Commentary/Opinion
Is the insurance industry prepared for an unstable marketplace?
Although insurance markets are stable and predictable, their susceptibility to disruptive variables cannot be ignored.
The insurance industry is actively seeking to establish reliability in the face of such variables as inflation, escalating interest rates, economic downturn, regulatory intervention and the waning impacts of the COVID-19 pandemic. These conditions are seeding concerns about the strength and sustainability of the market.
As it stands, the current insurance marketplace reveals a lack of preparedness to effectively navigate through an unstable environment. As excesses occur and the market hardens, rational insurers act to make money or avoid losing it, thereby moving business back toward equilibrium.
As it has in the past, the insurance market will adapt to these changing market conditions, but we will likely see greater technology-driven experimentation and risk-taking as insurers strive to drive competitive differentiation and profitable growth.
However, compared to previous economic-recovery periods, information and the data it depends on will determine winners and losers. Nevertheless, the emergence of advanced technologies offers potential solutions to mitigate the challenges that may arise in the marketplace when dealing directly with trustworthy data, thereby enhancing its resilience to withstand such conditions.
Uncertain data leads to an uncertain market.
The occurrence of data inaccuracies in reporting is universally met with disdain. It is a frequent scenario where details pertaining to renewed insurance programs need to be furnished, only to realize later those spreadsheet formulas were flawed after crucial actions have been made based on such data.
Identifying and remediating incorrect data has typically been a manual process, and the ramifications have been minimized over time. There are various reasons why wrong information can creep into an organization at any point: Unclear instructions and expectations, poor listening skills, unreliable data, lack of collaboration among team members, to name a few. Moreover, the inclusion of a volatile insurance marketplace can exacerbate the problem of hasty or compromised data.
Jeffrey Sharer is vice president of customer and product experience at LineSlip Solutions
News
Non-life hard market to continue, especially in property: Swiss Re
The global insurance market is expected to continue experiencing a hard market in non-life risks through the rest of this year at least, with property risks an area of particular focus and also growth as premiums should continue to expand, Swiss Re has said.
Overall, global insurance premiums (non-life and life) are forecast to grow by 1.1% in 2023 and by 1.7% in 2024, despite any economic slowdown that occurs, Swiss Re estimates.
Supporting industry profitability will be three factors, rate hardening in property & casualty risks, improved combined ratios and stronger investment returns due to higher interest rates, Swiss Re said.
“With inflation pressures still persistent, hard market conditions in non-life business are set to continue as insurers offset elevated claims costs with higher premium prices,” explained Jérôme Haegeli, Swiss Re’s Group Chief Economist.
“Once disinflation takes hold with prices decreasing, less expensive claims and greater returns from interest rate-sensitive investments should further support industry profitability,” Haegeli continued.
Swiss Re anticipates global insurance market profitability increasing, which bodes well for reinsurance and insurance-linked securities (ILS) interests.
Growth is a key driver, with global insurance premium volumes expected to total a new peak of US $7.1 trillion in 2023, compared to US $6.8 trillion in 2022.
Commercial lines insurance – what’s happening?
Composite commercial insurance rates in the US held steady in the second quarter, according to a report by MarketScout.
Businesses in the US were assessed an average composite rate increase of 5% in Q2, the report found.
“While the composite rate held steady in the second quarter, there was some movement in various lines of insurance,” said Richard Kerr (pictured), CEO of MarketScout and Movatae Risk Group. “Property, business interruption, general liability and umbrella/excess rates increased, while most other coverage classifications softened a bit.”
By account size, rates crept up slightly in all size categories, MarketScout reported. By industry classification, transportation saw the largest rate hike at 7.3%.
See below for second-quarter rates by coverage class, cyber liability, industry class and account size:
By coverage class:
Commercial property: up 10.7%
Business interruption: up 6%
BOP: up 3.2%
Inland marine: up 5%
General liability: up 7%
Umbrella/excess: up 7%
Commercial auto: up 8%
Workers’ compensation: up 0.3%
Professional liability: up 4.7%
D&O liability: up 4.7%
EPLI: up 4%
Fiduciary: up 1.7%
Crime: up 1%
Surety: up 1%
Cyber liability:
Cyber: up 13.3%
Rocky property CAT renewals stress insurer, reinsurer tug-of-war
Today’s property insurance market is highly unpredictable and hinging between a natural catastrophe-exposed and non-catastrophe-exposed business.
Property catastrophe reinsurance, which typically accounts for the lion’s share of reinsurance spend among property-casualty insurers, was the most challenging segment of the market during the January 1 renewal season. While insurers adapted to market conditions with retention increases and consideration of top-end limits — thereby easing some pressure on capacity and placing desired limits on programs during renewal — the result is that current demand for protection exceeds supply.
