Flood Risk Solutions in Sight - Or?  August 3rd 2023

GAO Urges Changes to NFIP as Study Highlights Potential $27B Shortfall

FEMA’s National Flood Insurance Program (NFIP) substantially improved ratemaking by implementing Risk Rating 2.0 in 2021 but the program faces a potentially significant premium shortfall, a study by the U.S. Government Accountability Office (GAO) found.

Published ahead of reauthorization of the NFIP, which is set to expire on September 30, the report from GAO examines the actuarial soundness of Risk Rating 2.0 and efforts to address affordability for policyholders.

GAO recommends Congress consider changes to NFIP, including establishing affordability assistance for flood insurance through a means-based program rather than through caps on annual premium increases.

GAO estimates it would take until 2037 for 95% of current policies to reach full-risk premiums, resulting in a $27 billion premium shortfall. The study said that costs of shortfalls are not recognized in the federal budget and become evident only when NFIP must borrow from the Department of the Treasury after a catastrophic flood event.

Yellen Says Extreme Weather Exposes Gaps in Insurance Protection

Treasury Secretary Janet Yellen said the weather-related havoc playing out across the US is exposing a “protection gap” for Americans seeking insurance against property losses.

Yellen, who also chairs the Financial Stability Oversight Council, said that a spate of extreme weather events is causing insurers to raise rates on homeowners. Some firms have withdrawn entirely from offering coverage in areas deemed to be high risk, she added.

Heat waves have been especially widespread and persistent in the US this summer, with some 170 million Americans under excessive heat warnings and advisories as of Thursday. Wildfires have also plagued western states and parts of eastern Canada, while floods caused severe damage in Vermont.

“American households are already seeing the impacts even if their own homes have not been damaged,” Yellen said Friday at an FSOC meeting in Washington. “As a result, more households are turning to residual markets for coverage or are foregoing insurance entirely.”

Arch CEO compares hard insurance market to Wimbledon showdown

Arch Capital Group chief executive Marc Grandisson has likened the current hard insurance market to a set during the Wimbledon men’s final between Novak Djokovic and Carlos Alcaraz.

During the company’s latest earnings call, Grandisson – whose camp writes more business when the market is hard – said: “This hard P&C (property and casualty) market is proving to be one of the longest we’ve experienced, and we are in an enviable position as we look to 2024 and beyond.

“We often refer to the insurance clock developed by Paul Ingrey to help illustrate the insurance cycle… For some time, we’ve been hovering at 11:00, which is when we expect most companies in the market to show good results as rate adequacy improves and loss trends stabilise.

“Last year, a popular topic on earnings calls was whether rate increases were slowing or whether rates were even decreasing. These are classic signs of the clock hitting 12:00, when returns are still very good but conditions begin to soften. Yet here we are in mid-2023 and conditions in most markets remain at 11:00. We’ve even checked the batteries in the clock and they’re just fine. The clock isn’t broken; it’s just that the current environment dictates an extended period of rate hardening.”

Is catastrophe modeling the answer to California's property insurance woes?

The use of catastrophe modeling to influence insurance rates in California has been mooted as one part of a potential fix for the state’s property insurance crisis, but private-led use remains a controversial option with consumer advocates having called for a public solution.

This month, the California Department of Insurance (CDI) held a workshop to examine the potential benefits and pitfalls of wildfire risk catastrophe modeling as it looks to shore up the insurance market, which has seen major insurers Allstate and State Farm exit new business and Farmers Insurance cut down its home insurance appetite.

Perhaps a testament to interest in the insurance challenges facing the state, not every member of the public hoping to participate was able to speak due to time constraints during the packed four-hour July 13 session, with the CDI having invited further written comments.

The state has an elected Insurance Commissioner, Ricardo Lara, and is bound by Prop 103, legislation that sets out the commissioner has the power to approve or deny insurance company rate changes. While the insurance industry has argued that a more forward-looking approach to rate setting is needed to make the market sustainable, a level of suspicion lingers among consumer advocate groups, like Consumer Watchdog, that have labeled recent calls for change in this area a cynical bid for deregulation.

