A Claims Perspective of P&C Issues - More of the Same to Come?
I joined Gen Re last May, and 2020, to say the least, was a tumultuous and challenging year, both professionally and personally. And the events at the U.S. Capitol got 2021 off to a turbulent start. But we’ll rebound, and at Gen Re we look forward to tackling the challenges ahead hand-in-hand with our clients. With that in mind, I thought it would be useful to reflect on claim development over the past year and then share some observations regarding what 2021 may likely bring.
A Look Back at 2020
Clearly, this past year was dominated by all things COVID, and the claims world was certainly no exception. Business interruption claims and suits seeking coverage came early and often, and continue to mount. COVID is unique. It’s not only a cause of loss across different lines of coverage (Property, Workers’ Compensation, Casualty, EPLI, Life, etc.), but it’s had an impact on the larger claim world. Workers’ Comp and Auto claim frequency were affected, and the pandemic effectively shut down the U.S. court system. Now a huge logjam needs to be cleared, and trials are still not moving forward.
Turning to Cat development, how many of you honestly knew what a derecho was prior to 2020? Nevertheless, the August 10 storm that ripped through Iowa and Illinois generated a multi-billion dollar loss. In total, Cat losses in 2020 are projected to result in the fifth costliest year on record for the industry.
The Atlantic Storm Season
- There were 30 named Atlantic storms in 2020 (breaking the record of 28 in 2005). Thirteen of the 30 were hurricanes; six were major, and one reached a Category 5 (Iota).1
- Twelve storms made continental U.S. landfall (also a record), with six hitting at hurricane strength, tying a record.2
- 2020 was the 5th consecutive year of above-normal Atlantic hurricane activity.3
Not to be outdone, 2020 was also record-setting for wildfires:
- In 2020, over 10.3 million acres of land in the U.S. were scorched by wildfires, the most acreage on record.4
- California - 4 million acres burned, including over 10,000 structures.5
- Colorado - 2020 was the worst fire year recorded and included the three largest fires in state history.6
- Oregon - approximately 1 million acres burned, almost double the 10‑year average.7
Claims are still being adjusted for the losses that arose out of the protests and riots that occurred across the country after the death of George Floyd on May 26, but most estimates peg the total amount in excess of $1 billion. This would amount to the costliest civil disorder loss in U.S. history.8
Although the number of drivers on the road and the overall number of accidents have dropped as a result of the pandemic, the number of vehicular deaths per miles traveled rose by 18% over the first half of the year, according to the National Highway Traffic Safety Administration (NHSTA).9 A likely cause - impaired driving. NHTSA statistics show that in March 2020, 21.3% of auto fatalities/serious injuries involved alcohol use and marijuana was present in 21.4%; by mid‑July, those numbers increased to 26.9% and 31.2%, respectively.10 Moreover, less crowded roads have meant more opportunity to speed, and distracted driving, primarily due to cell phone usage, continues to be a contributing factor.
On top of the developments in claims, the industry faced enormous operational challenges as it needed to transition to a remote workforce almost overnight. Claims departments had to move to a paperless environment, legacy systems and work processes had to be updated, COVID protocols prohibited site visits, losses had to be adjusted remotely, and drones were utilized to evaluate storm damage.
All in all, 2020 was quite a year.
Looking Ahead to 2021
It goes without saying that COVID‑19 will drive lots of activity, and business interruption claims will again be at the forefront. Through early December 2020, nearly 1,500 lawsuits had been filed seeking coverage.11 There have been rulings in less than 10% of those cases, appeals will ensue, and the rest of the cases will work their way through the court system. Additionally, in mid-October 2020, Major League Baseball and all 30 of its teams initiated a lawsuit against their insurance providers in California, and this proceeding will receive substantial attention and press.
On the Casualty front, there has not yet been a significant number of third-party bodily injury claims/lawsuits, but exceptions to date include limited claims against cruise lines, nursing homes, meatpacking plants, and big‑box retailers. Meanwhile, the industry will continue to closely monitor and track COVID-related Workers’ Compensation claims and trends. Lastly, over 1,300 COVID-related Employment Practices Liability complaints have been filed to date, and employers face additional issues as they figure out how to re‑open their businesses, such as leave and sick pay concerns, whether to make vaccines mandatory for employees, and retaliation and whistleblower claims.12
Social inflation persists as a critical topic of the day, and it should remain on our collective front burner. It is not a new phenomenon - it raised its head in the 1980s and again in the late 1990s/early 2000s, but this go-round results from an aggressive, coordinated plaintiffs’ counsel bar, increased attorney advertising, the impact of third-party litigation financing, social media, and the continuing hardening of juror attitudes towards perceived social inequalities and corporate responsibility. A key question will be whether the effects of the global pandemic will exacerbate the impact. Solving/combating social inflation is obviously challenging and complicated, but without question, it must remain a top priority for the insurance industry.
On the Property front, there is clearly a new normal with respect to catastrophes, and the claims world needs to be prepared with the necessary resources to deal with anticipated frequency and severity. Remote adjustment and increased use of technology must continue to be utilized and perfected, both because of continuing COVID-related restrictions to on‑site adjustment and expense savings opportunities. Separately, the combination of continued remote claim adjustment and a struggling economy suggests a risk of increased fraudulent claims activity, and the industry must remain vigilant in combatting it.
With respect to Casualty claims, courts will open up again as the world (hopefully) normalizes, and claim/case activity will renew. Mass torts are likely to garner a lot of attention. Sexual molestation claims will increase, driven by reviver claims and bankruptcy proceedings involving Catholic Dioceses and the Boy Scouts of America. It is worth noting that the most recent disclosures in the Boy Scouts bankruptcy proceeding disclosed approximately 95,000 claims, a staggering number. Average molestation claim values have been creeping upwards, which may bleed into current year losses.
Glyphosate claims against Bayer/Monsanto have relied upon questionable science; nevertheless, published reports indicate a potential $10 billion-plus settlement. Opioid claims asserted against governmental entities and municipalities involve novel public nuisance legal theories and present significant coverage issues. We will all be watching the developments closely.
Data breach and other cyber-related claims may also remain at increased levels as employees continue to work remotely and e‑commerce remains high. Finally, still percolating claims include climate change, talc, polyfluoroalkyl substances (PFAS), concussions, and vaping/e‑cigarettes.
Lastly, “big data” is something that all claim departments should continue to prioritize in 2021. Claim departments are the first receivers of critical information, and the ability to organize, synthesize, manipulate, share and utilize the data strategically will be vital to prolonged success. Are you mining your data to best combat fraud, support accurate and timely reserving, improve customer satisfaction, pursue subrogation opportunities, optimize your processes and achieve favorable results? Importantly, do you have the requisite building blocks - are you prepared with the systems, resources and talent necessary to do so?
Never a dull moment in the claims world, and 2021 will certainly be no exception. The Gen Re North America Property & Casualty Claims Department will continue to work closely with our clients: superior client service is one of our core goals. It is important to us that our client companies are comfortable utilizing us whenever we can help, whether that be to strategize on individual claims, discuss operational issues, confer on developing trends, or serve as a sounding board. Lots to do and challenges lie ahead, but at Gen Re we look forward to tackling these challenges with our clients and working together to develop unique solutions and strategies to complex problems.