October 15, 2018 at 5:00 am ET
Ten years after the 2008 financial crisis, many experts and pundits are analyzing the resilience of our financial system. Resilience has been insurers’ focus every day. We proved our resilience during the financial crisis and are sustaining and growing our economy. Insurers rarely capture either the headlines or the public’s attention, but insurers’ limited prominence in today’s 24-hour news cycle is a good thing. Paying claims, employing Americans, and investing in communities only becomes news when it no longer happens.
At this time of year – the height of hurricane season with multiple storms brewing across oceans – we will often get asked how the industry will fare. At the top of the list of questions we get asked is, “Can the industry withstand this year’s devastating hurricanes?” Our response is simple: Promises will be met, and claims will be paid. How do we know this? Last year more than $91 billion in claims were paid in this country – a new record. Even then, our industry still has roughly $750 billion in surplus ready for whatever comes next. This is what insurance does – we lead through disruption and keep our economy running.
The economic value of insurers is widely celebrated for the provision of growth and stability. Last year alone, insurance carriers contributed $603 billion to the U.S. economy (3.1 percent of total gross domestic product). To put that in perspective, other sub-sectors of the financial industry, like banks and securities, contributed $553 billion (2.8 percent) and $243 billion (1.3 percent), respectively. In fact, in the 10-year period before 2016, the insurance industry grew the U.S. economy every year except one (compared to seven years of negative contributions for banks during the same period).
While the industry’s macroeconomic contributions are considerable, our industry’s most important work is in how we support families, businesses, and communities throughout the country. Insurers are capital infusers, providing companies and individuals with the financial resources they need to bear the brunt of physical and economic calamities.
Given the rising frequency and severity of natural catastrophes, the industry is committed and ready to be an effective financial first responder. Heading into this year’s hurricane season, the aforementioned $750 billion available in policyholder surpluses is roughly seven times greater than the massive losses experienced from Hurricanes Harvey, Irma, and Maria during 2017’s historic hurricane season.
Today’s insurers, however, also believe their relationship with the community should go beyond simply issuing payouts. Insurance providers across the country are local partners, opting to help communities invest in the kinds of resilience measures that will make them safer and more secure. Whether it’s supporting the preservation of flood-absorbing wetlands, collaborating with policymakers and industry experts to devise more resilient structures, or buying the municipal bonds that finance critical infrastructure repairs, insurers are working hard to help communities fundamentally enhance their disaster preparedness.
If the last ten years have demonstrated the industry’s resilience, the next ten will demonstrate our commitment to innovation. Once considered niche, InsurTech has exploded as new technologies and traditional insurance platforms have converged to solve some of the sector’s most vexing problems. This explosion is best captured by the exponential growth of investments in InsurTech over the last decade; from 2011 to 2015, annual investments in the sector jumped from $140 million to $2.7 billion, according to one McKinsey study.
The rapid uptick in invested capital illustrates that venture capital firms, technology companies, and traditional insurers believe these technologies will have a positive impact. In fact, many insurers have already begun to explore how they can leverage geomapping software, machine learning, and other exciting innovations to better understand risk and enact changes that benefit both the customer and their balance sheets.
Now, a decade after the worst financial crisis in more than 80 years, insurers continue to emphasize resilience: resilient balance sheets and resilient communities. That focus will ensure local economies, businesses, and families are prepared with the resources to withstand, recover from, and thrive after the natural catastrophes of tomorrow bear down on our nation.
Chuck Chamness serves as president and chief executive officer of the National Association of Mutual Insurance Companies, a property/casualty insurance trade association with 1,400-member companies. Sean Kevelighan is chief executive officer of the Insurance Information Institute, a non-profit research, education and communications organization dedicated to improving public understanding of insurance — what it does and how it works.
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Correction: A previous version of this op-ed misstated the annual investments from 2011.