The Workplace of Tomorrow The “On-Demand” Economy and
Implications for Workers CompensationNCCI Annual Issues Symposium
Orlando, FL May 14, 2015
Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
P/C Insurance Industry Financial Overview
2014: Second-Best Year in the Post-Crisis Era
Modest CATs, Strong MarketsWorkers Comp Improvement
Helped Too2
P/C Industry Net Income After Taxes1991–2014 2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS1 = 3.5% 2012 ROAS1 = 5.9% 2013 ROAS1 = 10.2% 2014 ROAS1 = 8.4%
• ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.
Sources: A.M. Best, ISO; Insurance Information Institute
$1
4,1
78
$5
,84
0
$1
9,3
16
$1
0,8
70
$2
0,5
98
$2
4,4
04 $
36
,81
9
$3
0,7
73
$2
1,8
65
$3
,04
6
$3
0,0
29
$6
2,4
96
$3
,04
3
$3
5,2
04
$1
9,4
56 $
33
,52
2
$6
3,7
84
$5
5,5
01
$3
8,5
01
$2
0,5
59
$4
4,1
55
$6
5,7
77
-$6,970
$2
8,6
72
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Net income fell modestly
(-12.5%) in 2014 vs. 2013
$ Millions
-5%
0%
5%
10%
15%
20%
25%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
F1
6F
Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2016F
*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best, Conning
1977:19.0%1987:17.3%
1997:11.6% 2006:12.7%
1984: 1.8% 1992: 4.5% 2001: -1.2%
10 Years
10 Years
9 Years
History suggests next ROE peak will be in 2016-2017, but that seems unlikely
ROE
1975: 2.4%
2013 9.8%
2014 8.2%
2015F=7.0%
2016F=6.8%
6
ROE: Property/Casualty Insurance by Major Event, 1987–2014
* Excludes Mortgage & Financial Guarantee in 2008 – 2014. Sources: ISO, Fortune; Insurance Information Institute.
-5%
0%
5%
10%
15%
20%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*
P/C Profitability Is Both by Cyclicality and Ordinary Volatility
Hugo
Andrew
Northridge
Lowest CAT Losses in 15 Years
Sept. 11
Katrina, Rita, Wilma
4 Hurricanes
Financial Crisis*
(Percent)
Record Tornado Losses
Sandy
Low CATs
Modestly higher CATs
Underwriting Gain (Loss)1975–2014*
* Includes mortgage and financial guaranty insurers in all years.Sources: A.M. Best, ISO; Insurance Information Institute.
Large Underwriting Losses Are NOT Sustainable in Current Investment Environment
-$55
-$45
-$35
-$25
-$15
-$5
$5
$15
$25
$35
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Cumulative underwriting deficit from 1975 through
2013 was $493B
($ Billions) Underwriting profit in 2014
totaled $12.3B
High cat losses in 2011 led to the highest
underwriting loss since 2002
8
Policyholder Surplus, 2006:Q4–2014:Q4
Sources: ISO, A.M .Best.
($ Billions)
$487
.1
$496
.6
$512
.8
$521
.8
$478
.5
$455
.6
$437
.1 $463
.0 $490
.8 $511
.5 $540
.7
$530
.5
$544
.8
$559
.2
$559
.1
$538
.6
$550
.3
$567
.8
$583
.5
$586
.9 $607
.7
$614
.0
$624
.4 $653
.3
$671
.6
$673
.9
$674
.7
$662
.0
$570
.7
$566
.5
$505
.0
$515
.6
$517
.9
$400
$450
$500
$550
$600
$650
$700
06:Q
4
07:Q
1
07:Q
2
07:Q
3
07:Q
4
08:Q
1
08:Q
2
08:Q
3
08:Q
4
09:Q
1
09:Q
2
09:Q
3
09:Q
4
10:Q
1
10:Q
2
10:Q
3
10:Q
4
11:Q
1
11:Q
2
11:Q
3
11:Q
4
12:Q
1
12:Q
2
12:Q
3
12:Q
4
13:Q
1
13:Q
2
13:Q
3
13:Q
4
14:Q
1
14:Q
2
14:Q
3
14:Q
4
2007:Q3Pre-Crisis Peak
Surplus as of 12/31/14 stood at a record high $674.7B
2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business .
The industry now has $1 of surplus for every $0.74 of NPW,close to the strongest claims-paying status in its history.
Drop due to near-record 2011 CAT losses
The P/C insurance industry entered 2015in very strong financial condition.
9
-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Net Premium Growth (All P/C Lines): Annual Change, 1971—2014
(Percent)1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (1971-2013), ISO (2014), Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline
Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
2014: 4.1%
2013: 4.4%
2012: +4.2%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Note: Data through 1934 are based on stock companies only. Data include state funds beginning in 1998.Source: A.M. Best; Insurance Information Institute.
Economic Shocks, Inflation:
1976: 22.0%
Tort Crisis1985/86: 22.2%
Post-9/112002:15.3%
Twin Recessions; Interest Rate
Hikes1987: 3.7% Great
Recession:2010: -4.9%
ROE
2014 4.1%
NPW Premium Growth: Peaks & Troughs in the P/C Insurance Industry, 1926 – 2014
Great Depression1932: -15.9% max drop
Post WW II Peak:1947: 26.2%
Start of WW II1941: 15.8%
1950-70: Extended period of stability in growth and
profitability. Low interest rates, low inflation, “Bureau”
rate regulation all played a role
1970-90: Peak premium growth was much higher in this period while troughs were comparable. Rapid inflation, economic
volatility, high interest rates, tort environment all played roles
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
14E
Economic Shocks, Inflation:
1976: 22.2%Tort Crisis
1986: 30.5%
Post-9/112002: 22.4%
Great Recession:2009: -9.0%
ROE
2014E 4.0%
Commercial Lines NPW Premium Growth:1975 – 2014E
Recessions:1982: 1.1%
Commercial lines is prone to more cyclical volatility that personal
lines. Recently, growth has stabilized in the 4% to 5% range.
1988-2000: Period of
inter-cycle stability
2010-20XX? Post-
recession period of
stable growth?
