THE ROAD AHEAD TRENDS IN THE U.S. AUTO INSURANCE MARKET. JLT Re November 2017

Transcription

1 THE ROAD AHEAD TRENDS IN THE U.S. AUTO INSURANCE MARKET JLT Re November 217

2 TABLE OF CONTENTS EXECUTIVE SUMMARY 3 AUTO SALES FLAGGING? 4 A CHANGING AUTO INSURANCE LANDSCAPE 6 LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? 11 ENJOY TODAY S MARGINS, PREPARE FOR THE FUTURE 15 2

3 EXECUTIVE SUMMARY Since late 21, we have seen an uptick in loss frequency in auto insurance lines in the U.S. as the economy strengthened and more drivers began to hit the road, often with a smartphone in one or both hands. The proliferation of smartphones has contributed to, if not largely driven, the increase in loss frequency in both personal and commercial lines. More sophisticated and expensive components of modern-day vehicles, as well as the imputed liability of distracted drivers, have driven loss severity higher. Rate increases going back to 214 and continuing through 217 are, in many cases, now offsetting these adverse trends and driving welcome margin improvement. Barring a sharp reversal in loss cost inflation, we expect to see further rate strengthening and insurers' underlying auto margins improve in (excluding the impact of heavy catastrophe losses in 3Q 217) as this strengthening continues to earn into revenues. While rates are now reflecting higher loss frequency and severity, we may be at or near the peak of that trend. Autonomous and semi-autonomous vehicle technology promises, not without controversy, to reduce losses by eventually removing much of the error-prone human element from the road. In the short term, distracted driving and improvements in U.S. economic fundamentals have resulted in greater accident rates, causing auto insurance losses to spike. In addition, prior-year loss reserve development trends indicate potential reserve deficiencies in auto liability segments. Rate increases are now offsetting these trends and the margins of top-tier carriers should improve through 217 and beyond all else being equal. Over the longer term, the promise of safer driving conditions has garnered the support of regulators, resulting in considerable progress in the pace of auto disruption. As semi-autonomous capabilities and safety features advance, many observers expect completely autonomous vehicles to be the norm by 25. The adoption of autonomous vehicles, connected devices and the threat of insurer substitution by OEMs (original equipment manufacturers), alongside growing preferences toward the sharing economy, are the long-term drivers of auto insurance market transformation. The auto insurance business is now alive and well, but there are moments in history when technologies have moved the world in completely new directions. The invention and proliferation of the wheel was one of those moments, and the distribution of semi-autonomous and autonomous vehicle technology is potentially another. The insurance industry has a unique opportunity to embrace and steer the development of wheel technology toward more healthy outcomes for policyholders, stakeholders, and wider society. Opportunities and risks abound in auto-related product and cyber liability insurance products, among other developing areas of coverage, but technological and analytical advances will require auto insurers to re-imagine customer experience, redefine traditional underwriting practices, and rethink market strategy to remain viable. EXECUTIVE SUMMARY 3

4 GM Ford Toyota Chrysler Nissan American Kia Motors Hyundai Subaru Mercedes-Benz Volkswagen Mazda Audi Mitsubishi Volvo BMW Daimler FCA Ford GM Honda Hyundai Kia Nissan Subaru Toyota Volkswagen Industry average Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 AUTO SALES FLAGGING? U.S. vehicle sales have been declining throughout 217, indicating an end to a seven-year streak of consecutive gains. Sales of U.S. vehicles (auto and light trucks) in August 217 were at 16.44mn, down from 17.1mn (-3.89%) in July 217 and from 17.51mn (-6.1%) a year ago. U.S. Vehicle Sales (Jan , mn units) US AUTO SALES HISTORICAL DATA The numbers denote vehicle sales numbers for seasonally adjusted annual rate of U.S. auto and light truck sales. Source: Bureau of Economic Analysis Manufacturers have increased the use of incentives in an attempt to boost sales; however continued poor performance has started to raise red flags. In June 217, auto makers increased incentive spending by ~13%, $1.9bn more than the previous year. So far the strategy has failed to offset this trend as indicated by rising car inventories. According to J.D. Power, the average new vehicle now takes 7 days to sell, a record high since July 29 (8 days). U.S. Auto Sales by Company Incentive Per Unit (USD) 3, 6, 63% 7% 25, 5, 42% 6% 5% 2, 15, 1, 4, 3, 2, 2% 8% 13% 7.3% -6.3% 25% 2% 4% 3% 9.3% 9.7% 2% 1% -8.9% % 5, 1, -23% -1% -2% -3% Jun-16 Jun-17 Jun-16 Jun-17 June 217 %change Source: Wall Street Journal Source: ALG AUTO SALES FLAGGING? 4

