Impact of Demographic Changes on the Insurance Industry 2009 CAS Spring Meeting Paul A. Vendetti, MAAA May 4, 2009
Importance of Demographic Information
How demographic information impacts your business and what is available
Increase/decrease in frequency Increase/decrease in severity Correlation between demographic information and expected losses – supplement to territorial relativities
Importance of Demographic Information
What are the catalysts for demographic changes – what is the impact
Aging population Population shifts Economic events Changes in technology KEY: Using demographic information may allow your rating system to react prior to losses.
Importance of Demographic Information
Potential markets and changing markets.
Potential new markets Potential new coverages Market Penetration analysis Catastrophe management
Impact of Demographic Information
Population Characteristics
Population by County Variable: Population Density Sources: US Census
Housing Units Growth by County Variable: Housing Density Sources: Annual Estimates of Housing Units for Counties
Demographic Attributes Variable: Many different types Sources: US Census and American Housing Survey. Contains information about household characteristics Types of dwellings including: single family, renters and mobile home Age of structures, property insurance paid. Vacancy rates Other
Impact of Demographic Information
Other Characteristics
Home Values
Crime Statistics
Variable: Leading indicator of vacancy rates Sources: Various source including Realtytrac, US Census
Traffic Congestion
Variable: Crime rates by county - Property damage; Burglary, Larceny, Motor Vehicle Theft Sources: US Census
Foreclosure Rates
Variable: Home Value – change in home value. Sources: Marshall Swift
Variable: Traffic Density
Usage-based
Variable: Miles Driven Sources: Need to be collected by insureds (GPS systems)
Impact of Demographic Information
Other Characteristics
State Closed Claim database – Med Mal Variable: Various information including county where suit is filed Sources: State closed claim databases
Business Mix by county Variable: Mix of business (i.e. service vs. manufacturing) Sources: US Census
Vehicle Registration Data Variable: Type of Vehicle being driven Sources: Vehicle Registration data
Aviation Variable: Number of variables available Sources: NTSB database
Demographic Changes Catalysts and Impacts
Demographic changes can be gradual and long term Aging population Population shifts toward the coast Population densities of counties
Demographic changes can be sudden and short term Economic events Less driving Purchase of used cars vs. new cars Catastrophic events
Demographic changes can be sudden and long term
Major employer closes in a city
Demographic Changes Catalysts and Impacts
Demographic changes mean products and rate plans must recognize the new reality.
Recognize trends in demographics Adjust rate plan and underwriting prior to recognizing losses
ERM analysis needs to reflect both the long term and short term impacts of demographic changes. Short term can be sudden and dramatic.
Catastrophe management General impact of economic situation
Demographic Changes Catalysts Percent Change in Population by State 4.00%
2.00%
0.00%
-2.00%
-4.00%
-6.00%
-8.00% 2001
2002 Florida
Source: US Census
North Carolina
2003
2004 South Carolina
2005 Mississippi
2006 Louisiana
2007 United States
Demographic Change Catalysts Percent Change in Population by State 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2001
2002
2003 Florida
Source: US Census
California
2004 Nevada
2005 Arizona
2006 United States
2007
Demographic Changes Catalysts and Impacts
Demographic changes impact catastrophe exposures
Hurricane – movement toward the coast
What about the aftermath of a large catastrophe event
Wildfires – population movement toward the wildlands
According to the US Fire Administration 38% of new homes built in the Western US are adjacent to or intermixed with wildlands – From March 2002. What about recent history?
Demographic Changes Indentifying Opportunities
Indentifying segments of your business that have been profitable:
What are the characteristics?
Market penetration analysis
Mix of business establishments Population density Traffic density
Have I achieved market share goals for ….?
Monitor the Results of a rating plan
Set market share goals and monitor the results.
Questions
Paul Vendetti Consulting Actuary Pinnacle Actuarial Resources, Inc (309) 807-2312
[email protected]
