AI in Insurance
Why generative AI will change the frontline of insurance forever
Now is the time to start making moves in preparation for the widespread adoption of generative AI.
Aliens have landed on planet earth. Figuratively speaking, of course, but that is how big of a deal the introduction of ChatGPT was to the world, our everyday life, and the workplace.
As we move from the initial “shock and awe” phase to putting the technology to work, generative AI is causing ripples across every industry akin to the industrial revolution. The insurance industry is no exception.
From giving frontline agents superpowers and improving customer experience, to reducing costs and increasing customer satisfaction, generative AI is bound to completely change how the business of insurance is done — and the carriers that lay the groundwork now will be the ones to come out on top in the years ahead.
What’s the big deal?
While we saw the internet, PCs and smartphones bring major changes to how people live and work over the past several decades, those technologies do not compare to the disruption of generative AI; it represents the most radical sea change we’ll likely see in this generation. Just like people reminisce now about life prior to the internet, we will soon be wondering how we ever lived without generative AI.
This is good news for the frontline of insurance. For one, the technology, when used correctly, can be surprisingly empathetic–a necessity for our industry. We are still in the early stages, but generative AI has already demonstrated clear opportunities to empower frontline workers to be better at their jobs and more efficient, freeing up time to focus on higher level issues with bottom-line impact.
Jonathan Tushman is the chief product officer at Hi Marley
Gen AI ranks second in top emerging risks for Q2 2023, Gartner finds
Generative AI has made its mark as a principal concern among enterprise risk executives in Q2 2023, based on Gartner’s latest report.
Gartner conducted a survey of 249 senior enterprise risk executives in May 2023 to provide an in-depth insight into 20 emerging risks.
Generative AI has been identified as the second most frequently named risk in the Q2 2023 survey, with third-party viability taking the lead. Financial planning uncertainty was third on the list, while cloud concentration risk followed, and China trade tensions wrapped up the top five.
The Quarterly Emerging Risk Reports offer data on the possible repercussions, duration, attention level, and perceived prospects tied to the mentioned risks.
The top five risks were a mix of macroeconomic and geopolitical volatility, and technology-driven concerns.
Ran Xu, research director in Gartner Risk & Audit Practice, highlighted the first-time appearance of generative AI in the top 10 of their quarterly survey, indicative of its growing public usage and potential risks.
Auto Glass Pros Are Skeptical of Insurers' Use of AIglassBYTEs.com
Many industries are reaping efficiencies from artificial intelligence (AI), and while the technology also holds promise for auto glass companies, it’s currently being met with skepticism from glass company owners who are pushing back against its use by auto insurers.
That’s an insight from myWindshield founder Al Lijee, who assessed AI’s present and future impact on auto glass repair and replacement services in an interview with TechBullion.
“I’ve heard it said that around 15% of insurance claims were settled just by photos before the pandemic, and that figure has since jumped to 60% and will likely go up to 80% or beyond in the next couple of years,” says Lijee.
Many big auto insurance companies, he explains, are now using AI estimation tools like Tractable and Qapter to automate the claims process. The insurance providers say about 25% of all claims are so accurate they don’t need human intervention.
Managers of some auto glass shops, however, are saying that “AI can be wildly inaccurate, leading to disputes where the auto glass technician is kind of stuck in the middle or even being questioned by customers coming in with inaccurate quotes,” according to Lijee.
He says the “big challenge” moving forward is to avoid “using AI as a crutch for all quotes.”
“We don’t want to rely heavily on the quotes from AI or endorse them, but rather we want the auto glass shop to be able to intervene and apply their expertise in cases where it’s inaccurate,” he adds. “If a big chunk of quotes are spot on, this tool can be very useful for customers and auto glass shops alike, saving time going back and forth sending photos of the damage to their windshield, for example.”
AI provides the edge that insurers need in general liability
General liability claims in commercial insurance can arise from accidents or incidents during business operations. These claims are typically filed against businesses for injuries or damages sustained by third parties, such as customers, clients or other individuals.
In this article, we will focus on liability claims resulting from injuries suffered by these third parties and how insurers can utilize artificial intelligence to help minimize the amount paid per claim while treating the injured party fairly.
Injury claim types
Many incidents can lead to bodily injury claims. Some common types of incidents that generate general liability claims include:
Slip-and-fall accidents: These accidents occur when someone slips, trips or falls on the business premises due to wet or slippery surfaces, uneven flooring, poor lighting, or other hazardous conditions.
Other bodily injuries: If a third party sustains injuries on the business premises or due to the business operations, they may file a general liability claim. These accidents can range from construction site accidents, product-related injuries, fire and explosions to accidents involving machinery, equipment and others.
