6 factors that affected insurers in 2016

In this June 12, 2016 file photo, law enforcement officials work at the Pulse gay nightclub in Orlando, Fla., following the a mass shooting. Audio recordings of 911 calls released Aug. 30, by the Orange County Sheriff's Office show mounting frustration by friends and family members who were texting, calling and video-chatting with trapped patrons of the Pulse nightclub where Omar Mateen opened fire in June. (Photo: Chris O'Meara/AP Photo)

Disaster events

The terror attacks, racial division and natural catastrophes were important events in 2016. These not only had a terrible impact on many people, but also have business and insurance implications.

1. Terror attacks around the world. Terrorism, both foreign and domestic, increased in 2016. The attacks in Paris, Brussels and Istanbul, demonstrated not only the deaths that can be caused by an organized group such as ISIS, but also the attack at an Orlando nightclub demonstrated that a large number of deaths can be caused by "lone wolf" attacks, some of which have been attributed to ISIS followers.

Business and insurance implications: These events, which unfortunately are expected to continue, may further restrict travel in certain areas. Additionally, the prospect of terrorism will have ongoing implications for the insurance world as individuals and businesses must consider the prospect of terrorism and insurers, as well as governments, must consider how insurance will apply to these events.

(Photo: Bigstock)

2. Conflicts between police and minority communities in the United States. These conflicts have played out in several different places. In July, multiple police officers were targeted by disturbed individuals in Baton Rouge and Dallas, resulting in the death of eight officers in just these two cities. As of Nov. 28, 55 police officers have died in the line of duty, a number that already exceeds the total for 2015. Ironically, an October 25 news article said that a Gallup poll found that 76 percent of Americans reported having "a great deal" of respect for the police, the highest number since 1967.

Business and insurance implications: Perhaps one of the largest burdens will be on public entities which provide sworn officers to protect their communities. Public entities may find it more difficult to recruit and retain police officers. They will doubtless deal with training and equipment designed to protect their officers, and may have greater premium increases for workers' compensation policies. This may not only apply to sworn officers, but to other public officials such as the 14 public servants killed at a meeting in San Bernardino, Calif., in late 2015.

A police officer steps over the remnants of a home leveled by Hurricane Matthew after it hit the tiny beach community of Edisto Beach, S.C., on Oct. 8. (Photo: David Goldman/AP Photo)

3. Weather events, including major floods and Hurricane Matthew. Hurricane Matthew was the first hurricane to hit Florida in 11 years. Fortunately, it did not wreak the damage that had been expected because it remained primarily off of the east coast of the state. This was little consolation to the people further up the coast who were affected, including several who died and many who sustained damages to their homes and businesses from the wind and flooding. Some of the worst hit areas were inland locations in North Carolina, where subsequent floods from the heavy rains reached record levels, killing many and causing flood damage to homes and businesses throughout the area.

This has also been a year of multiple one-in-1,000-year floods. While the cause for this large number is still under study, these significant floods occurred in Texas, West Virginia, Maryland, Arizona, Louisiana, Missouri and other states. The one-in-1,000-year description means that the probability of these occurring was only 0.001 percent. If this large number of significant floods continues, we may have to find a new descriptor for this type of event.

Business and insurance implications: Natural disasters have an obvious affect on businesses and people, and the insurance industry has long been involved in financial and physical recoveries after such events. Unfortunately the physical damage and related business interruption negatively impact businesses. There will be a continuing ebb and flow in the insurance industry's response to natural disasters and premium pricing, depending upon the locations, frequency and severity of these events.

One terrible outcome of some of these natural disasters is the number of people and businesses who will not be entitled to insurance proceeds because they were flooded. Many people find that their properties were flooded even though their properties were not in a flood zone. Some of the flood zones have changed over the years because of increased building, and it will be important to update these maps so that more people can avail themselves of flood insurance. However, it is even more important that, when they buy their properties, that they are provided with updated and accurate information about the probability of flooding on their property.

Related: Recovering from Matthew

(Photo: iStock)

Political events

While 2016 political events have not resulted in deaths, there has been physical damage due to rioting and protests across the country, some might say the long-term effect of these events will be tragic. There is no question that they will have a sizeable impact on many people.