CCC: Number of claims rebound, driving up cycle time & increasing need for AI

CCC Intelligent Solutions said Wednesday cumulative annual cycle time across 26 million automotive claims last year added up to 2 billion days, up 1 billion over 2021.

The metric was first measured by CCC in 2021 to determine the number of days claims remained open.

Enterprise reported in July that length of rental (LOR) reached 17.4 days during Q2 which, for the first time since the onset of the COVID-19 pandemic, was a year-over-year (YoY) decrease; down from 17.7 days last year.

“The auto insurance economy is being impacted by multiple headwinds, including staffing shortages, inflation, supply chain issues, increasing vehicle complexity and rising consumer expectations,” said CCC chairman and CEO Githesh Ramamurthy during CCC’s Aug. 1 Q2 earnings call. “These challenges are being compounded by claim counts that have rebounded significantly from the pandemic and are now less than 10% below 2019 levels. Net result of these trends has been a significant increase in repairable, total loss, and casualty cycle times.”

Michigan Hands-Free Law Has Prevented 650 Crashes & Two Fatalities

Cambridge Mobile Telematics (CMT), the world’s largest telematics service provider, today announced an analysis of the impact of the new hands-free law in Michigan, which began June 30, 2023. The analysis shows that Michigan drivers spent an average of 1 minute and 47 seconds per hour on the road handling their phones in June. Since the start of the hands-free law, phone motion distraction has fallen to an average of 1 minute and 35 seconds per hour, a drop of 11.2%.

“We are extremely encouraged by the initial results of Michigan’s hands-free legislation”

CMT’s data shows that every 10% decrease in distracted driving reduces the crash rate by 1.4%. CMT estimates that the 11.2% reduction in distraction in Michigan since June 30 has helped prevent 650 crashes, two fatalities, and $15.5 million in economic damages.*

“We are extremely encouraged by the initial results of Michigan’s hands-free legislation,” said Steve Kiefer, Chairman of The Kiefer Foundation and Chairperson of CMT’s Road Safety Board. “These life-saving laws are especially critical during the 100 Deadliest Days of Summer when crashes and fatalities typically increase by 15%. We hope the recent results from Michigan and Ohio inspire the remaining 21 states to enact similar legislation that reduces distracted driving, prevents crashes, and saves lives.”

“The results from Michigan and Ohio show the need to create strong legislation for hands-free initiatives, from making distracted driving a primary offense, to running awareness campaigns, to ensuring police are ready to enforce the law and educate the public during grace periods,” said Ryan McMahon, Senior SVP of Strategy for CMT. “Now, the challenge for states like Michigan and Ohio is to measure and maintain these results, and to build the capabilities to respond to increases in distraction over time.”

Four money laundering trends facing the insurance industry

There are four major money laundering trends facing the insurance industry today, according to Hassan Zebdeh, Financial Crime Advisor at Eastnets.

Increased technology in the insurance space has opened up more doors for criminals – but behind each door lies a complex web of illegal activities mixed with social engineering, identity theft and other nefarious activities, Zebdeh says.

Technology can also be the answer to the industry’s money laundering challenges, he says.

“Fraudsters are experts at finding novel ways to launder money, from crypto assets to online auctions, with their claws firmly dug into the insurance industry too,” Zebdeh tells InsurTech Digital. “In fact, the PwC Global Economic Crime Survey 2022 found that two-thirds of insurers experienced fraud or financial crime in the previous year.

Drivers with bad credit are being charged up to 263% more for insurance, report finds

Drivers with fair or poor credit scores are, in some cases, paying more than twice as much as those with excellent credit and the same driving record, a newly-released report says.

Consumer Federation of America’s (CFA’s) report found that compared to drivers with excellent credit, those with poor credit are paying 143% more in Florida, 172% more in Minnesota, and 263% more in Michigan.

“On average, a consumer with poor credit has to pay twice as much for auto insurance as a driver with excellent credit, even if everything else, including their driving safety history, are the same,” said Douglas Heller, CFA’s director of insurance and the report’s co-author.”

He added: “Not only is this unfair to safe drivers, because of longstanding and institutional biases, the use of credit history for insurance pricing leads to disproportionately higher premiums for lower-income drivers and people of color.”