Natural disasters, interest rates, the aging of the population and the Presidential election will all have significant impact on the 2020 Actuarial Outlook. Will that impact be good or bad, and how does the successful organization weather what is to come? Smith Hanley Actuarial Recruiter, Rory Hauser, shares his thoughts.
The catastrophe model development team of Aon’s reinsurance business, Impact Forecasting, says the 18 year average of insured losses from catastrophes is $27 billion. The 18 year average of natural disaster events is 180 but in just the first half of 2019 163 natural disaster events occurred. While global losses from natural disasters from 2000-2018 averaged $94 billion, 66% of insured losses occurred in the United States with 78% of insured losses coming from severe weather and flooding.
What do all these statistics mean for the 2020 Actuarial Outlook? Worsening climate change will continue the increasing catastrophic events and increasing insurance claims.
Insurance providers don’t fare well in low-interest rate environments because their underlying bond investments yield weak returns. Insurers, which have steady cash flows, are compelled to hold lots of safe debt to back the insurance policies that are written. The relationship between interest rates and insurance companies is linear, the higher the rate, the greater the growth. With interest rates seeming to have bottomed out, the upside for the 2020 Actuarial Outlook for insurance companies is good.
There are some positives for insurance companies in a low interest rate environment. Low interest rates influence consumers toward purchasing more cars or financing or refinancing their homes increasing policy-writing for the insurance industry.
Medicare Advantage (M/A) enrollment has nearly doubled over the past decade, from 6.9 million in 1999 to 22.0 million in 2019. This means 34% of medicare beneficiaries have M/A currently versus 18% in 1999. This trend is only going to grow. The Congressional Budget Office projects that the share of beneficiaries enrolled in M/A plans will rise to almost 47% by 2029.
While the number of M/A policies grow, premiums have declined steadily. From 2018 to 2019 average premiums were down $5 per month. Half of M/A enrollees pay no premium other than the Part B premium. That said, the average premium among all enrollees is $65/month. M/A enrollees are also utilizing extra benefits: 67% signed up for dental, 72% fitness and 78% eye exams or glasses.
The uncertainty, and controversy, around the 2020 Presidential election is having a dampening effect on hiring before the election. Republicans are focused on immigration as their primary concern with jobs and the economy in second place. Democrats worry about health care and the environment. The Trump Presidency’s focus on reducing rules and regulations, many feel has helped the economy and growth. Yet unresolved policies on health care, tariffs and drug pricing concern many. As happens with every election, the possibility of change leads to talk of recession. It may not happen but just the fear of it, impacts a company’s willingness to hire.