By Matthew Scarfone, Esq., Triple-I blog contributor, and shareholder at Colodny Fass 

Florida presents property insurers with a unique set of factors that affect the availability and affordability of insurance coverage. The state boasts the third-largest population in America while simultaneously enduring a higher-than-average volume of natural disasters. It’s fair to say that operating a residential insurance company in the Sunshine State isn’t for the faint of heart.

What’s behind the mounting catastrophe in the Florida legal system?

But as damaging as the hurricanes can be, there is a man-made disaster that has contributed significantly to destabilizing the market to concerning levels: legal system abuse. In practice, some people are misusing tools of the justice system to manipulate outcomes and obtain windfalls. Insurance carriers have paid a heavy price in recent years due to the increased abuse of one-way attorney fees, bad faith claims, and other unsustainable litigation trends. 

Exploitation of one-way attorney fees and bad faith law has been especially prevalent. Until recently, if a policyholder or third party sued an insurer and obtained any monetary award, they were entitled to recover all attorney fees incurred in the litigation. This practice may have incentivized people to dispute insurance claims, regardless of whether they were justified.  

The problem was further exacerbated by the abuse of assignment of benefits (AOB) agreements, which created an opportunity for contractors to inflate costs. As a result, a modest homeowners insurance claim could lead to multiple lawsuits by different assignees, each asserting a separate claim for attorney fees. Manipulating this loophole encouraged excessive claims and unreasonable demands, forcing insurers to choose between paying the inflated bill or risking a lengthy trial where the attorney fees alone could exceed the claim amount. On top of that, courts have had broad discretion to apply fee multipliers and can award 1.5-3 times the reasonable attorney fee. 

Cases involving allegations of bad faith further compound an insurer’s exposure because these cases can be costly to defend and involve intrusive discovery, amorphous damages, and unpredictable juries. Bad faith cases are not ripe (i.e., ready to potentially warrant judicial intervention) until there has been a final determination regarding coverage and the damage amount. Therefore, insurers regularly face the prospect of defending a bad faith case even after resolving the underlying dispute.  

Florida’s courts did not help matters by ruling that appraisal awards—tools designed to help resolve disputes—could lay the procedural groundwork for bad faith actions. In other words, after resolving a claim through appraisal, insurers could still be left to defend a lawsuit for bad faith. Some attorneys used this caselaw as a playbook to fast-track claims into bad faith litigation by misusing the appraisal process. 

The problem looks even worse when you quantify it. According to the Florida Office of Insurance Regulation (OIR), as of 2020, despite Florida only accounting for 9% of all homeowners insurance claims in the country, it accounted for 79% of all homeowner insurance litigation nationwide. Additionally, over the last decade, only 8% of the $51 billion paid out by insurers went to claimants, yet plaintiffs’ attorneys took home 71%. Meanwhile, eleven Florida property insurers fell into liquidation since 2017—five of those occurring last year alone. 

Legislators recognized need for urgent action to help curb costs of insurance claims.

The Florida Legislature has responded to the growing crisis by passing multiple pieces of significant insurance reform, primarily tackling the problems with AOBs, bad faith claims, and excessive fees.  For example, the new laws eliminate one-way attorney fees in property insurance litigation, forbids using appraisal awards to file a bad faith lawsuit, and prohibits vendors from taking AOBs under new policies. Despite criticism from the plaintiffs’ bar, these reforms are not all “one-sided.” Recently passed legislation also ensures transparency and efficiency in the claims process and encourages a more efficient and less costly alternative to litigation.  

While it’s too soon to know exactly how recent reforms will improve the state’s insurance market, there is a sense of hope that these measures will decrease the volume of property insurance litigation and foster a more viable and stable residential insurance market that enables greater consumer access to affordable coverage. 

It may take time for these reforms to have a measurable impact on Florida’s property insurance market. Still, insurers and policyholders alike should be optimistic that the market is headed in a more sustainable direction. 

By Loretta L. Worters, Vice President, Media Relations, Triple-I

The gender pay gap is a sensitive topic we need to spotlight. We’ve seen it in every industry, from entertainment – when Patricia Arquette called for wage equality in her 2015 Oscars acceptance speech – to Wall Street, when CNBC reported in 2019 that Citibank admitted that its female employees earned 29% less than its male employees globally.   

