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Are Sharknados Next?

Many years ago, when I watched “Biloxi Blues,” the Neil Simon play about a young draftee suffering through basic training in Biloxi, Mississippi, I laughed hard at the way actor Matthew Broderick whined the line, “Man, it’s hot. It’s like Africa hot. Tarzan couldn’t take this kind of hot.”

I’m not laughing now. I can’t swear that Tarzan couldn’t take the “kind of hot” we’re experiencing in California, but I’m certainly struggling. The high temperatures in the Central Valley have exceeded 110 for several days now and are expected to be between 100 and 110 for as far as the eye can see on weather forecasts. Even in the Lake Tahoe area, where I’ve spent many a pleasant summer, temperatures are so high and wood so dry that four fires have produced the Reno, Nev., weather station’s first report of fire tornados — the fires literally produced tornados of flame and laid waste to tens of thousands of acres.

What’s next? Sharknados? And what, if anything, can we do?

Well, there certainly doesn’t seem to be a break coming any time soon, and not just in California. While I whine about highs of maybe 113 in Northern California and the rolling brownouts and blackouts, Death Valley recorded 130 degrees down south, thought to be the world’s highest temperature since 1931, and forecasts are for the heat wave to be unrelenting. Meanwhile, in Iowa, a derecho — a wide line of fast-moving storms characterized by winds that can reach hurricane force, by tornados and by heavy rains — devastated 12.4 million acres of soybeans and corn early last week. A city council member in Cedar Rapids, Iowa, said trees are piled six to 10 feet high along streets — “It’s like driving through a tunnel of green.” The East Coast is facing its 11th named tropical storm so far this year, forming in the Atlantic, even though the 11th storm usually isn’t named until well into October. (Storms are named when they reach a certain threat level.)

While the U.S. gets most of the focus just now, Siberia has had a crazy heat wave of its own. A town named Verkhoyansk just recorded a temperature of 100 degrees. That may not seem that extreme, but the town is in the Arctic Circle. It was previously known for tying the lowest temperature on record, at minus-90.

You can decide for yourself just how severe climate change will be and how quickly it will occur, but trend lines on heat certainly suggest to me that this won’t be the last summer when I complain about Tarzan-level heat and when my friends on the East Coast have to batten down the hatches in the face of a string of hurricanes.

The only thing I know to suggest is to prepare. We had authors predicting a bad hurricane season last spring, such as in this article from May 10. We’ve also published extensively on better ways to understand wildfire risk, including in a three-part series whose first piece, dated July 6, is here. The articles describe what seems to be a promising way to correlate various risks, even when the areas involved are not near each other.

I’d love to be able to offer ways to head off the sort of devastation that, say, Iowans are facing, but I don’t imagine it’d do much good for me to tell the sun not to shine and the winds not to blow. So, better preparation is about all we can do for now.

The sorts of improvements in modeling described in those articles on hurricanes and wildfires can help. So can better sensors. Tiny, inexpensive weather stations dotting the countryside might pick up the signs of a derecho or other major storm faster than we can now.

Technology is also starting to help us react faster once tragedy strikes. Reports from the devastation in Iowa came in quickly, thanks to aerial surveys by drones, so recovery can started promptly. Parametric insurance policies or provisions written into standard policies can make a certain percentage of a claim available almost immediately, helping the insured get back on his or her feet faster.

There are even the beginnings of hope on prevention. Strings of small satellites that various companies are launching will monitor the Earth in real time and spot blazes when they are far smaller than most are when identified now. But that’s mostly theory at this point. It’ll take some time to implement.

This will be a slog. We’ll do our best to keep you updated on promising developments and hope you’ll pass along any ideas you have.

In the meantime, stay cool, stay dry and stay away from those fire tornados.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

COVID: Chance to Rethink Workers Comp

As insurers worry that the pandemic is depressing premiums, here is a way to rethink workers’ comp — plus two entirely new product ideas.

Why COVID-19 Must Accelerate Change

According to a survey, insurers are 50% behind consumer demand for service via online chat and 25% behind on service via website.

COVID-19 Sparks Revolution in Claims

The pandemic has pushed workers’ comp toward telehealth, which is revolutionizing the claims process in four key ways.