Completed operations: Claims can arise from injuries or damages after a business has completed a service or project, such as faulty workmanship or installation.
Many of these hazards and the injuries they cause seem preventable, but eliminating them can be cost-prohibitive. General liability insurers and companies that self-insure need means at their disposal to minimize the impact of claims when they occur. In today’s world, increasingly, the answer to this problem is artificial intelligence (AI).
News
Severe Storms Have Already Led to $34B in Insured Losses This Year
Waves of severe thunderstorms in the U.S. during the first half of this year led to $34 billion in insured losses, an unprecedented level of financial damage in such a short time, according to Swiss Re Group, as climate change contributes to the frequency and severity of violent meteorological events.
Damages from convective storms in the U.S., those that can come with hail, lightning, heavy rain and high winds, accounted for nearly 70 percent of the $50 billion in global catastrophic damages so far this year, the reinsurer said Wednesday. Those global figures includes earthquakes in Turkey and Syria.
The storms in the U.S. were so severe, there were 10 that resulted in damages of $1 billion or more, almost double the average recorded over the past decade, according to Swiss Re, and Texas was the state most severely effected.
Insured loss from Lahaina wildfire expected to be second largest ever in Hawaii
A Maui County update reveals that 2,207 structures have been damaged or destroyed by the fires, with an estimated reconstruction cost of $5.52 billion, while catastrophe risk modeler Karen Clark & Company (KCC) has said that the total insured loss will be “second only to Hurricane Iniki based on today’s property value.”
wildfireData released over the weekend from the Pacific Disaster Center and the Federal Emergency Management Agency, shows that as of August 11th, 2,719 structures were exposed to the Lahaina fire, with 2,207 of these either damaged or destroyed, with 2,170 acres burned.
Of the exposed buildings, the data finds that 86% are classified as residential and 9% commercial, with $5.52 billion of capital exposed.
Analysis from KCC notes that a total of 3,500 buildings are within the fire perimeter. The cat risk modeller states that it will continue to monitor the fire and provide further updates, but at this stage, expects the total insured loss to be the second largest in Hawaii history after Hurricane Iniki.
Hurricane Iniki, which devastated Hawaii in September 1992, was the most powerful storm to hit the region in recorded history. The storm caused $3.1 billion in economic damage when it occurred, but at today’s dollars is estimated at closer $6 billion.
While it’s hard to say how much of the damage caused by the fire will be covered by insurance, it’s likely a significant percentage of the wildfire damage. Alongside the costs of reconstruction, there will also be insurance claims for the expenses people face while homes are being rebuilt
U.S. Auto Insurer Profit Recovery Slow to Materialize
Most U.S. personal auto insurers continue to report underwriting losses despite sharper improvement in premium rates, with the first half of 2023 marked by continued unfavorable claims severity and higher catastrophe related losses, Fitch Ratings says. Future profit improvement will continue to be hindered by unusually high loss severity.
A review of mid-year personal auto segment results from public company GAAP filings reveals that for a group of nine insurers that report quarterly personal auto segment results, aggregate written premiums were up 10% from the prior year. The segment’s combined ratio (CR) moved down slightly to 100.4% from 101.3% in 1H22, attributable to a return to strong underwriting profit at GEICO.
All other reviewed carriers reported weaker year-over-year CRs and Progressive Corporation (PGR) was the only other carrier to report a sub 100% CR. Carriers reporting an auto CR above 110% for the first half of 2023 include: Kemper Corporation, Horace Mann Educators Corporation and The Hartford Financial Services Group.
An inordinate number of convective storm events across the U.S. created substantial losses in the homeowners’ market, but also added incurred claims to auto writers. For this subject group, catastrophe losses were 2.0% of 1H23 earned premiums, compared to 0.9% in the year earlier period.
GEICO’s performance recovery efforts over the last 12 months included a 16% increase in average premium per policy, reductions in advertising expense, and a 14% reduction in policies in force, which contributed to conceding the second largest personal auto market position behind perennial leader State Farm to PGR.
All auto carriers are taking more aggressive pricing and underwriting actions in response to recent results. CPI data from the Bureau of Labor Statistics indicates that Motor Vehicle Insurance costs have increased by over 10% annualized for each month since September 2022, including a 17% jump in June 2023.
Commentary/Opinion
Inside in Full: InsurTechs to Incumbents: we’re coming for you…eventually
We’ve discussed the fact that InsurTechs have no choice but to perform. From now until profitability, every quarter is essentially make or break.
At first quarter earnings – the first of these make-or-break quarters – the public InsurTech cohort did deliver, with strong results across the board. We covered the results at that time and cautioned against undue enthusiasm or calling the win too early.