1. The U.S. presidential election. This election pitted Republican Donald Trump against Democrat Hillary Clinton. Surveys showed that a majority of citizens disliked both candidates. There is no question that one of the reasons behind this election's candidates is the polarization of these two political parties and the ongoing congressional gridlock that has angered many Americans.

Business and insurance implications: The business world is still trying to sort out the potential business impact following the election of Donald Trump. In the interim, the stock market has been over-reactive in an already jittery business year. The United States and the much of the rest of the world are slowly regaining strength following the severe recession of a few years ago, and it will be interesting to see how the presidential election, as well as elections for Congress, affect the future in terms of social programs, relationships with other countries and the economy as a whole.

Related: What does a Trump presidency mean for the P&C industry?

(Photo: Bigstock)

2. Ongoing problems with the Affordable Care Act. The Affordable Care Act, or Obamacare as it is sometimes called, became law in 2010. After going live, it has struggled with enrollment and retaining insurers. In 2016, there was a big shift when several national insurers (such as United Healthcare, Aetna and Humana) said they would no longer offer plans on the exchange in 2017. Other small insurers have also left the market, as have insurers in other states. The reason is that fewer healthy individuals signed up for the insurance while the unhealthy, those who needed more treatment, opted for the program. This occurrence, which we in the insurance business refer to as adverse selection, has caused insurers to lose billions of dollars, an unsustainable occurrence.

The events that finally unfolded in 2016 mean that 2017 will be a tough year for many people, such as those who will have only one insurer in their area offering insurance. Premiums are expected to increase dramatically in 2017, which will be especially harmful to those who do not qualify for premium credits based on their income.

Business and insurance implications: The uncertainty about ACA, its increasing premiums, and the negative impact on the insurers so far may cause many businesses to take significant cost-cutting steps, including discontinuing health insurance for employees, reducing the number of employees through layoffs or attrition, or discontinuing plans to hire more employees. Obviously these will be affected by the mandates of the ACA. Individuals, including self-employed persons, may discontinue insurance or purchase plans with larger deductibles, all of which could lead to reduced treatment.

Some of that reduced treatment may be needed for those who overuse medical care or over-medicate, but it will also lead to some people who will not seek treatment when it is needed, increasing the probability of more severe illnesses or injuries that will reduce the quality of their lives and the impact on the economy as a whole. There will also likely be more people who will go to emergency rooms for their treatment, leading to an even greater burden on hospital systems.

Related: Trump victory's impact on benefits, health insurance: What's next for employers? 

(Photo: ALM)

3. The decision by British voters to exit the European Union. The outcome of this vote, shortened to Brexit by some, was an unexpected June surprise in the United Kingdom. Most people went to bed the night of the election expecting the U.K. to remain in the EU, but they were shocked in the morning when election results were announced. The full effect of this vote is not yet known, and it will take the U.K. some time to unwind its involvement in the EU. There was a recent opinion in a high British court that said Parliament must still vote on this, an event that surprised and dismayed the "exit" supporters.

Business and insurance implications: There are many reasonable concerns about Brexit, some of which include:

• How much will this weaken the EU over the long term? There is no question that some of the more prosperous countries (such as the U.K., France and Germany) prop up some of the other countries (such as Greece and Portugal).

• Will this encourage other countries to exit, further weakening the EU and potentially destroying it? If some are tired of propping up others, will they leave?

• What will the effect be on business between U.K. companies and other EU members? Lloyds of London is already studying the impact and has considered moving part of its operations to an area outside of the U.K.

Related: John Nelson on how Brexit will impact Lloyd's of London [video]

While 2016 has been a much more challenging year than expected, and we hope that next year will bring better news, the state of the world is concerning. One of the major conclusions based on 2016 and the challenges we have faced in recent years is that individuals and businesses must remain vigilant in the rapidly changing world, must be prepared to readily adapt, and must consider the global impact of the world's events, which are increasingly affecting everyone. We must also identify ways to come together or decide to disagree more agreeably, to meet today's challenges and those of the future.

Gary Jennings, CPCU, ARM, is the principal consultant at John Creek, Georgia-based claims consulting firm Strategic Claims Direction LLC. Email him at gary.jennings@strategicclaimsdirection.com.