5 Despite higher discounts and strong truck demand, U.S. light vehicle sales slipped in 217. This drop in new car sales signals an ageing fleet. The average age of vehicles on the road has been steadily increasing over the last several years and was 11.6 years in 216. Therefore, the overall auto market seems to be in a state of flux. Much of this poor performance can be attributed to three primary causes: macro-economic uncertainty, a transforming social paradigm and speed of technological development all of which have an impact on the auto insurance marketplace. % Growth In Number of Vehicles On the Road by New to 5 years old 6 to 11 years old Source: IHS Markit over 12 years old Volume of vehicles on the road in 221 by age category (% growth) over 16 years AUTO SALES FLAGGING? 5

6 A CHANGING AUTO INSURANCE LANDSCAPE The auto sector is in the middle of a dynamic change: however, the pace of this transformation and the convergence of evolutionary and disruptive key trends is what makes it remarkable. Change seems to be the buzzword of the auto sector. A 217 GE report indicates that "Over the next few years, what has been known as the automotive industry will come to be known more broadly as the mobility industry " (2). Given the disruptive changes, participants both big and small, unable to keep up with the pace, could find themselves obsolete, creating a strong possibility of new power players at the top in the near future. With this shift, traditional auto insurance, a key component of the P&C marketplace, remains exposed to premium decreases reshaping the segment in the medium and long term. SHORT-TERM TREND: Insurance rate increases outpacing loss trends and partially offsetting lower costs of ownership Healthy market fundamentals such as rising employment rates and declining gas prices are resulting in favorable driving conditions and more cars on the road. Greater traffic density alongside factors such as distracted driving is resulting in higher accident severity and frequency. This scenario of increasing losses and unfavourable loss development as well as poor investment yield has resulted in carriers having to increase rates, with the Bureau of Labor Statistics motor vehicle insurance index increasing by 8.1% from August 216 to August 217. Fuelled by rising employment and a slump in global oil prices, Americans are driving more than ever before. According to the 217 American Automobile Association (AAA) Your Driving Costs study (3), due to falling gas prices, annual costs to own and operate a vehicle fell to a seven-year low of $8,469 ($8,558 in 216), or ~ $76 per month, to cover fixed and variable costs. Apart from depreciation, these costs include maintenance, insurance and finance charges. While small sedans were the least expensive vehicles to drive, operators of small SUVs, hybrids and electric vehicles also reported below-average driving costs. Pick-up trucks remain the most expensive vehicles to drive. Annual Costs of Owning a New Vehicle, 217, USD 12, 1, 8, 6, 4, 2, -2, Small Sedan Medium Sedan Large Sedan Small SUV Medium SUV Minivan Pick-up Truck Hybrid Vehicle Electric Vehicle Finance Charges Depreciation License, registration and taxes Full-coverage insurance Maintenance, repair and tires Fuel Source: AAA Note: Based on 15, miles driven annually; AAA evaluated forty-five 217 model-year vehicles across nine categories with a focus on mid-range, top-selling vehicles. Sales-weighted average is used to estimate vehicle costs. Note: 217 data for sedan costs are an average of the cost of small, medium and large sedans, while those for SUVs are average cost of small and medium SUVs. Driving Cost Trends (21-217, USD) 12, 11, 1, 9, 8, 7, 11,85 11,239 11,36 11,599 11,39 1,624 9,399 8,528 8,487 8,776 8,946 9,122 8,876 8,698 8,588 7, Sedan SUV A CHANGING AUTO INSURANCE LANDSCAPE 6

