InsurTech/M&A/Finance💰/Collaboration
The United Kingdom: The nexus of insurtech | McKinsey
London has been the global epicenter of innovation in the insurance industry since the 1600s, when Lloyd’s of London was established. Today, the United Kingdom is positioned as a global leader in the field of insurtech. A flourishing ecosystem of start-ups, investors, and incumbents are working together to drive innovation and growth in the industry, from artificial intelligence and machine learning to the Internet of Things.
London has the same number of insurtech unicorns as the rest of Europe combined and globally is second only to Silicon Valley. Indeed, of the estimated 3,000 insurtech firms in the world, approximately 280 are located in the United Kingdom—the highest number of insurtechs per capita among all major world economies.
McKinsey & Company
News
P&C insurance hit by staggering loss
The property-casualty industry in the United States faced significant challenges in its underwriting performance in 2022, with the personal lines segment suffering notable deterioration, particularly in the private passenger auto line of business, according to a new report from AM Best.
The industry's net underwriting income experienced a staggering $25.7 billion loss during the year, the report found.
The report, titled "2022 P/C Snapshot: Unprofitable Auto and Property Results Weaken P/C Underwriting Performance," provides a detailed analysis of the 2022 financial results for each individual line of P&C business. The data was derived from companies' statutory statements received by May 31, 2023.
The report found that the underwriting loss in 2022 followed a $3 billion underwriting loss in 2021 and was largely driven by a massive $40 billion underwriting loss in the personal lines segment. The personal auto line of business was the main contributor to this loss, accounting for over 80% of the overall personal lines loss and nearly eight times higher than the previous year, AM Best said. Moreover, the homeowners/farmowners line also experienced a net underwriting loss for the third consecutive yea
What are nuclear verdicts and why are they occurring?
The insurance industry is no stranger to high-stakes claims. However, over the past several years, there has been a growing trend of what is known as “nuclear verdicts,” or exceptionally high jury awards that surpass what should be a reasonable or rational amount. Nuclear verdicts can have a devastating impact on insurance companies and their clients, and it’s critical for insurance claims executives to understand how to manage them.
Nuclear verdicts are a relatively new phenomenon in the insurance industry. While litigants have always faced the possibility of large verdicts in high-stakes litigation, the risk of nuclear verdicts has risen significantly. In fact, a long-term study of nuclear verdicts from 2010-2019 found that the median nuclear verdict increased by 27.5% over the ten-year study period. Interestingly, six states (California, Florida, New York, Texas, Pennsylvania, and Illinois) are responsible for 63% of nuclear verdicts, far greater than their share of the total US population.
The term “nuclear verdict” refers to any court award or settlement that is higher than expected, but legal experts officially define a “nuclear verdict” as one that exceeds $10 million. These verdicts often include disproportionally large non-economic damages awards, but the real hallmark of nuclear verdicts is juror anger.
Several causes have contributed to the increase in nuclear verdicts in recent years, but changing societal attitudes toward corporate responsibility stands out as a key factor. In the past, companies were often given the benefit of the doubt in high-stakes litigation. However, an increase in anti-corporate attitudes and unequal wealth distribution due (in part) to the success of corporations and their executives, have led today’s juries to be more likely to side with a plaintiff and award larger damages in an attempt to level the playing field and redistribute the wealth. A large verdict is often a jury’s way of making “an example” out of a defendant to take some power back and slow this trend.
The challenges of the pandemic years have also illustrated bad behavior on the part of some corporations by exploiting inflation, supply chain problems and staffing shortages, as well as appearing to use the pandemic as an “excuse” to provide poorer/lesser/more expensive services. The result is that many jurors extrapolate these examples as applicable to most, if not all, corporations, leaving a bad taste in their mouths. Anger towards corporate behavior like this has become so prevalent in fact, that we now see legislative efforts aimed at dealing with these issues (for example, the “No Surprises Act” which limits or prevents surprise billing in the healthcare insurance industry).
Taylor Lyden, litigation consultant,, Magna Legal Services
These U.S. cities are seeing an explosion in auto thefts
America’s troubling auto theft trend, which first began to emerge during the pandemic, as the Council on Criminal Justice (CCJ) reported vehicle thefts were up 33.5% during the first half of 2023 compared with the same period the year prior.
The first six months of this year saw more than 23,974 vehicle thefts.
According to CCJ, the number of thefts during 2023’s first half is 104.3% compared with the number of auto thefts in the first half of 2019. Looking by month, May saw the biggest increase in auto thefts, up 43% compared with the year prior. However, every month this year has seen the auto theft rate increase near 30% or higher..