In the United States, the gender pay gap is 18%, which means that on average, in 2022, women made 82 cents for every dollar men earned in any industry, according to a recent Pew Research Center study —a rate that hasn’t significantly changed for two decades. Women of color continue to suffer the most severe gender wage gap in this country. Black women are paid 63 cents for every dollar white men are paid and must work an additional 214 days to catch up to what white men made in 2020 alone. Native women are paid about 60 cents and Hispanic women only 57 cents for every $1 earned by white men. In the insurance industry, women fared worse, earning just 62 cents on the dollar in 2020. As a result, women cannot build savings, withstand economic downturns, and achieve financial stability. This earnings gap widens during a woman’s career.  

Older women bear the brunt of ageism  

We’re all familiar with the phrases “past their prime,” “put them out to pasture,” and “not enough runway,” but often ageism is gender specific, targeting older women. Data from the Bureau of Labor Statistics shows that American men don’t typically start to make less money until they’re over 65. In contrast, women’s median pay decreases when they enter the 45–54-year age group.  

Inequity can drive retirement insecurity 

Lower lifetime earnings also reduce the amount of retirement capital women can accumulate from 401ks to defined benefit pension plans to social security. Women’s retirement contributions are, on average, 30% less than those made by men, according to a recent Goldman Sachs survey.  

A 2020 report from the National Institute for Retirement Security (NIRS) finds that women can remain at a disadvantage with their retirement savings. Years spent out of the workforce for caregiving responsibilities—for children, spouses, and aging parents—significantly impact women’s total retirement savings and income. In fact, women are more likely to leave the workforce or take part-time jobs to shoulder those responsibilities – something we saw after the coronavirus struck.  

Women tend to live longer than men, too, and thus often have a greater chance of exhausting their sources of income. According to the U.S. Centers for Disease Control, the average American man will live to age 76, while the average woman in America will live to be age 81.   

Not only are women paid less, but men continue to dominate the top roles and highest-paying professions. Some folks say women need to be more confident and negotiate raises better. However, in 2019, The Wall Street Journal surveyed 2,000 graduates of an elite U.S. business school and found that 64% of the women versus 59% of the men asked for raises and promotions, but women were turned down twice as often.  

Diversity brings value 

With fewer women in top positions at insurance companies, insurers are missing out on critical sources of talent, according to McKinsey & Company. They referenced Harvard Business Review research which showed that diverse teams are more effective at solving difficult problems and reaching diverse markets and customer segments. Insurance companies need effective and diverse teams at all levels to grow and keep their competitive edge—meaning more women and women of color.  

Transparency laws help close the gender pay gap  

Wage transparency laws can close the gender pay gap, reduce discrimination, and promote fairer compensation practices. By requiring employers to disclose pay scales, job applicants can have a better sense of what to expect in terms of pay before they apply and negotiate salaries more effectively. This practice may also help women already in those jobs know what factors go into their pay and determine whether it is fair.  

The insurance industry is making strides toward equity 

Insurers are increasingly taking the initiative to transform their commitments into meaningful actions regarding pay equity based on gender, race, and overall diversity and inclusion. These organizations recognize that this is not only the right thing to do, of course. But they also realize that these practices are also good for business.  

Triple-I believes that acknowledging and celebrating those organizations working to make a difference is important. Below is a highlight of what some of our member companies are accomplishing in the DEI and pay equity space. We encourage others who have a story to tell to let us know and we’ll include them in this celebration:  

• Allstate’s performance in workplace diversity meets or exceeds external benchmarks. As of Dec. 31, 2021, women made up approximately 57% of their workforce, and 42% of their employees were racially or ethnically diverse. Minimum compensation increased in 2022 to $17/hour and $20/hour, based on geographic differentials, the second increase in the last two years. Racial equity is a pillar of The Allstate Foundation, and it aims to close the racial opportunity gap for careers with thriving wages. As of January 2023, Allstate proactively added salary ranges to 100% of its job descriptions to be transparent and show its commitment to equitable pay practices.   

