With cyber-crime on the rise, commercial interest in cyber insurance is spiking, according to a new survey of property and casualty insurance executives.
Eighty percent of the respondents see cyber insurance as “a major growth area” for commercial insurers. The survey was conducted by the Insurance Information Institute (I.I.I.) at its 19th annual Property/Casualty Insurance Joint Industry Forum, held in New York earlier this month.
Another area of strong consensus among the P&C executives concerns industry regulation. Seventy-two percent of the survey respondents believe the regulatory environment will become even stricter in the year ahead and that the federal government is interested in further expanding its oversight of insurers.
Another area of agreement: More than half the respondents believe that U.S. economic growth will continue to improve in 2015.
“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,” he added. “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 be no improvement in personal auto lines, and 54 percent believe there will no improvement in the homeowners lines. In addition, 58 percent of respondents do not expect there to be an improvement in commercial lines, although 44 percent do expect an improvement in workers compensation.
In terms of premium growth, 36 percent of respondents expect it to be higher in 2015; 46 percent believe it will remain flat, with only 18 percent expecting it to fall. 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 think it will decrease.
Regarding profitability, 74 percent of respondents believe the combined ratio will be higher in 2015 compared with 2014. The combined ratio is a percentage of each premium dollar a property/casualty insurer spends on claims and expenses, and the combined ratio declined by an estimated 1.1 percentage points to 97.8 percent in 2014 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,” Weisbart noted. “Lower catastrophes,” he said, “helped pull up ROEs in 2014.
One way to lower expenses is by consolidation, and 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.
The industry leaders were also 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, while only four percent of the respondents expect interest rates to fall.
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