For property/casualty underwriters, today’s operating environment may seems like an insurance-themed episode of The Twilight Zone, with lines they counted on for profits turning into problems and those they once shunned becoming attractive.

That’s one way to sum up a portion of the findings in the 2018 Risk Benchmarks Research Report published by Guy Carpenter & Company LLC, a leading global risk and reinsurance specialist and a wholly owned subsidiary of Marsh & McLennan Companies.

The report focuses, which focuses on the risk and performance of U.S. P/C insurers, notes these changes representing a brand new world for underwriters:

• In auto lines, increasing claims frequency and severity resulting from factors like road congestion, growing repair costs and jury awards, and distracted drivers has sent carriers who once viewed personal auto insurance as a steady source of profitability, looking for solace in homeowners and diversifying commercial lines.

• In workers compensation, over 60 percent of carriers have achieved an underwriting profit since 2013, even as rates continue to decline. Counterbalancing seemingly loss-producing trends like decreasing job readiness and trends in opioid abuse and legalized marijuana, which may in fact impede future profitability, advancements in claims management and workplace safety are helping carriers manage risk. Many are already adjusting loss trend assumptions for such innovations, Guy Carpenter said.

• In commercial casualty, the year 2017 was defined by divergence in performance across major lines to an extent that had not been seen in more than two decades. Loss ratio correlations—based on analyses of both initial and ultimate booked loss ratios—dropped from near-perfect dependence (between lines) in past years to near independence or negative correlation in some cases, demonstrating that line-specific claims and exposure trends trumped cyclical market conditions.

For example, Guy Carpenter’s analysis found that initial booked loss ratio correlations between commercial auto liability and general liability occurrence fell from 95 percent in 2010 to less than zero percent in the years following 2013.

For commercial auto liability and workers compensation, booked ultimate loss ratios were more than 70 percent correlated as recently as 2012 but have since become negatively correlated, the report says.

Standing out as an exception among the casualty line combinations analyses is one from general liability and workers compensation. For this pairing, the booked ultimate loss ratio correlations dipped only a little in the most recent years—to a lesser extent than other casualty line combinations.

“This phenomenon was unique to casualty; property lines remained as strongly correlated today as they have been historically,” Guy Carpenter said.

In an executive summary of the report and a related media statement, Guy Carpenter also noted changes that have impacted property lines, however. Increases in non-modeled losses like wildfires and Assignment of Benefit claims have implications for existing models calibrated on historic data, the firm said. “As awareness of these and other emerging risk grows, carriers must factor them into capital and risk management strategies.”

There are still other changes in the P/C world have an other worldly dimension, according to the report. “InsurTech innovations that just recently seemed like science fiction now offer insurers more nimble platforms and more granular data to better price, manage and mitigate risk,” said Tim Gardner, CEO, North America at Guy Carpenter. “Profitable growth over the next 10 years is likely to be driven by realizing greater efficiency by transitioning away from legacy systems and leveraging new technology and data,” said Gardner.

Source: Guy Carpenter