Property/Casualty Insurance in
West Virginia: Review & Preview
Presentation to the
Professional Independent Insurance Agents of
West Virginia
Charleston Marriot
Charleston, WV
September 14, 1999
Robert P. Hartwig, Ph.D., Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 669-9200  Fax: (212) 732-1916  [email protected]  www.iii.org
Download this presentation at: http://www.iii.org/media/piaawv/index.html
SCALE AND SCOPE OF THE
WEST VIRGINIA P/C
MARKETPLACE
Market and Economic Overview
Auto
Home
Commercial
United States
Insurance Market Place
1998 Direct Premiums Written
$296.54 billion
99.5%
$1.52 billion
0.5%
Source: Insurance Information Institute, A.M. Best
States with Largest Number of
P/C Insurance Domiciles vs. WV
350
321
300
248
216
250
211
186
200
150
100
50
3
0
Vermont
Number of Companies in 1997
Texas
Pennsylvania
Source: NAIC, Insurance Information Institute
New York
IL/WI
W. Virginia
Growth in Direct Written
Premiums: WV and US
10%
5%
0%
-5%
89
90
91
92
93
94
West Virginia
95
US
Source: A.M. Best, Insurance Information Institute; *III Estimate
96
97
98
*
Direct Loss Ratio Trends,
Selected Lines in WV
100%
90%
80%
70%
60%
50%
40%
Auto
Homeowners
Source: NAIC, Insurance Information Institute
Commercial Multi-Peril
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
30%
Return on Net Worth,
Selected Lines in W. Virginia
50%
40%
30%
20%
10%
0%
-10%
-20%
Auto
Homeowners
Source: NAIC, Insurance Information Institute
Commercial Multi-Peril
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
-30%
Employment Growth:
Ahead of the Pack
6%
4%
2%
0%
US
West Virginia
Source: III, BLS, RFA, WV Development Office.
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
-2%
Real Economic Growth:
A Bit Behind the Curve
8%
6%
4%
2%
0%
US GDP
Source: III, BLS, RFA
West Virginia GSP
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
-2%
Unemployment:
The Silver Lining
12%
9%
6%
* As of July 1999
US
Source: III, BLS, RFA, WV Development Office.
West Virginia
20
03
20
02
20
01
20
00
*
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
3%
Growth in Net Premiums
Written (by Line)
1998
7.8%
5.2%
3.3%
1.8%
1.6%
0.4%
0.1%
0.0%
-3.6%
-5.3%
-6.5%
-8%
-6%
-4%
-2%
0%
2%
4%
Source: A.M. Best, Insurance Information Institute.
6%
8%
Homeowners
Medical Malpractice
Personal Auto
All Other Lines
Inland Marine
Commercial Auto
Commercial Package
Fire & Allied
Workers' Comp
General and Products Liab
Reinsurance
Net Investment Income
40
1997 Peak = $41.5B
35
1998 = $39.9B
30
1999 (Estimate) = $38B
25
2000 (Forecast) = $37B
20
15
10
5
Net Investment Income
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
0
19
70
Billions ($)
45
Premiums-to-Surplus Ratio
3.0
2.5
1998-2000 (Est./Forecast) = 0.8
2.0
1.5
1.0
Ratio of Net Premiums Written to Policyholder Surplus
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
0.5
P/C Industry Combined Ratio
120
1998 = 105.6
115
1999 (Estimate) = 106.8
2000 (Forecast) = 108
110
105
100
Combined Ratio
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
95
U.S. Insured
Catastrophe Losses
25
$22.9
20
$16.9
15
$8.3
10
$7.5
$5.5
$4.7
5
$1.3
$10.1
$7.3
$2.7
$2.6
0
Nominal ($ Billions)
1988
89
90
91
92
93
94
Source: Property Claims Service, Insurance Information Institute
95
96
97
98
1999 Stock Market
Performance, by Segment
Year to Date through 08/27/99
29.45%
20.11%
16.02%
10.53%
2.58%
-2.12%
-2.12%
-13.08%
-16.17%
-40.10%
-40%
-20%
0%
20%
Source: SNL Securities, Insurance Information Institute
40%
Brokers
Multiline
Mort. Guar.
S&P 500
Banks
L/H
All Insurers
P/C
Fin. Guar.
Title
AUTO INSURANCE
Direct Written Premium Growth:
PP Auto
12%
9%
6%
US
West Virginia
Source: A.M. Best, Insurance Information Institute
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
3%
Average Expenditures on
Auto Insurance
51
9
$550
$500
US
* III estimates.