• American Family, recognizing the structural barriers in society that keep people from achieving their dreams, is doing its part to break down these barriers, committed to tackling systemic problems that impede equity and believes everyone deserves the freedom to dream fearlessly. For 2022, American Family received the Best of the Best Awards from the Professional Woman’s Magazine, among other awards. Their diversity and inclusion efforts are grounded in equity — believing fair treatment starts with giving people the proper systems, support, opportunities and access needed to achieve their professional success and advancement.  

• AmericanAg™ has undertaken several steps to increase both the diversity of their workforce and communication in their business communities, including the use online platforms, media outlets, and search firms to recruit top talent with diverse backgrounds, not tolerating gender gap compensation issues among employees. They have initiated all-employee discussion sessions concerning diversity, equity, and inclusion to bolster communication and education.  

• Argo Group is committed to cultivating an authentic, inclusive and respectful workplace where all employees feel comfortable bringing their whole selves to work with equal opportunities to be successful. They developed their first year report on the gender pay gap in 2020 among their team in the U.K., but the company has been tracking the pay gap and working on improvements since 2017.  

• Chubb, knowing that creating opportunities for women will create a stronger company, developed a series of accelerator programs around the world designed for women at all stages of their careers. Their sponsorship program pairs executive sponsors with highly talented women to mentor and prepare them to lead. These close relationships enable talented women to achieve their career aspirations and maximize the impact they can make at Chubb.    

• Church Mutual was recognized as a national leader in advancing women and diversity at the 2020 “Women and Diversity: Expanding Opportunity in Insurance” conference, hosted by the American Property and Casualty Insurance Association (APCIA).  

• CSAA Insurance Group, a AAA insurer, has been named to Seramount’s sixth annual Inclusion Index, which recognizes leaders in creating an inclusive workplace. Chubb engages in pay equity analysis to ensure equal pay between employees in similar roles. The objective of this practice is to determine whether pay differences are driven by fair and compensable factors, such as location or tenure, and not by unjustifiable factors, such as gender or race. It has been a success at the organization. 

• In 2017, ERIE President and CEO Tim NeCastro first signed the CEO Action for Diversity & Inclusion pledge. ERIE was also recognized in recent national rankings published by Forbes, appearing on the list of Best Employers for Women.  

• Farmers Insurance, ranked as a Best Employer for Women by Forbes, is partnering with Women Back to Work to support the career re-entry of women in tech. Women at Farmers Insurance have rated Team, Executive Team, and Leadership as the organization’s highest-scoring categories. Farmers Insurance ranks on Comparably in the top 5% of other companies with 10,000+ Employees for Gender Score. 

• Grange Insurance is a proud member of CEO Action for Diversity and Inclusion™, a national initiative of more than 2,000 CEOs and Presidents who are pledging to support a more inclusive workplace for employees, communities, and society. In 2022, Grange was selected as an honoree of Columbus Business First’s Diversity in Business Award in the Outstanding Diversity Organization category. As an example of its commitment to pay equity, Grange conducts an annual gender pay equity analysis. 

• At Hanover, measuring workforce demographics enables them to track where they stand and the work that needs to be done along their DEI (Diversity, Equity, and Inclusion) journey. This practice also helps them achieve a shared goal of attracting, retaining, and advancing a diverse workforce at all levels. For 2021, 59 % of the workforce was female.

• Kemper is committed to equal pay, and an inclusive and equitable work environment. They focus on sustainability across their businesses which not only improves their own competitiveness and drives returns for shareholders, but also helps them attract, motivate and retain the best people.  

• Liberty Mutual was recognized by Forbes as one of America’s best employers for women every year since 2018. Liberty Mutual monitors their market competitiveness, constantly evaluating their pay practices to ensure relative parity among employees and across all business areas. They designed their compensation system to pay competitively for performance across all dimensions of diversity. Their multi-year DEI Plan includes goals to increase representation of women at all levels in the U.S. by 2025, as well as ensure progress over the long term. Delivering on these goals means that more than half of their U.S. workforce will be women.  

• Lloyd, in its 2021 Gender and Ethnicity Pay Gap Reports, noted its mean gender pay gap is 18.6%, an improvement of 1.8% from 2020. While there is still more to do, this shows a continually improving trend since the 27.7% pay gap in their first report in 2017. Lloyd’s is working to improve pay gaps by providing career development for women; hiring one in three ethnic minorities; and having an EDGE action plan, among other objectives.  