The definition of a natural catastrophe has broadened beyond traditional wind and earthquake thanks to increased losses from secondary perils such as wildfires, severe convective storms, and even winter freeze. For example, for the first time, underwriters are proactively evaluating accounts for the risk of freezing after industry loss from 2021’s Winter Storm Uri.
The expanding definition of property catastrophe reinsurance makes risk increasingly difficult to model and price. Many insurers experienced increases of +50% on 1/1 treaties and took higher retentions, along with further restrictions on coverage. These increased costs are expected to be passed on to insurance buyers in many instances.
Valuation: Rate increases in 2023 were driven by scrutiny of values as most underwriters were surprised by the size of some losses, and because underwriting discipline on the matter has increased.
For Q3 and Q4, property valuations are expected to continue to be an area of focus for underwriters, though valuation increases appear to be stabilizing. Underwriters may impose value-reported restrictions or margin clauses unless provided with a detailed explanation on renewal values.
Insurance group calls for reform of California's regulatory framework
The American Property Casualty Insurance Association (APCIA) has expressed concerns over the precarious state of the insurance marketplace in California, calling for the reform of the state’s regulatory framework.
APCIA president and CEO David A. Sampson issued a statement highlighting the importance of regulatory reforms after Farmers Insurance joined other major carriers in limiting new homeowner policies in California.
“Insurers do not want to retrench from one of the nation’s most important markets but cannot continue to operate and protect policyholders when insurers are struggling to secure an adequate rate and manage their risk exposure,” said Sampson.
Central to the group’s argument is the “outdated” nature of Proposition 103, which requires insurers to obtain prior approval from the California Department of Insurance (CDI) before implementing rate changes.
“California’s regulatory framework is 35 years old and is ill-equipped to handle the increasing challenges wrought by climate change and is resulting in the insurance market upheaval California faces today,” he said. “It is time to modernize Proposition 103.”
Aging homes, growing values driving up insured losses from convective storms
The first half of this year is on pace to set a record for severe convective storms (SCS) losses in the U.S., according to Gallagher Re, which projected total insured losses of at least $29 billion.
The dynamic power of SCS systems was on display in June, which saw reports of hail and damaging winds come from 25 states across the central and southern U.S. Karen Clark & Co. estimates insured losses from the June storms will be near $5.5 billion.
According to Gallagher Re, aggregate industry SCS losses see an annual growth rate of more than 11.5% and have grown seven-fold since 2003. However, there has been no notable increase in the frequency or severity of SCS events during the past two decades.
There are two major factors driving up loss amounts: Population shifts and an aging housing stock.
Older homes
Gallagher Re reported the volume of new homes as a percentage of the overall U.S. housing stock has been slowly declining. Homes that are less than five years old accounted for 4% of the overall stock in 2020, compared with 9% 20 years earlier.
A higher percentage of older homes drives up claims costs because they are more susceptible to damage. For example, older houses are over three times more likely to generate new hail claims than recently built houses, according to the reinsurance broker.
From 2010-2020, the severity of U.S. hail claims increased an average of 5.3% annually, outpacing inflation during the period. However, hail size didn’t increase during that time span, according to Gallagher Re, which reported rising material costs, the use of independent adjusters and social inflation drove up claims severity during the period.
Toyota Auto Insurance Expands to Colorado, Georgia and Oregon
Toyota’s auto insurance is now available in 11 states as it continues its national rollout.
Toyota Auto Insurance, the vehicle manufacturer’s branded insurance product, is now available to customers residing in the states of Colorado, Georgia and Oregon. Introduced in 2021, Toyota Auto Insurance offers customers quality, customizable coverage at affordable rates.
The insurance may be applied to both Toyota and non-Toyota vehicles in a customer’s household.
“We’re excited to continue our rollout of Toyota Auto Insurance, expanding our reach to even more customers,” said Rob Spencer, Toyota Insurance President. “We look forward to offering our customers in Colorado,
AI in Insurance
Why AI Is a Game Changer
Investments in AI are expected to save auto, property, life and health insurers almost $1.3 billion in 2023, up from $300 million in 2019.
KEY TAKEAWAYS:
- AI is helping organizations reduce claims processing times from days to minutes. Half of all insurance claims processing activities will be replaced by AI-based automation by 2030.
- AI is playing a pivotal role in reducing fraud. For example, the technology can quickly compare an incident with other cases and assess whether the damage lines up with the amount that is being requested in a claim.