Note: Data include state funds beginning in 1998.Source: A.M. Best; Insurance Information Institute.
Post-Hurricane Andrew Bump:
1993: 6.3%
Post Katrina Bump:
2006: 7.7%
12
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
91
.1
42
.1
41
.4
33
.7
26
.3
25
.8
23
.6
19
.1
15
.6
14
.0
11
.3
10
.0
9.8
6.8
6.7
6.5
4.1
3.2
3.1
3.0
2.7
2.2
2.0
1.7
1.3
0.6
0
10
20
30
40
50
60
70
80
90
100
ND
OK
SD VT
NE IA KS ID AK
TX
WY
MN IN AR
TN W
I
OH
MA
CT
NM LA
MS
NJ
NY
US
MO
Pe
ce
nt
ch
an
ge
(%
)
Sources: SNL Financial LLC.; Insurance Information Institute.
Top 25 States
Only 30 states showed any
commercial lines growth from 2007
through 2013
Growth Benchmarks: Commercial
US: 1.3%
13
Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013
0.5
0.4
0.2
0.1
-0.5
-0.8
-0.9
-1.0
-1.1
-1.1
-1.9
-2.0
-2.1
-2.7
-3.3
-3.7
-4.3
-4.9
-10
.7
-11
.4
-11
.7
-12
.6
-12
.7
-13
.6
-22
.4
-25
.1
-30
-25
-20
-15
-10
-5
0
5
MD
NH PA
CO IL
WA
VA
KY
NC
ME RI
MI
SC AL
GA
CA
UT
DC
OR
MT HI
DE FL AZ
WV
NV
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
Sources: SNL Financial LLC.; Insurance Information Institute.
States with the poorest performing economies also produced the most negative
net change in premiums of the past 6 years
Nearly half the states have yet to see commercial lines premium
volume return to pre-crisis levels
14
Direct Premiums Written: Workers’ CompPercent Change by State, 2007-2013*
32.
9
30.
8
24.
3
21.
5
13.
4
11.
5
11.
0
10.
6
8.1
4.8
4.5
3.0
1.5
-0.3
-0.6
-1.0
-2.3
-2.4
-2.9
-3.0
-3.7
-4.1
-5.7
-5.8
-8.0
-15
-10
-5
0
5
10
15
20
25
30
35
OK IA SD
NY
CA
CT
NJ
KS
NE IN MI
VT
MN
DC WI
IL
NH
US
NM TX PA
VA
MD
TN AR
Pe
ce
nt
ch
an
ge
(%
)
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.Sources: SNL Financial LC.; Insurance Information Institute.
Top 25 States
Only 13 states showed positive growth in the workers comp line from 2007 – 2013 (up from just 5 through 2012), the result of large job and payroll losses and a soft
market. Even through 2014, fewer than half the states will have recouped DPW losses
15
Direct Premiums Written: Worker’s CompPercent Change by State, 2007-2013*
-8.1
-8.4
-8.7
-8.8
-11
.1
-11
.3
-12
.0
-14
.7
-15
.3
-15
.4
-16
.0
-16
.3
-17
.1
-22
.1
-23
.0
-26
.5
-27
.5
-32
.5
-33
.3
-33
.5
-43
.8
-71
.0
-80-75-70-65-60-55-50-45-40-35-30-25-20-15-10-50
MS
MA RI
GA
NC
AK ID CO LA
ME AZ
MO
SC AL
KY
UT FL
OR
DE HI
NV
MT
Pe
ce
nt
ch
an
ge
(%
)
Bottom 25 States
*Excludes monopolistic fund states: ND, OH, WA, WY as well as WV, which transitioned to a competitive structure during this period.Sources: SNL Financial LC.; Insurance Information Institute.
States with the poorest performing economies also produced some of the most
negative net change in premiums of the past 6 years
INVESTMENTS: THE NEW REALITY
16
Investment Performance is a Key Driver of Profitability
Low Yields Have an Especially Large Influence on Profitability of
Long-Tailed Lines Like WC16
Property/Casualty Insurance Industry Investment Income: 2000–20141
$38.9$37.1 $36.7
$38.7
$54.6
$51.2
$47.1 $47.6$49.2
$48.0 $47.3$46.2
$39.6
$49.5
$52.3
$30
$40
$50
$60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.
1 Investment gains consist primarily of interest and stock dividends. *Sources: ISO; Insurance Information Institute.
($ Billions) Investment earnings are still below their 2007 pre-crisis peak
19
U.S. Treasury Security Yields:A Long Downward Trend, 1990–2015*
*Monthly, constant maturity, nominal rates, through April 2015.Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institute.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Recession2-Yr Yield10-Yr Yield
Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for a full decade.
Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.
U.S. Treasury yields plunged to historic lows in 2013. Longer-
term yields rebounded then sank fell again.
19
20
Treasury Yield Curves: Pre-Crisis (July 2007) vs. April 2015
0.02% 0.02% 0.09% 0.23%0.54%
1.69%1.94%
4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00%5.19%
1.35%
0.87%
2.59%2.33%
0%
1%
2%
3%
4%
5%
6%
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
April 2015 Yield CurvePre-Crisis (July 2007)
Treasury yield curve remains near its most depressed level
in at least 45 years. Investment income is falling as a result. Even when the Fed begins to raise rates, yields unlikely to return to
pre-crisis levels anytime soon
The Fed Is Actively is Signaling that it Is Like to Begin to Raise Rates But No Sooner than June and Probably Later
Source: Federal Reserve Board of Governors; Insurance Information Institute.
Book Yield on Property/Casualty Insurance Invested Assets, 2007–2016F
4.42
4.19
3.95
3.71
3.283.20
3.13
3.74
3.523.38
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
07 08 09 10 11 12 13 14E 15F 16F
The yield on invested assets continues to decline as returns on maturing bonds generally still exceed new money yields. The end of the Fed’s QE program in Oct. 2014 should allow some increase
in longer maturities while short term interest rate increases are unlikely until mid-to-late 2015
Sources: Conning.