5 Hurdles to Insurtech Success

Here are five things that stand between insurtechs and success — but, please note, your mileage may vary.

Watch for This 1 Word on Customer Needs

Use this simple technique to uncover customer needs, drive innovation in customer experience and keep your business ahead of the curve.

An Inconvenient Sales Truth

It is no longer enough to show up with a fancy spreadsheet, promises of better service and a capabilities presentation.

Grasping the Perils of Extreme Weather

In 2018, extreme weather had a devastating impact on certain states – primarily driven by increasing severity, rather than frequency, of catastrophic events. LexisNexis Risk Solutions‘ recently released, fourth annual Home Trends Report highlights the impact that the 2018 extreme weather events had on insurance losses. A staggering 56% of all catastrophe claims come from just four states: California, Colorado, Florida and North Carolina.

States hit by Hurricanes Florence and Michael, the California wildfires and severe hail saw the most catastrophic losses. Claims in these states are also up to 56% from the 36% of claims these states accounted for in 2017. The latest Home Trends Report underscores the growing need for insurers to understand and respond to by-peril loss trends and the potential for climate change and extreme weather to drive these losses.

While fire losses have continued to increase since 2012, catastrophe claims accounted for nearly 40% of fire losses in 2018 – the highest in a decade and a significant jump from the previous high of 15%. As a result of hurricane devastation to North Carolina and Florida, 2018 was also the worst year on record for wind claim severity, up 15% from 2017. Hurricane devastation also led to a costlier September in North Carolina, with loss costs 17 times more than a typical September. While Colorado was unaffected by the hurricanes and wildfires, the state ranked the highest in loss cost overall for 2018, as well as the highest over the six-year period (2013-2018) that the study tracks. In terms of hail, Texas continued to top the nation for claims, representing 29% of total volume.

See also: The Future of Home Maintenance  

The report highlights some of the challenges that home insurance carriers face in managing by-peril risks, including increasing severity and unpredictability of weather-related patterns and their impact on catastrophic claims. The report also underscores how it is imperative that home insurance carriers collect, analyze and use aggregated by-peril data to help generate a deeper understanding of the risks associated with a particular location and of how to price future policies accordingly. For the long term, aggregated by-peril data can enable more accurate pricing, a healthier book of business.

If you are interested in learning more about the impact of extreme weather events on insurance losses, click here for the LexisNexis Home Trends Report.

How to Predict Atlantic Hurricanes

The 2017 Atlantic hurricane season was remarkable, including five landfalls of Category 5 storms in the Caribbean Basin and three Category 4 strikes on the U.S. coastline. The 2017 landfalls cost hundreds of lives and record-breaking economic losses, exceeding $250 billion. These losses are sober reminders of hurricane vulnerability and the importance of hurricane prediction for public safety and the management of insurance and other economic risks.

Hurricane forecasts have continued to improve in recent years, but they are not yet as good as they could be. Continued advances in weather and climate computer models used to make forecasts and improved observations from satellites and aircraft are driving these improvements. Also essential to progress are advances in understanding of weather and climate dynamics.

Short-term track and wind intensity forecasts

The National Hurricane Center (NHC) provides five-day forecasts of hurricane tracks and wind intensity that guide emergency management. Technological improvements from higher resolution weather forecast models and improved satellite observations are helping improve hurricane forecasts. The figure below shows the improvement over several decades in the NHC’s forecasted location of storms, referred to as “track error.” See figure 1 below.

An average track error at 48 hours of about 50 nautical miles is impressive in a meteorological context. However, a track uncertainty of just 50 nautical miles for Hurricane Irma’s predicted Florida landfall in 2017 meant the difference between a costly Miami landfall or a relatively benign Everglades landfall. As seen in the figure above, we are approaching a track forecast accuracy limit for one to two days, arising from the inherent unpredictability of weather. Over the past decade, the greatest improvements have been in the three- to five-day track forecasts.

A recent analysis conducted by Climate Forecast Applications Network (CFAN) compared track errors from different global and regional weather forecast models, all of which are considered by the NHC in preparing its forecast. The European model, operated by the European Center for Medium Range Weather Forecasting (ECMWF) and supported by 22 European countries, consistently outperformed the U.S. models maintained by the National Oceanic and Atmospheric Administration (NOAA) for track forecasts beyond two days. At five days lead time, the ECMWF model had an average track error for the 2017 season of 120 nautical miles, compared with 148 nm for the official NHC forecasts.

