Commentary/Opinion
Inflation, High CAT Losses to Lead to 2023 Underwriting Loss for P&C Industry, But Recession Likely Avoided This Year, New Triple-I/Milliman Report Shows
The overall P&C industry is forecast to finish 2023 with a net combined ratio at 102.2, nearly identical to the final 2022 result of 102.4. Poor personal lines underwriting performance is the key driver in both years, with personal auto forecast at 109.5 in 2023, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.
The quarterly report, Insurance Economics and Underwriting Projections: A Forward View, was presented on August 3 at an exclusive members only virtual webinar.
Michel Léonard, PhD, CBE, Chief Economist and Data Scientist at Triple-I, discussed key macroeconomic trends impacting the property/casualty industry results including inflation, rising interest rates and overall P&C underlying growth.
P/C underlying growth may catch up on overall U.S. GDP growth going into 2024. This would be in line with P/C growth patterns lagging overall GDP, and P/C growth benefiting from its ”post-COVID growth bump,” Léonard said, adding that the U.S. GDP “will likely decrease on a quarterly basis in the second half of the year compared to the first half, but still avoiding a technical recession in 2023.”
Triple-I expects P/C replacement costs to increase slower than overall inflation. “U.S. CPI will likely stay in the mid-to-upper 3% range through the end of the year,” Léonard said. He noted that underlying growth for private passenger auto has resumed its pre-Pandemic trend. “Increases in replacement costs continue to decelerate and have now returned to pre-COVID trends as supply chain backlogs and labor disruptions ended.”
News
Report: Auto Insurance Premiums Rise 17% in H1 of 2023
Car insurance premiums are skyrocketing primarily due to rising auto parts costs and extreme weather, according to virtual insurance agent platform Insurify’s Q3 2023 Mid-Year Auto Insurance Trends Report.
In the first six months of this year, car insurance premiums increased 17%, based on Insurify’s review of its database of 90 million car insurance quotes.
The figure is significant because it’s more than double the 7% increase company analysts had predicted for the year. Additionally, it’s expected that rates will rise another 4 percent by the end of 2023.
Of concern, the number of drivers purchasing full coverage policies has declined by more than 50 percent this year.
According to Allie Feakins, SVP of Insurance, increases of 12 to 15% in auto insurance prices are expected.
“Vehicle repair and maintenance costs have outpaced inflation and show no signs of slowing, leading insurers to increase auto insurance prices to keep up with the cost of higher claim payouts,” Feakins said.
Changing Auto Injury Treatment Patterns Post-Pandemic
For those of us tracking insurance industry trends, one of the most curious and unexpected in recent times has been the reshaping of auto injury treatment patterns.
The duration, complexity, and distribution of treatment looks notably different now than it did four years ago, with no indication of returning to what was typical pre-pandemic. It’s worth taking a deeper dive into both the outcomes and possible root causes of this trend.
From a cost perspective, medical treatment has increased year over year as expected, but that’s where the “expected” ends.
Typically, when costs go up, we look at two key contributing factors to help explain the increase: treatment cycle time which we measure as the average amount of time a person treats from the first date of service to the final date of service, and the number of procedures per injured party.
While cycle time initially increased post-lockdown in 2020 and 2021 when claim frequency was at its lowest but accident severity was highest, the average has now dropped below the pre-pandemic baseline (Figure 1). The average number of procedures per injured party has followed a very similar pattern (Figure 2) initially rising during post-lockdown but now tracking below the 2019 baseline.
Erik Bahnsen, Industry Analyst, CCC Intelligent Solutions
InsurTech/M&A/Finance💰/Collaboration
Gallagher Re Q2 2023 Global InsurTech Report; Q2 down 61.9%
New funding for the global insurtech sector dropped to $916.7 million during the second quarter of 2023, down 61.9% from the year-earlier period, according to a report Thursday from Gallagher Re, the reinsurance business of Arthur J. Gallagher & Co.
Since the height of InsurTech investing and valuations, we’re now experiencing a very healthy inflection point focusing on sustainability, which is reflected by a downturn of speculative investment capital. InsurTechs that focus on clear commercial outcomes are gaining more traction than those trying to offer their technology (only) as a product.
Key Findings for Q2
- Global InsurTech funding fell 34.0% quarter on quarter, from $1.39 billion to $916.71 million.
- Companies raising capital within the early-stage acceleration category raised $134.49M — or 14.7% of total InsurTech funding.
- Q2 23 saw 43 corporate InsurTech investments from (re)insurers, of which 34.9% were directed toward US-based InsurTechs — more than any other country.
