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Insurers and Climate Change
General Insurance Leader at PwC UK Mohammad Khan says: "It's clear that the ongoing impact of climate change will significantly shape how the sector will choose to manage and absorb risks"
Analysis from PwC suggests extreme temperatures could lead to increased subsidence insurance payouts of up to £1.9bn (US$2.48bn) by 2030
As global temperatures continue their upward rise as a result of climate change, analysis from PwC indicates insurers will be increasing their subsidence payouts by up to £1.9bn (US$2.48bn) from 2030, as a result of sustained heat, flooding and heavy rainfall.
Heat waves hitting insurers’ pockets
In particular, PwC’s data suggests subsidence-related insurance claims will increase rapidly during sustained periods of heat throughout the summer months.
Not only this, but extreme winters are likely to have a significant impact on subsidence payouts, with PwC indicating that payouts could soar to £500m (US$653m) by 2050 if flood management approaches and expenditures remain unchanged.
Extreme winter weather across 2019 and 2020 saw insurers lose £333m in subsidence payouts, so it seems perfectly reasonable to assume the average payout figure will rise to significant levels by 2050.
Furthermore, PwC notes that in the UK alone, the economic average cost of flooding could increase up to 18% for fluvial flooding and 43% for coastal flooding by 2050.
![Heavy weather losses forecast for P&C insurers' Q2 2023 earnings season | S&P Global Market Intelligence](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878351/original_ratio_extra_large_4f426f4a-e99f-4355-87b6-6004bd084764.jpeg)
Heavy weather losses forecast for P&C insurers' Q2 2023 earnings season | S&P Global Market Intelligence
Most of the largest publicly traded US property and casualty insurers are set to report year-over-year revenue gains in the second quarter, although combined ratios are also expected to worsen, according to an S&P Global Market Intelligence analysis.
An analysis of the 20 largest property and casualty (P&C) and multiline insurers by total assets that trade on major US exchanges found that 17 are predicted by sell-side analysts to record higher revenues year over year, while 13 should see revenues rise sequentially.
American International Group Inc., Old Republic International Corp. and Kemper Corp. are expected to report year-over-year declines in revenues. The companies expected to book sequential declines in revenues are The Allstate Corp., The Progressive Corp., Arch Capital Group Ltd., Cincinnati Financial Corp., Axis Capital Holdings Ltd., Assured Guaranty Ltd. and The Hanover Insurance Group Inc.
Earnings are expected to be more mixed, with 12 carriers projected to post year-over-year improvement and eight expecting sequential improvement.
Allstate and The Travelers Cos. Inc. are both expected to book year-over-year declines in earnings per share, as are The Hartford Financial Services Group Inc., W. R. Berkley Corp. Assurant Inc., American Financial Group Inc., Old Republic and The Hanover.
Insurers expected to record sequential losses in earnings are AIG, Travelers, Allstate, CNA Financial Corp., Arch Capital, Cincinnati Financial Corp., Axis Capital, American Financial, Old Republic, Assured Guaranty and Selective Insurance Group Inc.
![Above-average global natural catastrophe insured losses reach estimated USD52 billion in H1 2023](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878376/original_ratio_extra_large_d22124ab-d011-4209-96c7-d06f51ee5319.jpeg)
Above-average global natural catastrophe insured losses reach estimated USD52 billion in H1 2023
US thunderstorms and global impact from El Niño’s arrival drive higher losses
- H1 2023 insured loss 18% higher than decadal average**
- Severe convective storms (SCS) account for 65% of all H1 2023 insured losses with USD34 billion bill to date after highly active multi-month series of outbreaks across the US.
The first six months of 2023 featured above-average natural catastrophe losses as the National Oceanic and Atmospheric Administration (NOAA) and the World Meteorological Organization (WMO) declared the official arrival of El Niño, which is poised to have further influence on global weather / climate events through the end of the year.
Led by US thunderstorms and global impacts from El Niño’s arrival, total direct economic losses from natural hazards for the first half of the year were preliminarily estimated at USD138 billion, according to global reinsurance broker Gallagher Re’s H1 2023 Natural Catastrophe Report, published today.
A.M. Best: Workers’ Comp Outpacing Rest of Property/Casualty Commercial Sector
Workers’ compensation insurers’ underwriting results continued to outpace the rest of the U.S. property/casualty (P/C) commercial sector in 2022, as they benefited from the long-term decline in workplace accidents and a reduction in fraudulent claims, according to an AM Best report.
