Twenty Trends Brian P. Sullivan, Property Insurance Report

1. People Aren’t Moving,Making Conquests Harder

• Recent data from RedFin and CoreLogic show that people are now staying in their homes for 13 years, up from 8 years in 2010

• With less turnover, there are fewer opportunities to attract new customers

• So if your new business sales are falling, and your retention is rising, it might not be you, it might be the marketplace

• Such stability creates tighter inventory, helping boost prices, which might dislodge more supply. That’s the cycle

1. People Aren’t Moving,Making Conquests Harder

1. People Aren’t Moving,Making Conquests Harder

People Are Staying in Their Homes Longer—a Big Reason for Slower Sales By Laura Kusisto Nov. 3, 2019 Wall Street Journal

2. Rise In Shopping Could HelpThose Who Want To Grow

• LexisNexis: Home switching through October YTD 2.8% higher than last year, due to CA & FL where rates are rising from cat losses. Other states that contributed to this trend are NY, NJ, MA and RI

• Jornaya: Homeowners shopping events online grew 31.7% in the first three quarters of 2019. (Auto up 8.6%) Jornaya average of 1.1 million shopping events a month (Auto 10.3 million)

• compare.com: Online comparison shopping, which I touted in recent years, has yet to take off . . .

3. 2019 Looks Like A Strong Year For Organic Growth

• Florida 3.8% 1.8%

• Texas 5.2% 1.1%

• California 5.9% 4.4%

• New York 1.8% 1.6%

• Illinois 4.0% 3.1%

• Pennsylvania -0.3% 1.0%

• Georgia 4.8% 3.1%

• Ohio -0.3% 0.9%

• Michigan 0.6% 0.5%

• New Jersey 1.9% 1.1%

Rate increases for 10 largest insurers in 10 largest states

Source: S&P Global Market Intelligence Ratewatch as of November 7, 2019

2018 YTD 2019 2018 YTD 2019

First Half 2019 DPW Growth = 5.27%

With modest rate increases, this must be organic, through policy count and higher limits

4. Is Renters Growth Finally Slowing Down?

• Gen X and Gen Y were slow to form households, more urban, and preferred to rent longer

• But eventually even this generation looks to the suburbs, and there are signs they’re buying homes (and SUVs; minivans are too uncool)

• As a result, new policy count started to slow in 2016, and our conversations suggest it has continued (PIR 3/18/19)

• Renters is now a permanently important part of the landscape, and the entry into many households, but growth may not be as big

5. Political Will Is Lacking For Big Flood Change, And That’s Good

• Congress has much bigger fish to fry than flood insurance

• Last week, FEMA pushed new rating off one year, and we expect an extension of the status quo when NFIP comes due later this month

• That will prevent a big expansion of private flood opportunities

• That’s good, because going too quickly would create major problems

• Instead, a slow, steady, cherry-picking private market will evolve and lay the groundwork for a big bang if and when it comes

6. Social Inflation Is For Real

• As society becomes more litigious, insurers with liability coverages are the biggest targets

• But home insurers will face bigger pressures in property claims, especially in wind v. water and similar disputes

• If you thought public adjusters (featured here in 2012) were a challenge, wait until the lawyers get more involved

• This is a shift from our earlier trends (including 2018) that highlighted the growing conservatism of the courts

7. Social Inflation Will Bite You In The . . .

• Dog bites are among the most contentious liability claims you face

• As we have learned, these claims costs are rising

• As we also learned, breed restrictions won’t protect you

• The solution? Loss mitigation through education

• This is the same as better roofing to reduce wind and hail losses, earthquake retofit, or defensible space to reduce fire

• Best of all, it is not complicated, controversial or expensive

8. Allstate Has EmergedFrom Its Homeowners Pullback

• Mea culpa: we thought this would happen two three years ago, which was two three years too soon

• Market share growth has finally arrived! In the first half of 2019, the industry grew 5.27%, and Allstate grew 5.30%! Embrace small wins . . .

• In the third quarter call with Wall Street, management spent considerable time talking about homeowners, crowing that “Homeowner's insurance is a great business for Allstate”

9. Smart Laws Reduce Fire Risk:Insurers Must Lead The Way

• It was the insurance industry that led the way to stronger building codes in Florida and elsewhere. It wasn’t easy

• But thanks to these changes, in every recent hurricane, the loss of life and property has been less than in the past, and less than expected

• Insurers can do the same thing with fire. Demand, and encourage the public to demand, better building codes, support for retrofit, better firefighting, better planning, more use of sophisticated data analysis

• Be in the side of the angels and reduce volatility and losses

10. Catastrophe Models > Loss History: Push Harder For Them

• California and other states that reject catastrophe models are in for some embarrassing days when big events skew results