• MAPFRE continues reducing its gender pay gap. Its Compensation Policy lays out a compensation model that focuses on productivity and added value, contains no gender criteria, and is adapted to the competitive environment.  

• At MetLife, they are committed to pay equity and annually review their pay practices, including compensation and benefits programs, to ensure they incent the right behaviors and provide equal pay for equal work, regardless of gender or race. Their goal is to support, reward, and compensate the entire individual.  

• Munich Re sees diversity as the lively and active coexistence and working together of different mindsets, mentalities, experiences, and expertise. Their employees are their most valuable asset, and their diversity is the key to our success as a company. They are increasing the proportion of women in all management positions globally and Group-wide to 40 percent by the end of 2025.  

• Seramount placed Nationwide Insurance on its Top 75 Companies for Executive Women list, which recognizes corporations that have women in top executive positions and created a culture that identifies, promotes, and nurtures successful women.   

• In 2022 State Farm was ranked among the Top Companies for Executive Women by Seramount – and has been recognized every year since 2008. They have created the D&I Governance Council with its main objective to integrate diversity and inclusion into day-to-day business practices and how they lead their organization. They have also created learning opportunities such as Ally Skills Workshops for all employees and Inclusive Practices and Talent Decisions for recruiters and leaders. In addition, State Farm has cultivated transparency by sharing demographic data internally and externally.   

• Swiss Re noted that they have a regularly monitored gender-neutral approach to pay across all levels of the organization. They also conduct an annual statistical analysis of base salaries and total compensation across corporate bands, job families, employee ages, and experience levels to identify gender pay differentials for comparable roles across the organization. The regression-based analysis for 2022 found no statistically significant gender pay differentials across these categories.  

• USAA, a national insurance and financial services company focused on active military, veterans, and their families, announced its final commitment of $20 million to advance diversity, equity, and inclusion. As part of the company’s three-year, $50 million commitment made in late 2020, the latest grants to nearly 50 nonprofit organizations focus on amplifying the collaborative need to build diverse talent pipelines through education and employment programs.   

• Utica National boasts a workforce comprised of 60% women – a figure which mirrors the percentage across the entire insurance industry, based on a survey by the U.S. Bureau of Labor Statistics. Looking back at the company’s 107-year history, their very first employee was a woman, and now women make up the majority of their workforce that keeps the company moving and growing. For five consecutive years, Utica was named a Top Insurance Workplace by Insurance Business America magazine.   

• W.R. Berkley’s Code of Ethics and Business Conduct outlines how they address diversity and inclusion to provide equal opportunities for all Berkley employees. Many of their insurance businesses have diversity and inclusion committees that support these policies.  

• Westfield Group’s Women’s Network works to educate, inspire and interact with women and their advocates by building a community focused on appreciating the strengths and contributions of women as leaders in the workplace. By providing advocacy and development that enables women to achieve their career goals, the network helps their organization achieve higher performance and profitability through diverse thought and voice.  

• Zurich Insurance is committed to gender equality in the workplace and has implemented measures globally to track progress. These initiatives include the Equal Pay for Equivalent Work analysis to make sure gender is not a factor when it comes to remuneration.  

The Insurance Industry Charitable Foundation (IICF) developed Advancing Ideas into Action, based on their Inclusion in Insurance Regional Forums held in 2022, furthering conversations started by IICF in 2013 during their first Women in Insurance Global Conference (now the IICF Inclusion in Insurance Global Conference) about advancing ideas around diversity, equity, and inclusion (DEI) and innovation into action.      

In its 2013 report, Increasing Gender Diversity in Insurance Leadership: Lessons from Women Who Reached the C-Suite, Spencer Stuart, an American global executive search and leadership consulting firm based in Chicago, Illinois, noted that “increasing diversity requires clear and consistent support from the CEO and senior management, and male leaders generally. Executive leadership sets the tone that diversity is a priority and sets expectations that succession plans and candidate slates will include women.” 

Peter Miller, CPCU and president and CEO of The Institutes (of which Triple-I is affiliated), couldn’t agree more. “At the end of the day, all leaders must be deliberate and consistent in their efforts to attract and grow diverse talent,” Miller said, adding that “focusing on leadership-skills-based development is a critical factor in retaining and elevating diverse talent, which in turn helps drive pay equity.”