(Percent)
Book yield in 2014 is down 114 BP from pre-crisis levels
24
P/C Insurer Net Realized Capital Gains/Losses, 1990-2014
Sources: A.M. Best, ISO, Insurance Information Institute.
$2.8
8
$4.8
1 $9.8
9
$9.8
2
$10.
81 $18.
02
$13.
02
$16.
21
$6.6
3
-$1.
21
$6.6
1
$9.1
3
$9.7
0
$3.5
2 $8.9
2
-$7.
90
$5.8
5
$7.0
4
$6.1
8 $11.
37
$10.
06
-$19
.81
$9.2
4
$6.0
0
$1.6
6
-$25
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital
Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE
($ Billions)Realized capital gains rose
sharply as equity markets rallied in 2013-14
Property/Casualty Insurance Industry Investment Gain: 1994–20141
$35.4
$42.8$47.2
$52.3
$44.4
$36.0
$45.3$48.9
$59.4$55.7
$64.0
$31.7
$39.2
$53.4$56.2$54.2
$58.7
$56.
2
$58.0
$51.9$56.9
$0
$10
$20
$30
$40
$50
$60
$70
94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14
Total Investment Gains Were Relatively Flat in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained Robust
1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.
($ Billions)
Investment gains in 2014 dropped slightly (-4.3%) from the post-crisis high
reached in 2013
27
2015 Non-Financial Challenges and
Criticisms of Workers Comp
A Number of Issues Have Stirred Interest in Workers Compensation in
the First Part of 2015
27
28
Challenges Raised in the Workers Comp Line
Opt Out Legislation: Coalition of large employers is aggressively pushing for legislation that would allow them to forego purchasing WC coverage in favor of creating their own programs while also seeking to specify the criteria for claiming and the size of benefits Allowed in TX for many years and passed in OK in 2014
Failed in TN in 2015; Lobbying in AL, FL, GA, NC, SC
Challenges to Exclusive Remedy: Assertion that after reforms in several states the WC “Grand Bargain” has been breached and that benefits are now insufficient Objective of trial lawyers is to tap into the tort system
29
Recent Challenges Raised in theWorkers Comp Line
ProPublica/NPR Attack Series: “The Demolition of Workers Comp” (Published in March 2015)
Thesis: WC benefits have been hollowed out and that workers were often no longer well served by the system
Claims 33 states watered down benefits under the guise of reform
Series relied on a number of anecdotal cases of claimants who believed they were adversely impacted
I.I.I. made forceful rebuttal focusing on:
Magnitude of insurer payouts to injured workers
Material improvements in workplace safety, in part due to WC incentives
Benefits of cost controls without compromising outcomes
http://www.iii.org/article/a-letter-to-the-editor-about-workers-compensation
30
ProPublica/NPR Attack on Workers Compensation In March 2015, ProPublica/NPR published a series
entitled “The Demolition of Workers Comp”
Thesis: WC benefits have been hollowed out and that workers were often no longer well served by the system
Series relied on a number of anecdotal cases of claimants who believed they were adversely impacted
Claims 33 states have watered down benefits under the guise of “reform”
I.I.I. made forceful rebuttal, demonstrating that: Insurers spend $40B+ each year treating injured workers Workplace is materially safer, in part due to WC incentives Application of managed care to WC reduces cost with no
adverse impact on outcome (“blank check” unsustainable)
31
INSERT WNBC PROPUBLICA VIDEO HERE
31
32
Labor Markets Trends: Recovery Continues in 2015
2014Largest Increase in Jobs Since 1997Unemployment Rate Fell to Lowest
Level Since 2008Payrolls Expanded to Record High
32
33
Unemployment and Underemployment Rates: Still Too High, But Falling
2
4
6
8
10
12
14
16
18
Jan00
Jan01
Jan02
Jan03
Jan04
Jan05
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Jan14
Jan15
"Headline" Unemployment Rate U-3
Unemployment + Underemployment RateU-6
“Headline” unemployment
was 5.4% in Apr. 2015. 4.5% to
5.5% is “normal.”
Source: US Bureau of Labor Statistics; Insurance Information Institute.
January 2000 through April 2015, Seasonally Adjusted (%)
Stubbornly high unemployment and underemployment constrain overall economic growth, but the job market is continuing to improve.
33
U-6 soared from 8.0% in March
2007 to 17.5% in October 2009; Stood at 10.8%
in Apr. 2015.8% to 10% is
“normal.”
34
US Unemployment Rate Forecast4
.5%
4.5
%4
.6%
4.8
%4
.9% 5.4
% 6.1
%6
.9%
8.1
%9
.3%
9.6
% 10
.0%
9.7
%9
.6%
9.6
%
8.9
%9
.1%
9.1
%8
.7%
8.3
%8
.2%
8.0
%7
.8%
7.7
%7
.6%
7.3
%7
.0%
6.6
%6
.2%
6.1
%5
.7%
5.6
%5
.4%
5.3
%5
.1%
5.0
%5
.0%
4.9
%4
.8%
9.6
%
4%
5%
6%
7%
8%
9%
10%
11%
07
:Q1
07
:Q2
07
:Q3
07
:Q4
08
:Q1
08
:Q2
08
:Q3
08
:Q4
09
:Q1
09
:Q2
09
:Q3
09
:Q4
10
:Q1
10
:Q2
10
:Q3
10
:Q4
11
:Q1
11
:Q2
11
:Q3
11
:Q4
12
:Q1
12
:Q2
12
:Q3
12
:Q4
13
:Q1
13
:Q2
13
:Q3
13
:Q4
14
:Q1
14
:Q2
14
:Q3
14
:Q4
15
:Q1
15
:Q2
15
:Q3
15
:Q4
16
:Q1
16
:Q2
16
:Q3
16
:Q4
Rising unemployment eroded payrolls
and WC’s exposure base.
Unemployment peaked at 10% in late 2009.
* = actual; = forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (5/15 edition); Insurance Information Institute.
2007:Q1 to 2016:Q4F*
Unemployment forecasts have been revised modestly
downwards. Optimistic scenarios put the
unemployment as low as 5.0% by Q4 of 2015.