7 Motor Fatalities The annual cost of owning an electric vehicle ($8,439) was slightly below the average cost. With the absence of gasoline engines, electric vehicles have the lowest fuel, maintenance and repair costs; however, this is offset by high depreciation costs. A recent survey by AAA revealed that 1 in 6 Americans are likely to choose electric vehicles motivated by relatively lower long-term ownership costs. The decreasing annual cost of owning a car has encouraged an increase in driving. This, as well as factors such as greater density and distracted driving, have resulted in an increase in the accident rate. U.S. Unemployment Rate (%), Retail Gasoline Prices (USD/Gallon) Versus Motor Fatalities (21-216) 45, 12 4, 35, 3, ,999 32, , ,369 35, , , , , Jan-June217 Motor Fatalities US Unemployment rate (%) US All Grades Retail Gasoline (USD/Gallon) Source: National Center for Statistics and Analysis (NCSA), National Safety Council According to the National Safety Council (NSC), U.S. motor vehicle deaths in 216 topped 4, for the first time since 27, recording a 6% gain from 215 and a 14% gain from 214. The cost of these motor vehicle deaths, injuries and property damage in 216 was estimated at ~$432.5bn in 216, a 12% increase from 215. A recent survey conducted by the NSC to understand the attitudes and behaviors of the driving public revealed startling driver safety issues. This survey reported that ~47% of motorists are comfortable texting while driving, ~1% reported driving drunk, and 64% reported that they were comfortable speeding (4). In addition, drivers offered insight into their greatest concerns on the road (shown on the chart below). Level of Concern by Drivers in the United States Road maintenance Driverless or automated cars Teen drivers Bad weather Tired drivers Road rage Speeding Aggressive drivers Drugged drivers Distracted drivers Drunk drivers % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Major concern Minor concern Not a concern Source: National Safety Council A CHANGING AUTO INSURANCE LANDSCAPE 7

8 AUTO LOSS TRENDS DRIVING A HARDENING AUTO MARKET Auto losses soared by 13% in 216 with carriers experiencing historically high loss ratios driven by increasing frequency and severity. S&P s initial estimates for private passenger auto alone expected an additional 7% increase in 217. However, with recent hurricanes Harvey and Irma, the end result could be even higher. Increasing losses have been driving insurers, both private and commercial, to increase premium rates considerably a trend expected to continue throughout 217 and into 218. Auto Incurred Net Losses & Deferred Expenses (2-216, USD bn) Auto Physical Commercial Auto Liability Private Pass. Auto Liability Source: SNL Financial, JLT Re 14% 13% 12% 11% 1% 9% 8% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Auto loss cost (claims) inflation Auto ins rate increases Source: ISO, Bloomberg data, JLT Re (indexed) A CHANGING AUTO INSURANCE LANDSCAPE 8

9 AUTO INSURANCE ONE-YEAR RESERVE DEVELOPMENT TRENDS Reserve development for auto physical lines in the U.S. remained constantly favorable, averaging -2.29% from 2 to 216. However, one-year loss reserve development for U.S. commercial auto liability and personal auto liability transitioned from favorable to unfavorable development over the same period. Commercial auto loss liability transitioned from favorable to unfavorable loss reserve development in 211, indicating growing loss reserve deficiency over the last five years (AY21-AY215). Reinsurers have been driving rate increases to keep up with unfavorable loss trends; commercial auto liability can be regarded as a true hard market. Similarly, loss development for private passenger liability entered unfavorable territory in 215, with signs of a persisting reserve deficiency. This is indicated by the forecast increase in net losses in 217. The P&C industry experienced an extreme danger phase during the late 199s and the result was a period of strengthening in the early 2s. With a growing number of business lines showing signs of unfavorable development recently (including auto liability in the U.S.), the sector today appears to be in a new, albeit less acute, danger phase. -JLT Re Viewpoint, Enough in Reserve? One-year reserve development ratio trend for U.S. Auto Physical lines as a percentage of Net Premiums Earned (2-216).% % -1.% Favorable development: reserve redundancy -1.5% -2.% -2.5% -2.22% -1.43% -1.74% -2.17% -2.49% -2.61% -2.63% -2.24% -2.19% -2.4% -2.7% -2.42% -2.85% -2.6% -2.3% -2.39% -2.14% -3.% Auto Physical Poly. (Auto Physical ) One-year prior year reserve development for U.S. Commercial Auto Liability lines as a percentage of Net Premiums Earned (2-216) 15.% 1.% Unfavorable development: reserve deficiency 5.%.% -5.% -1.% Favorable development: reserve redundancy Commercial Auto Liability A CHANGING AUTO INSURANCE LANDSCAPE 9