Favorable prior year loss reserve development continued to bolster the insurance industry’s carried loss reserve position in 2022, as a result of the long-term declines in claims frequency, said the Best’s segment report titled “Workers’ Compensation Remains a Profit Engine for the P/C Industry.”
The workers’ compensation segment has experienced a softer market compared with other commercial lines of coverage, particularly auto and general liability, the report said, noting that pricing has declined since 2015, except for the post-pandemic period, from the second quarter of 2020 through 2021, when modest increases became the norm
The report highlighted several trends occurring within the segment, including:
- The segment reported a combined ratio of 87.8 in 2022, almost 15 percentage points lower than the overall P/C segment’s 102.4. The segment’s combined ratio for 2022 includes favorable loss development on older accident years totaling $6.5 billion, which reduced the reported combined ratio by approximately 13.5 percentage points.
- The segment, in which premiums are based on payroll levels, has benefited from the largest U.S. wage growth in over 25 years, coupled with strong job growth, which has helped increase its overall premium to pre-pandemic levels.
- Medical and indemnity severity increased, but the magnitude of these increases was less than the increase in wages. The higher payroll exposure base for workers compensation insurance kept the increase in claim severity manageable.
IRC: U.S. Auto Claim Severity Surged During Pandemic
While U.S. auto claim frequency has declined over the past 20 years, claim severity increased and then surged since the global pandemic began in 2020, according to a newly published report from the Insurance Research Council (IRC), a division of The Institutes.
"As (auto) claim frequency leveled off and claim severity accelerated, the average payment per insured vehicle for most coverages began to climb steadily until the 2020 drop due to #COVID19."
The IRC report, Trends in Personal Auto Insurance Claims 2002–2022, showed that claim severity accelerated beginning in the mid-2010s. During the pandemic years (2020–2022), claim frequency plummeted but claim severity skyrocketed, especially for vehicle damage claims, due in part to enormous inflationary pressures on replacement parts and auto body repair labor costs.
Claim frequency for both physical damage liability and bodily injury claims declined more than 2 percent annualized over the 21-year period from 2002 to 2022, the IRC report indicated.
“During the first half of the study period, the combination of declining frequency and increasing severity left average loss costs relatively unchanged,” said Dale Porfilio, FCAS, MAAA, president, IRC. Porfilio also serves as chief insurance officer of the Insurance Information Institute (Triple-I).
Porfilio added, “However, as claim frequency leveled off and claim severity accelerated, the average payment per insured vehicle for most coverages began to climb steadily until the 2020 drop due to COVID-19. By 2022, average loss costs for nearly every coverage had surpassed the 2019 level.”
Other key findings of the IRC report included:
- Claim Frequency: Long-term declines in auto claim frequency, spurred by safety innovation, levelled off in mid-2000s, and the number of claims per insured vehicles generally stayed within a narrow range through 2019. Claim frequency plummeted during the COVID pandemic and remained below pre-pandemic levels in 2022.
- Claim Severity: The average payment per claim for most coverages increased steadily over the study period, with both physical damage (PD) and bodily injury (BI) claims growing more than 4½ percent annualized.
- Average Loss Costs: The average payment per insured vehicle increased more than 2¼ percent for both BI and PD claims over the study period, as increased severity more than offset declining frequency.
This update to the IRC’s longstanding Trends series uses data from the National Association of Insurance Commissioners, the Fast Track Monitoring System, and other sources to describe personal auto insurance trends at the national and state levels. The full report, Trends in Personal Auto Insurance Claims 2002–2022, is available as a complimentary benefit for IRC members and for purchase by non-members.
![Global Insurance Survey 2023](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878015/original_ratio_extra_large_0b901fc7-a3d5-41ec-9640-397201acbb7b.png)
Global Insurance Survey 2023
The challenges that insurers face today will be familiar to institutions across the financial services industry. Customer engagement and retention in a digitalized, post-COVID world that has reshaped expectations and needs. Ongoing cost pressures that are now only exacerbated by inflation and the current market downcycle. The imperative to modernize legacy systems and architectures while maintaining operational stability and a high quality of service across multiple channels day-to-day. The commercial threat both from existing competitors and external disruptors, be those new players or game-changing technologies such as today’s increasingly powerful AI models.
As insurers survey this dynamic and uncertain future landscape, data is one of the levers available to enact change and ensure their relevance to their customers. High quality data is the engine of transformation: giving form to opportunities, both current and emerging; illuminating behaviors and attitudes; and validating strategic and investment choices.
