PrepTalks: Sean Kevelighan “Understanding the Value of Insurance”


[PrepTalks Theme] Who else here is passionate about
insurance? [Laughter] Okay. Well, hopefully you know in 2008 when I was in a government job and looking to get out and thinking about financial
services. I was surrounded by economists and they said, “you know you may want to
look elsewhere than a big bank.” And as a result an insurance company gave me a
call talked to me about the position that I
was looking and interested in, and they also walked me through why the company
was gonna weather what everybody knew was coming, which was a recession. And
in the ten years now that I’ve been affiliated with the industry I actually
have become passionate about the industry. It does a lot for our economy,
for our community, for people and so what I want to take you through first is a little video, because I want to walk down a path of a world without insurance. [Music] Most folks know insurance is the thing that pays to repair damages to homes and cars,
but if people stop to think about what insurance means to today’s economy they’d realize that insurers and the nearly three million people they employ
nationwide make possible projects of all sizes from airports, to stadiums and
arenas, to coffee shops, to local childhood literacy programs.
So to comprehend the many ways insurance makes the economy better and stronger,
try to imagine a world without insurance So what would that look like? For
starters hazards like natural catastrophes and motor vehicle accidents,
would result in far greater losses of life and property. However, through
insurance’s support for the Insurance Institute for Business and Home Safety,
the Insurance Institute for Highway Safety, and other organizations, homes are
safer and more resilient, and motor vehicle deaths have plummeted to a
fraction of what they were before 1960. Insurers also collect and analyze data
and study ways to make the public more aware of the negative effects of
distracted driving and to rate community preparedness. Without insurance driving
to work or having goods delivered to homes and businesses would be a lot
riskier and potentially cost more for tens of millions of Americans. Also,
workers might not be covered for injuries and illness that happen on the
job, which would result in lost wages and financial disruption for families
everywhere. But because insurance studies risks and compiles statistics to share
with local, state, and federal governments; as well as private institutions; we have
policies and laws in nearly every state requiring motorists to have some form of
coverage. And all 50 states have workers compensation laws. [Countdown: three, two, one] And without insurance innovation might slow to a crawl or perhaps not happen. The insurance
industry as we know it was built to empower risk takers who have created our
modern economy. For more than three hundred years, since the Enlightenment
and Age of Exploration insurance has been the driving force that has
underwritten investments in transformational technologies. From steam power, to mass production, to aviation, to automation and information networks, to future advancements in artificial intelligence, nanotechnology, and big data. But perhaps insurance biggest and most often overlooked contribution to
economic growth is its key role as a major source of funding for projects
large and small. This capital is vital to paying long-term claims, so insurers
investment portfolios often include private and municipal bonds that help
finance the growth and prosperity of communities everywhere. Right after tragedy you need help and
that’s what insurance is there for, we act as the financial first responder
after catastrophe. We get into the communities we help rebuild and restore
people’s lives and the economy more broadly. We act as a partner to
governments, and households, and businesses and we help them understand
what the risks are, help them mitigate the risks, and in turn they will become
more resilient and sustainable for the future. World without insurance? It’s pretty safe
to say the life would be a lot different and probably not as exciting. And this is
why insurance is honored to play a part in making our economy more robust and
resilient every day of the year. Okay, so more passion? We just put that
together back there that’s why I’m wearing the same thing. Well let me then walk you through some more stuff and let you let you better understand.
The Triple I is an organization funded by the insurance industry and really our
mission is to improve public understanding of insurance. What it does,
how it works. We do not sell insurance on our website,
we’re only there for the consumer to educate the consumer, policymakers, other
key stakeholders about what insurance does and and what they need to know
about it. So one of the things we also do is we
educate journalists and we handle thousands of media inquiries every year.