Source: NAIC, Insurance Information Institute
West Virginia
199
9*
199
8*
199
7
199
6
199
5
199
4
199
3
199
2
199
1
$450
70
5
70
2
70
5
70
9
61
9
55
7
58
1
59
6
61
8
63
7
$650
64
6
65
1
66
8
67
1
$700
$600
70
7
69
1
70
6
$750
Attorney Involvement by Type
of Claim (1997)
US
West Virginia
52%
Overall: 1992 1997
US
46% 41%
WV
31% 21%
27%
Bodily Injury
Source: Insurance Research Council
Where the U.S. Auto Premium
Dollar Goes, 1997
(per $100 written premium)
Claims
$75
Pmts. to Inj. Persons
$33
Medical
8
Wage loss/Other econ.
2
Pain/suffering/non-econ.
7
Lawyer fees
13
Other settlement costs
3
Pmts for Damage to Cars $42
Prop. Damage Liab.
15
Collision & Comp.
24
Other
3
Expenses
$25
Comm./Selling exp.
General exp.
State prem tax/lic./fees
Policyholder dividends
$16
5
2
2
Claim/Expense Subtotal $100
Bottom Line
Investment Gain
PT Inc. (100-100+11)
Federal Taxes
After-Tax Profit
$11
11
4
$7
Sources: Insurance Information Institute based on data from ISO, IRC and NAIC
July 1, 1999
The Meanest Streets
“3 Dallas-area Intersections Among
Most Dangerous in U.S.”
By Tony Hartzel and Curtis Howell
--The Dallas Morning News
•Belt Line & Midway in Addison: 263 crashes in 1998
•Park & Preston in Plano: 249 accidents in 1998
•Belt Line & Preston in Dallas: 241 accidents in 1998
State Farm will contribute $120,000 toward
improvements at each intersection
http://www.dallasnews.com/metro/0701met1000intersect.htm
HOMEOWNERS INSURANCE
Direct Written Premium Growth:
Homeowners
12%
10%
8%
6%
4%
2%
US
West Virginia
Source: A.M. Best, Insurance Information Institute
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
0%
States with Highest Homeowners
Insurance Expenditures vs. US & WV
$900
827
697
Wisconsin had the lowest
expenditures: $237
651
573
562
$600
440
350
$300
$0
Texas
1996 Expenditures
Hawaii
Louisiana
Alaska
Florida
Source: NAIC (May 1999 release), Insurance Information Institute
US
W. Virginia
COMMERCIAL LINES
Direct Written Premium Growth:
Commercial Multi Peril
12%
9%
6%
3%
0%
-3%
-6%
-9%
US
West Virginia
Source: A.M. Best, Insurance Information Institute
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
-12%
Direct Written Premium Growth:
Workers’ Compensation
30%
Privatization of WV’s
workers’ comp market could
add $150 million to P/C
premium base.
15%
0%
-15%
Nevada’s privatization put
$372 million up for grabs as
of July 1, 1999.
-30%
US
Source: A.M. Best, Insurance Information Institute
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
-45%
MERGER & ACQUISTION
ACTIVITY: INDUSTRY IMPACTS
Insurance Mergers and
Acquisitions
600
1998: 565 deals
valued at $165.4 B
$160
$140
349
$120
$100
$80
243 246
171 188 149
$60
382
400
300
221
56.2
200
40.8
30.9
27
$40
$20
500
433
7.1
6.9
8.6
5
100
8.5 12.5
$0
0
89
90
91
92
93
Value of Deals
94
95
96
Number of Deals
Source: Compiled from Conning & Company reports.
97
98
99
(1st
Half)
Number of M & As
Value of M & As ($billions)
$180
M&As by Segment/#Deals
1998 = 565 Deals
Health
18%
Life
12%
Distribution
43%
P/C
27%
Source: Conning & Co.
M&As by Segment/Value
1998 = $165.4 Billion
Life
22%
Health
3%
Distribution
37%
P/C
38%
Source: Conning & Co.
DISTRIBUTION
P/C Premium Distribution
1998
Personal Lines ($146B)
Ind. Agents/ Brokers
27%
Direct Response
9.8%
$14.3
$39.5B
Banks 2.8% ($4.1B)
Internet 0.9% ($1.3B)
Other 3.0% ($4.4B)
$82.6B
Captive Agents 56.5%
Source: Insurance Information Institute, A.M. Best, Datamonitor
P/C Premium Distribution
1998
Commercial Lines ($135B)
Ind. Agents/
Brokers
73%
$99B
$36B
Direct Response 0.3%
($0.4B)
Source: Insurance Information Institute, A.M. Best
Captive
Agents
27%
Distribution Methods of
Top 10 U.S. Market Leaders
Independent Agency/Broker
Direct Response
Captive Agency
Banks/E-Commerce
100%
80%
60%
40%
20%
1945
1975
Source: A.M. Best, Insurance Information Institute.
