Insurance Journal examined industries experiencing changes, challenges, expansions and growth in the past year. Here are five industry sectors and insurance markets that could offer opportunities for agents and brokers in the property/casualty insurance industry in 2018.
Employer Liability and Harassment
From actors speaking out against Hollywood mogul Harvey Weinstein to thousands of others speaking out through the social media movement #MeToo, sexual harassment allegations continue to emerge. Employers are asking their agents about coverage.
The insurance industry expects to see an uptick in employment practices liability insurance (EPLI) claims and no industry or company is immune. While the initial wave of EPLI claims is likely to target high profile and large companies, that's only the beginning.
"We've seen a lot of headlines for particular industries (entertainment/media), but the truth is sexual harassment allegations can happen in any industry and in companies of all sizes," said Patrick Mitchell, management liability product head at Hiscox.
The likelihood of an employer being hit by a discrimination charge of any kind is higher than employers may realize. In 2016, U.S. companies had at least a 10.5 percent chance of having an employment charge filed against them, according to The Hiscox Guide to Employment Lawsuits, which uses data from the Equal Employment Opportunity Commission (EEOC) and its state counterparts. Employment charges are often the first step toward employment suits. Employment discrimination charges can be based on race, sex, disability, age, national origin, religion, color and others in addition to sexual harassment. Most employers with at least 15 employees are covered by EEOC laws.
EEOC data from 2017 show that retaliation is the most common discrimination charge filed followed by race and disability. The agency also received 6,696 sexual harassment charges and obtained $46.3 million in monetary benefits for victims of sexual harassment.
This moment could be a turning point, not only in U.S. employment but also in employment-related insurance, believes Rick Betterley, president of Betterley Risk Consultants Inc., and author of The Betterley Report. The current scenario is similar to what happened in 1991 when Anita Hill accused Supreme Court nominee Clarence Thomas of sexual harassment when the two worked together, he said.
EPLI has been a mature market for many years, with sales growing an average of 4.4 percent over the past four years in the U.S., according to Betterley's Employment Practices Liability Insurance Market Survey 2017.
In 2016, gross written premium for EPLI was $2.1 billion, according to MarketStance, which says that thus far EPLI growth has primarily been driven by modest employment growth and rate increases. The firm estimates a possible bump to $2.3 billion or more for 2017-2018.
The spotlight on workplace sexual harassment complaints could cause the EPLI market, even the D&O market, to heat up.
"Anytime there's a major event in any line of insurance, it always raises awareness," said Joe Kelly, vice president and employment practices liability practice leader at Sompo International, a Bermuda-based global specialty insurer and reinsurer. "Major senior level execs and the boards are even being called out on what they are doing (to prevent such behavior) and they are asking (risk managers/brokers) what kind of EPLI coverage do we have?"
These executives better have EPLI coverage with adequate limits, Kelly said, noting that this type of questioning is going to drive more demand in the market and potentially higher limits.
Small commercial accounts, while forecast to grow most rapidly over the next year, have the lowest take-up rates for EPLI coverage, according to Betterley's EPLI Market Survey.
Betterley will be watching to see if the market grows following the attention on sexual harassment in the workplace.
"I think it (the recent attention on risk) will have an impact," Betterley said. "I don't know that I've seen it just yet."
Cyber insurance continues to be one of the hottest markets with data breaches an ever-increasing threat to businesses of all shapes and sizes.
The insurance industry has not been deterred by major hacks - like the NotPetya, WannaCry and Equifax breaches that occurred in 2017 and exposed data of millions of people - and continues to invest in this growing market.
Verisk Analytics predicts the commercial cyber liability market will reach $6.2 billion written premium by 2020, a huge jump from the $2.5 billion estimated to have been written in 2016.
"Cyber liability risk is rapidly permeating every business that has any dependence on digital technology, which means very few enterprises are exempt," said Maroun Mourad, president of commercial lines at Verisk's ISO business.
Buyers of cyber coverage, such as risk managers, say convincing their chief information officers or CEOs to obtain the cover is also not as big of a challenge as it used to be in the late '90s and early 2000s.
"I have become our CIO's best friend because I am protecting what he is protecting," said Jimmy Kirtland, vice president with financial services company Voya Financial, on a panel at a recent Advisen Cyber Risk Conference in San Francisco.