And so what I am showing you here on this slide is really a breakdown of insurance
related coverage, and what’s important, and what is the media reporting on. And
you can see about thirty percent of the media around insurance is something that this
audience deals with on a regular basis natural catastrophes. Another fifteen percent you’ll see there is a man-made catastrophe that we are
seeing on a daily basis reach epidemic proportions, which is the automobile
issue and what’s going on on the roads with distraction, and drugs, and other
things like that. But when we break down that coverage we actually looked at it
and we said okay now what’s being published, which is on the bottom axis
there, and you’re seeing things like InsurTech technology, the auto
insurance issue that I mentioned, cyber insurance. But then we also looked at the
vertical axis there about what people care about, what are they sharing on
social media, and look what rises to the top. NFIP, right? Number one issue that
people really care about. Floods and storms another big issue, right? So this
is what we’re dealing with in terms of we want to know and educate people about
these programs and what they need to know more about it. And as we do that I
want to also walk you through though a little bit of what insurance does. We
mentioned in that video about insurance is economic capital and being financial
first responders. We have a white paper on our website that you can look at that
dives into this slide a little bit more deeply. But if you break it down in terms
of safety and security, you heard me talk about financial first responders getting
on the ground oftentimes right there when FEMA and first responders are there
so is the insurance industry helping rebuild immediately. We mitigate risk.
Nobody wants that claim to happen, right? That means something bad happened. So the industry spends, those organizations, how do we make roofs more sustainable, how do we make sure that the highways are more safe? Financial stability. I mentioned I got into this industry in 2008. This industry
weathered the financial crisis. In 2010, at the height of the financial crisis
there were 157 bank failures, there were eight insurance impairments that year. And
impairments mean they go into runoff and the claims get paid, the promises get
kept, right? So this industry weathered a big storm and kept its promises. We also
do a lot of development. You can’t have a big construction project, you can’t have
big infrastructure projects, unless there’s insurance behind it. That’s what economies do. That’s why insurance drives economic growth. One of
the other things, and you saw a little bit of that graph here, this
represents various industries contribution to the economy, GDP right?
You’ve got technology there, Internet, mining, securities, banks. What’s up at the
top? The blue line, that’s insurance. Three point one percent of the overall economy, banking
is two point eight percent. The securities industry is one point three percent. So we’re contributing a lot to the economic growth in terms of jobs, taxes, charity, investments. The
insurance industry actually is one of the largest asset management industries
in the world. Eight trillion dollars in assets under management in the industry.
They’re long-term investments too, right? We have to keep the investments, in fact
there’s seven hundred and fifty billion dollars outside what we call the
policyholder surplus waiting there, because if these things kick in in the
long term the monies need to be there to again keep the promises. On the
financial first responders, this organization knows very well about
getting on the ground and making sure that lives are saved immediately. But
what happens when the water drains? When the dust settles? You’ve got to rebuild
an economy. This is what insurance does. It gets people back in their jobs. It gets people back in their homes. It makes sure that the economy gets back up and
running for the longer term, because after the catastrophe is just the tip of
the iceberg, right? And we’ve got a lot to do. This organization, FEMA, knows very
well about this. They manage the National Flood Insurance
Program, right? So they know they understand that this is not just a day,
two, week issue. It’s a much longer issue, something that needs to be dealt with.
And this is what insurance and why it needs to be there. Think about auto
insurance. Oftentimes people that’s one of the worst things that they think they have to buy, right? Why do I have to do it? Why are my auto
rates going up? Well we got more people driving than ever before in history
right now and we got a lot of distraction in the cars, and the phones,
and all of that. But I don’t know how many of you have twenty thousand dollars sitting around, so that in case something happens you can pay that. Because that’s what the
average, right, this chart shows you what the average cost of a bodily injury
claim is. Around fifteen – sixteen thousand dollars, right? Well, and then your average premium is around five hundred, so that means for every dollar that you spend in premium
you save thirty dollars, if something happens. That’s what your auto insurance is
doing. We hear a lot today about disruption, right? It’s it’s kind of a buzzword that everybody’s talking about. This is what insurance does. Insurance
does disruption. We help lead through it. Catastrophes? 2017 was a record
year in terms of insurance losses. We paid all the claims ninety-one billion dollars. Economics? I just talked to you about how insurance weathered through the financial
crisis in the US and the world, right? Geopolitics, sanctions, tariffs, battles,
wars going on in the world. There’s a thing called political risk insurance,
right? Something happens, supply chain interruption those types of things,
companies need that insurance in case something happens. A business gets
taken over in a certain country that’s volatile, there’s insurance to cover that.