The Institutes has consistently been recognized as a Top Workplace over the last several years and earned national recognition as a 2023 Top Workplace. Additionally, The Institutes has been recognized for its work-life flexibility and compensation and benefits. 

Social inflation contributed to a $30 billion increase in commercial auto liability claims between 2012 and 2021, according to updated research published by the Insurance Information Institute (Triple-I), in partnership with the Casualty Actuarial Society (CAS). Most of the increase for the total review period is attributable to the newly added years 2020 and 2021 to the data set.   

Findings from the research paper, Social Inflation and Loss Development–An Update, suggest that while other factors may be in play, social inflation could be responsible for driving losses over the past 10 years up by as much as 18-20%. Results also indicate that social inflation, as a loss driver, may be outpacing inflation in the overall economy by 2 to 3% per year. The actuarial models in the paper assume that exposure in commercial auto liability grows in the long term at the same rate as the overall economy. The updated research supports the conversation that Triple-I and its industry partners have fostered over recent years to increase awareness about the phenomena and encourage solutions. Both social inflation Triple-I/CAS papers were authored by actuaries James Lynch and David Moore.  

Tracing the wake of social inflation in commercial auto liability 

Analysts in every industry may rely on economic indicators and established quantitative methodologies to adapt to cost increases caused by general inflation in the economy. According to the definition cited as the basis for the paper, the expansive scope of social inflation can pose a more complex challenge for insurers as it can include “all ways in which insurers’ claims costs rise over and above general economic inflation, including shifts in societal preferences over who is best placed to absorb risk.” The impact of some potential factors, such as increasing lawsuit verdicts and extended litigation, can be dynamic and hard to forecast, making effective risk mitigation tactics difficult.  

Still, insurers must aim to offset increasing claim costs, and that effort can include finding a way to outline the footprint of social inflation. Thus, rather than attempting to deconstruct the components of social inflation, this update to the 2022 CAS-Triple I collaboration continues to zero in on tracking evidence of it, ascertaining the potential influence on losses over time, and potentially finding clues that may link back to the culprits. Accordingly, the research stays focused on the claim size and reviews the increase in loss development factors over time.

Research raises questions, highlights a new emerging reality  

As with many industries, the COVID-19 pandemic challenges longstanding methodologies and conventional forecasting assumptions. Claim frequency, in relation to the overall economy, decreased sharply in 2020 and remained flat in 2021, even though driving appears to have returned to pre-pandemic levels. However, severity appears to have increased significantly.  

Enter loss triangles – a conventional actuarial tool that can enable comparison of loss metrics across years and see how losses develop over time. As in last year’s paper, researchers used this tool to examine the loss development patterns of net paid loss and defense and containment costs (DCC). Analysis suggests that whereas the pandemic may have dramatically impeded the ability to file new litigation for a brief period, it may also have created more enduring repercussions by hampering the timely and, thus, more cost-effective settlement of outstanding claims.  

Even as social inflation amplifies losses for commercial auto liability, existing methods to pinpoint where general inflation ends and social inflation begins may become less dependable. In addition to covering the pandemic shocks of the shutdown, the newly added data spanned into the economic recovery and was impacted by much of what came with it – demand booms, stressed supply and labor resources, and, of course, the eventual soaring of the Consumer Price Index (CPI) for all urban consumers. In 2021, the CPI increased by a formidable 4.7 percent, the fastest inflation growth rate this century. These and other changes in the economic environment may have dampened the effectiveness of the testing and modeling framework. In any case, calculations for loss emergence revealed that for the first time in a decade, actual emergence was less than expected emergence in 2020 and 2021, reversing observations made in the previous paper about the reliability of conventional actuarial estimates.  

The importance of understanding social inflation 

It’s important to remember that although insurers are often called upon to help businesses and communities bounce back from natural disasters or other unexpected events, social inflation is arguably a human-made crisis that already looms large in the marketplace. A 2020 study by the American Transportation Research Institute found that, from 2010 to 2018, the size of jury verdict awards grew 33 percent annually, as overall inflation grew by 1.7 percent each year within this same timeframe and healthcare costs increased by 2.9 percent.  