But buyers contend the one-size-fits-all cyber policies offered by many insurers do not adequately address their exposures, or the insureds don't fully grasp the extent of their exposures. According to a recent J.D. Power/RIMS Large Commercial Study survey of more than 1,200 risk professionals, respondents were least satisfied with the industry's response to cyber insurance. Customers also have a low level of satisfaction related to cyber products, generally viewing them as a specialty line and expecting carriers to have the expertise and capability to handle this line of business.
The survey demonstrates an opportunity for agents and brokers to specialize in the cyber market while underscoring the need to educate clients on what their cyber exposures are and what policies respond best.
Christaan Durdaller, executive vice president and Cyber & Tech team lead for Atlanta-based INSUREtrust, said there are in excess of 120 different players in the cyber market, which can be a challenge for agents and brokers.
"I think there's still a lot of difference in each policy form and what it is designed to cover. It's important to dig into the policy and understand what it covers," Durdaller said. "Each policy varies carrier by carrier and it's important buyers understand that."
An important feature of cyber policies that has become increasingly popular in the last 18 months is post-breach response services, including crisis response and credit monitoring. Many insurers are now emphasizing the importance of pre-breach risk management in their offerings, as well.
At the end of last year, AIG launched a new cyber benchmarking model that quantifies and scores client cyber risk. AIG cyber clients who provide the required information can receive a report detailing security scores, peer benchmarking and key risk mitigation controls to help quantify cyber risk.
Beazley also enhanced its breach response coverage for small to mid-sized policyholders with an assessment of external and internal vulnerabilities, recommendations for improvement across networks, application servers and databases, as well as consultation services to help improve or implement response plans and other policies and procedures.
QBE added data breach planning services to its cyber policies that includes a checklist with best practices for a company to follow in the event of a breach. The product also gives businesses the option to take a pre-breach cyber risk self-assessment to determine their current level of protection and what should be done to strengthen it.
And just at the end of March, XL partnered with network modeling and risk scoring platform RedSeal to help underwriters more thoroughly evaluate a client's cyber risk over time and help the client improve their cybersecurity and potentially their insurance terms.
In a few short years drones will power the biggest growth in aviation insurance in 50 years. By 2024, the commercial drone/unmanned aerial vehicle market is expected to reach $17 billion, according to Global Market Insights.
"The commercial drone space has greatly expanded from the hobbyist sector," said Kathleen Swain, senior director of UAS programs at Aircraft Owners and Pilots Association (AOPA), an association of pilots and aviation enthusiasts. Swain, on a recent drone insurance webinar hosted by Insurance Journal, said commercial drone operators need not only general liability coverages but also coverages tailored to address privacy and data concerns.
Traditional aviation insurance policies are unlikely to address all elements of emerging risks from the rapidly increasing use of drones. As a result, general liability underwriters will have an important role to play in providing cover, said the International Underwriting Association (IUA), in its report titled "Unmanned Aerial Vehicles (UAVs) - Opportunities and challenges for general liability insurers."
In the past, the general liability market has typically excluded liabilities arising from the use of any aircraft. However, demand for coverage is growing, prompting insurers to respond with specific policy extensions or endorsements, according to the IUA that represents insurance and reinsurance companies operating in or through London.
"While the policy forms issued by aviation carriers typically follow a standard aircraft hull and liability program, there are many additional coverage features and coverage items that are specific to the unmanned sector and that address the needs of drone users, such as coverage for payload items, things like cameras and sensors," said Chris Proudlove, senior vice president of UAS risks at Global Aerospace, also a panelist on IJ's webinar. "These are items that easily can be several multiples of the value of the actual drone itself. Coverage for these types of items becomes very important."
Proudlove says the U.S. currently has the biggest market share for drone insurance but trying to determine the premium volume is very hard. He estimates that if the aviation market is one percent of all property/casualty premium, then drones probably represent 0.1 percent of the overall aviation premium.
"We're talking very, very small premium numbers right now," Proudlove said.
While the size of the drone insurance market is difficult to quantify, insurance industry and aviation specialists expect to see significant growth.
Another webinar panelist, Shan Rogers, senior vice president and director of RT Specialty Aviation LLC, thinks the market will only need a few years to develop. "What you're going to find is this will be the biggest growth in aviation in 50 years," he said, noting that there are many ways businesses can utilize drones instead of people to do jobs.
While Congress has again reauthorized the National Flood Insurance Program, this time until the end of July, lawmakers have not advanced any reforms for the program. Meanwhile, the private market is taking a more proactive approach in the flood insurance space.