Innovators in the private sector apply proprietary algorithms to improve upon the NOAA and ECMWF model forecasts. At CFAN, ECMWF forecasts are corrected for model biases based on historical track errors. For 2017, CFAN’s bias-corrected storm tracks resulted in five-day average track error of 114 nautical miles – 26% lower than the average track error for the official NHC forecast.

Forecasts beyond five days (120 hours) are becoming increasingly important to the insurance community, especially with the development of insurance-linked securities and catastrophe bonds. The superior global weather forecasts provided by the European model (ECMWF) produced Atlantic hurricane tracks for 2017 with an average track error of 200 nautical miles out to eight days in advance. The proprietary track calibrations and synthetic tracks produced by CFAN from the European model maintain an average track error of 200 nautical miles even beyond 10 days, for the longest-lived storms.

Forecasting of storm wind intensity (as measured by maximum sustained wind speed) is also of key importance. The NHC’s intensity forecasts are slowly improving – the NHC’s intensity forecast errors at time horizons of two to five days average from 10 to 20 knots (10 knots = 11.5 mph) over the past several years. The greatest challenge in short-term hurricane forecasting remains the prediction of rapid intensification, as occurred with Hurricane Harvey in August 2017, immediately before landfall. The NHC has invested considerable resources in the development of high-resolution regional models to improve prediction of hurricane intensity. The prediction of rapid intensification remains elusive, although there is considerable research underway on this topic.

Seasonal and longer-term forecasts

Advances have been made in forecasting the probability of track locations on weekly timescales out to a month in advance. Monthly forecasts based on global weather forecast models are provided by several private sector weather forecast providers. Beyond the timescale of about a month, however, global models show little skill in predicting hurricanes. Hence, most seasonal forecasting efforts, particularly beyond timescales of six months, focus on data-driven statistical methods that examine longer-term trends in the global atmosphere.

Sea surface temperatures in the Atlantic and the tropical Pacific are key predictors for seasonal forecasts of Atlantic hurricane activity. El Niño (warmer tropical Pacific sea surface temperatures) and La Niña (cooler tropical Pacific sea surface temperatures) patterns have a strong influence, with La Niña being associated with higher levels of Atlantic hurricane activity.

Atmospheric circulation patterns also have some long-term “memory” that is useful for seasonal forecasts. CFAN’s research has identified additional predictors of seasonal Atlantic hurricane activity through examination of global and regional interactions among circulations in the ocean and in the lower and upper atmosphere. The predictors are identified through data mining, interpreted in the context of climate dynamics analysis, and then subjected to statistical tests in historical forecasts.

See also: Hurricane Harvey’s Lesson for Insurtechs  

While forecasts issued around June 1 for the coming season generally have skill that is better than climatology, different outcomes are suggested by late May/early June forecasts for the 2018 Atlantic hurricane season. Predictions range from low activity (CFAN and Tropical Storm Risk ) to average activity (Colorado State University ) to near or above normal activity (NOAA Climate Prediction Center ). While many of the late May/early June 2017 forecasts predicted an above-normal season, none of the publicly reported forecasts predicted the extreme activity that was observed during the 2017 season.

At the longer forecast horizons, forecast skill is increasingly diminished. The greatest challenge in making seasonal forecasts in April and earlier is the springtime “predictability barrier” for El Niño/La Niña, whereby random spring weather events in the tropical Pacific Ocean during spring can determine its longer seasonal evolution. Seasonal forecasts from the latest version of the European model show substantially improved forecast skill of El Niño and La Niña across the spring predictability barrier, which improves the prospects for seasonal hurricane forecasts issued in late March/early April. La Niña generally heralds an active hurricane season, whereas El Niño is generally associated with a weak hurricane season. However, the occurrence of El Niño or La Niña accounts for only about half of year-to-year variation in Atlantic hurricane activity. In particular, the extremely active years such as 2017, 2004 and 2005 were not characterized by much of a signal from La Niña.

