Election fallout, rising loss costs, regulatory constraints top insurer worries

Insurers have real concerns about being in the firing line politically in the run-up to the US election—adding further to their already long list of challenges, which includes rising cat losses, economic inflation and lawsuit abuse. “There is a lot of worry around how insurance has been targeted by some politicians,” David Sampson, president and chief executive officer of the American Property Casualty Insurance Association (APCIA), told APCIA Today.

With carriers already grappling with some of the most complex and trying challenges and market conditions seen in a generation, this is something, he said, the industry could do without. “The election is looming. The outcome will be watched closely by insurers; our industry has been politicised in the past.”

When not eyeing the US political landscape, Sampson said insurers are very concerned about the escalating costs they are facing—and the challenge of getting an increased rate through the regulatory system. He notes that losses are escalating, reinsurance costs have spiked, and economic inflation has reached almost record highs. But he stresses the lag in time between these pressures emerging and insurers’ ability to adjust rates.

“Carriers need to rebalance their books to account for these escalating costs,” Sampson said. “But there is a delay. That is the insurance process, but regulatory delays and restrictions on the management of risk make it a very difficult environment to operate in.”

Perhaps the single biggest worry for insurers is the growth of third party litigation funding, which Sampson describes as a worsening trend and one of the major drivers of the increase in insurance loss costs. Investments in US third party litigation funding increased to $15.2 billion in 2023. 

“It is now a major factor in insurance availability and affordability, with loss assessment expenses increasing at well above inflation,” he said. 

Sampson said it is important that the stark impact of legal system abuse is put into context as this has a direct impact on the affordability and availability of insurance for consumers and businesses. 

He notes that over the past two years, insurers’ loss adjustment expenses incurred, including legal costs, increased by 15.7 percent. This has been driven by higher jury awards, nuclear verdicts and class actions. “They are all spiking, leaving less money to pay claims or keep rates affordable,” he added.

He points out that insurance losses have well surpassed the Consumer Price Index over the last 10 years, with commercial and auto and general liability insurance costs rising as much as six times faster than inflation. Liability claims costs generally rose 16 percent on average for the last five years, well above average rates of economic inflation at around 4 percent, according to a 2023 Swiss Re report titled “US liability claims: the shadow of social inflation still looms”.

Another statistic Sampson notes is that, according to an American Tort Reform Association February press release, last year alone plaintiff lawyers spent $2.4 billion on more than 26 million local legal services adverts—an increase of more than 5 percent since 2022.

Going nuclear 

“Another stark representation of the problem is in the number of so-called nuclear verdicts—exceptionally high jury awards typically worth more than $10 million—which have grown by many times in just the last few years,” Sampson said. 

“We are seeing routine individual personal injury verdicts exceeding $1 billion.” He stresses the most pertinent point of all: only 53 cents of every dollar go to plaintiffs. The remaining 47 percent covers litigation costs and other expenses, according to data from the Perryman Group’s “Tort Costs Report 2023”.

“There are national security concerns about who’s involved in these lawsuits.”

“This is such an important issue; it’s affecting the affordability of the insurance rate,” he said. “When you add economic inflation and more natural disasters on top of that, and then regulatory restrictions that don’t allow insurers to manage their concentration risk, it is all having a major impact on insurance availability and affordability.”

The APCIA is a vocal lobbyist for change on these issues. One objective is to force the disclosure of all parties involved in a lawsuit. He notes that some investors in third party litigation funding are countries or organisations sanctioned by the US government. 

“There are national security concerns about who’s involved in these lawsuits. So, getting transparency and disclosure is a major priority.” The APCIA also advocates limits on non-economic damages. 

Sampson notes that progress has been made on the regulatory front in some cases. Florida is a case in point (see p18), but there are also states where there has been little success—such as California. Insurers and policyholders are suffering the consequences of decades or poor decision-making.

Conference highlights

Moving away from regulatory issues, Sampson believes geopolitical volatility globally and domestic civil unrest are big concerns for insurers. He cites the conflicts in Ukraine and the Middle East as being of major concern and details the many knock-on effects, including to supply chains. 

“There are always tremendous lessons to be learned from the past.”

He notes that the speech by former director of the Central Intelligence Agency General David Petraeus on the opening morning of the conference will be of special interest in this context.

“There are always tremendous lessons to be learned from the past,” he said. “I am a great believer in the Winston Churchill maxim that the farther back you look, the farther ahead you see. To that sentiment, General Petraeus will specifically talk about lessons from leadership, from his own experiences and the experiences that he’s studied.”

Sampson notes another important presentation at the conference: Robert Kagan, senior fellow of foreign policy at the Brookings Institution, in a session titled “The Ghost at the Feast: Looking Back to See Farther Ahead” will talk about how the global world order collapsed between 1900 and 1945—and lessons learned for today.

Sampson cites several other speakers he is keen to hear from including David Axelrod, political strategist and the former chief strategist and senior advisor to President Barack Obama, and Karl Rove, the chief strategist and former deputy chief of staff for President George W. Bush. 

In a session titled “One Month Out: The 2024 Elections ... Then What?” they will offer insight and an outlook on November’s election. 

“It is fair to say that geopolitical and domestic political unrest are very much at the forefront of what our member CEOs are concerned about,” Sampson said. “But they are equally worried about the many insurance cost drivers they are facing, and regulatory resistance to rate increases. 

“That is before you start to discuss some of the more peripheral threats such as technology, artificial intelligence, cyber threats. All of the above will be debated and discussed this year,” he concluded.  

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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