For the insurance customers surveyed in our latest research, data is something they are overwhelmingly prepared to share to gain benefits: cheaper cover, more tailored policies and services, smoother processes and interaction. Data, and the hyper-personalization of products and omnichannel experiences it facilitates, are key to enhanced customer satisfaction and loyalty.
The central challenge facing insurers is how to extract maximum value from their data to support appropriate nudges and tailor products. Many are already working on building modern data platforms based in the cloud and built on the curation of high-quality data products. Development of these products, and the uplift in operating models to use them effectively, will be key to enhancing digital experiences as part of personalized customer journeys and outreach, and to improving fraud monitoring and management of the claims supply chains. These are all important priorities as insurers look to seize tomorrow’s opportunities across the key vectors of customer satisfaction, commercial growth and competitive differentiation.
Capco
![Carriers prioritize customer experience in digital transformation](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878354/original_ratio_extra_large_b90ad4f9-eb54-410b-8fd3-47b7ee6358e6.jpeg)
Carriers prioritize customer experience in digital transformation
Improving customer experience has emerged as a pivotal focus for carriers and brokers in their digital transformation journey, according to data from Digital Insurance's "State of Insurance Digital Transformation 2023" report.
Other primary tech-oriented goals for carriers and agents include driving underwriting efficiency and overcoming tech talent shortages.
According to Digital Insurance research, 85% of carriers and brokers named customer experience as one of their top three goals for digital transformation, and 47% identified it as their first priority.
"Insurance companies say improving customer experiences is a top priority – making it simpler and taking out the hurdles," said Ellen Carney, principal analyst at Forrester. "From a digitization and technology standpoint, that includes straight-through processing. If you have a parking lot accident, we wouldn't need to send out an adjuster and we could just pay the limits. Ask the customer how they want the payment, like Venmo or PayPal, and make it super simple."
Forrester's research echoes insurers' sentiments surrounding customer satisfaction, with 77% of insurers saying that improving the customer experience is their top priority overall. Straight-through processing enables automated underwriting processes or claims handling, with the goal of minimizing manual intervention and reducing processing time.
"The numbers that we've heard about straight-through processing are really ambitious, with 70% to 75% [of carriers saying they plan to use] straight-through processing in underwriting in the case of life insurance and claims in P&C," said Carney.
Insurtech is expected to have the biggest impact in customer experience, as well, according to 36% of respondents. Though this dropped from 41% last year, customer experience is still top of mind for industry expectations of insurtechs when compared to underwriting, claims, distribution and product development. Among insurtechs and vendors, 54% responded they are targeting customer experience with their products or services, which is second only to the 67% focusing on underwriting.
Among carriers and brokers, the technologies they have implemented or plan to invest in over the following 18 months include digital payments (70%), chatbots and customer interaction technologies (58%), robotics and intelligent automation (45%) and telematics, IoT, or sensors (29%).
InsurTech/M&A/Finance💰/Collaboration
Bain Capital Raises $1.15B for Its First Fund Dedicated to Insurance Investments
Bain Capital has raised $1.15 billion for its first fund dedicated to investing in the insurance industry, as the private equity firm aims to create and invest in companies in the sector, a senior executive told Reuters.
The fund exceeded its initial $750 million target through backing from high-net-worth individuals, institutional investors and family offices. It will be deployed through Bain Capital Insurance, a dedicated investment arm the firm launched in 2021.
The new fund underscores the increasing role that private equity is looking to play in the insurance sector, as providers seek to cut costs by shedding assets, which buyout firms can manage more efficiently and grow through add-on acquisitions.
Matt Popoli, global head of Bain Capital Insurance, told Reuters that the new capital pool, Bain Capital Insurance Fund, would give his 20-strong team the ammunition to back middle-market insurance firms overlooked by others .
“Our approach to insurance is to avoid the crowd, and we have a big enough team with the expertise to drill down where the herd has not gathered and find opportunities where we can really grow and add value.”
Focused on North America and Europe, the fund will be used to launch new insurance platforms, as well as help carve businesses out of existing companies to develop on a standalone basis.
![Can insurtech recover from the ‘death of insurtech 1.0’? | TechCrunch](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878013/twenty_by_nine_extra_large_b372563b-eb14-4fe5-89e8-36031e5fb5c0.jpg)
Can insurtech recover from the ‘death of insurtech 1.0’? | TechCrunch
VCs slashed their insurtech investments 50% in H1 2023
Many startup sectors came out of 2021’s hype with a massive hangover in the form of valuations that they simply couldn’t justify as the market dipped and dived. Insurtech startups had it the worst, though, as investors started questioning the viability of the entire category.