Technology. We’re in what many call the fourth
industrial revolution and what I would tell you is that insurance has been
there for the first three. All of those innovators, all those that want to
modernize, they need to transfer that risk. What’s really neat about this
fourth industrial revolution is that the insurance industry is going to innovate
itself. We heard from that speaker about artificial intelligence and the impact
that that can have. That is something that insurance is looking at, because
that does and can predict and save lives. Now the gap, right? As much as it’s so
important it’s not there as much as we need it to be. In fact seventy percent of all
catastrophe losses worldwide were uninsured. So people didn’t have the
insurance, it was a world for them without insurance. And then flooding,
which is the largest natural catastrophe in the world, continues to be the largest
risk in terms of the gap that we have. We know that in this country. We know that
because there is not a strong take-up rate in the National Flood Insurance
Program. Now here’s what’s happening on the National Flood Insurance Program.
FEMA, the NFIP, they’re doing the best they can. Look at these claims that
they’re paying, right? Hurricane Katrina nearly eighteen million dollars in claims paid, Sandy eleven million, Harvy, we don’t know it’s still going up,
but the claims are being paid. What I would argue is this sustainable, right?
Can the government keep doing this? Here again illustrates something, this information is taken from FEMA as well as some McKinsey report. But this
this graph illustrates, we’ve got less than five percent increases in people getting flood insurance, right? Eighty-eight percent of Americans who actually need flood insurance, don’t
have it. What do we do? How are we gonna bridge this gap? Well FEMA and the NFIP are actually looking at some some really neat
solutions and I’m delighted to see it. We’re looking at ways to have the
private industry enter into it. Sixty years ago when the NFIP was established, the industry didn’t have the data and couldn’t predict the floods.
And as a result they couldn’t offer the insurance that was
needed. It’s similar to the Terrorism Risk Insurance Act, right? After 9/11
there was so much unpredictability that they weren’t able to underwrite terrorism. and as such the, construction market in areas like New York City shut down. So it took an act of Congress, TRIA, to actually get the the construction market. I think actually at the bill signing we had people with construction hats because it
reinvigorated an industry as a result. And NFIP is like that, right? The government is there as a backstop. But now what we’re seeing is the private
industry is better, it’s got more modernization, it’s got more better
modeling, and so FEMA purchase reinsurance. And that was a great
purchase, right? A hundred and fifty million dollar purchase in 2017 paid out a billion
dollars. Increased the purchase by forty percent for this year, right? And then catastrophe
bonds are another great way that the private industry is entering into it. And
then we’re also seeing products being offered. One of the Triple I members,
Swiss Re, is beginning to offer flood insurance not just on the traditional
modeling or maps, but on construction and location. You know things that we can
better predict how they will respond and mitigate the risks associated with flood.
So one of the things I wanted to have everybody imagine and why do we have
such a low take-up rate on flood? Well think about a world, what you’re seeing
here is what you probably see any evening or day on national
television, right? You can’t watch a half hour on national network television
without saying three insurance commercials. Try it. What if you had that marketing for flood? Because the fact is
over ninety percent take-up rate exists in the auto insurance and the homeowners market. And I would argue it’s because of this great marketing. So how do we bring that
marketing into flood? Something to think about. How do we get private industry
more engaged? Well, it’s politics right now, right? And
in the words of the late great Tip O’Neill, “All politics is local”. And that
certainly is the case for our flood issues, right? We have more Americans
right now living in flood prone areas than ever. You know nearly two trillion
dollars in real estate is exposed to flooding at this point. I joke, I
don’t have the facts behind this but there 100-year flood in this country every week, right? It’s one of the worst terms I think we can use this day and age. And there’s something that we need to do
about it, we need to recognize that there’s an issue, but we also have to
understand that you have to be actually and economically sound in how you price
your risk. And right now the politics aren’t letting that risk be priced right.
They actually tried a couple years ago, but they brought it
back, right? They came back on it. And this is the moral hazard that’s being created in the flood issue. And we’ve got to do something
about that and I would argue we’ve got to do something about the politics. But
as we well know here in Washington D.C. that’s never easy to overcome. But I would argue that it’s something that we need to focus on and it will be the fix.
And if we can get rid of the politics, if we can get the private industry more
engaged, we will have that power of insurance in something that FEMA deals
with very often, which is flood. And with that I thank you. [Applause] [Music]

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