The greatest challenge for seasonal predictions of hurricane activity is to forecast the possibility of an extremely active hurricane season such as observed during 2017, 2005, 2004 and 1995. CFAN’s seasonal forecast models capture the extremes in 1995 and 2017 but not 2004 and 2005. Improved understanding of the causes of the extreme activity during 2004 and 2005 is an active area of research.

The most important target of seasonal forecasts is the number of landfalling hurricanes and their likely locations. The number of U.S. landfalling hurricanes in one year has varied from zero to six since 1920. The number of landfalling hurricanes is only moderately correlated with overall seasonal activity. It is notable that the period of overall elevated hurricane activity from 1995 to 2014 overlapped with a historic 2006-2014 drought of major hurricane and Florida landfalls.

Several seasonal forecasters provide a prediction of landfalls. These forecasts may specify the number of U.S. and Caribbean landfalls, the probability of a U.S. landfall (tropical storm, hurricane, major hurricane). Few forecast providers attempt to predict location of the landfalls. New research conducted by CFAN scientists has uncovered strong relationships between U.S. landfall totals and spring atmospheric circulation over the Arctic, which tends to precede summer dynamic conditions in the western North Atlantic and the Gulf of Mexico.

Certain insurance contracts with hurricane exposure typically take effect Jan. 1 of each year, and for this reason there has been a desire for Atlantic hurricane forecasts to be issued in December for the following season. Such contracts often are written for a period of a year or even longer time horizons. Because of the apparent lack of hurricane predictability on this time scale, in December Colorado State University provides a qualitative forecast discussion, rather than a forecast. CFAN research has identified some sources of hurricane predictability on timescales from 12 to 48 months. Research is underway to exploit this predictability into skillful annual and inter-annual predictions of Atlantic hurricane activity.

Five- to 10-year outlooks

Some atmospheric modelers provide a five-year outlook of annual hurricane activity, focused on landfall frequency. A key element of such for such outlooks is the state of the Atlantic Multidecadal Oscillation (AMO). The AMO is an ocean circulation pattern and related Atlantic sea surface temperature that changes in 25- to 40-year periods with increased or suppressed hurricane activity.

The year 1995 marked the transition to the warm phase of the AMO, which has been an active period for Atlantic hurricanes. In the warm phase of the AMO, sea surface temperatures in the tropical Atlantic are anomalously warm compared with the rest of the global tropics. These conditions produce weaker vertical wind shear and a stronger West African monsoon system that are conducive to increased hurricane activity in the North Atlantic.

There has been a great deal of uncertainty about the status of the AMO, complicated by the overall global warming trend. According to the AMO index produced by NOAA, the current positive (warm) AMO phase has not yet ended. In contrast, an alternative AMO definition, the standardized Klotzbach and Gray AMO Index, indicates the AMO has generally been in a negative (cooler) phase since 2014 – and May 2018 had the lowest value since 2015.

An intriguing development is underway in the Atlantic in 2018. The figure below shows sea surface temperature anomalies in the Atlantic for May. You see an arc of cold blue temperature anomalies extending from the equatorial Atlantic, up the coast of Africa and then in an east-west band just south of Greenland and Iceland. This pattern is referred to as the Atlantic ARC pattern. See figure 2 below.

A time series of sea surface temperature anomalies in the ARC region since 1880, depicted below, shows that temperature changes occur in sharp shifts occurring in 1902, 1926, 1971 and 1995. On the bottom graph, the ARC temperatures show a precipitous drop over the past few months. Is this just a cool anomaly, similar to 2002? Or does this portend a shift to cool phase of the AMO? See figure 3 below.

Figure 3. Top: ARC temperatures from 1880-2017. The black lines reflect the cold and warm regimes of the Atlantic Multidecadal Oscillation. Bottom: ARC temperatures from 1982 through June 2017.

Based on past shifts, a forthcoming shift to the cool phase of the AMO is expected to have profound impacts:

  • diminished Atlantic hurricane activity
  • increased U.S. rainfall
  • decreased rainfall over India and the Sahel region of Africa
  • shift in north Atlantic fish stocks
  • acceleration of sea level rise on northeast U.S. coast.

