Commentary/Opinion
Are Winds of Change Blowing on California Insurance Law?
Executive Summary
Does Proposition 103 need an overhaul? That's a key question lawmakers have started asking as they examine the contributors to a growing insurance crisis in the California property market, eyeing factors beyond the increased frequency and severity of wildfires in the state.
Here, Wells Media West Coast Editor Don Jergler reviews how we got to this point. After a little bit of history and a review of recent activities of carriers, regulators, agents and lawmakers, Jergler reveals that legislators, who have been listening to all sides of the crisis, may be the next to act with a Prop 103 fix.
This article is the cover story of Carrier Management's third-quarter print magazine, publishing in late August. Consider becoming a Carrier Management member for regular magazine deliveries and access to exclusive content.
Don Jergler, Wells Media West Coast Editor
It’s Data All the Way Down
Recently, we announced the winners of the 2023 Datos Insights Insurance Technology Impact Awards. I’m writing a blog series examining industry trends as seen through the lens of the 2023 Impact Awards’ 65 case studies, which catalogue real tech projects that real insurers delivered to create real success. Today, I’ll be diving into trends from data and analytics projects across the industry.
Unlike digital projects, data tends to be a smaller category, because it so often captures projects that are intensive, multi-year efforts: things such as training algorithms to automate underwriting decision making or migrating an on-premise data warehouse to a cloud data lake environment. “Easier” data projects might be setting up a self-service data mart where business users can independently use reporting tools like Tableau to get their own analytics and insights.
Data projects are large, complex and difficult, but also crucial and unavoidable.
What’s clear from this year’s Impact Awards data case studies—and from the digital and core case studies, for that matter—is that practically anything an insurer would like to do ultimately comes down to effective data and analytics capabilities. Accurate, available data is the secret key to all the other capabilities insurers want to implement.
Take midsize property/casualty winner Mosaic Insurance (now a back-to-back Impact Award winner!). Mosaic implemented an underwriting portal to improve customer experience for high-end specialty lines customers. Creating the speed the team wanted required Mosaic to embed AI-based decision making capabilities within the portal so the system could quote, bind and issue policies automatically. What seems like a digital initiative on its face (“let’s sell specialty insurance online”) is actually a data initiative, because the algorithm is such a crucial component of the overall function.
To that point, the data used to train an algorithm must also be high quality, and any third-party data invoked in the new business process must be reliable. Fellow winner CNA is an example of the latter. CNA wanted to provide faster quotes, and its path to doing so was to build an AI-enabled automation solution to improve data extraction from forms.
Harry Huberty, Research Director at Datos Insights (formerly Aite-Novarica)
Tapping Into the Geospatial Goldmine
As geospatial data becomes more available, technology is beginning to catch up. The location-specific intelligence makes use of everything from census data, weather data and different types of imagery, and all can be applied across the entire insurance policy lifecycle.
Still, “with more data comes more challenges,” said Ashish Hingrajia, solution product manager at Nearmap, during a live webcast on the future of geospatial and insured losses.
"“Insurers find themselves wondering, ‘How do we use all this data to our advantage? What’s its importance and relevance?’” In part, advancements in AI have streamlined the analysis of this information. Hingrajia pointed to two key use cases – responding after a catastrophic event and providing intelligence to mitigate future claims – where quality geospatial imagery and analytics can prove their value to insurers.
A valuable tool for post-catastrophe response
One use case for all this geospatial data is in insurers’ post-catastrophe strategy. The frequency and severity of weather events and natural catastrophes have increased significantly over the years, hobbling entire communities and costing insurers billions of dollars.
Geospatial data, like aerial imagery gathered from fixed-wing aircraft (which, in contrast to satellite, stratospheric balloon or drone imagery, balances great resolution with affordable frequent image capture) provides insurers with insights complementary to information gathered from customers on the ground.
News
Reinsurance net premiums written increase 7.4% in H1: Fitch
First-half nonlife reinsurance net premiums written rose 7.4% to $77.60 billion among a group of 18 nonlife reinsurers, said a report Tuesday from Fitch Ratings Inc.
The group had a first-half aggregate reinsurance combined ratio of 88%, including “moderate losses” from catastrophes, Fitch said, compared with 89.4% in the first half of 2022.
Although the June-July 2023 reinsurance renewals were more “orderly” than the “frantic” January 2023 renewal, they resulted in similar price increases, Fitch said.
U.S. property markets saw the steepest price hikes at 30% to 75% increases for risk or catastrophe loss-hit business while loss free rates rose a more modest 10% to 40%. Florida property saw 30% to 40% rate increases for catastrophe loss hit business, reflecting the impact of Hurricane Ian in 2022.
Rate Hikes Not Bringing Profit to US Auto Insurers: Fitch
Jumps in rates and written premiums did little to move the needle on underwriting profits for U.S. personal auto insurers, Fitch Ratings reported based on a recent review of midyear results of nine big market players.
Profitability challenges in the auto line prompted a Fitch downgrade of the lead subsidiary of one of the insurers, Kemper, yesterday, and a changed outlook for another, Horace Mann. Separately, S&P Global Ratings downgraded yet another—Allstate—earlier this week.
