Interview with RPM General Speaker Robert Hartwig

What impact has COVID had on the insurance industry? How has it impacted our foreign markets? What is the biggest risk the insurance industry currently faces? As we look forward to our upcoming 2021 CAS Ratemaking, Product, and Modeling (RPM) virtual seminar, scheduled for March 15-17, we spoke with one of our general session speakers,  Dr. Robert Hartwig about these questions. Dr. Hartwig is Clinical Associate Professor of Risk Management, Insurance and Finance in the Darla Moore School of Business at the University of South Carolina and Director of the school’s Center for Risk and Uncertainty Management. He teaches courses in risk management, insurance and corporate finance, mentors students, pursues a variety of research interests and works with insurers, regulators, legislators and many other insurance industry stakeholders, including the media.

Dr. Hartwig is also immediate past president of the Insurance Information Institute, an organization he led from 2007 to 2016. He joined the I.I.I. in 1998 as an economist and became chief economist in 1999, focusing his work on improving understanding of key insurance issues across all industry stakeholders, including media, consumers, insurers, producers, regulators, legislators and investors. To experience his session and more, register for RPM here: https://www.casact.org/education/rpm/2021/

1. Why should actuaries care about the effect COVID-19 has on the economy?
   Historically, direct written premium growth is strongly correlated with growth in nominal GDP.  Thus the economic disruption caused COVID-19 (or more accurately, government responses to the pandemic) are impacting the growth trajectories for many key lines, especially those that are the most economically sensitive such as workers compensation, personal auto, inland and ocean marine, aviation and several others.  In addition, the sharp economic downturn associated with COVID had material impacts on claim frequency.  For example, collision claims in personal auto were down approximately one-third as the pandemic and lockdown orders caused travel to plummet.
2. What positives have come out of the response to COVID-19 that lower our performance risk?
   Insurers have accelerated the implementation of technologies designed to speed the process of adjustment of claims (e.g., increased adoption of drones) and/or payment of claims (e.g., AI-based technologies that allow the policyholder to submit photographs in lieu of an actual adjuster visit, with algorithms determining the value of that claim and automatically triggering payment, when appropriate).
3. How much should U.S. actuaries be aware of economic volatility in foreign countries, particularly developing markets?
   COVID-19 is a global pandemic.  Countries that had experienced shutdowns in the spring and early summer of 2020 and then reopened found themselves implementing even more stringent lockdowns late in the year as new virus variants threatened to overwhelm healthcare systems.  These developments threaten global supply chains.  Indeed, global supply chain disruptions were a hallmark of the COVID-19 pandemic.  Larges segments of the U.S. economy are exposed to these risks, again affecting growth potential and claim frequency.  In addition, businesses forced to close as the result of such disruptions may mistakenly believe that traditional business interruption coverage will respond to the income and extra expense losses they sustain, potentially resulting in costly litigation.
4. How has COVID-19 highlighted the importance of the actuary’s role in the insurance industry?
   COVID-19 will require actuaries to apply their analytical skills in new and innovative ways.  Traditional models used to trend frequency and severity data, for example, will sometime be inapplicable during the pandemic and in its immediate aftermath.  New patterns will emerge with no guarantee that trends observed prior to COVID will return anytime soon, if ever.
5. What is the number one risk that you see coming down the road that keeps you up at night?
   Asset market bubbles. Persistently low interest rates have incentivized investors around the world to take on more risk—hence record high equities markets, soaring real estate and commodity prices, high bond prices, etc.  Even nearly worthless companies (e.g., GameStop) and highly speculative investments (e.g., bitcoin and other cryptocurrencies) are at record highs—all amid a global recession.  Part of this is being fueled by massive government spending.  The prevailing view among many is that record government debt and debt-to-GDP ratios higher than at any time since WW II will have minimal adverse impacts on economic growth, inflation or interest rates in the future. I disagree with this view.  Eventually the bill for all this spending will come due and historically inflation is part of that cost.  Rising inflation is very damaging to insurer reserve and rate adequacy.
6. What more can we learn from your session coming up at the 2021 Ratemaking, Product, and Modeling Seminar?
   Attendees will get a sense of how accurate early predictions related to the impact of COVID on the industry were—or weren’t.  We’ll also explore some of the other challenges impacting the industry today, including persistently high CAT losses.  Opportunities for insurers in the post-COVID world will also be discussed.