That being said, the market reacted favorably, as shown in the chart below, moving all three names ahead of incumbents in year-to-date growth. For Root, the story did not end there, amid rumors of a possible acquisition at a significant premium, more than doubling the price and leaving it elevated to date.
We have also covered the high short-interest in these names, which could also be contributing to improvement in stock price. This movement also came across the backdrop of continued interest in beaten tech and tech-adjacent names.
While Q1 was a more or less united victory for the cohort, the Q2 results have been more of a mixed bag. In terms of the stock reaction, we’ve seen a different story this quarter with all three dropping after their releases, as we can see in the chart above. From earnings release to date, Root and Lemonade have changed -14% and -13% respectively, and Hippo (which released later) has gone down -23%.
So why the negative reaction? It all boils back down to the question of capital. The companies want us to believe they have turned a corner, but you can’t call a game after two innings. Results on the surface suggest that the companies are making progress but we would be cautious on that simplistic assertion.
We continue to believe that we are not out of the woods yet. In fact we are incrementally more cautious on this group. Recent results from personal lines incumbents have shown repeated challenges from elevated loss activity in both personal auto and homeowners. When a cohort is growing while others are shrinking it always warrants a second look
Inside P&C
InsurTech/M&A/Finance💰/Collaboration
Vesttoo begins Chapter 11 proceedings to restructure
Vesttoo, which is being asked by Aon subsidiary White Rock to return $127 million in collateral amid a fraud-related controversy, has commenced Chapter 11 proceedings in the US.
The goal, Vesttoo said in an emailed release, is “to emerge from this process a stronger partner to all of our stakeholders” and not to liquidate the troubled organization. The company noted that its platform and capital structure remain stable and sustainable under Chapter 11 protection.
According to the insurtech, it determined that Chapter 11 was necessary to protect the firm’s assets and serve as a forum to pursue legal action against those responsible for the letters of credit fraud scandal that has surrounded Vesttoo.
In a statement sent to Insurance Business, interim chief executive Ami Barlev said: “We believe the steps we are taking are best for Vesttoo’s long-term growth and success. Not only will they result in a strong, more sustainable capital structure, but they will provide us with the platform to aggressively pursue all parties that harmed our business.
Insurtech 50 Influencers
We publish an updated version of the Top 50 insurtech influencer list each month so make sure to come back and check it out.
Congratulations Daniel Schreiber Matteo Carbone Julian Teicke Varun Dua Bruce Lucas Florian Graillot Kyle Nakatsuji Jonathan Matus Denise Garth Sean Harper 🏠 Chris Cheatham John Swigart Steven Mendel Alex Timm Steve Tunstall Sten Saar Nigel Walsh Minh Q. Tran Assaf wand Guy Goldstein Mario Schlosser Rosaline Chow Koo Adrian Jones Jeff Shi Sabine VanderLinden
InsurTech News
Webinars/Podcasts/Interviews
Podcast: InsTech - insurance & innovation with Matthew Grant
Matthew Grant: CEO, InsTech: Generative AI - what’s really going on Listen on Apple Podcasts
Last week on the podcast we found out what Chat GPT had to say about InsTech. This week Matthew previews our newsletter on generative AI, particularly who is using it and where are we on the hype cycle.
For the curious, we have released a monthly newsletter dedicated to exploring the uses of generative AI across insurance.
Topics covered include:
- The three different reactions from insurers to integrating generative AI
- Our new Generative AI in Practice newsletter. Sign up here.
- How InsTech is using automation to help our workflow
In addition to hearing from Matthew, the conversation mentions recent developments from our member community including examples from Send, Inversion, Eigen Technologies, Future Processing, CyberCube, Marsh, CFC and many more.
If you like what you are hearing, please leave us a review on whichever platform you use or contact Matthew Grant on LinkedIn.
Canada
How Intact CEO views the M&A landscape
M&A transactions involving large-value brokerage deals do not reflect a trend and likely aren’t sustainable, Intact Financial Corporation CEO Charles Brindamour suggested during a recent earnings call.
“If I go towards distribution, which are smaller transactions, I think we’ve seen a number of eye-popping transactions that we don’t think reflect a trend because we don’t think the sort of valuations we’ve observed in larger transactions is actually sustainable,” Brindamour said during Intact’s 2023 Q2 call Aug. 3.
“But we’re able to do small- to mid-sized transactions in the range where we can generate double-digit returns…”
Brindamour was responding to a question from an analyst about what the M&A landscape looks like right now from both a broker and carrier perspective. He didn’t elaborate on any specific deals.