- A digital insurance process can drive a 20% increase in customer satisfaction scores and a 25% to 30% reduction in related expenses, and AI can help organizations provide the digital-first solutions that customers prefer nowadays.
AI is having a transformative effect on the insurance industry, helping organizations with everything from speeding up claims processing to reducing fraud. According to Juniper Research, investments in AI are expected to save auto, property, life and health insurers almost $1.3 billion in 2023, up from $300 million in 2019.
Julio Pernía Aznar, CEO, Bdeo
How AI Is Shaking Up Insurance
KEY TAKEAWAYS:
- As the language models improve, the ability to reduce reliance on call centers may be coming sooner than later.
- The mundane work of auto filling applications, claim forms, coverage certificates, renewal correspondence or really any repetitive and predictable task is something ready built for an AI. AI would also be very capable at comparing coverage and policy language quickly. As the technology evolves, AI could quickly move into writing briefs and coverage opinions.
- AI tools will be force multipliers to make all work faster and more efficient.
Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com
Using AI to speed up the insurance claims journey
How is artificial intelligence (AI) being used in the insurance industry to make the claims process simpler, quicker and more seamless for customers?
Artificial intelligence (AI) is revolutionising the insurance industry by unleashing new capabilities and allowing insurers to smooth over historic frictions that have frustrated customers. One of the biggest frustrations insured customers have revolves around the speed of the claims process; once a loss has occurred, they want to submit their claim quickly and smoothly, receiving their payout without unreasonable delay.
In the last five years, chatbots have become the torch-bearer for AI technologies in the insurance industry. They are the most visible AI experience for customers, helping to filter out the simplest queries that can be dealt with online without the need for a human customer service agent. But what are the other applications for AI in the insurance industry, particularly when it comes to speeding up the claims journey?
How can AI improve the insurance industry?
As well as customer service chatbots, AI can remove some of the traditional inefficiencies in the insurance claims journey, says Puneet Dikshit, Head of the Insurance Business Unit at WNS, a provider of global business process management. “Claims processes often suffer from considerable inefficiencies due to legacy infrastructure and fragmented processes, further exacerbated by the ongoing consolidation of the industry marketplace,” Dikshit explains.
“However, AI has emerged as a solution to address these inefficiencies by providing a unified perspective across the ecosystem, focusing on product centricity while remaining platform-agnostic. This platform-agnostic feature enables the seamless integration of AI platforms with existing systems, facilitating scalability and customisation.”
AI can also be used to help insurers spot patterns of suspicious or potentially fraudulent behaviour, freeing up claims handlers to focus on delivering good customer service.
“AI can play a significant role in speeding up the claims process in the insurance industry,” asserts Jason Landrum, Global Chief Information Officer at Sedgwick.
InsurTech/M&A/Finance💰/Collaboration
InsurTech Profile: Goose Insurance Seeks to Remove Barriers in Personal Lines
InsurTech Profile: Goose Insurance Seeks to Remove Barriers in Personal Lines
Omar Kaywan says lack of education, awareness, accessibility, and affordability are the key factors in being underinsured. His company, Goose Insurance, is aiming to change that by removing barriers to entry in the personal lines space.
Kaywan, Goose’s co-founder and chief growth officer, describes the InsurTech as “an insurance super-app” for consumers in the U.S. and Canada to discover, learn about, and purchase personal lines of insurance. It operates in life and accident as well as property/casualty insurance.
“Goose is on a mission to make insurance accessible, affordable, and convenient,” he says. “You should be able to protect yourself, your loved ones, and your belongings the same way as you hail a ride, order food, or shop on your phone.”
ZestyAI Announces Agreement with Coterie Insurance to Deliver Property Risk and Value Insights
Today, ZestyAI, the leading provider of climate and property risk analytics solutions powered by artificial intelligence (AI), announced an agreement with Coterie Insurance, a partnership-focused Managing General Agent (MGA), leveraging data and technology to provide instant quoting and issuing of small business insurance policies.
Coterie will use ZestyAI's property risk analytics platform, Z-PROPERTY™, to provide timely risk insights for business insurance underwriting across the U.S.
ZestyAI's Z-PROPERTY platform uses computer vision and machine learning to extract insights from aerial and satellite imagery, among other unique data sources, for over 150 million residential and commercial properties. ZestyAI maintains a database of every property in North America that is constantly updated as changes in property condition, maintenance, and upgrades impact each property's evolving value and risk.
"Like Coterie, ZestyAI is part of the ecosystem revolutionizing commercial insurance," said Paul Bessire, Chief Data Officer at Coterie Insurance. "By providing property data, we expect ZestyAI will help Coterie understand both attritional and catastrophic risk impacting commercial data."