The figures below depict how the AMO has a substantial impact on Atlantic hurricanes. The top figure shows the time series of the number of major hurricanes since 1920. The warm phases of the AMO are shaded in yellow. There are substantially higher numbers of major hurricanes during the periods shaded in yellow. A similar effect of the AMO is seen on the Accumulated Cyclone Energy (ACE). Seasonal ACE is a measure of the overall activity of a hurricane season that accounts for the number, strength and duration of all of tropical storms in the season. See figure 4 below.

These variations in Florida landfalls associated with changes in the AMO have had a substantial impact on development in Florida. The spate of hurricanes starting in 1926 killed the economic boom that started in 1920. Florida’s population and development accelerated in the 1970s, aided by a period of low hurricane activity. By contrast, the warm versus cool phase of the AMO has little impact on the frequency of U.S. landfalling hurricanes generally. However, the phase of the AMO has a substantial impact on Florida landfalls. During the previous cold phase, no season had more than one Florida landfall, while during the warm phase there have been multiple years with as many as three landfalls. A major hurricane striking Florida is more than twice as likely during the warm phase relative to the cool phase.

New developments in decadal scale prediction are combining global climate model simulations with statistical models. Such predictions have shown improved skill relative to climatological and persistence forecasts on the decadal time scale.

See also: Tornadoes: Can We Stop the Cycle?  

2018 Atlantic hurricane season

The recent tropic Pacific Ocean La Niña event is now over; the tropical Pacific is trending to neutral with an El Niño watch underway. Sea surface temperatures in the subtropical Atlantic are currently the lowest that have been seen since 1982. For the 2018 Atlantic hurricane season, many forecasters who predicted a normal or active season previously are now lowering their forecasts, considering the trend toward El Niño and the cool temperatures observed in the tropical Atlantic.

Based on the overall expectations for low Atlantic hurricane activity in 2018, combined with forecasts of a U.S. landfall ranging from 50% to 100%, we can expect 2018 to be a year with smaller economic loss from landfalling hurricanes relative to the average.

Looking at longer time horizons, there is a potential game-changer in play – a possible shift to the cold phase of the Atlantic Multidecadal Oscillation that would herald multiple decades of suppressed Atlantic hurricane activity that would have a substantial impact on reduced landfalls, particularly in Florida.

2017 Outlook for Homeowners ROE

The estimated prospective ROE for homeowners this year is 4.5%, down from 6.7% in 2016. There are three key themes to note regarding homeowners insurance in 2017:

Growth

The homeowners’ line of business continues to grow; premiums increased to $91 billion in 2016 from $89 billion in 2015. The rate of growth has slowed from prior years, and slower growth is expected in the near future with less aggressive but positive rate change in the pipeline. Further, catastrophe losses are rising faster than inflation, and coverage gaps continue in perils (like floods), suggesting opportunities exist for carriers to find premium through coverage innovations.

Divergent Markets

From the macroscopic perspective of this study, there are at least three different homeowners markets:

1. Florida, a market unto itself.

Eight of Florida’s 10 largest carriers have limited name recognition outside the Florida market, though several are expanding to other coastal states. Remove Florida and US ROE increases to 9.1%, suggesting the assumptions of this study (nationwide carrier with A.M. Best “A” rating) differ from market reality in the sunshine state.

2. The hurricane-exposed coast, excluding Florida.

Hurricane coast states posted an ROE of 6.7% in this year’s study. At present, these states are characterized by heavy regulation; strong competition between established brands vs. younger carriers; and sophisticated risk differentiation based on granular catastrophe-savvy rating plans.

3. Everybody else.

The remainder of the U.S. owns a respectable 12.2% ROE with market share largely dominated by big-name national and super-regional brands. Regulatory considerations are easier to navigate than in coastal states. Catastrophe risk has unique challenges associated with less robust models for thunderstorm, wildfire and flash flood risks as compared to hurricane risks. California and Washington are unique because of their strict regulatory environment, but they otherwise resemble the other states in the cohort in terms of perils and players of note in part because earthquake endorsements are not required for home loans, show limited take-up and are ultimately excluded from this analysis because they roll up to the earthquake annual statement line.