1998
2005
0%
Shifting Distribution Channels:
Property/Casualty Insurers
1998
2003
Captive
Agents
48.8%
Captive
Agents
56.5%
Independent
Agents
23.3%
Independent
Agents
27.0%
Other
3.0%
Internet
0.9%
Source: Datamonitor
Direct
Response
Banks 9.8%
2.8%
Other
2.5%
Internet
7.3%
Banks
8.1%
Direct
Response
10.0%
Shifting Distribution Channels:
Life/Health Insurers
1998
2003
Independent
Agents
31.9%
Independent
Agents
35.5%
Captive
Agents
45.0%
Direct
Response
3.9%
Captive
Agents
40.1%
Internet
0.5%
Other
7.0%
Source: Datamonitor
Direct
Response
2.8%
Banks
9.2%
Banks
14.9%
Other
6.3%
Internet
2.9%
Respondents Extremely/Very Comfortable
Purchasing Auto Insurance(%), by Outlet
Through Agent
From a Bank
By Phone
On Internet
80
21
9
Source: Insurance Information Institute’s 1999 Insurance Pulse
8
Persons Not Very/Not At All Comfortable
Purchasing Auto Insurance(%), by Outlet
Through Agent
From a Bank
By Phone
74
45
3
Source: Insurance Information Institute’s 1999 Insurance Pulse
On Internet
74
Respondents Having Better Relationship
with Agents, Banks, or Neither
Agent/Rep
Bank
Neither
Don't Know
51
23
17
10
Source: Insurance Information Institute’s 1999 Insurance Pulse
Changing Channels
Direct Channels
Channel Outputs
Traditional Channels
Brand
Awareness
Direct Mail
Leads
Internet
Information
Agents
Sales
Tele-insurance
Cross-Sell
Source: Datamonitor
generates effectively
Super-Channel
20%
85%
82.0%
18%
80%
14%
13.0%
12%
75%
10%
71.0%
8%
70%
6%
Total Market Share for
Agents
Total Market Share for
Direct Channels
16%
6.0%
4%
65%
2%
0%
60%
1998
2003
Projections if current conditions stay same for next five years.
Projections for next five years if large-scale technological innovations are put in place.
Source: Datamonitor 1999 Distribution Survey.
Distribution Channels
Continue to Proliferate
Customer
Agent
Broker
Mail
Telephone
Bank
Internet
Dealerships
Payroll Plans
???
Insurer
The Electrons Are Coming...
E-Agencies (As of Jan. 1999)
Just 3% (1,200) of the 42,000 independent
agencies in the US have a web site
EMERGING ISSUES
Y2K
Financial Services Reform
Banks and Insurance
Firearms Exposure?
Fraud
Insurers’ Estimated Y2K
Exposure: Worst Case Scenario*
Directors & Officers
$5 billion
14.3%
General Liability
$8 billion
22.9%
Business
Interruption
$4 billion
11.4%
Errors and
Ommissions
$4 billion
11.4%
Declaratory
Judgment Expenses
$10 billion
28.6%
*High estimate ($35 billion); M&R estimates range from $15 - $35 billion.
Source: Milliman & Robertson
Miscellaneous
$4 billion
11.4%
Financial Services Reform:
Work (Still) in Progress
Senate
•Banks, securities firms &
insurers must operate as
holding cos.
•Fed oversight
•Bar banks from entering
commercial businesses/bar
non-fin. cos. from thrifts
•Small, rural banks exempt
from CRA
•Criminalize privacy
breaches
House
•Holding cos/national bank
subsidiary structures
permitted
•Fed/OCC oversight
•Banks can enter commercial
services/non-fin. cos can own
thrifts
•Extend CRA to holding
companies
•Disclosure policies,
customer consent
1997 Bank Insurance
Premiums
Total = $27.8 Billion
Credit
$2.8 billion
10%
Commercial
$2.8 billion
10%
Personal
$2.0 billion
7%
Annuities
$18.8 billion
68%
Source: Association of Banks-in-Insurance
Life
$1.4 billion
5%
Firearms Exposure:
Long Shot or Bull’s-Eye?
Rate per 100,000 population (1997)
90.0
4.5
82.8
3.9
80.0
4.0
70.0
3.5
60.0
3.0
50.0
2.5
40.0
30.0
2.0
1.7
27.5
1.5
20.0
1.0
10.0
0.5
0.0
0.0
Aggravated Assaults with
Firearms
West Virginia
Source: FBI
US
Murder with Handguns
West Virginia
US
•Raises questions for
insurance regulators in
small states
•Adds fuel to federal v.
state oversight debate
•Current safeguards
designed to minimize
insolvency risk, not risk
of financial fraud.
•NAIC role/position
Martin Frankel: Disappeared
with $215 million in
policyholder funds
Insurance Information
Institute On-Line
•Tips on safety, disaster preparedness
•Consumer advice
•Information for Insurance Professionals
•Media Resources
•Industry Financial Results, Surveys & Polls
Download this presentation at:
http://www.iii.org/media/piaawv/index.htm