Insurance Economics – Kuzia & Leonard Panel

Speakers & Their Credentials

  • Noreen Kuzia

    • Seasoned property underwriter; currently leads Corporate Underwriting – Property at Munich Re

    • Prior posts: Director of Underwriting for Engineered Lines (Hartford Steam Boiler); Account Executive (Travelers)

    • Designations: CPCU, ARe, ARM, others; MBA (RPI – Lally School); B.A. (Mount Holyoke)

  • Dr. Michel Leonard

    • Chief Economist & Data Scientist at Insurance Information Institute (Triple-I)

    • >20 yrs P&C and specialty-lines analytics (credit, political risk, BI, cyber)

    • Ph.D. Political Economy (Univ. of Virginia); adjunct faculty at NYU Economics & Columbia DSI

    • Serves on Insurance Research Council advisory board

  • Moderator: Theresa (course instructor) – audience of carrier, reinsurer, broker/agency and risk-manager students

Macro-Economic Context Shaping Insurance

  • Pre-COVID “steady state”

    • CPI inflation ≈ 1.5!-
      2.2\%

    • Real GDP ≈ 2.5!-
      3.0\%

  • Post-COVID disruptions

    • CPI spikes; housing-replacement basket up ≈ 55\% in ~3 yrs

    • Multi-factor shocks: pandemic, supply-chain breaks, Ukraine war, extreme weather, legal friction, geopolitical tension

    • Underwriters now juggle 8-10 simultaneous macro variables vs. 1-2 historically

Inflation & Replacement-Cost Dynamics

  • Insurance focuses on replacement-cost inflation (RCI), not resale price

    • Lumber, labor, furnishings, chips → separate commodity tracks

  • Pandemic-era RCI: \Delta\text{RCI}\approx55\%

  • Auto example

    • MSRP lease cost: \$300→\$325/mo

    • Auto premium: \$50→\$275/mo (+450\%) even for good drivers

  • Homeowners example (national averages)

    • Premium: \approx\$1{,}300 / yr

    • Median home: \$300{,}000; monthly mortgage \approx\$1{,}500

    • Premium-to-payment ratio: 1:10 now trending 1:3 in FL where HO prem ≈ \$5{,}000

Pricing, Exposure & Market Loads

  • Rate components

    • Exposure load = pure premium tied to replacement cost

    • Market load = capacity + profit allowance

  • “Stepping” strategy: gradual annual increases to avoid rate shock

  • Cat-prone regions (FL, Gulf, CA wildfire) compressed asset-to-premium value gap

Cost of Capital & Profitability Realities

  • P&C carrier combined ratio target ≈ \le100\% → yields 1-2 % underwriting ROE in good years

  • True earnings rely on assets-under-management (AUM) returns; highly regulated on rate side

  • Florida homeowners: most carriers unprofitable 8-10 yrs running but remain for societal necessity

Data, Analytics & AI Toolkit

  • Surge of vendor solutions: CoreLogic, Verisk, HazardHub, etc.

  • Underwriters demand near-real-time portfolio views (geospatial, economic, climate)

  • AI / ML translating between “economist language” (CPI buckets, GDP) and “underwriter language” (TIV, ISO class)

  • IoT example: \$40 water-leak sensors can cut \approx30\% of HO claims (kitchen/bath losses)

Catastrophe & Climate Lens

  • Industry side-steps political debate; relies on empirical loss data showing:

    • Higher frequency and severity of convective storms, wildfires, flood

    • Population migration to hazard zones (coasts, WUI, NC becoming next FL)

  • Building codes & science

    • Insurance Institute for Business & Home Safety (IBHS) + Insurance Institute for Highway Safety (IIHS) = flagship R&D

    • Simple retrofits (hurricane ties, fortified roofs) drastically lower loss cost curve

Demographics, Talent & “New Normal”

  • Baby Boomers exiting leadership → Gen X “moment of glory” then Millennials dominance

  • Generational tech-native skills accelerate change; insurance must harness to stay relevant

  • Industry virtues for recruits

    • Stable hiring/firing cycle

    • Nationwide career dispersion (Hartford, Chicago, Des Moines, etc.)

