Leaders of the property/casualty insurance industry believe the cyber insurance market is expanding, particularly with emerging risks prompted by high-profile hackings, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its 19th annual Property/Casualty Insurance Joint Industry Forum, held here. Cyber-Crime is exposing businesses - both in the U.S. and abroad - to greater levels of liability than ever before, which is why the market is far from saturated.
Eighty percent of executives said they see cyber insurance as a major growth area for commercial insurers.
Many executives in the property/casualty industry believe there will be a stricter regulatory environment in the year ahead. Seventy-two percent believe the federal government is interested in further expanding its regulatory oversight of insurers.
More than half of p/c industry leaders believe the U.S. economic growth will improve in 2015. Fifty-six percent believe the economy will accelerate; 6 percent believe it will decelerate and 38 percent believe it will remain about the same.
"The U.S. economy appears to be picking up steam, which translates into more economic activity and the addition of capacity. This means more businesses and people will need more insurance, implying further increases in insurance premium volume," said Dr. Steven Weisbart, senior vice president and chief economist with the I.I.I. "Moreover, business bankruptcies in 2014 dropped below their lowest level in the last two decades, so the erosion of commercial accounts will continue to ease. As the economy inches closer to full employment, we may begin to see wage increases that outpace inflation for the first time in nearly a decade, primarily affecting the workers compensation line. Further, the low-interest rate climate, which has lasted longer than virtually everyone thought likely, is expected to begin a return to normality sometime in the second half of 2015. Absent devastating natural catastrophes, 2015 could be another profitable year for insurers."
Broken down by lines of insurance, 61 percent of respondents believe there will not be an improvement in personal auto lines and 54 percent believe there will not be an improvement in the homeowners lines. In addition, 58 percent of respondents do not expect an improvement in commercial lines, however 44 percent expect an improvement in workers compensation.
Thirty-six percent of respondents believe that premium growth will be higher in 2015; 46 percent believe it will remain flat; and only 18 percent believe it will be lower. In terms of capacity, as measured by policyholders' surplus, 78 percent of respondents expect it to increase; 18 percent believe it will remain flat; and 4 percent believe it will decrease.
As compared with 2014, 74 percent of respondents believe the combined ratio will be higher in 2015. The combined ratio is a percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The combined ratio declined by 1.1 percentage points to 97.8* percent in 2014 (estimated) from 96.7* percent in 2013. A combined ratio over 100 means that claims payments plus expenses exceeded insurance premiums.
"Combined ratios must be lower in today's depressed investment environment to generate risk appropriate ROEs," added Weisbart. "Lower catastrophes helped pull up ROEs in 2014," he said.
One way to lower expenses is by consolidation; 92 percent of respondents expect an increase in M&A activity among insurers and reinsurers in 2015.
In the area of torts, 18 percent of respondents believe that tort trends will deteriorate in 2015; 66 percent believe it will remain the same; and 16 percent believe it will improve.
On the investment side, 68 percent of industry leaders expect another "up" year in the equity markets in 2015 (but for the industry as a whole, equities constitute only about 15 to 20 percent of invested assets). About 70 percent of invested assets are in bonds.
Industry leaders were asked whether they expect interest rates to rise, fall or remain flat in 2015. Fifty-six percent think they will remain flat and 40 percent think they will rise; and four percent of the respondents expect interest rates to fall.
The Property/Casualty Insurance Joint Industry Forum was created to provide leaders from the widest spectrum of the industry with an opportunity to meet with each other in discussion of topics of general interest. Participants included nearly 250 representatives from property/casualty insurance and reinsurance companies and organizations. Of these, roughly 40 percent responded to the survey.
The sponsoring organizations of the Forum represent a broad range of insurance interests and audiences. They include: ACORD, American Insurance Association, the Association of Bermuda Insurers and Reinsurers, The Geneva Association, Insurance Institute for Business & Home Safety, Insurance Information Institute, Insurance Institute for Highway Safety, International Insurance Society, National Association of Mutual Insurance Companies, National Council on Compensation Insurance, National Insurance Crime Bureau, Property Casualty Insurers Association of America, Property & Liability Resource Bureau, Reinsurance Association of America, The Institutes and Verisk Analytics.
For the poll questions and full results, go to 2015 Property/Casualty Insurance Joint Industry Forum