Jobless figures have been revised
downwards for 2015/16
35
Unemployment Rates by State, March 2015:Highest 25 States*
7.7
7.1
6.8
6.7
6.6
6.6
6.5
6.5
6.5
6.4
6.3
6.3
6.3
6.2
6.1
6.0
5.9
5.8
5.7
5.7
5.7
5.6
5.6
5.6
5.5
5.4
5.4
0
2
4
6
8
DC NV MS SC LA WV AK CA NJ CT GA RI TN AZ NM IL WA IN AL FL NY AR MI MO US MD NC
Un
em
plo
ym
en
t R
ate
(%
)
*Provisional figures for March 2015, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 23 states and the District of Columbia had over-the-month unemployment rate decreases, 12 states had increases, and 15 states had no change.
Residual impacts of the housing collapse, weak economies are holding
back several states
36
5.4
5.3
5.1
5.1
4.8
4.8
4.8
4.6
4.6
4.2
4.2
4.2
4.1
4.1
4.1
4.0
3.9
3.9
3.8
3.8
3.7
3.5
3.4
3.1
2.6
0
1
2
3
4
5
6
OR PA KY OH ME MA VA DE WI CO KS TX HI MT WY IA NH OK ID VT MN SD UT ND NE
Un
em
plo
ym
en
t R
ate
(%
)
Unemployment Rates by State, March 2015: Lowest 25 States*
*Provisional figures for March 2015, seasonally adjusted.Sources: US Bureau of Labor Statistics; Insurance Information Institute.
In March, 23 states and the District of Columbia had over-the-month
unemployment rate decreases, 12 states had increases, and 15 states
had no change.
Strength in Energy, Agricultural States-most also avoided
housing bust
23
15
21
70
52
12
65
73
-71
32 6
4 81
55
3-1
15
-10
6-2
21
-21
5-2
06
-26
1-2
58
-42
2-4
86
-77
6 -69
3-8
21
-69
8-8
10
-80
1-2
94
-42
6-2
72
-23
2 -14
1-2
71
-15
-23
22
0-3
81
92
94 11
01
20
11
71
07
19
91
49
94
72
22
32
31 3
20
16
61
86 21
91
25
26
81
77
19
12
22
36
42
28
24
61
02
13
17
51
72
13
61
59
25
52
11
21
52
19 26
31
64
18
82
22
20
11
70
18
01
53
24
72
72
86
18
31
75 22
33
13
23
8 27
22
43
20
92
35
21
84
14
31
92
02 26
19
42
13
11
3
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Jan-
07F
eb-0
7M
ar-0
7A
pr-0
7M
ay-0
7Ju
n-07
Jul-0
7A
ug-0
7S
ep-0
7O
ct-0
7N
ov-0
7D
ec-0
7Ja
n-08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09F
eb-0
9M
ar-0
9A
pr-0
9M
ay-0
9Ju
n-09
Jul-0
9A
ug-0
9S
ep-0
9O
ct-0
9N
ov-0
9D
ec-0
9Ja
n-10
Feb
-10
Mar
-10
Apr
-10
May
-10
Jun-
10Ju
l-10
Aug
-10
Sep
-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11F
eb-1
1M
ar-1
1A
pr-1
1M
ay-1
1Ju
n-11
Jul-1
1A
ug-1
1S
ep-1
1O
ct-1
1N
ov-1
1D
ec-1
1Ja
n-12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12Ju
l-12
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13F
eb-1
3M
ar-1
3A
pr-1
3M
ay-1
3Ju
n-13
Jul-1
3A
ug-1
3S
ep-1
3O
ct-1
3N
ov-1
3D
ec-1
3Ja
n-14
Feb
-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15F
eb-1
5M
ar-1
5A
pr-1
5
Monthly Change in Private Employment
January 2007 through Apr. 2015 (000s, Seasonally Adj.)
Private Employers Added 11.97 Million Jobs Since Jan. 2010 After Having Shed 5.01 Million Jobs in 2009 and 3.76 Million in 2008 (State and Local Governments Have Shed Hundreds of Thousands of Jobs)
Source: US Bureau of Labor Statistics: http://www.bls.gov/ces/home.htm; Insurance Information Institute
Monthly losses in Dec. 08–Mar. 09
were the largest in the
post-WW II period
213,000 private sector jobs were created in April.
37
Jobs Created2014: 3.042 Mill2013: 2.452 Mill2012: 2.315 Mill2011: 2.396 Mill2010: 1.282 Mill
3,042,000 jobs were created in 2014, the most since 1997
38
Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q4
Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.
Billions
$5,500
$5,750
$6,000
$6,250
$6,500
$6,750
$7,000
$7,250
$7,500
$7,75005
:Q1
05:Q
205
:Q3
05:Q
406
:Q1
06:Q
206
:Q3
06:Q
407
:Q1
07:Q
207
:Q3
07:Q
408
:Q1
08:Q
208
:Q3
08:Q
409
:Q1
09:Q
209
:Q3
09:Q
410
:Q1
10:Q
210
:Q3
10:Q
411
:Q1
11:Q
211
:Q3
11:Q
412
:Q1
12:Q
212
:Q3
12:Q
413
:Q1
13:Q
213
:Q3
13:Q
414
:Q1
14:Q
214
:Q3
14:Q
4
Prior Peak was 2008:Q3 at $6.54 trillion
Recent trough (2009:Q1) was $6.23 trillion, down
5.3% from prior peak
Growth rates2011:Q4 over 2010:Q4: 2.6%2012:Q4 over 2011:Q4: 6.7%2013:Q4 over 2012:Q4: 1.7%2014:Q4 over 2013:Q4: 5.1%
38
Latest (2014:Q4) was $7.57 trillion, a new peak--$1.34 trillion above 2009 trough
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$25
$30
$35
$40
$45
$50Wage & Salary DisbursementsWC NPW
39
Payroll Base* WC NWP
Payroll vs. Workers Comp Net Written Premiums, 1990-2014P
*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.
Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015
7/90-3/91 3/01-11/0112/07-6/09
$Billions $Billions
WC premium volume dropped two years before
the recession began
WC net premiums written were down $14B or 29.3% to
$33.8B in 2010 after peaking at $47.8B
in 2005
CONSTRUCTION, MANUFACTURING & ENERGY
OUTLOOK
40
Key Sectors Critical to the Economy and the P/C
Insurance Industry
40
41
Value of New Private Construction: Residential & Nonresidential, 2003-2015*
Billions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
03 04 05 06 07 08 09 10 11 12 13 14 15*
Non ResidentialResidential
Private Construction Activity Is Moving in a Positive Direction though Remains Well Below Pre-Crisis Peak; Residential Dominates
$298.1
$15.0
$613.7
New Construction peaks at $911.8. in 2006
Trough in 2010 at $500.6B,
after plunging 55.1% ($411.2B)
2015: Value of new pvt. construction hits $702.4B as of Mar. 2015, up 40%
from the 2010 trough but still 23% below 2006 peak
41
$261.8
$238.8
$353.4
$349.0
*2015 figure is a seasonally adjusted annual rate as of March.Sources: US Department of Commerce http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
42
Value of Construction Put in Place, March 2015 vs. March 2014*
-0.3%
16.5%
-0.6%
2.0% 2.9%
-2.6%
9.0%
-5%
0%
5%
10%
15%
20%
TotalConstruction
Total PrivateConstruction
Residential--Private
Non-Residential--
Private
Total PublicConstruction
Residential-Public
Non-Residential--
Public
Overall Construction Activity is Up, But Growth In the Private Sector Slowed in Late 2014 While Picking Up in the State/Local Sector
Government Sector as Budget Woes Ease in Some Jurisdictions
Growth (%)
Private sector construction activity is up in the
nonresidential segment but residential growth is sluggish
*seasonally adjustedSource: U.S. Census Bureau, http://www.census.gov/construction/c30/c30index.html ; Insurance Information Institute.
Private: +2.9% Public: -0.3%Public sector
construction activity is finally beginning to
create less drag up after years of decline
43
$314.9$304.0
$286.4 $278.2$269.0 $273.1 $267.6
$216.1 $220.2$234.2
$255.4
$289.1$308.7
$0
$50
$100
$150
$200
$250
$300
$350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
($ Billions)
Government Construction Spending Peaked in 2009, Helped by Stimulus Spending, but Contracted As State/Local Governments Grappled with
Deficits and Federal Sequestration
Value of New Federal, State and Local Government Construction: 2003-2015*
*2015 figure is a seasonally adjusted annual rate as of March; http://www.census.gov/construction/c30/historical_data.html Sources: US Department of Commerce; Insurance Information Institute.
Construction across all levels of government
peaked at $314.9B in 2009
Austerity Reigns
Govt. construction MAY be stabilizing; still down $47.3B or
15.0% since 2009 peak
44
(Millions of Units)
New Private Housing Starts, 1990-2021F
1.4
81
.47 1
.62
1.6
41
.57
1.6
0 1.7
1 1.8
5 1.9
6 2.0
71
.80
1.3
60
.91
0.5
50
.59
0.6
1 0.7
8 0.9
21
.01 1.1
1 1.2
6 1.4
11
.46
1.4
91
.52
1.5
2
1.3
51.4
61
.29
1.2
0
1.0
11.1
9
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F 17F 18F 19F20F 21F
Source: U.S. Department of Commerce; Blue Chip Economic Indicators (5/15 and 3/15); Insurance Information Institute.
Insurers Are Continue to See Meaningful Exposure Growth in the Wake of the “Great Recession” Associated with Home Construction: Construction Risk
Exposure, Surety, Commercial Auto; Potent Driver of Workers Comp Exposure
New home starts plunged 72% from 2005-2009; A net
annual decline of 1.49 million units, lowest since records began
in 1959
Job growth, low inventories of existing homes, low mortgage rates and demographics should continue to stimulate new home construction
for several more years
45
Construction Employment,Jan. 2010—April 2015*
*Seasonally adjusted.Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
5,58
15,
522
5,54
25,
554
5,52
75,
512
5,49
75,
519
5,49
95,
501
5,49
75,
468
5,43
55,
478
5,48
55,
497
5,52
45,
530
5,54
75,
546
5,58
35,
576
5,57
75,
612
5,62
95,
629
5,62
85,
627
5,60
85,
623
5,63
25,
641
5,64
95,
668
5,68
45,
724
5,74
6 5,79
85,
815
5,81
35,
833
5,85
65,
854
5,86
65,
893
5,91
85,
953
5,93
7 6,00
66,
032
6,06
26,
103
6,11
46,
121
6,15
26,
169
6,19
16,
201
6,23
16,
275
6,31
66,
347
6,33
86,
383
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
6,300
6,400
6,500
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
0M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2S
ep-1
2O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-12
Oct
-13
Nov
-13
Dec
-13
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
ov-1
4D
ec-1
4Ja
n-15
Feb
-15
Mar
-15
Apr
-15
Construction employment is +948,000 above
Jan. 2011 (+17.4%) trough
(Thousands)
Construction and manufacturing employment constitute 1/3 of all WC payroll exposure.
46
Construction Employment, Jan. 2003–April 2015
Note: Recession indicated by gray shaded column.Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.
5,000
5,500
6,000
6,500
7,000
7,500
8,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The “Great Recession” and housing bust destroyed 2.3 million constructions jobs
The Construction Sector Was a Growth Leader in 2014 as the Housing Market, Private Investment and Govt. Spending Recover. WC Insurers Will Benefit.