    • Mission-driven social utility (can’t get a loan w/o insurance)

Supply Chain & Reshoring Trends

  • COVID revealed fragility; geopolitical risk (Taiwan chips, Russia energy) = impetus to re-shore / near-shore

  • Wage gap narrowing: offshoring labor arbitrage less compelling

  • Example: semiconductor fabs subsidized in U.S.; Japanese tractors, Toyota/Honda “made in USA” for years

Collaboration & Regulatory Advocacy

  • Carriers/reinsurers/Triple-I lobby jointly on:

    • Adverse state legislation

    • Building-code adoption & enforcement

  • Ethical info-sharing walls respected; focus on systemic risk mitigation not rate collusion

Emerging Markets & Innovation Hotbeds

  • Many InsurTech breakthroughs originate in emerging economies (mobile micro-insurance, parametrics)

  • Global poverty reduction via trade → rising middle-class needing insurance; insurers enable sustainable finance (e.g., renewables project cover)

Resilience Imperative – Financial & Physical

  • Tripod view: Financial resilience (affordability), construction resilience (fortified structures), educational resilience (consumer literacy)

  • Pre-loss investment (codes, sensors, landscape) cheaper than post-loss repairs; frees capital for climate losses

  • Industry message: “Win-win”: lower claim costs and protect households

Outlook on Inflation & Economy

  • Acceptable policy band shifting to 2!-
    4.5\% CPI

  • Key watch: keep \text{GDP growth} - \text{CPI} > 0 to avoid stagflation

  • Near-term forecast (Triple-I):

    • \text{CPI}_{24} \approx 4\% → glides toward 2.5\% by 2025 barring shocks

    • Expect “stingers” if geopolitical events escalate (e.g., Russia mutiny impact felt if mid-week, not weekend)

Underwriting & Reinsurance Strategy Shifts

  • Greater use of facultative / quota-share to manage volatile cat aggregates

  • Dynamic capacity allocation to regions based on live economic & climate signals

  • Ongoing experimentation with parametric, CLO-style ILS for balance-sheet relief

Educational & Talent Needs

  • Underwriters must “read the newspaper” – macro, commodity futures, labor trends all enter rating decision

  • Curriculum push: beyond desk-level forms; embed economics, geopolitics, data science

  • Outreach needed to portray insurance as “interesting, impactful, tech-forward” to next-gen talent

Key Takeaways / Cheat-Sheet

  • Replacement-cost inflation up \sim55\% → premiums risen merely ≈½ of that; profit squeeze

  • Premium-to-asset ratios tightening; especially FL homeowners now 1:3 vs historic 1:10

  • Multi-factor “perfect storm”: inflation + supply chain + climate + legal + geopolitics

  • Data & AI no longer optional; desk underwriter must wield predictive dashboards

  • Building codes, sensors, and public education are fastest path to resilience & affordability

  • Industry profitability intertwined with community welfare; strong social license demands collaboration

  • Long-term change horizon = decade-plus; “back to pre-COVID normal” unlikely

The insurance industry is navigating a "new normal" marked by significant post-COVID macro-economic shifts. Unlike the pre-COVID stable period, underwriters now contend with 8-10 simultaneous macro variables (e.g., pandemic, supply chain, war, extreme weather) driven by spiking CPI inflation, especially a roughly 55\% increase in replacement-cost inflation (RCI).

This RCI surge has led to substantial increases in auto and homeowners premiums, tightening premium-to-asset ratios (e.g., Florida homeowners now 1:3 vs. historic 1:10). Despite these rate adjustments, P&C carriers face tight underwriting profitability (combined ratio target \le100\%) and often rely on assets-under-management (AUM) returns, with some regions like Florida remaining unprofitable for years.

To address these challenges, the industry is heavily investing in data, analytics, and AI/ML to provide real-time portfolio views and translate economic data for underwriting. There's a critical focus on catastrophe and climate resilience, recognizing increased frequency and severity of extreme weather. Collaboration on building codes, simple retrofits, and consumer education is essential for loss mitigation and affordability.

Demographic shifts necessitate attracting new talent by highlighting the industry's stability, impact, and technological advancements. Supply chain fragilities are driving re-shoring/near-shoring efforts. The economic outlook suggests a new acceptable CPI band of 2!-

4.5\%, with vigilance for positive \text{GDP growth} - \text{CPI}. Underwriting and reinsurance strategies are adapting with dynamic capacity allocation, demanding underwriters to possess broader macro, geopolitical, and data science knowledge. A return to pre-COVID normal is unlikely, indicating a long-term change horizon of over a decade.