Thursday 24 July 2014 – The vast majority of property-casualty (nonlife) premium in the US is written by members of the Insurance Information Institute (I.I.I), an insurance industry supported trade association. We speak to its President, Dr Robert P. Hartwig about the growing threat of cyber risk and other challenges facing the US insurance market.(source: Lloyd’s of London)
We know you do a lot to support your members. Can you tell us more about what that involves?
While many people are acquainted with the I.I.I. through its extensive work with the media, the institute’s broader mission is to improve the understanding of insurance—what it is and how it works. To achieve this goal, the I.I.I. conducts original research, testifies before US Congressional committees, invests heavily in communications technology and works directly with many industry stakeholders, from consumers and regulators to investors, legislators and members of the academic community.
What are some of the key initiatives that you are focused on?
The I.I.I. has an active and robust research programme. We have recently completed our second study on the topic of cyber risk. Earlier this year, in light of the looming expiration (31 December 2014) of the Terrorism Risk Insurance Act (TRIA) in the US, we produced our most recent report on terrorism risk and insurance. Next up are reports on the state of high-risk coastal property residual markets, and a new paper detailing the impacts that the flood of alternative capital is having on global insurance and reinsurance markets.
What do you consider to be some of the main challenges facing the insurance market in the US?
Traditional natural disaster risks, although generally well managed by insurers and reinsurers, remain a perennial challenge and a constantly evolving threat to which the industry must continually adapt. This risk is exacerbated by increased variability and volatility of weather-related losses.
On a broader note, the long-run challenge of growth looms large. North America, Europe and Japan account for the majority of industry premium volume but represent markets that are growing only very slowly. Some global insurers have sought growth in other parts of the world—primarily in emerging markets. Those efforts, while necessary as part of a comprehensive growth strategy, leave unresolved the vexing issue of identifying and developing new markets in the 21st century. The fact is that while the industry excels at insuring traditional “brick and mortar” risks, it has not (yet) done very well at insuring the intangible assets that constitute an increasingly large share of economic activity today.
How is the I.I.I addressing those challenges?
With respect to natural disaster risk, the I.I.I executes each year an aggressive agenda to educate buyers of insurance directly while also partnering with the broader insurance industry and government. The I.I.I.’s strategy involves heavy use of traditional and new media (including active use of social media) to ensure that individuals and businesses have the coverage that they need and to the right levels.
With respect to the challenge of growth, the I.I.I. frequently explores this issue in presentations and in research. For example, the I.I.I. recently produced released a report, Cyber Risks: The Growing Threat. In addition to assessing the current cyber risk threat, the report also assesses the current state of the cyber risk insurance market and examines opportunities for future growth.
Which lines of business do you think will see the most growth over the next few years?
In the US, I see increasingly favourable tailwinds from a recovering economy. This should help propel key commercial and personal lines exposures such as workers compensation, construction risks and homeowners insurance. I also see energy as a strong sector in the US as well as natural resources, agricultural and certain manufacturing risks.
What key areas do you think the insurance industry should be focused on to raise its profile?
The industry would benefit by raising its profile in public policy circles as a provider of solutions to difficult problems. In the US in particular, and in other parts of the world, private sector investment is frequently shackled by fears of the adverse consequences of such investments. Energy sector risks are a good example. The probability of catastrophic disasters in this sector can be engineered such that likelihoods are extremely low, but lingering fears about who will pay if such an event occurs can sometimes hold up projects for years. Aggressive promotion of the use of insurance within a sound risk management framework could go a long way to assuage these fears and concerns.
What value to you think international insurers, such as those at Lloyd’s, bring to the US market?
International insurers, like those in the Lloyd’s market, bring an unparalleled depth and breadth of experience to the market. Buyers of insurance obtain not only the capacity they need, but develop long-term relationships that are designed to help their business grow and expand on a global scale while simultaneously managing an ever increasing array of risks. This group of insurers also delivers the financial strength necessary to meet today’s large and sometimes unpredictable challenges.
*Robert P. Hartwig is President of the Insurance Information Institute. He joinied the I.I.I. in 1998 as an economist and became chief economist in 1999.
Dr. Hartwig previously served as director of economic research and senior economist with the National Council on Compensation Insurance (NCCI).