As the 2020 wildfire season again exceeds historical norms, insurers and policymakers must turn their attention from the literal fires to the figurative one: the threat—and increasing likelihood—that this escalating wildfire risk will result in a homeowners insurance crisis in the state of California.
For homeowners, insurance is often the last line of defense against losing everything to wildfire. However, for many, this crucial financial backstop is rapidly becoming harder to obtain as insurers reduce their portfolios due to billions in losses and regulatory restrictions on reflecting the true cost of risk in the premiums charged. This withdrawal is creating an untenable situation for many Californians and efforts to address it are becoming an urgent priority for policy makers.
In this article, Milliman professionals explain in more detail the state of home insurance in California and the regulatory efforts to address the issues thus far.
The introduction of COVID-19 had an almost immediate influence on insurance variables, from exposure levels, claim development, and litigation rates to trends, yet it may take a long time to realize the effects. As a result, typical benchmarks and the process of benchmarking that has worked well in the past may no longer be applicable.
With many users and applications of benchmarks, how can benchmarks continue to be useful when consistency has been significantly disrupted? How did COVID-19 make an impact on common metrics and statistics used in benchmarking? What are strategies to make benchmarks valuable now and post-COVID-19?
In this paper, Milliman consultant Richard Frese examines property and casualty (P&C) benchmarking in a new era affected by COVID-19.
The property and casualty (P&C) insurance industry published financials for the second quarter (Q2) of 2020, which show a decline in net premium mainly attributable to COVID-19, reversing the growth the industry has experienced in recent years. The premium decline was accompanied by a slightly more than offsetting decrease in incurred losses and other underwriting expenses, resulting in a P&C industry combined ratio in Q2 2020 of 99%, a one-point improvement over the prior year.
The industry annual net premium growth for the past five years has averaged 5%. This growth has been, at least temporarily, halted by the pandemic. The aggregate industry net earned premiums for Q2 2020 are $12 billion lower than those for Q1 2020. The net incurred losses, loss adjustment expenses, and other underwriting expenses also decreased between Q1 and Q2.
Milliman professionals discuss the Q2 2020 results more fully in this article.
Property and casualty (P&C) insurance headlines these days generally focus on issues relevant to current policies. Although not receiving as much attention, historical accident years have also been experiencing deteriorating trends, both for mature exposures such as asbestos, environmental pollution, and construction defect claims as well as for emerging exposures related to talc, sexual abuse, and opioid litigation.
Understanding the impact of these potential legacy losses is important, not only in the context of establishing an appropriate reserve, but also to form a view of the load for mass torts needed for pricing current policy years. Very often insurance companies segregate these mass tort claims, housing them in discontinued operations, ceding such exposures as part of adverse development covers or simply removing them from actuarial analyses to prevent them from “distorting” the analyses of the “normal” claims.
Milliman announced today that it has released version 2020b of its Arius® solutions, a family of state-of-the-art reserve analysis systems for property and casualty insurers. This update provides significant enhancements to the systems’ analytical capabilities, together with key additions to the reporting and data management tools.
This release adds new generalized linear modeling (GLM) capabilities to help actuaries better model and understand their claim costs. GLM tools can be especially valuable when analyzing periods of inflationary pressure on the claim process or significant changes in claim handling within a company or throughout the industry.
In addition, the new release of Arius Enterprise®—Milliman’s reserving solution designed specifically for larger insurers and self-insureds—helps actuaries analyze results at one level of detail and then report on them at different levels. The system’s new allocation tools more reliably and efficiently perform the summary and reporting work that is typically accomplished using riskier spreadsheets.
Our Arius solutions are specifically designed to help our clients better understand and account for the complexities in their business. This release provides a number of new tools to help actuaries with sophisticated calculations, as well as data and report management, so they can focus on the areas where their substantial expertise can provide the most value to their organizations.
Today’s actuaries routinely have too much data to analyze. And many insurance organizations have become so complex that managers can’t be sure that loss reserves are adequate and reasonable, especially under ever-tightening deadlines.
Arius Enterprise is a complete software solution that streamlines your entire P&C loss analysis process. It provides immediate access to all your data from throughout the company; the industry’s best tools for analyzing and reporting on your results; and systems to automate much of the mundane work throughout the entire loss reserving process. You get analyses that are efficient, consistent, and accurate. You can be more confident in your results and add more value to your organization.
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