10 State Farm Berkshire Hathaway Allstate Progressive USAA Liberty Mutual Nationwide American Family Travelers Farmers One-year reserve development ratio trend for U.S. Pvt. Passenger Auto Liability lines as a percentage of Net Premiums Earned (2-216) 3.% 2.% 1.%.% -1.% -2.% Unfavorable development: reserve deficiency -3.% Favorable development: reserve redundancy -4.% Pvt. Passenger Auto Liability Poly. (Pvt. Passenger Auto Liability) Source: SNL Financial, JLT Re Due to unfavorable loss development, statutory loss ratios surged in 216 to the highest levels in 15 years, driving the need to increase premium rates among auto personal and commercial insurance providers. Further, S&P Global projections for 217 estimate growth in direct written premiums, driven by rate increases, to increase by 7.8% and 6.9% in private auto and commercial auto lines, respectively. This provides an indication of further hardening of the auto insurance market. Carriers taking corrective actions are beginning to see improvements in margins, and these should continue through at least 218, all else being equal. Insurance Costs for Owning and Operating a Vehicle in the U.S. (USD per person) Auto Lines Combined Ratio ( , %) % 1,115 1,222 1.% 968 1,1 1,29 1, % 9.6% 8.% 6.% 3.4% 2.76% 4.% 2.%.% -.58% -2.% -4.% -6.1% -6.% -8.% Insurance costs % change Source: American Automobile Association Source: SNL Financial, JLT Re Note: AAA insurance cost estimates are based on a full coverage policy for a 47-year old male with a clean driving record for a policy with USD 1,/USD 3, bodily injury liability coverage with a USD 5 deductible for collision and a USD 1 deductible for comprehensive coverage. A CHANGING AUTO INSURANCE LANDSCAPE 1

11 LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? No, although insurers that embrace and guide the development of technology will probably replace insurers that do not. The emergence of autonomous vehicles, connected devices, and the possibility of insurer substitution by OEMs, alongside demand for the sharing economy, poses a real threat to the modus operandi of auto insurance. The transition toward complete autonomy and the uncertainty surrounding responsibility for losses could result in reserving chaos. However, the pace of regulatory progress addressing this is positive. OEMs pose a threat to the traditional insurance marketplace as they increasingly assume strategic positions on real-time data. In the long term, greater safety standards are expected to result in considerable claims loss reduction and an increase in the demand for product liability and cyber insurances. While the hardening market will improve auto insurance margins in the near term, what goes up generally must come down. Insurance pricing cycles will continue, although there are secular changes in process now which should gradually shift the fundamental risk profile of insureds and potentially slash demand for what we now know as an auto insurance policy. Regulators are strongly supporting innovation and investment in auto technology, which is growing at an unprecedented level. The development and distribution of semi-autonomous and eventually fully-autonomous vehicles, as well as changing social and environmental preferences, are projected to disrupt the $247bn US auto insurance market and make our roads fundamentally safer and more efficient. Adoption of autonomous vehicles: A recent study by the Boston Consulting Group estimated autonomous vehicle adoption to accelerate significantly over the next two decades, expecting a $77bn market by 235 (5) The widespread adoption of both fully and partially autonomous vehicles is expected to bring tremendous economic and societal benefits, while transforming the vehicle value chain. Autonomous Vehicle Adoption Forecast timeline 21 Data initiatives begin for operation of autonomous vehicles on public roadways 217 Testing for long-haul highway trucks begins in US, Europe and Japan 22 1mn autonomous cars expected to be in operation 23 Taxis, car-sharing and on-demand services adopt driverless vehicles 24 75% of all vehicles on the road estimated to be partiallty or fully autonomous 215 Google operates first fully autonomous vehicle 219 Fully autonomous vehicles to drive from one point to the other no driver interaction 225 Self-driving vehicles estimated to be $42bn market mn fully autonomous and 18mn partially autonomous vehicles to be sold each year 25 9% forecasted reduction in traffic fatalities relative to 21 Sources: VTPI, Business Insider, BCG, IEEE, KPMG LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? 11