“Motor vehicle theft is a crime that costs Americans more than $8 billion per year,” Ann Carlson, acting administrator of the National Highway Traffic Safety Administration (NHTSA), said in a release. “Fortunately, drivers can take precautions to reduce the risk of someone stealing their car.”
American home buyers are flocking to highly disaster-prone areas
A midsummer quiz: Let’s say you read about an area experiencing blistering heat for weeks on end. Heat so hot that in the day, you can’t go outside, and at nighttime it’s still above 90F. Would you cross that off your list of locations for your dream home?
Now suppose a neighborhood experiences regular heavy flooding and was recently decimated in places by a hurricane. Do you want to move there, or perhaps look for somewhere on higher, drier ground?
Well, many Americans are actually choosing to move to ZIP codes with a high risk of experiencing wildfire, heat, drought and flood, according to a study on domestic migration by Redfin, an online real estate brokerage firm, made available exclusively to “Bloomberg Green.”
In fact, the nation’s most flood-prone counties experienced a net influx of about 400,000 people in 2021 and 2022. That represents a 103% increase from the two-year period before that. The U.S. counties with the highest risk of wildfire saw 446,000 more people move in than out over the last two years (a 51% increase from 2019 and 2020). And the counties with the highest heat risk registered a net influx of 629,000, a 17% uptick.
It’s not that people don’t care about climate dangers, says Redfin Deputy Chief Economist Daryl Fairweather. It’s that concerns about affordability are primary and dominate everything else. And during the Covid-19 pandemic, the combination of remote work, low mortgage rates and high home prices in a number of major metropolitan areas prompted many Americans to relocate to the Sun Belt.
“People are seeking out places with warm weather and low taxes,” Fairweather said in an interview. “Those near-term concerns tend to trump any of these climate risks.”
Hub International unveils franchise insurance offering
International broker Hub International Limited (HUB) has launched a new offering aimed at assisting franchisors and franchisees in the US and those with cross-border operations in Canada.
HUB Franchise Insurance Solutions acts as an all-in-one platform for the multi-industry franchising sector to efficiently manage insurance needs, review competitive pricing, and ensure compliance.
It provides users with a comprehensive overview of insurance options, competitive pricing comparisons, and a convenient way to monitor insurance certificates. Automated alerts are also implemented to notify franchisees when it’s time to renew insurance policies or if they fall out of compliance.
Moreover, the platform provides users with claims notifications and live agent support via both phone and live chat.
“Maintaining insurance is complex in franchising, especially for multi-unit operators,” said Chris Treanor, HUB president of programs and specialties. "As additional locations open, the franchisors typically lack the tools to track insurance compliance while the franchisees may set up an insurance program that lacks structure – under-insured in some locations, over-insured on others, navigating many different expiration dates and paying more than they should.”
Fla. P&C insurers still raising rates after market reform laws take effect
Florida's residential property insurers are taking a cautious approach when estimating how industry reforms passed in late 2022 will impact their premium rates.
The state legislature held a special session in December 2022 to try to restore stability to the property and casualty market. It eventually passed a bill, which was signed by Gov. Ron DeSantis, that made sweeping changes to the claims process, reinsurance and regulations on insurance companies. Several of the law's provisions eliminated assignment of benefits (AOB) and one-way attorney fees, which have contributed to the excessive litigation costs in the state.
"While those changes may impact future claims costs, we do not believe the impacts would be immediate," State Farm Florida Insurance Co. said in a rate filing, responding to questions raised by the state regulator about how the new reforms would affect its business. State Farm said in its filing that it will closely monitor loss trends and future costs and will make appropriate changes based on its experience.
The regulator approved State Farm's homeowners rate filing on June 9, contingent upon its agreement to reflect the law's impact in future filings. The overall rate increase of 9.7% is expected to apply to renewal business starting on Sept 15.
A filing approved on June 28 for several units of United Services Automobile Association shows that the insurer did not adjust its indicated or filed rates in light of the reforms. USAA does plan to "determine if it can adequately estimate what direct impacts the elimination" of AOB and one-way attorney fees will have on its future claims and expenses. It may also consider approved competitor filings when assessing the new law's impact.
USAA is set to increase its homeowners rates in Florida by 14.9%. The new rates will become effective on Aug. 14 for new business and Oct. 30 for renewals.
Commentary/Opinion
Auto Insurance in an Existential Crisis
The 125-year-old, $300 billion U.S. auto insurance industry is caught between runaway inflation and strained consumer wallets.