Construction employment troughed at 5.435 million in
Jan. 2011, after a loss of 2.291 million jobs, a 29.7% plunge
from the April 2006 peak
46
Construction employment
peaked at 7.726 million in April 2006
(Thousands) Construction employment as of Apr. 2015 totaled 6.383 million, an
increase of 948,000 jobs or 17.4% from
the Jan. 2011 trough
Gap between pre-recession
construction peak and today: 1.34 million jobs
47
MANUFACTURING SECTOR
A Potent Driver of Jobs, Workers Comp Payroll Exposure
America’s Manufacturing Renaissance Has Hit a Rough Patch with the High
Dollar and Collapse in Oil Prices47
48
Manufacturing Employment,Jan. 2010—April 2015*
11,4
6011
,460
11,4
6611
,497
11,5
3111
,539
11,5
5811
,548
11,5
5411
,555
11,5
7711
,590
11,6
2411
,662
11,6
8211
,707
11,7
1511
,724
11,7
4711
,760
11,7
6211
,770
11,7
6911
,797
11,8
3411
,857
11,8
9911
,916
11,9
3011
,941
11,9
6511
,961
11,9
4811
,951
11,9
4711
,961
11,9
8012
,002
12,0
0612
,006
12,0
0712
,005
11,9
8312
,011
12,0
2212
,040
12,0
7212
,086
12,1
0212
,122
12,1
3112
,142
12,1
5412
,177
12,1
9112
,205
12,2
1412
,237
12,2
8212
,301
12,3
1812
,321
12,3
2112
,322
11,250
11,500
11,750
12,000
12,250
12,500Ja
n-1
0F
eb
-10
Ma
r-1
0A
pr-
10
Ma
y-1
0Ju
n-1
0Ju
l-1
0A
ug
-10
Se
p-1
0O
ct-1
0N
ov-
10
De
c-1
0Ja
n-1
1F
eb
-11
Ma
r-1
1A
pr-
11
Ma
y-1
1Ju
n-1
1Ju
l-1
1A
ug
-11
Se
p-1
1O
ct-1
1N
ov-
11
De
c-1
1Ja
n-1
22
/30
/2M
ar-
12
Ap
r-1
2M
ay-
12
Jun
-12
Jul-
12
Au
g-1
2S
ep
-12
Oct
-12
No
v-1
2D
ec-
12
Jan
-13
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-
13
Jun
-13
Jul-
13
Au
g-1
3S
ep
-13
Oct
-13
No
v-1
3D
ec-
13
Jan
-14
Fe
b-1
4M
ar-
14
Ap
r-1
4M
ay-
14
Jun
-14
Jul-
14
Au
g-1
4S
ep
-14
Oct
-14
No
v-1
4D
ec-
14
Jan
-15
Fe
b-1
5M
ar-
15
Ap
r-1
5
Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.
*Seasonally adjusted. Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
(Thousands) Since Jan 2010, manufacturing
employment is up (+862,000 or +7.5%)and still growing.
49
$200,000
$300,000
$400,000
$500,000
Dollar Value* of Manufacturers’ Shipments Monthly, Jan. 1992—March 2015
* Seasonally adjusted; Data published May 4, 2015.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Monthly shipments in March 2015 are similar to pre-crisis (July 2008) peak but has declined in recent months due to the strong US dollar and weakness abroad.
Manufacturing is energy-intensive and growth leads to gains in many commercial exposures: WC, Commercial Auto, Marine, Property, and various Liability Coverages.
$ Millions
49
The value of Manufacturing Shipments in March 2015 was $482.2B—down 5.1% since the
July 2014 record high of $508.1B
50
Manufacturing Growth for Selected Sectors, 2015 vs. 2014*
-2.2%
1.3%
-0.9%
9.3%
-9.4%
1.2%
-32.5%-38.0%
-2.5%
2.7%
-3.2%
3.6%8.0%
-0.4%
3.2%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
All
Ma
nu
fact
uri
ng
Du
rab
le M
fg.
Wo
od
Pro
du
cts
Pri
ma
ryM
eta
ls
Fa
bri
cate
dM
eta
ls
Ma
chin
ery
Ele
ctri
cal
Eq
uip
.
Co
mp
ute
rs &
Ele
ctro
nic
s
Tra
nsp
ort
atio
nE
qu
ip.
No
n-D
ura
ble
Mfg
.
Fo
od
Pro
du
cts
Pe
tro
leu
m &
Co
al
Ch
em
ica
l
Pla
stic
s &
Ru
bb
er
Te
xtile
Pro
du
cts
Manufacturing Is Expanding in Many Sectors But Declining Energy Prices Are Dragging Down Industry Figures. Continued Gortwh Across a Number of
Sectors that Will Contribute to Growth in Insurable Exposures Including: WC, Commercial Property, Commercial Auto and Many Liability Coverages
Growth (%)
Manufacturing of durable goods is stronger than
nondurables in 2015
*Seasonally adjusted; Date are YTD comparing data through March 2015 to the same period in 2014.Source: U.S. Census Bureau, Full Report on Manufacturers’ Shipments, Inventories, and Orders, http://www.census.gov/manufacturing/m3/
Durables: +3.6% Non-Durables: -9.4%
Impact of falling energy prices
52
ENERGY SECTOR
America’s Energy Boom Has Been a Strong Driver of the Economic Recovery,
but Prices Are FallingWorkers Comp Have Benefited from the Energy Boom, But Exposures Will Suffer
as Energy Prices Swoon52
$3
0.3
8
$2
6.1
8
$3
1.0
8 $4
1.5
1
$5
6.6
4
$6
6.0
8
$7
2.3
4
$9
9.6
0
$6
1.9
5
$7
9.4
8
$9
4.8
8
$9
4.0
5
$9
7.9
8
$9
3.2
3
$4
8.5
4
$2
5.9
8
$0
$20
$40
$60
$80
$100
$120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Price of Crude Oil (West Texas Intermediate), 2000 – 2015*
*Through March 2015.Source: Energy Information Administration; Insurance Information Institute.
Dollars per Barrel
Crude oil prices have fallen by nearly half
from their levels just a year ago, adversely impact oil and gas
industry employment
54
Oil & Gas Extraction Employment,Jan. 2010—April 2015*
*Seasonally adjustedSources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.
156.
415
6.4
156.
715
7.6
158.
715
7.8
158.
015
9.5
160.
016
1.5
161.
216
1.2
163.
116
4.4
166.
6 169.
317
0.1
171.
017
2.5
173.
6 176.
317
8.2
178.
518
0.9
181.