A recent report on the sector by Dealroom, Mundi Ventures, MAPFRE, NN Group and Generali refers to this disillusionment as “the death of Insurtech 1.0.”
That demise started in 2022, when “a broad market downturn, coupled with clear specific challenges of notable insurtech[s] to reach profitability,” contributed to creating a newly challenging environment for insurtech funding, the report said.
This challenging environment is being reflected in the data this year, too: Public insurtechs are struggling, and there’s been a sharp decline in venture capital flowing into the sector.
But money is like water where venture capital is concerned. Despite all the bad news, capital is still trickling into some pockets of insurtechs that are considered different enough from the first wave of companies.
This morning, let’s dig into what’s happening with global insurtech startups and see if we can spot a little light in this murky bog that many insurtech companies are lost in.
AI in Insurance
Verikai Revolutionizes Insurance Industry with Release of New Predictive AI Platform
Verikai, Inc., a renowned provider of cutting-edge predictive analytics and AI-powered solutions for the insurance industry, proudly announces the release of its highly anticipated platform. The platform combines powerful data-driven risk assessment insights within a user-friendly digital portal, revolutionizing the end-to-end underwriting experience for insurance companies.
By harnessing the potential of Verikai’s predictive risk models, constructed on an extensive database of behavioral and medical data, the Verikai platform offers an unparalleled 360-degree view of risk. Seamlessly integrating with existing quoting and policy management systems, Verikai empowers underwriting teams to respond to RFPs efficiently, with the potential to dramatically reducing loss ratios through targeted risk analysis. This revolutionary platform consolidates previously separate offerings, including risk scoring, medical and prescription history analysis, and a digital portal for RFP submissions.
"We are thrilled to introduce the new Verikai platform, representing the culmination of our capabilities in a single, streamlined solution," said Paul Stock, President of Verikai. "Our unwavering mission has always been to equip insurers with cutting-edge predictive AI and technology. This groundbreaking platform is a significant stride toward realizing that goal."
The platform boasts an industry-leading interface, offering an intuitive user experience and unparalleled accessibility. Equipped with groundbreaking predictive insights, insurance professionals can effortlessly review critical medical and pharmaceutical claims, conduct comprehensive risk assessments, and secure more business. Verikai is transforming insurance companies and empowering underwriters with AI-assisted decision-making.
Is AI Risk Insurance the Next Cyber for Insurers?
The rising enthusiasm around generative AI and the prospective increase in AI adoption are opening up intriguing opportunities for insurers to underwrite AI risks.
Executive Summary
Generative AI adoption brings new risks, including physical, financial and psychological harm, demanding innovative insurance solutions such as algorithmic liability coverage, write PwC's Anand Rao and Marie Carr.
Here, they compare AI risk insurance with cyber insurance, noting that in spite of similarities, the rapid generative AI adoption and broader risk spectrum require more tailored and agile coverage solutions, including AI intellectual property coverage, autonomous vehicle insurance, AI ethics and compliance coverage, in addition to algorithmic liability coverage.
Dr. Anand S. Rao, Global AI lead and Marie Carr, PwC
Canada
![Duuo by Co-operators Launches Embedded Insurance Platform](https://dxj7eshgz03ln.cloudfront.net/production/link/image/878215/original_ratio_extra_large_e11767c2-78e3-4e9c-9c46-c76dcb10ca0b.jpg)
Duuo by Co-operators Launches Embedded Insurance Platform
Today, Duuo by Co-operators announced the launch of its first embedded insurance API for partners. This advanced integration is designed for Canadian businesses looking to enhance their customer experience by embedding the insurance purchase journey directly into their website, app, or platform.
Duuo Event Insurance will be the first product launched in this new embedded format, providing event hosts with the option to book a venue and secure event coverage in one seamless experience.
Powered by Co-operators, the launch of this platform leverages over 75 years of insurance expertise and best-in-class technology.
“This new journey we’re embarking on rapidly expands our ability to allow our partners to grow and differentiate themselves in their own market, on their own terms. It also encourages Canadian businesses to think about how an embedded insurance solution can add value to their offerings,” said Steve Phillips, Executive Vice-President, Emerging Business Models, Co-operators.
“We’re flexible in our approach and I think that's the greatest value here — we're listening, adapting, and providing solutions that our partners and their customers will both benefit from.”