Lemonade: "2023’s second quarter delivered better than expected top and bottom lines" - Insurtech Israel News
“2023’s second quarter delivered better than expected top and bottom lines” – says lemonade in the Shareholders letter – “as well as reinsurance and growth financing programs which herald a step function improvement in our capital efficiency, enabling both faster growth and deeper cash reserves”.
Here are main point from the letter:
- Top line: At $687 million, in-force premium (IFP) grew by 50% year over year.
- Reinsurance: Our 55% quota share program was reupped and oversubscribed, with ceding commissions expected to be roughly equivalent to those under the outgoing agreements.
- ‘Synthetic Agents’: We secured customer acquisition cost (CAC) financing, designed to close the cash-flow gap and unlock cash-friendly scaling.
- Rates: California recently approved a 30% increase in our homeowners rates, and a 23% increase for Lemonade Pet. Across the board we are taking more rate, and seeing an acceleration in our rate approvals. We expect this will register on our loss ratio as new rates ‘earn in’ over the coming quarters.
- Bottom line: At $53 million, Adjusted EBITDA loss came in better than expected, notwithstanding heightened CAT losses. Net loss for the quarter was $67 million.
Lemonade Posts Q2 Loss of $67.2M, Reviews Homeowners Book
Artificial intelligence-powered insurer Lemonade recorded a net loss of $67.2 million for the second quarter compared with a net loss of $67.9 million a year ago during the same period.
Catastrophes, specifically severe convective storms, weighed on the quarter’s results for the New York-based insurtech. The gross loss ratio at Lemonade increased 8 points year-over-year to 94%.
Net written premium for Q2 was $87.2 million, up from $38.2 million a year ago. In-force premium increased by 50% to $686.6 million as compared to the second quarter last year, and Lemonade’s customer count increased 21% to about 1.9 million.
In a letter to shareholders, Lemonade said that, excluding catastrophes, loss ratios are improving. Without the weather-related losses in homeowners, the loss ratio was in the 60s for the first time, the insurer said.
The insurer said it is reviewing its homeowners book of business and its model suggests “a portion of our book should not be renewed.” About 2,000 homeowners policies have been non-renewed, Lemonade said.
Root Inc. Narrows Q2 Net Loss to $37M, Remains Committed to Pricing Model
Insurtech Root Inc. posted a another net loss for the second quarter 2023 of about $37 million.
The loss was a 62% improvement from the net loss of about $96 million during the same period in 2022. Over the first half of 2023, Root has recorded a net loss of $77.6 million compared to a net loss of $173 million in the first half of 2022.
The Columbus, Ohio-based company’s Q2 net combined ratio was 150.5, an improvement from the 217.3 combined ratio of Q2 2022 and the 316.1 combined ratio of Q2 2021.
“We remain vigilant on pricing and underwriting as we cautiously scale our marketing spend. We believe the actions we have taken—and that we continue to take—put the company on a path to profitability,” said co-founder and CEO Alex Timm in a shareholder letter.
ZestyAI Named Top 50 Insurtech Leader by CB Insights
ZestyAI, the leading provider of climate and property risk intelligence powered by AI, has been recognized as a top 50 insurtech and leader in climate and property risk analytics solutions by CB Insights. Zesty
AI's inclusion in this select group highlights the significant impact the company has had in delivering valuable climate and property risk analytics solutions to leading insurers.
The CB Insights research team picked the 50 leading players from a pool of over 2000 companies. They were chosen based on CB Insights data — including R&D activity, Mosaic scores, business relationships, Yardstiq transcripts, investor profiles, news sentiment analysis, competitive landscape, and team strength — and criteria such as tech novelty and market potential.
“Climate risk is reaching new levels of urgency. Globally, insured losses of more than $100 billion per year from natural catastrophes has become a given,” said Attila Toth, Founder and CEO of ZestyAI. “AI has a very big role to play as the insurance industry evolves and adapts to climate risk. ZestyAI is delivering at least ten times return on investment for our insurance carrier partners in North America."
Meet Lula, a startup that aims to be the ‘Stripe for insurance’ and just raised $35.5M
Lula, a startup which aims to be the “Stripe for insurance,” has raised $35.5 million in a Series B funding round after experiencing a massive surge in customers.
When TechCrunch reported on Lula’s $18 million Series A raise in July of 2021, the company was focused on building an insurance API that aimed to “eliminate the need for companies to build their own insurance infrastructure.
” Over time, Lula’s offering has evolved into a broader insurance offering that is designed to help companies reduce insurance premiums and insurance-related expenses for businesses. Lula now offers a range of tools, including risk management, claims management, policy management and access to insurance coverage.