Technology

This year’s study examines “one dollar of homeowners premium,” which highlights 8 cents of loss adjustment and 21 cents of policy acquisition costs (12 cents for commissions and brokerage plus 9 cents for other acquisition costs). These areas of the value chain are coming under attack from insurtech startups eager to test established carriers’ ability to adapt rapidly evolving technology. Aon’s Digital Monitor currently tracks over 40 startups, backed by nearly $2 billion in venture capital, that are attacking these areas of the property and casualty value chain (not all in homeowners, specifically). Mobile and software-as-a-service platforms, drone and satellite imagery and proprietary catastrophe-detection internet-of-things-enabled hardware promise to continue to apply pressure to traditional homeowners carriers’ approach to the business of insurance.

ROE study methodology

The basis of the prospective ROE estimate is industry, state and aggregate statutory filing data including reported direct losses, expenses, payout pattern and investment yields. We replace actual historical catastrophe losses as measured by property claims services with a multi-model view of expected catastrophe loss. On-leveling of direct premiums to current rates uses rate filings of the top 20 insurance company groups by state. Finally, estimated capital requirements and reinsurance costs consider a nationwide-personal-lines-company writing both home and auto business at a capitalization level consistent with an A.M. Best “A” rating. The ROE estimates exclude earthquake shake losses; the premium and losses for that coverage are recorded on a separate statutory line of business.

See also: 10 Trends on Big Data, Advanced Analytics  

The diversification available to a nationwide personal lines insurer impacts the ROE calculation. For instance, homeowners business in California diversifies Gulf and East Coast hurricane exposure for a nationwide insurer. A California standalone would incur higher capital and reinsurance costs than the California portion of a nationwide insurer with similar premium volume in the state. Similar results are to be expected for any other regional or single state insurer.

The normalization of catastrophe by this study replaces the local impacts from large events — like Harvey, Irma or the first and second quarter hail and wind losses experienced in 2017 — with the modeled catastrophe average annual loss. The prospective impact to the line from these events remains to be seen, and future versions of this study may attempt to measure impacts to rate level and reinsurance pricing.

The 2017 nationwide ROE estimate of 4.5% falls below our 2016 estimate of 6.7%. Profitability challenges to the line include: (1) a slowdown of rate increases (and decreases by some major carriers) that failed to pace loss and expense inflation, and (2) premium and exposure growth that pushed up the A.M. Best capital requirements to maintain the assumed “A” rating. Declining costs of reinsurance to capitalize the volatility inherent in the homeowners line were insufficient to offset the increased capital charges. Softening reinsurance costs cumulatively added over 210 bps of ROE in our study since 2013; after the catastrophe losses of 2017, the reinsurance and capital markets will be closely watched for pricing signals.

The maps above and below show, in loss ratio points, the amount that catastrophe experience exceeds model average annual loss. Adjusting combined ratios for expected versus historical catastrophe loss is an important step to distinguish weather-related randomness from inadequately priced business. Historical catastrophes can distort measures of results at a state level, causing the noise to overwhelm the signal. While state level adjustments can be significant, the 10-year nationwide experience catastrophe loss ratio of 13 points is meaningfully lower than the modeled expected catastrophe loss ratio of 23%. 2016 ended the dearth of hurricane activity that was the boon of gulf coast carriers for nearly 10 years. The Gulf states plus Florida had 30 points of favorable results relative to expected from 2007 through 2016, and, as of the time of this publication (even with Harvey and Irma), that favorable experience is more than 24 points of performance lift.

The five year retrospective comparing catastrophe experience to modeled expectation is favorable for much of the country. States on the eastern slopes of the Rockies into the plains (including Colorado, Nebraska and Montana) experienced pain primarily from hail-driven losses in several of the last five years. Texas is an interesting case study because the lull in hurricane activity drives overall favorable experience overwhelming thunderstorm losses that contributed to a five-point drag on the loss ratio. The five-year averages reflect the period from 2012 to 2016. Across the country, the first two quarters of 2017 experienced the highest thunderstorm-loss levels since 2011, and the third quarter included multiple major landfalling hurricanes. Taken together, this should partially erode the favorable experience of the previous five years.