318
2.3
184.
718
5.2
186.
218
7.8
188.
618
9.3
189.
418
9.4
190.
519
2.2
193.
119
4.6
194.
019
3.8
193.
119
2.5
193.
019
3.4
193.
319
3.1
194.
019
4.0
194.
019
5.4
193.
719
4.6
196.
419
7.6
198.
619
8.4
199.
420
1.5
201.
020
1.2
199.
419
7.6
197.
719
4.4
150
160
170
180
190
200
210
Jan-
10F
eb-1
0M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0S
ep-1
0O
ct-1
0N
ov-1
0D
ec-1
0Ja
n-11
Feb
-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep
-11
Oct
-11
Nov
-11
Dec
-11
Jan-
122/
30/2
1M
ar-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2A
ug-1
2S
ep-1
2O
ct-1
2N
ov-1
2D
ec-1
2Ja
n-13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13Ju
l-13
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14F
eb-1
4M
ar-1
4A
pr-1
4M
ay-1
4Ju
n-14
Jul-1
4A
ug-1
4S
ep-1
4O
ct-1
4N
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4D
ec-1
4Ja
n-15
Feb
-15
Mar
-15
Apr
-15
Despite recent declines, Oil and gas extraction employment is
still up 24.3% since Jan. 2010 as the energy sector booms.
Domestic energy production is essential to any robust
economic recovery in the US.
(Thousands) After peaking at its highest level since 1986, O&G employment is
falling as oil and gas prices decline
56
POSITIVE LABOR MARKET DEVELOPMENTS
Key Factors Driving Workers Compensation Exposure
56
57
Average Weekly Hours of All Private Workers, Mar. 2006—April 2015
*Seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
33.5
33.6
33.7
33.8
33.9
34.0
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Hours worked totaled 34.5 per week in April,
just shy of the 34.6 hours typically worked
before the “Great Recession”
Hours worked plunged during the recession,
impacting payroll
exposures
(Hours Worked)
58
Average Hourly Wage of All Private Workers, Mar. 2006—April 2015
*Seasonally adjustedNote: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/#employment; National Bureau of Economic Research (recession dates); Insurance Information Institute.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The average hourly wage was $24.87 in April 2015,
up 17.2% from $21.22 when the recession began in Dec. 2007
Wage gains continued during the
recession, despite massive job losses
(Hourly Wage)
59
ADVERSE LONG-TERMLABOR MARKET DEVELOPMENTS
Key Factors Harming Workers Compensation Exposure and the
Overall Economy
59
60
Labor Force Participation Rate,Jan. 2002—April 2015*
*Defined as the percentage of working age persons in the population who are employed or actively seeking work.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics at http://www.bls.gov/data/; National Bureau of Economic Research (recession dates); Insurance Information Institute.
62
63
64
65
66
67
68
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Large numbers of people are exiting (or not returning to the
labor force)
Labor force participation
continues to shrink despite a falling
unemployment rate
Labor Force Participation as a % of Population
61
Notes: Recessions indicated by gray shaded columns. Data are seasonally adjusted.Sources: Bureau of Labor Statistics http://www.bls.gov/news.release/empsit.a.htm ; NBER (recession dates); Ins. Info. Inst.
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
In recent good times, the number of discouraged workers ranged from 200,000-400,000 (1995-2000) or from 300,000-500,000 (2002-2007).
There were 756,000
discouraged workers in March 2015
Thousands
“Discouraged Workers” are people who have searched for work for so long in vain
that they actually stop searching and drop out of
the labor force
Number of “Discouraged Workers,”Jan. 2002—April 2015
Large numbers of people are exiting
(or not returning to) the labor force
The “On-Demand” (Sharing) Economy
The On-Demand Economy Will Transform the American
Workforce and the P/C Insurance Industry Too
62
63
Labor on Demand: Huge Implications for the US Economy, Workers & Insurers
Will YOUR job be reduced to an app?
64
The “On-Demand” World is Not New…
Source: Insurance Information Institute.
Companies like Angie’s List
(established in 1995 and going online in 1999)
have been around for decades
The Geek Squad has been
around since 1994…
Peapod sprouted way back in 1989!
65
…But the “On-Demand” World is Exploding as Is the Demand for “On-Tap” Workers
Source: Insurance Information Institute.
Need something done around the house…Click on
Handy
Hate doing laundry?
Washio will do it for you…
Hate doing just about everything?
Taskrabbit will take on virtually
all your “tasks”…
66
You Can Live Your Life with the Swipeof a Finger…
Get married…
…Move
…And if it doesn’t work out…
67
Some Players in the On-Demand Economy Have Become Household Names
…Need a Lyft?
…This ride has taken Wall Street to the
stratosphere
Rent a place…
68
On-Demand/Sharing/Peer-to-Peer Economy Impacts Many Lines of Insurance The “On-Demand” Economy is or
will impact many segments of the economy important to P/C insurers
Auto (personal and commercial)
Homeowners/Renters
Many Liability Coverages
Professional Liability
Workers Comp Many unanswered insurance
questions
Insurance solutions are increasingly available to fill the many insurance gaps that arise
69
INSERT AMAZON VIDEO HERE
69
Technology and Employment
What Makes the On-Demand Economy Possible?
Why Does It Matter for Insurers?
70
GLOBAL SHIPMENTS OF SMARTPHONES (MILLIONS)
Smartphones are the breakthrough technology behind
the on-demand economy
2015: ~50% of adults globally have a smartphone
2020: About 80% will own one
0.8%1.7% 1.8% 2.3% 2.3%
18.6%
6.6% 6.2% 5.7%6.5%
5.3%
1.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2010 2011 2012 2013 2014 2015*
Growth in Temporary Workers vs. All Nonfarm Employment, 2010-2015*
*Through March 2015.Source: US Bureau of Labor Statistics , Insurance Information Institute.
Annual Percent Change
Demand for temporary workers has increased 2 to 3 times faster than for workers
overall in recent years
74
The On-Demand Economy and American Workers: What Is Happening?