After many long years of stability, the 125-year-old, $300 billion U.S. auto insurance industry is caught between runaway inflationary cost pressures on one side and consumer wallets, many of which are no longer able to afford the spiraling auto insurance premium increases, on the other.
In the middle is the $42 billion U.S. collision repair industry (of which $39 billion is paid by insurance), which has been experiencing severe technician shortages, rising labor costs and pricing pressure from carriers as average repair costs have jumped 50% over the past few years. These increases can be primarily attributed to the cost of replacement parts, scanning and calibration for newer model vehicles, which are now bristling with electronic Advanced Driver Assistance System (ADAS) features and related sensors. The even higher costs of repairing the rising number of electronic vehicles (EVs) exacerbates the problem. In fact, some carriers are now writing off EVs with just moderate damage as total losses because of their much higher repair costs than like vehicles with internal combustion engines. Total losses, which are costly for insurers, now represent almost 25% of all insured auto claims.
Read full article here & related piece from Insurance Thought Leadership below
Stephen Applebaum and Alan Demers
Auto Insurance in Crisis | Insurance Thought Leadership | Six Things
Soaring costs for parts and repair services, the move to electric vehicles and more dangerous behavior by drivers has auto insurers in crisis.
Auto insurers are raising rates as fast as they can to stem mounting losses. For instance, Allstate just announced 12% increases in auto insurance rates in 12 markets, on top of a general 7.5% rise earlier this year.
But it's not clear that insurers can move fast enough — or that regulators and consumers will accept the rate increases.
Allstate had an unprofitable 110.1 combined ratio in auto last year, and the American Property Casualty Insurance Association said the direct loss ratio for the whole industry soared. It was 80.2 in 2022, up a whopping 24.1 points from 2020. So there's a lot of catching up to do.
But consumers are rebelling. J.D. Power reported that shopping for auto policies in the second quarter in the U.S. was the highest they've seen in the three years they've been tracking the behavior on a daily basis. Not only that, but J.D. Power said a TransUnion survey of insurance customers in the first quarter found that "nearly 15% of respondents said they owned or used a car without valid insurance or allowed their coverage to lapse at some point in the previous six months, with nearly 30% having cited inability to pay as the primary reason."
What happens now?
Well, as it turns out, our friends Stephen Applebaum and Alan Demers sent me an article yesterday afternoon with almost the exact headline I had on my draft of Six Things — "Auto Insurance in an Existential Crisis," in their case — and they go into "What next?" in considerable detail. So, I'll summarize their thoughts here, add a couple of my own and then, as always, encourage you to read their full piece.
Paul Carroll, editor-in-chief, Insurance Thought Leadership
AI in Insurance
Will Artificial Intelligence Replace Human Insurance Brokers?
In today's rapidly advancing technological landscape, the fear of job displacement due to artificial intelligence (AI) has become a prevalent concern. However, I firmly believe that AI is not here to replace people; rather, it is here to enhance their abilities and transform the way we work together. This is particularly true in industries like insurance, where trust and relationships play a vital role.
Reflecting on my father's days as an insurance broker, he always emphasized the importance of building meaningful connections with his clients. He would spend time with them, get to know their families, hobbies, beliefs, and values. This foundation of trust was crucial for providing sound consultations, especially when discussing sensitive topics like insurance coverage for life's uncertainties. The human touch he brought to his profession cannot be replicated by algorithms.
AI undoubtedly has the potential to analyze vast amounts of data and gain a deeper understanding of a customer's circumstances. Unlike human advisors, AI can draw insights from thousands of data points to assess risks and recommend the perfect coverage in near real-time. This ability makes AI a powerful tool in providing comprehensive insurance solutions for clients.
However, there are intrinsic aspects of the human touch that AI cannot replicate. The empathy, warmth, and emotional connection that human brokers establish with their clients cannot be replaced by algorithms.
Insurance conversations often involve addressing worst-case scenarios, and it is trust that enables clients to open up about their fears and concerns. AI may provide optimal coverage, but it cannot convey the reassurance and emotional support that clients seek during such conversations.
Julian Teike, Founder and CEO, Wefox
Technology Is Moving Fast; Can Insurers Keep Up?
As evidenced by the recent popularity of generative AI tools, the tech landscape in insurance seems to be moving at an increasingly fast pace.
“The AI space as a whole is moving faster than I think we’ve ever seen any technology move, ever,” said Jason Kolb, founder and CEO of InsurTech Dais. “In the 20 years that I’ve been in technology, I’ve never seen anything move this fast.”