According to 2017 statutory insurance filings compiled by S&P Global Market Intelligence, the U.S. private flood market wrote $623.8 million in premium last year - a 51.2 percent over 2016.
Private flood premiums grew by at least double-digits in every state but Maine last year, with Florida leading the pack at $36.7 million written, followed by California at $23.2 million, and Texas at $21.7 million.
Florida has been the most aggressive state in the private flood insurance market so far as it also faces considerable risk to flooding because of the state's proximity to sea level and its risk of hurricanes. The state enacted legislation in 2014 to streamline the process for private insurance carriers to write flood insurance in Florida. Today, nearly a dozen companies hold a flood certification from the Florida Office of Insurance Regulation and several other private insurers offer some form of flood insurance as well.
Whether the private flood market continues to develop will depend largely on profitability. Marsh estimates the private flood insurance market could potentially be worth $40 billion in new business to private insurers nationwide.
A recent study by Carrier Management revealed that thousands residing in high risk areas along lakes and rivers across the country remain uninsured. While participation by private insurers along coast areas is active and growing, inland areas remain underserved. Examples include Georgia, Tennessee and West Virginia, where a combined 75,000 residential homes in high risk areas were not covered by NFIP in 2017, and participation by private insurers remains low. The Great Lake region exhibits similar market characteristics, where over 60,000 homes lack coverage on high risk, inland properties.
Some insurers companies are taking a cautious approach.
"I describe it as we are putting our big toe in the market, not even our feet yet. You need to go slowly," said Bob Ritchie, CEO of Florida-based American Integrity, which began writing flood coverage in Florida last year.
Another new entrant to the flood space, Neptune Flood, is being more aggressive. The digital startup private flood insurance provider launched in January in Florida, Virginia and Texas but plans to open up across more than a dozen states in early 2018 and deploy a direct to consumer platform by summer.
Data analytics firm Verisk launched a new personal lines flood program through its ISO subsidiary that is designed to make flood coverage widely available to homeowners nationwide.
"The floods of recent years have highlighted the inadequacy or complete lack of coverage for many Americans, including those who didn't think they were at risk for flooding," said Neil Spector, president of ISO.
The program is currently being filed state-by-state.
The outdoor recreation market, which comprises industries involved in activities such as bicycling, boating, hiking, skiing and hunting, as well as agritourism and outdoor festivals, is currently growing at a faster pace than the national GDP and poised for future growth, according to the Bureau of Economic Analysis (BEA).
The Outdoor Industry Association says the outdoor recreation economy generates $887 billion in consumer spending.
One sector, boating, is headed for another record year. At the close of 2017, new boat sales and recreational boating expenditures marked a sixth consecutive year of growth. According to the National Marine Manufacturers Association, which tracks marine vessel buying trends, that growth is expected to continue through 2018, and possibly beyond.
Some of the new boat buying is due to damages resulting from the 2017 hurricane season. The Boat Owners Association of The United States (BoatUS), a national advocacy, services and safety group for recreational boaters, estimated that more than 63,000 recreational boats were damaged or destroyed as a result of both Hurricane Harvey and Hurricane Irma.
Todd Shasha, managing director of personal insurance, boat and yacht, at Travelers, expects a lot of new boats in the market to replace the ones that were damaged in 2017. Shasha advises agents to keep an eye on this opportunity.
Another outdoor recreation sector, camping, is gearing up for summer. The recreational vehicle (RV) market is expected to grow again in 2018, according to the Recreation Vehicle Industry Association (RVIA).
Since the "Great Recession," when the market bottomed in 2009, the RV industry has come roaring back with shipments up more than 189 percent.
RV shipments are expected to total 479,700 in 2017, an 11.38 percent gain over 2016, and are forecast to increase to 491,200 by 2019, representing the ninth consecutive year of gains, the longest ever recorded.
The outdoor industry also sees opportunity in the aging of America.
While participation in outdoor activities is highest among kids and young adults, 50 percent of those 51-55 years of age and 45 percent of those ages 56-60 still participate, according to the OIA. Outdoor companies are serving the growing senior market by designing products -- lighter, more comfortable, warmer and more durable -- that make the outdoors more accessible for people of all ages -- from college students to 50-plus empty nesters, the OIA reports.
Kayak and canoe makers were among the first to cater to older customers for whom seating and other comfort features are more important than speed.