.3% 6.3% % 39.5% 26.7% 11.1% 6.4% % 15.7% 15.2% 16.0% 16.0% 36.2% 32.4% 30.0% 29.5% 28.8% 28.7% 31.2% 33.8% 34.1% 34.1% 11.7% 12.7% 12.9% 13.1% 13.6% 7.3% 8.1% 8.1% 7.4% 7.6% Under 1 year 1-5 years 5-10 years years over 20 years % 29.2% 32.5% 15.4% 7.6% % 29.8% 31.3% 15.4% 9.2% 0% 20% 40% 60% 80% 100% The main shift over these years has been from bonds with longer maturities to bonds with shorter maturities. The industry first trimmed its holdings of over-10-year bonds (from 24.6% in 2003 to 16.9% in 2011) and then trimmed bonds in the 5-10-year category. Falling average maturity of the P/C industry s bond portfolio is contributing to a drop in investment income along with lower yields. Sources: A.M. Best; Insurance Information Institute. 24

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