Technology is Fundamentally Transforming How Resources are Allocated and Used in the Economy
Labor is No Exception to this Transformation
Technology Offers New Opportunities to Match Labor to Jobs
Owners of spare capacity (workers with time and skill) can be paired at low cost with those with a demand for that time and skill
Bringing together labor and those who employ labor is not new
BUT: Pairing occurs with a speed and breadth never before possible
Witnessing the Demise of the Traditional Understanding of What is Meant by a “Good” Job
Concept born in the Industrial Age (1880-1980), is eroding
Disintermediation of the firm as the place where labor, jobs matched
Accelerating Trends that Started with Labor Strife, Globalization and Automation that Began in the 1970s and 1980s
75
What’s In Store for the American Worker, Labor Force and Workers Comp
THE NEW AMERICAN WORKER: Two Schools of Thought
OPTIMISTIC OUTLOOK
Technology frees workers from the bonds of centralized, hierarchical institutions (the firm)
Enhanced coordination of “haves” with “needs” that bypass firms as intermediaries
Who Benefits?
“Flexers”: People who value or require flexibility in work arrangements (stay-at-home parents, retirees, students, disabled)
Professionals: People with portable skills that can be offered through online platforms (semi and high-skilled trades, professional services)
Unemployed/Underemployed: Offers at least some opportunity to offer and utilize skills and generate income
Sources: Wall Street Journal; The Economist; Insurance Information Institute research.
76
What’s In Store for the American Worker, Labor Force and Workers Comp PESSIMISTIC OUTLOOK
On-Demand companies are software-driven marketplaces and position themselves as “platforms” rather than “employers”
Enormous valuations (e.g., $40B for Uber on $2B in earnings) reflect the extraction of resources that otherwise would go to benefits, investments in safety, training, etc.– Uber’s valuation was greater than that of 72% of the S&P500 at YE 2014
– Valued more than Delta Airlines, Kraft Foods, CBS, Macy’s, Hilton, Aflac…
Jobs reduced to freelanced, temporary “gigs”
Low skill workers and those who lack flexibility are left further behind
Workers treated as independent contractors without intrinsic or basic economic rights
What Is Potentially Lost or Compromised? Stability, Retirement Benefits, Sick Pay, Maternity Leave, Overtime
Health Insurance, Liability Coverage, Workers Comp Coverage
Sources: Wall Street Journal; The Economist; Fortune; Insurance Information Institute research.
77
Potential Consequences for Insurers
On-Demand Platforms Have Struggled with Concepts of Liability There Has Been a General Resistance to Assuming Liability or
Responsibility Unless Compelled to Do So Companies Have Sought to Keep as Much Liability as Possible on
the Individual Offering their (Contracted) Labor or Resources Minding the Gap
Traditional insurance will often not cover a worker engaged in offering labor or resources through these platforms
E.g., Auto ins. generally won’t cover you if you while driving for Uber
Home ins. won’t cover for other than occasional rentals of property
Unless self-procured, on-demand worker (independent contactors) will generally have no workers comp recourse if injured on the job
Long Legislative and Court Battles Lie Ahead
Insurance Solutions Becoming More Common
78
On-Demand Workers
Who Are They?
And Who’s Driving Demand for Them?
78
79
19%
9%8%
6%
2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Tried It--AnySector
Entertainment &Media
Automotive &Transportation
Hospitality &Dining
Retail
Percent of People Who Have Engaged in an “On Demand/Sharing Economy” Transaction
The majority of the US population has yet to engage in the “On
Demand” economy
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
Percent
About 19% of the US population has engaged in an “On Demand/Sharing Economy” Transaction
80
Age of People Who are Providing the Sharing/On-Demand Economy
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
18 to 2414%
25 to 3424%
35 to 4424%
45 to 5414%
55 to 648%
65+16%
Being a provider of services in the
Sharing/On-Demand Economy is
attractive to workers in the 25-44 age range (who want
flexibility in raising families) as well as
seniors age 65+ who see the offering their services on-demand as a way to augment
retirement income
About 7% of US population are providers in the Sharing Economy, cutting across age and incomes; 51% of those familiar with the concept could see them
selves as providers within the next two years.
81
Household Income: Providers of the Sharing/On-Demand Economy
Sources: PwC survey of 1,000 adults in the U.S., conducted online, December 2014; Insurance Information Institute.
Less than $25,000
19%
$25,000 - $49,999
24%
$50,000 - $74,999
16%
$75,000 - $99,999
16%
$100,000 - $149,999
11%
$150,000 - $149,999
3%
$200,000+11%
Being a provider of services in the
Sharing/On-Demand Economy is particularly
attractive to workers with household incomes under
$50,000
About 7% of US population are providers in the Sharing Economy, cutting across age and incomes; 51% of those familiar with the concept could see them
selves as providers within the next two years.
The On-Demand Economy andWall Street
Wall Street Loves the On-Demand Economy
Labor Markets, Insurance Markets Will Be Impacted
82
84
An UBER Case Study
Uber is the Best Known of the On-Demand CompaniesWall Street Loves Uber
Vested Interests Hate Uber
84
Looking Ahead: Disruptive Forces Rule
Technology’s Impacts on the Economy, the Workforce and the
Insurance Industry Will Be Significant
88
89
Worldwide Industrial Robot Installations,1992-2017F
*Estimate.Sources: Outlook on World Robotics 2014, International Federation of Robotics; Insurance Information Institute.
Worldwide installations of industrial robots exceeded
200,000 in 2014—a new record and will approach
300,000 by 2017
36,000 installations are expected in North America
by 2017
90
Future Shock: Many More Transformative Technologies Are Around the Corner
By 2035, it is estimated that 25% of new vehicle
sales could be fully autonomous models (more than 4 million people work
in transportation occupations today)
Source: Boston Consulting Group.
Up Next
Driverless cars
Driverless trucks, trains, planes and ships
Wearable devices
Implantable devices
Artificial intelligence
Advanced robotics
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Thank you for your timeand your attention!
Twitter: twitter.com/bob_hartwigDownload at www.iii.org/presentations
Insurance Information Institute Online:
93