12 The landscape of autonomous vehicle production is changing every day, with regulators and manufacturers working together. On 12 September, 217, the Trump administration released an updated federal policy, titled Automated Driving Systems 2.: A Vision for Safety. The new guidelines eliminate requirements for automakers to seek regulatory approval before launching autonomous technology. They also recommend that states focus on licensing, registration and insurance, leaving safety and performance rules to federal regulators. This will speed up regulations to match the pace of this rapidly changing space. The policy does not add any new requirements, only reducing the barriers manufacturers face while developing and testing autonomous technologies. Transportation Secretary, Elaine Chao, made clear that the Government would exercise its power to recall any vehicles that are found to be unsafe, and that the document will continue to be refined and updated along with the advancing technology. On-demand platforms: While already wildly popular, preferences toward on-demand car sharing versus ownership will continue to be a significant trend. We suspect that convenience and cost efficiency, enabled by mobile apps, will result in a drop in personal car sales. However, analysts estimate an increase in commercial auto sales as individual car ownership declines significantly over the next few decades. Ride-sharing applications such as Uber and Lyft currently dominate the ondemand car industry; however commercial enterprises are beginning to get involved in this space and will become more prevalent as demand for cost-efficient shared services continues. Adoption of on-demand/sharing platforms forecast timeline Current On-demand transport and car sharing continues to expand and the first autonomous cars will be on the roads by 22 Consumers will begin experiencing safety advantages resulting in shifting attitudes toward acceptance 235 On-demand vehicles dominate the transportation scene in cities and first-ring suburbs 224 City travel dominated by on-demand vehicles Source: KPMG Vehicle-to-vehicle (V2V) & internet connectivity: With benefits of greater control and safety, connected technology in vehicles, such as Advanced Driver Assistance Systems (ADAS), has already gained significant popularity. Manufacturers have endeavored to take telematics to the next level, focusing on the prevention of crashes altogether by facilitating greater flow of information among vehicles as well as the surrounding infrastructure. In addition, the possibility of aligning real-time driving patterns with auto premium rates a concept called Usage Based Insurance (UBS) is intended not only to improve safety standards but also result in lower insurance premium rates. McKinsey estimates a 3% annual rise in the number of networked cars, to the extent that by 22 one in five cars will be connected to the internet (6). Insurance carriers have already begun to adopt this technology, incentivizing policyholders to control insurance costs through safer driving practices. The downside to increased connectivity of course is greater vulnerability to glitches, infrastructure problems, and malicious network attacks. Coverage for infrastructure property and product and cyber liability exposures are among the emerging opportunities for (re)insurers. We expect to see a tipping point at which revenues for emerging risk coverage offsets expected reductions in revenues for traditional auto property and driver liability insurance. LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? 12

13 Cars with Network Solutions (212-22F) %.15 17% 19% % 12% 1% 8% 5% 3% Cars with Network solutions Source: McKinsey Telematics: Insurtech start-ups are increasingly leveraging reinsurance capital to help provide the capacity required to fund further growth, with reinsurance capital offering an alternative to venture funding. Metromile, one of the pioneers in pay-per-mile personal auto insurance, announced in September 217 that it had entered into a partnership with JLT Re to arrange a unique risk transfer and reinsurance agreement that provides growth funding. HSCM Bermuda, an ILS, reinsurance and transportation finance investment manager, leads the panel that includes MAPFRE RE. This reinsurance agreement provides continued validation that the pay-per-mile model is efficient and highly scalable. It also emphasizes our innovative customer experience and strong retention which is driven by our customers desire for technology-first solutions. CEO, Dan Preston, Metromile. OEMs (Original Equipment Manufacturers): many manufacturers, including auto makers, are driving or are directly involved in these technological advancements that may forever change the way the risks of transportation are mitigated. One primary advantage of OEMs is their access to data captured by their products data on driving habits, activity, environment, etc. These data are a potential goldmine of real-time information for risk managers and insurers as they reimagine the management of risks related to the next generation of vehicles. The emergence of ride sharing, automation, connectivity and mobility in the auto industry have driven significant investment interest in related tech startups. Investment in global auto-tech has increased by 91% in 216 alone. LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? 13

