Notes in General
By Anthony Cappelletti
Welcome to the June 2023 issue of General Insurance Insights, the SOA’s biannual newsletter for those with an interest in general insurance (aka, P&C or property and casualty insurance). This issue includes an article of interest to general insurance actuaries that I wrote. In “Older Drivers: Road Safety and Automobile Insurance”, I outline some of the issues concerning the growing proportion of older drivers on the roads. Also included in this issue is “GI PD Opportunities Update,” an update of professional development (PD) opportunities with significant GI relevant content.
Earlier this year, the SOA Research Institute published Parts 1 and 2 of Catastrophic Cyber Risk: An Expert Panel Discussion Series. Part 1 is “Setting the Scene: Framing Catastrophic Cyber Risk” and Part 2 is “Red Teaming Analysis of a Catastrophic Cyber Attack on Critical Infrastructure.” Whether you are working on cyber risk or just intrigued by it, these expert panel discussions provide some interesting insights. I recommend taking the time to read them when you have the chance to do so.
Back in the June 2021 edition of General Insurance Insights, I examined social inflation in the article “Developments in Social Inflation.” So, as I was reading through some recent articles on general insurance, I noticed that in January of this year, the Doctors Company[i] released the report “Medical Malpractice Claims-Made Social Inflation and Loss Development Report” by Moore Actuarial Consulting, LLC. The report outlines how social inflation accounted for 8% to 11% of medical malpractice claims over the period from 2012 to 2021. The full report provides a practical look at estimating the effect of social inflation for a block of business.
With inflation in mind, it will be interesting to see how the general insurance industry manages its way through our changing economy. General inflation is higher than it has been in decades. It is affecting the price of just about everything. Employers are faced with an environment of low unemployment rates, which places upward pressure on wages. The Federal Reserve has increased interest rates numerous times, although they may hold steady for the remainder of 2023. There is some question as to whether this is an economy in recession or just one exhibiting some of the signs of a recession. Many younger general insurance actuaries are facing economic forces that affect general insurance products that were not an issue for their entire work experience—until now.
And just to round out this topic of rising costs, the issue of litigation funding has been purported to increase the cost of insurance settlements and being one of the factors fueling social inflation. While litigation funding is not necessarily a new way of funding lawsuits, it is becoming more common, especially for class actions. Usually, lawyers take cases on a contingency basis in which they only get paid if they win. This can place lawyers in a risky financial position if a case involves many hours of legal work and expenses. Under litigation funding, lawyers enter into a contract with a third-party that invests their money to fund the litigation. In return, the investor has the potential for a return that reflects this risk. I’ll be on the lookout for any good data sets regarding the effect of litigation funding.
Before I leave the topic of inflation, I feel compelled to mention the article “When Inflation Sows Liability Underwriting Uncertainty, How the Nuanced Art of Actuaries Can Support Carrier Portfolios” by Gregory DL Morris published in Risk & Insurance on Feb. 3, 2023. It’s a good overview of inflation and insurance in the current environment. I recommend reading it. Of course, I may be biased by the fact that Gregory quoted me in the article a few times.
Regarding NFIP reauthorization, nothing has really changed over the past six months. Since 2017, the program has been kept operational through an unprecedented sequence of temporary extensions each lasting between several weeks and 12 months. The latest temporary extension was put in place on Dec. 29, 2022, and expires on Sept. 30, 2023. A longer-term reauthorization is required for stability. It should also be an opportunity to consider reforms to benefit all the program’s stakeholders.
Our goals with General Insurance Insights are to keep readers informed on topics of interest to GI actuaries and to develop the GI actuarial community within the SOA. We welcome your feedback and ideas to help us achieve these goals. If you have questions, feedback, or ideas regarding General Insurance Insights, feel free to contact me.
I would also like to take this opportunity to inform our readers that we are always looking for volunteers in general insurance at the SOA. Please visit the SOA Volunteer Opportunities Database. The database includes all open volunteer opportunities at the SOA. If you do not see a GI exam volunteer opportunity in the database and are interested, contact me directly. We can always use new volunteers for GI exam item writing and grading. In addition to this, we are also looking for ideas on GI continuing education offerings and authors (or ideas) for articles in upcoming issues of General Insurance Insights. Let me know if you would like to contribute.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Anthony Cappelletti, FSA, FCIA, FCAS, is a staff fellow for the SOA. He can be contacted at acappelletti@soa.org.