As losses grow much faster than premiums, insurers can resort to any combination of methods to contain costs, including limiting the amount of coverage offered, increasing premiums, or discontinuing certain types of coverage. For policyholders that need to mitigate their commercial auto liability exposure, expensive coverage or lack of coverage can threaten the ability to stay competitive or even remain in operation, particularly for those in tight-margin industries.  

Unprecedented times call for new ways of collecting and reviewing claims data. The paper relies on new ways of using old-school methods and discusses how the reliability for some metrics could be improved by utilizing other data sources. A paper by the same researchers included similar observations for the medical malpractice liability sector. Key takeaways from the findings of these papers, along with an emerging body of research on social inflation, can be helpful in exploring actionable strategies, such as curbing lengthy litigation. 

For a quick summary of social inflation and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub, Social inflation: hard to measure, important to understand. 

By Max Dorfman, Research Writer, Triple-I

At JIF 2022, a panel assembled to discuss the importance of diversity, equity, and inclusion (DEI) in the insurance industry.

Jennifer Kyung, Property & Casualty (P&C) chief underwriter, USAA and Triple-I Chair, moderated the discussion, which focused on a wide array of issues, including the talent gap.

“We need to put a focus on talent in the insurance industry, and make sure that the talent is diverse,” Kyung stated in her opening. “We have hundreds of thousands of jobs that we need to fill, and we need to fill those with people who have the best skill sets.”

For Roosevelt C. Mosley Jr., principal and consulting actuary, Pinnacle Actuarial Resources, the approach to DEI has a significant impact. Mosley noted that it is a sensitive issue, with people having different interpretations.

“We all have differences,” Mosley said. “But we have to recognize that we’re different, and if we’re going to serve diverse communities, we need to be diverse, too.”

“Bringing more diverse talent to the industry is good, but that’s not enough,” Mosley added. “They need to feel included. We haven’t completed the process if they don’t feel included.”

For Traci Adedeji, president-elect, CPCU Society, “diversity is differences that exist whether we choose to call them out or not.”

“A DEI strategy really has to be baked into the DNA of an organization,” Adedeji said. “It’s what you want your culture to be.”

Adedeji added that equity and inclusion necessitate intentional actions within an organization.

“When I think of DEI, it’s about considering all the key stakeholders,” said John Tribble, vice president, Agency Operations and Business Development, Church Mutual. “When I think about diversity, it’s simple: does the leadership have the foresight and willingness to step into situations that are uncomfortable for them?”

Tribble added that if one company does not strive for this, a competitor will do it, leading to a loss in market share.

For Rebekah Ratliff, mediator, arbitrator, neutral evaluator and settlement master, JAMS, there is an extra step in the DEI equation.

“The belonging piece to DEI is inviting people to bring their gifts and talents, understanding that it will make the experience richer for everyone,” Ratliff said. “Research shows it’s a business imperative to have diverse thinkers, participants, people from different cultures, backgrounds, and experiences.”

Ratliff furthered the point, saying, “It’s about examining, assessing, and revamping cultures to utilize people in the right spaces, people from underutilized communities. It’s not just about the faces but putting people in the right positions.”

The panelists agreed that this process has to come from the highest echelons of the company. Mandates and incentives, they said, are a necessary part of this.

The question, Kyung posed, is how the insurance industry is doing with DEI compared to other industries, and where further progress can be made.

“Company culture has to be examined,” Ratliff said. “We have to be truthful about the deficiencies and barriers to entry. 400,000 jobs are coming open. Companies are spending millions of dollars replacing technology, but they’re not willing to spend money on the biggest risk: people. People are our biggest asset and our biggest risk.”

“Our work is incomplete,” Mosley said. “I say that because, with 30 years of experience, the industry looks vastly different, but sometimes progress has been slow and difficult.”

“We are doing better but we’re not there,” Adedeji said. “The fact that we’re in this room having this conversation is progress. It’s important to bring in diverse talent, but if the leadership doesn’t lead to mentorship, sponsorship and bubbling up to senior levels of the organization, then we’re being disingenuous.”

Tribble concluded, “A lot of us aren’t comfortable with being uncomfortable.”