• It has not yet come home to roost in California – not sure why – but it will (PIR 12/24/18)

• This isn’t credit scoring, where disparate impact was a real issue

• It is a matter of using more advanced techniques, easily described if you’re skilled, that help support public policy. Time to spend the money and push for acceptance. A clearinghouse makes sense

11. Photoestimating ComingTo Property Insurance

• Aerial imagery proved images can deliver data

• Auto insurers have led the way with smartphone photos, largely because auto insurance is so much easier than property insurance

• Now a wide range of property insurance tools are maturing, allowing adjusters, service providers and property owners to take photos that can be turned into claims – and underwriting – data

• As we saw, it is out of the realm of hypothetical. Ground truth + aerial imagery = big advantage over old ways of doing business

12. Coming, Though Not Soon, Are Fixed Wing Drones

• In conversations with Eagleview and others, we’ve come to realize we’re going to have to wait for fixed-wing drones

• But the speed with which the FAA approved quadcopters, I have to think these powerful tools will be with us within a few years

• Now is the time to start exploring, and learning of their use in agriculture, oil pipeline surveillance and other commercial uses

• No longer about resolution – aircraft and even satellite are delivering. These drones deliver speed following a big event

13. Speaking Of Drones, They Can Now Go Anywhere!

• We first talked about this with Lyle Donan in 2015

14. Cat Bonds Are Effective, But Insurers Must Be More Aggressive• The catastrophe bond market has matured into an integral part of

the industry’s capital management toolbox (PIRNC 2015)

• Just last week, USAA increased the size of a new bond offering to $160M, covering “tropical cyclones, earthquakes, severe thunderstorms, winter storms, wildfires, volcanic eruptions, meteorite impacts and other perils.”

• But too many carriers remain on the outside looking in. For all who complain about high cat reinsurance costs: support competition!

15. Be Careful With Private Fire Fighting Resources

• In 2009, we featured the owner of FireBreak Systems, working with AIG Private Client to foam homes under threat, and even fight fires

• In the years since, private resources have become an uneven, and sometimes contentious, tool in the homeowners wildfire arsenal

• Using private companies to harden homes is a terrific and valuable idea, and well worth the investment for insurer and homeowner

• But the idea of private fire fighters protecting a structure is hard to execute, and isn’t aways a good look (See NYT 10/26/19)https://www.nytimes.com/2019/10/26/style/private-firefighters-california.html

16. Small Insurers Proving Their Mettle In Property

• There are a lot of reasons to doubt the ability of small insurers to excel in property: geographic concentration, inability to manage data, struggles with infrastructure are three biggies

• But we increasingly find small insurers making extremely wise use of reinsurance, boosted by Florida’s needs. Data providers and actuarial consulting firms are catering to small insurer needs. Infrastructure software vendors are making the right tools in the right size

• Returning to my opening remarks: only the dumb need to die

17. The Smart Home Is (Still) On Its Way

• We first addressed this in 2013 with Control4

• In the ensuing years, we have had Nest appear in 2014 & 2016

• We’ve unsuccessfully chased Apple (HomeKit) and Google (Brillo)

• But we remain certain that data from the home will flow

• A few insurers have said to us: “I just want to know if anyone is home!” That’s why home security companies make so much sense

• Finally, it is time to start taking action

18. Involuntary MarketsMaturing Into Leadership

• As Steve Bitar showed yesterday, Florida’s Citizens has proven an involuntary market can become an essential part of a healthy market

• As other states run into challenges, we have a model for a more aggressive organization that can balance the needs of insurers protecting their capital and consumers who need coverage

• But the key ingredient is flexibility and willingness to attract capital. California will need to adapt more if it wants to have a similar success

19. Better Roofing Is PossibleBut Will Require Heavy Lifting

• We don’t yet have ideal roofing materials for hail and wind resistance. Materials are much better, but more progress is needed

• We don’t yet have an ideal way to help pay for this upgraded roofing

• As Roy Wright tells us, IBHS is on the first challenge, and as Gina Schwitzgebel explained, there are ways to help with the second (also check out Eleanor Kitzman’s MyStrongHome.net)

• This is a long fight, but one worth more insurance support

20. Insurance Leading TheWay On Employee Diversity

• I once teased State Farm leadership that they insured a far more diverse population than they employed. No longer true

• I also teased Progressive that the entire team was made up of 40-year old males who played baseball and had an MBA for one of four or five top schools. Now Tricia Griffith is in charge

• Allstate & Erie explored the challenge of diversity in a 2016 panel

• Deloitte just released a study showing financial services in general, and insurance specifically, were leading the way. Keep it up!