The percentages in the map above show the direct target combined ratios necessary to fund reinsurance costs and allocated capital for retained risk by state, including catastrophe and non-catastrophe risk. The targets are for a sample of nationwide companies only and will vary among individual companies because of state distribution of premiums, capital adequacy standards, target return on capital, allocation methodologies, reinsurance and other considerations. For a diversified insurer with a footprint similar to the industry, the target combined ratios fall into three main categories: (1) Florida, (2) other hurricane exposed states and (3) states not materially exposed to hurricanes.

The map above shows average approved rate changes filed between January 2016 and August 2017 for the top 20 homeowners groups by state that made a filing in the period. Rate activity, while still positive, continues the slowdown observed in last year’s study. Notable decreases came from at least one large industry carrier, suggesting potential divergence in pricing levels that the averages fail to reflect. Rate changes on the coast, including Florida and Texas, ticked up significantly versus observations from last year. For Florida, in particular, rate activity was likely insufficient to on-level for assignment of benefits and claims adjustment issues facing the state’s carriers.

See also: How to Drive More Quotes  

Homeowners as a growth engine continues to be the headline for the insurance industry through 2016; the line has outpaced GDP and most other underwriting segments since 2010. Direct written premiums increased from $71 billion in 2010 to $91 billion in 2016, with a projected $93 billion for 2017 given prospective rate activity.

A strong component of growth through 2015 was the emphasis on rate adequacy with indicated rate levels increasing over 30% since 2010. Policyholders changing carriers will prevent the industry from realizing the full aggregate benefit of the individual carriers’ rate actions.

The “S” shape of the rate change curve suggests the line should be watched carefully. The rate activity through 2015 is now fully earned, and rates since 2015 show more modest increases. Time will tell if rate increases around 2% will be sufficient to track loss and expense inflationary pressures.

Our study suggests that, at prospective 2018 rates and before income taxes, insurers keep slightly more than four cents of profit for every premium dollar they earn. The four cents of direct profit is shared between the primary carrier, reinsurance partners and the U.S. Treasury.

The full report is available here.

Top 10 WC Predictions for 2017

2016 was a hectic year here at the Cluttered Desk. That is due in part to the fact I wasn’t behind it much of the time these past 12 months. Travel demands this last year exceeded all before it, and I spent a fairly significant amount of time away from the office. This makes foretelling the events of 2017 difficult; mostly because I am still trying to accomplish the tasks I was supposed to finish way back in 2015.

Now that I think about it, predicting the past would be much easier.

At any rate, I wanted to lay out for you EXACTLY what will be occurring as the year 2017 unfolds. I wanted to do that, but have absolutely no clue as to what the future will exactly be. Instead I will make these Top Ten Predictions and hope for the best.

1. The president will appoint a federal commission on workers’ compensation

President Trump will appoint a federal commission to identify and recommend improvements for the workers’ compensation system. The 142-member group, composed mainly of fellow students from Ivanka’s Hot Yoga class, will toil for 10 months trying to identify the most pressing issues for the industry. They will ultimately be overwhelmed by the system’s current complexities, causing complete work stoppages for the panel. Originally intended as a key part of the “drain the swamp” campaign, workers’ comp will ironically instead “swamp the drain,” causing chaos and confusion throughout the government. The commission’s final report will be issued via Twitter, with seven characters left to spare.

2. A federal emergency guest worker program will be established

Construction of the long-awaited “Great Wall Numero Dos” will begin along our southern border just four weeks after the new administration is in place. Unfortunately, it will be discovered that in the third week of new management the country deported all the people willing to perform the back-breaking labor in the middle of the desert Southwest. An emergency guest worker program will be established to allow people to return to the country to build the wall designed to keep them out of the country in the first place.

3. Florida will successfully reform its workers’ compensation system

Florida legislators will pull out all the stops to fix the state’s ailing workers’ compensation system this year. When the dust of reform settles, the system will be housed in a large canvas tent with three rings, and there will be shiny new cages for all the animals. Caretakers will be allocated glistening new poop-scooping shovels. The job of Chief Deputy Judge of the Office of Judges of Compensation Claims will be retitled “Ringmaster.”