14 Auto-tech annual global financing ( ) % rise in auto-tech funding Disclosed funding (USD Mn) Number of deals While gross investment levels certainly do not translate directly into progress, it is further evidence of auto manufacturers beginning to capitalize on the data they capture, including steps towards direct insurance offerings. Electric car manufacturer Tesla has begun offering lifetime insurance packages, although in partnership with existing insurers for now, even as available data suggest that Tesla s vehicles tend to incur more frequent and costly claims compared to other vehicles in their class. Medium- to Long-Term Insurance Impact The shift toward autonomous vehicles and connected devices and the emergence of OEM-provided insurance may create an existential threat to insurers as liability shifts from drivers to manufacturers and programmers. With this shift, demand for product and cyber liability insurance coverage is forecast to increase in the medium to long term to comprise ~57% of overall auto losses by 25. Commercial Auto 14% Product Liability <1% Product Liability 57% Commercial Auto 21% Personal Auto 86% Personal Auto 22% Source: KPMG LONG-TERM TRENDS: WILL TECHNOLOGY REPLACE INSURERS? 14

15 ENJOY TODAY S MARGINS, PREPARE FOR THE FUTURE Although accident year results remain subject to elevated levels of systemic risk pressure from adverse loss frequency and severity trends, now is a good time to be a top tier provider of auto insurance in the United States. Low (to date) inflation and nearly three years of rate increases are now offsetting otherwise adverse trends, driving perhaps the best conditions for personal and commercial auto insurers we ve seen in many years. As we continue the long transition towards autonomous transport, we expect liability for vehicle-related losses to shift from drivers (or their employers) to manufacturers, software developers and others in the production and operating infrastructure chains. While not without many hurdles to clear, this transition should eventually drive fundamental changes in auto insurance carriers distribution channels, risk pricing and reserving, customer service platforms and claims handling practices. Autonomous vehicle technology has so far developed largely without established ethical and regulatory frameworks that will be needed to protect end users, policyholders, insurers and greater society. There is an opportunity for the insurance industry to guide and support the development of these frameworks through advocacy, product development and partnership with OEMs and technology groups. REFERENCES (1) IHS Automotive (2) General Electric, The State of Automotive: 217 Outlook (3) American Automobile Association: 217 Your Driving Costs (4) National Safety Council (5) Boston Consulting Group, Autonomous Vehicle Adoption Study (6) McKinsey &Co., The Road to 22 and Beyond: What s Driving the Global Automotive Industry? ENJOY TODAY S MARGINS, PREPARE FOR THE FUTURE 15

16 CONTACT David Johnson Executive Vice President JJ Johnson Executive Vice President Mark Shumway Global Head of Strategic Advisory Leena Gupta Assistant Vice President Ryan Hope Strategic Advisory Analyst John Mercer Strategic Advisory Analyst JLT Re (North America) Inc. United Plaza 3 South 17th Street 17th Floor Philadelphia, PA 1913 USA Tel: This report by JLT Re (North America) Inc. is intended to provide only general information based on sources we believe are reliable. JLT Re (North America) Inc. makes no representations or warranties, express or implied, as to the accuracy of any of the information herein, which is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Any statements concerning tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants. We are not tax, accounting, legal or regulatory professionals and any such information provided is not professional advice. These matters should be reviewed with your own qualified advisors in these areas. This document may not be copied or reproduced in any form without the express permission of JLT Re (North America) Inc., except that clients of JLT Re (North America) Inc. need not obtain such permission when using this report for internal business purposes. November