But how can insurers weigh the challenges against the opportunities? Anand Rao, global AI lead at PwC US, said that this can be a tricky balancing act for insurers as, in some cases, technology seems to be evolving faster than the time it takes to even implement it into an organization.
“I think what’s interesting about the dynamic from the technology side is things are moving much faster than the way in which insurers are able to cope,” he said. “All these things are coming one after the other. It’s not that the insurers are not acting but that the pace at which they’re acting and the pace at which the technology is moving is sort of difficult to cope — not just for insurers but for anyone, for that matter.”
Kolb and Rao were speaking alongside Marie Carr, global growth strategy lead at PwC US, and Richard Clarke, chief insurance officer at Colonial Surety Company, on Carrier Management’s latest edition of Between the Lines, a video series that explores the topics in the latest magazine.
Rao said that with AI chatbots, in particular, the technology can teach itself to continuously evolve, which is adding to its fast development. While this can be beneficial to insurers using AI to assess things like loss reports and sort through data, one big challenge is ensuring the technology remains free from bias.
“Just the way in which these AI models are being built, you need to be very careful with how they are being built, because there could be bias that creeps into some of the models that you are developing,” he said.
He gave an example of using AI to assist in developing flood models.
“Let’s say you’re developing a model for flood in one particular area, so let’s say the Midwest,” he said. “There are specific parameters that go into it that may or may not really be applicable if you are looking at flooding in Florida or some other state. So, you really need to be careful on how you are using the data, where there could be a potential for bias and what kinds of decision you’re making.”
Another challenge with AI chatbots in insurance relates to information privacy, particularly when it comes to cyber policies, Clarke said.
The Power of Artificial Intelligence in the Insurance Industry
Traditional Net Promoter Scores (NPS) have become outdated in the era of real-time insights provided by Artificial Intelligence (AI), according to Andrew Beevors, Chief Claims Officer at MLC Life Insurance. Speaking at a webinar hosted by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and EXL,
Beevors stated, “NPS is dead” and urged organizations to shift towards using AI and data analysis technology for real-time analysis of customer sentiment.
Beevors emphasized that relying on the old NPS model, which relied on gathering and analyzing customer surveys conducted months prior, is insufficient in today’s fast-paced business environment. With AI, organizations can access real-time customer sentiment analysis and make necessary adjustments to improve their services. This approach ultimately leads to reduced complaints, increased customer satisfaction, and fundamentally changes the way businesses operate.
At a separate webinar titled “Demystifying Generative AI in Insurance,” hosted by Kanopi and Amazon Web Services (AWS), Alex Taylor, Global Head of Emerging Technology at QBE Ventures, discussed the transformative role of AI in the insurance industry. While AI is expected to disrupt and transform the industry, Taylor believes it will not render current operational models obsolete. He stated, “I don’t think that this technology is imploding the insurance business model, I think it’s actually going to facilitate the insurance business model.” Taylor also expressed that the threat of being replaced is not imminent, as it is different from the impact of the internet on media companies.
Race Toward ‘Autonomous’ AI Digital Assistants Grows
Around a decade after virtual assistants like Siri and Alexa burst onto the scene, a new wave of AI helpers with greater autonomy is raising the stakes, powered by the latest version of the technology behind ChatGPT and its rivals.
Experimental systems that run on GPT-4 or similar models are attracting billions of dollars of investment as Silicon Valley competes to capitalize on the advances in AI. The new assistants — often called “agents” or “copilots” — promise to perform more complex personal and work tasks when commanded to by a human, without needing close supervision.
“High level, we want this to become something like your personal AI friend,” said developer Div Garg, whose company MultiOn is beta-testing an AI agent.
“It could evolve into Jarvis, where we want this to be connected to a lot of your services,” he added, referring to Tony Stark’s indispensable AI in the Iron Man films. “If you want to do something, you go talk to your AI and it does your things.”
The industry is still far from emulating science fiction’s dazzling digital assistants; Garg’s agent browses the web to order a burger on DoorDash, for example, while others can create investment strategies, email people selling refrigerators on Craigslist or summarize work meetings for those who join late.
“Lots of what’s easy for people is still incredibly hard for computers,” said Kanjun Qiu, CEO of Generally Intelligent, an OpenAI competitor creating AI for agents.
“Say your boss needs you to schedule a meeting with a group of important clients. That involves reasoning skills that are complex for AI. It needs to get everyone’s preferences, resolve conflicts, all while maintaining the careful touch needed when working with clients.