See also: 10 Predictions for Insurtech in 2017  

4. The state of California will opt out

Unhappy with the fact that much of the rest of the nation did not agree with it in the recent presidential election, California will push for and ultimately be successful at separating itself from the U.S. The effort will get a huge boost when petitions supporting the measure gain 162 million signatures from people living outside the state. The move will not quite be complete, however, as most of the inland and southernmost regions will choose to remain a part of the U.S. This will leave Los Angeles County and the San Francisco Bay area to go their own ways. They will have screaming internet and cutting-edge technology but no food, because all of that is grown inland. Additionally, most LA commuters will have to register as foreign workers, because their three-hour commute means they now reside on foreign soil. The newly formed country of Los Angelinos will have an immediate crisis in workers’ comp, because their outrageous injury costs will no longer be subsidized by what used to be the rest of the state. The chairperson of the Los Angelinos People’s Politburo will embark on a reform effort modeled after Florida efforts. The new system will look quite similar, with the exception that the tent will be resistant to earthquakes, and all bathrooms will be gender-neutral.

5. Healthcare reform will meet medical marijuana

As Republicans dismantle the Affordable Care Act, they will strive to develop an affordable alternative to ensure prompt medical care for the dozens of people who actually paid for health insurance they obtained through the government exchanges. It will be discovered that locally sourced, organically grown and affordable medical marijuana will be the singularly stellar solution for the country’s medical ills. Free marijuana will be distributed to all persons with any illness or ailment and will serve as the single authorized medicine listed on the new health systems formulary. No one will really recover from anything, but no one will really care, either. The national anthem will be changed to Bob Dylan’s “Rainy Day Women #12 & 35” (Everybody must get stoned).

6. Artificial Intelligence will make inroads into workers’ compensation

The first rounds of automation will be employed in the workers’ comp industry in 2017. Artificial Intelligence will make inroads in claims management, transportation and the medical industry. Surprisingly, artificial intelligence will make the most dramatic advances in the online publishing arena; notably, many workers’ comp blogs will be taken over by these wunderkind computers. This will be ironic, as it will represent the first time actual intelligence of any kind has been applied to that sector.

7. Workers’ compensation will almost be named workers’ recovery

Long a personal goal of this prognosticator, the industry will come perilously close to being renamed “workers’ recovery” this year. The International Association of Industrial Accident Boards and Commissions (IAIABC) will commit to the cause and put the full power of its influence behind it. The effort almost succeeds, but falters slightly in the final moments. The German representatives on the Industry Rebranding Committee insist on a slight change to the word “Recovery.” The final result is the industry will be called “Nur die Klappe Halten und Arbeiten,” which essentially means, “Just Shut Up and Work.” All is not lost, however. The people at WorkersCompensation.com successfully obtain the domain name www.nurdieklappehaltenundarbeiten.com, ensuring that these inane predictions can continue for years to come.

8. Illinois will dramatically simplify and improve its workers’ comp program

In a completely unforeseen move, Illinois legislators will totally scrap their currently chaotic workers’ compensation system and replace it with a simplified, recovery-centric program based on an advocacy-based claims model. Injury durations decrease, litigation ceases to exist and everyone benefits from what is now considered the model workers’ compensation program in the nation. On a completely unrelated note, pigs will fly, and hell will freeze over.

See also: 5 Predictions for the IoT in 2017  

9. Amazon will sell workers’ compensation insurance

Online retailing behemoth Amazon will start to sell workers’ compensation insurance via their Prime “One Click Order” system. Alternately, Amazon Echo owners will be able to order a policy by saying, “Alexa, buy me workers’ compensation coverage.” Policy paperwork will be delivered within one hour via drone. When an injury occurs, employers will simply be able to return the broken worker to Amazon by generating a return authorization and shipping label from within their account area.

10. Bob Wilson will lose 50 pounds – again

Suffering with chronic knee issues and having been told to lose weight by his orthopedic surgeon, Bob Wilson will try in vain to find a new orthopedic surgeon, preferably one who weighs 300 pounds and smokes. Failing in that attempt, he will lose 50 pounds. Again. This will bring his total lifetime weight loss to more than 1,750 pounds.

And there you have it. We will look forward to returning at year’s end to see how accurate I was. Until then, have a great 2017!

This article first appeared at www.workerscompensation.com.