IVANS 2008 XCHANGE CONFERENCE Key Communications Issues Facing the Property/Casualty Insurance Industry in 2008 Tampa, Florida February 7, 2008 Jeanne. M. Salvatore Senior Vice President, Public Affairs Insurance Information Institute 212-346-5555 jeannes@iii.org
Background on the I.I.I. The Insurance Information Institute (I.I.I.) is a non-profit communications organizations supported by the property/casualty insurance industry. The mission of the I.I.I. is to educate the public about insurance what it is and how it works.
Presentation Outline Communications initiatives in 2008 will focus on four key initiatives: 1. Consumer Education 2. Key Issues 3. Disaster Communications 4. Reputation Management
Consumer Education Key Messages Educate both individuals and small business owners on what is and is not covered in standard home, auto and business insurance policies. This includes the importance of getting the right amount and type of insurance coverage. Help policyholders understand the meaning of the terms and conditions in the policies they purchase, help them make informed purchasing decisions and form reasonable expectation in the event a claim is filed.
Consumer Education Key messages (cont.) Encourage consumers and small business owners should review their insurance policies at least once a year to make sure that they are still up-to-date. Explain specific safety measures that will protect homes, drivers and small business owners against a variety of disasters. To help these messages resonate more strongly, the I.I.I. focuses on specific life states and segments of the population.
Consumer Education Tactics A special program will be undertaken to improve the public s understanding of the claims process. Plan to enhance use of social networking sites and other new media to reach a broader audience. To help these messages resonate more strongly, the I.I.I. focuses on specific life states and segments of the population.
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Key Issues The I.I.I. identified ten key issues: 1. Attacks on the integrity of the claims process. 2. Challenges to the underwriting criteria and predictive modeling systems 3. Climate change 4. Florida-Related Issues 5. Impact of fraud on the insurance market 6. Natural disasters and the cost and availability of coverage 7. Industry financial performance and market conditions 8. Rapid Response to high profile critics 9. Regulatory modernization 10. Terrorism and insurance
Key Issues Three issues that may be of interest to XCHANGE participants: 1. Challenges to the underwriting criteria 2. Insurance fraud 3. Natural disasters and the cost and availability of coverage
Key Issues: Challenges to Underwriting Criteria Goals Increase awareness of the benefits consumers receive from the use of predictive modeling and other underwriting tools that enhance the accuracy, efficiency and fairness of pricing and rating systems. Computerization of data has brought more accuracy speed and efficiency to the insurance business. Even though the vast majority of consumers have benefited from the use of mechanized underwriting, they don t like it.
Key Issues: Challenges to Underwriting Criteria Messages Actuarial studies show that how a person manages his or her finances is a good predictor of the frequency with which they will file insurance claims. Statistically, people who have a poor insurance score are more likely to file a claim. Insurance scores do not include data on race, ethnicity or income. Consumers need to know how to build and protect their credit history since this information is used in many ways applying for a job, renting an apartment, securing a loan, leasing a cell phone and purchasing home and auto insurance.
Key Issues: Fraud Statistics Fraud accounts for 10 percent of the property/casualty insured losses each year or about $30 billion. Forty-eight states have set up insurance fraud bureaus. Catastrophes provide an opportunity for unscrupulous contractors to take advantage of disaster victims. One in four Americans would commit insurance fraud if they could get away with it, according to research by the Insurance Research Council..
Key Issues: Fraud Goals Explain the economic consequences of insurance fraud and what the industry is doing to combat it. Show the ways the insurance fraud is not a victim-less crime. In the past, the industry has not wanted to discuss its anti-fraud activities because it was afraid that this would be perceived as anticonsumer. Now, companies and industry groups spend a considerable amount of time promoting anti-fraud activities.
Key Issues: Fraud New Technology The consolidation of insurance claims data has put a valuable new tool in the hands of investigators. The National Insurance Crime Bureau, for instance, has developed a program called Predictive Knowledge which collects and analyzes information that can be disseminated to insurers and law enforcement agencies to detect, investigate and prevent insurance fraud. In addition, the NICB, in partnership with IMapData Inc., has a program called CATfraud, which identifies potentially fraudulent catastrophe/weather-related insurance claims.
Key Issues: Fraud New Technology (cont.) The latest technology offers valuable tools that can help insurers fight fraud before it occurs. It can verify the accuracy of information provided by prospective policyholders on applications forms. These systems are relatively new but may be able to eliminate potentially fraudulent claims at the point of underwriting instead of after a claim. Once a claim is made, insurers can use a number of different software tools ranging from voice stress analysis and red flag identifiers to data mining and database searching.