The move appears to have been a smart one for the Miami-based company, which says its customer base has grown significantly — from 99 businesses in February of 2022 to nearly 4,000 as of July. While Lula declined to reveal hard revenue figures, co-founder and president Michael Vega-Sanz told TechCrunch that monthly revenue has multiplied by 20 times since February 2022.
“The capital is going to get us to profitability in the next couple of quarters,” he said. “We expect to pass $100 million in annual recurring revenue over the next three to four quarters.”
Team One and Southwest Adjusters Complete Merger Backed by Longshore Capital Partners
Team One Adjusting Services (“Team One”), a provider of claims adjusting and claims management services, and Southwest Adjusters (“SWA”), a multi-line independent insurance adjustment agency, announced their merger to form the joint venture, Team One Insurance Services.
With the financial and strategic backing of Longshore Capital Partners, a private equity firm out of Chicago, this new partnership broadens Team One’s range of services and depth of geographical coverage across the independent claims adjusting landscape. The combination of these organizations brings complementary expertise and the highest dedication to service quality for insurance carriers.
The partnership of Team One and SWA creates a broader platform that will increase its ability to serve insurance carriers throughout the United States, with increased scale, additional corporate resources and an expanded suite of services that includes daily property, catastrophe, desk adjusting, agricultural, specialty losses, appraisal and TPA services. Powered by Touchpoint Claims Management System, Team One is an industry leader in claims technology.
Waller Helms Advisors acted as financial advisor to Longshore Capital and Southwest Adjusters in connection with this transaction.
Vesttoo considers removing CEO
Israeli fintech Vesttoo is considering the removal of its CEO and chief financial engineer, its board said in a statement Thursday, following a fake collateral scandal that analysts said could impact the wider insurance market.
Vesttoo, which uses artificial intelligence technology to connect the insurance industry and capital markets, said earlier this week it was laying off about 75% of its staff and closing some offices in Asia, as it tries to recover from a scandal over a fraudulent letter of credit used as collateral in a transaction with an insurer.
The board statement said Vesttoo was “exploring multiple options” for interim replacements for CEO Yaniv Bertele and Chief Financial Engineer Alon Lifshitz, but no decision had yet been made. Both Mr. Bertele and Mr. Lifshitz are on paid leave until a final decision is made
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Majesco Podcast Series |The Future of Insurance: Industry Leaders --- A New Wave of Claims Transformation
Denise Garth, Chief Strategy Officer, Majesco is joined by Insurance Solutions Group’s Stephen Applebaum in this latest episode of The Future of Insurance: Industry Leaders to discuss the center of the digital customer relationship—claims.
They’ll explore how and why claims operating models are changing, the role of data & analytics, exciting areas emerging in risk resilience, how loT is changing the customer experience and the new era of claims replacement.
Listen on Apple, Google, Spotify Podcasts and here
People
Verisk Names Samantha Vaughan Chief Privacy Officer | Verisk
Verisk (Nasdaq: VRSK), a leading global data analytics and technology provider, today announced that Samantha Vaughan has been named chief privacy officer, effective immediately.
Vaughn will lead the development and implementation of policies to protect the data entrusted to Verisk and will help ensure the integrity of Verisk’s data practices, regulation, and compliance.
“We’re excited to welcome Samantha to Verisk,” said Kathy Card Beckles, chief legal officer and corporate secretary, Verisk. “Data privacy has always been core to Verisk and central to our work with the global insurance industry. Samantha’s deep privacy expertise and experience in insurance regulation, corporate compliance and ethics will help us navigate evolving risks and build on Verisk’s reputation as a trusted partner.”
Samantha joins Verisk from Dell Technologies, where she was the managing director and global head of Privacy Legal. Prior to Dell, she was the senior vice president, Corporate Ethics & Compliance and chief privacy officer for Wyndham Hotels & Resorts. Previously, Samantha worked for Prudential Financial, AIG and Selective and her career responsibilities have included information governance, corporate social responsibility, corporate compliance and ethics and contracts/commercial transactions, in addition to privacy and security.
Samantha serves as Co-Chair of the Advisory Board on Compliance Programs for Fordham Law School and Co-Chair of the Ethisphere Business Ethics Leadership Alliance (BELA) Compliance and Privacy Working Group.
“I was impressed by the company’s longstanding commitment to data privacy, and I am looking forward to working alongside my Verisk colleagues to further strengthen our data policies and practices and in a changing landscape,” Vaughan said.