Key Issues: Natural Disasters and the Cost and Availability of Coverage. Background Meteorologists agree that we are currently living in a time of more severe and frequent hurricane activity. At the same time, the populations (between1980 and 2003) of coastal counties grew by 33 million people or 28 percent. And, we are building bigger and more expensive homes. Between 1980 and 2003, the population of coastal counties grew by 33 million people or 28 percent. Florida grew by 75 percent, Texas 52 percent and Virginia by 48 percent. The growth and concentration of property values in hurricane prone states created issues of cost and availability of coverage. On the west coast, earthquakes and wild fires also pose a significant risk.
Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss, 1986-2005¹ Earthquakes 4 6.7% Winter Storms 7.8% Wind/Hail/Flood 5 Terrorism 7.7% 2.8% Civil Disorders 0.4% Fire 6 2.3% Water Damage 0.1% Utility Disruption 0.1% Tornadoes 2 24.5% Insured disaster losses totaled $289.1 billion from 1984-2005 (in 2005 dollars). Tropical systems accounted for nearly half of all CAT losses from 1986-2005, up from 27.1% from 1984-2003. All Tropical Cyclones 3 47.5% 1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2005 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III. 2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires. Source: Insurance Services Office (ISO)..
Insured Losses $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $3.8 $4.8 $5.0 $6.6 $7.4 $7.7 $10.3 $16.5 $20.7 $21.6 $40.6 Sept. 11 Terror Attack (2001) Hurricane Andrew (1992) Hurricane Katrina (2005) Eight of the 11 most expensive disasters is US history occurred since 2001 $ Billions Hurricane Jeanne (2004) Hurricane Frances (2004) Hurricane Rita (2005) Hurricane Hugo (1989) Hurricane Ivan (2004) Hurricane Charley (2004) Hurricane Wilma (2005) Northridge Earthquake (1994) Note: 9/11 loss figure is for property claims only. Sources: ISO/PCS; Insurance Information Institute.
Coastal Exposure Florida New York Texas Massachusetts New Jersey Connecticut Louisiana S. Carolina Virginia Maine North Carolina Alabama Georgia Delaware New Hampshire Mississippi Rhode Island Maryland $740.0 $662.4 $505.8 $404.9 $209.3 $148.8 $129.7 $117.2 $105.3 $75.9 $73.0 $46.4 $45.6 $44.7 $43.8 $12.1 $1,937.3 $1,901.6 Source: AIR Worldwide $0 $500 $1,000 $1,500 $2,000 $2,500
Disaster Communications The I.I.I. has a three-point disaster communications plan: 1. Disaster Preparedness 2. Post-Disaster Consumer Communications 3. Litigation Public Relations
Disaster Communications: Preparedness Goals Communicate to homeowners and business owners that how well they prepare for a disaster will largely determine how fully and quickly they recover from one. Partner with agents associations and groups such as the, Federal Alliance for Safe Home (FLASH), Institute for Business and Home Safety (IBHS), National Flood Insurance Program, Red Cross and the Small Business Association.
Disaster Preparation Five Major Disaster Preparedness Tips for Residents 1. Buy enough insurance 2. Get the right type of policy 3. Create a home inventory 4. Hurricane-Proof your home 5. Have a disaster recovery plan (that includes pets!)
Disaster Insurance Information Evacuation video http://www.iii.org/static/video/mediaplayer/evacuation.wmv Preparedness information covering hurricanes, tornadoes, earthquakes, floods, wildfires and terrorism
Disaster Communications: Post Disaster Create public awareness that the industry is responding rapidly, effectively and compassionately to the needs of its policyholders following a catastrophe and that the industry has the financial strength to pay claims. Position the industry as one of the first responders when a disaster strikes. Work closely with I.I.I. member companies to communicate their activities in the disaster zone.
Disaster Communications: Litigation Public Relations Provide communications support to the insurance industry and individual insurance companies when legal cases are tried in the media. As part of the process, the I.I.I. will try to target specific external audiences including the court of public opinion. In 2008, the industry is still handling Hurricane Katrina-related cases. A key message is that insurance policies are contracts. And, when policyholders and their attorneys retroactively attempt to change the terms of the contract, they put all contracts at risk.
Reputation Management Goal Enhance the reputation of the industry. Special emphasis will be made in 2008 to highlight the social and economic contributions the industry makes to society. Insurers contribute more than $250 billion to the nation s gross domestic product. Contributed $9.78 billion in charitable contributions.
Reputation Management There are, however, 2.3 million employees in the industry. This accounts for 2.1 percent of U.S. employment. If each of us educated the people we know about the contribution the industry makes to society, we could be extremely effective.