In their analysis of public company GAAP filings titled, “U.S. Auto Insurer Profit Recovery Slow to Materialize,” published earlier this week, Fitch analysts calculated a 10 percent aggregate increase in premiums for the nine-company cohort for the first six months of 2023. But the aggregate combined ratio for the group improved less than a point, dropping to 100.4 for first-half 2023, compared to 101.3 for the same period last year.
The aggregate combined ratio now hovers right above breakeven, with just two of the nine publicly traded personal auto insurers—Progressive and GEICO—reporting sub-100 combined ratios, a chart in the Fitch report reveals
More companies exit California's embattled homeowners market
The exodus continues
Two more insurance companies are exiting California’s embattled homeowners market, according to several reports.
AmGUARD Insurance and Falls Lake Insurance are set to withdraw their homeowners' insurance programs within the coming months, following a string of similar decisions by major industry players like State Farm, Allstate, and Farmers.
.AmGUARD is a subsidiary of Berkshire Hathaway’s GUARD Insurance Companies and held policies for over 50,000 homeowners as of 2022.
Deputy insurance commissioner Michael Soller said the company first came to California in 2019 and has experienced major losses in the past couple of years “that were unusually high and not typical of the market as a whole.” Falls Lake’s market share is a lot smaller, he added, consisting of approximately 900 individuals.
The two companies did not comment on their withdrawal, but insures that have made similar decisions had attributed their exits to inflation, increased wildfire risk, and a regulatory environment that makes it hard to get rate increases approved quickly.
The MGA market boom fuels channel distribution plans
There is no arguing about the strength of the managing general agent (MGA) market in 2023. MGAs' agility, innovation, and focus on specialty and complex lines have positioned them for continuous year-over-year growth. Conning reported the MGA market grew by 24% in 2022, with associated premium volumes estimated to be more than $85 billion last year.
Much of MGAs' success can be attributed to how versatile they can be. Over the last decade, ReSource Pro has identified and tracked well over 100 startup MGAs/MGUs deployed under various business models, including line- and segment-focused, digital platform, global specialty, and digital native MGAs. At the same time, incumbent MGAs are also leveraging advanced tech capabilities and new channel strategies to propel their growth in a market with increasing competition. The latter has become especially critical as MGAs have a broader role in the distribution landscape and seek to expand their market reach in an increasingly hardening market.
A new ReSource Pro research report examines the channel distribution plans of MGAs in 2023, including their current partnerships, how they expect distribution to change in the next few years, and their strategies to expand various channel partners over the next few years. Considering the many challenges in the market today, such as rapid technological advancements, evolving customer expectations, and a volatile economic environment, MGAs are exploring aggressive plans to grow certain distribution channels.
AI in Insurance
Where is the insurance industry placing its AI bets?
A staggering 85% of insurance organizations see digitization as their top strategic priority, and a majority of their investments are going towards improving the technology stack. As a result of this surge in investments, a report by Drake Star found that the global insurtech industry is expected to reach a market value of $158.9 billion by 2030.
The insurance industry is set to be one of the biggest investors in the AI boom. This trend is rising because of the sheer efficiency that technologies like AI, machine learning (ML), and deep learning (DL) bring to the table. These innovations are spearheading insurtech’s growth — proving that even highly regulated industries are playing an important role in the mass adoption of AI.
Why AI investment in insurtech is on the rise
Businesses are realizing the importance of leveraging AI and why this is not just market hype — but reality. From process efficiency to cost savings, these are some of the few reasons why the insurance industry has joined others in the insurtech arena.
The insurance industry has traditionally been slow to adopt technologies or newer processes because of tedious, manual processes, legacy systems, and compliance requirements. However, with the surge in AI applications tailored specifically to optimizing the insurance lifecycle, insurance providers are now getting ahead of the trend and positively impacting their bottom line.
Currently, there’s enough validation in the market showing AI’s potential to improve various stages of the entire insurance process — whether it’s underwriting, claims processing, fraud detection, or customer service.
Julio Pernia Aznar is the CEO of Bdeo
InsurTech/M&A/Finance💰/Collaboration
Azuga Unveils its Telematics-Driven Collision Reconstruction Solution
Azuga, a global leader in fleet telematics, announces the debut of its pioneering Collision Reconstruction solution, a telematics-integrated accident analysis tool. This state-of-the-art technology, born from seven years of rigorous research and development, is poised to redefine accident management for fleets worldwide.
Azuga was acquired by Bridgestone in September 2021
Pet insurance company Wagmo raises $9 million
Pet insurance company Wagmo raises $9 million
Wagmo recently raised $8.9 million, as reported by Crunchbase, but the type of financing round hasn’t been disclosed. This funding raises their total to $24.5 million.
The company, which recently underwent rebranding, has around 35 employees. It offers two main pet health plans: Wagmo Insurance for emergency care and Wagmo Wellness for routine pet maintenance, covering everything from regular vet visits to grooming.
Coverage is underwritten by National Specialty Insurance Company.
Cinch Home Services Announces Partnership with TrustedChoice.Com
Cinch Home Services, one of the nation's leading home protection brands, has announced its latest partnership with TrustedChoice.com, the top digital marketing platform for the independent insurance industry.
TrustedChoice.com is widely recognized for its comprehensive support and provision of quality products for its vast network of independent insurance agents. Through the partnership, Cinch will directly support the independent agencies who operate through TrustedChoice.com by offering its home protection plans via the channel.
"Cinch Home Services is proud to be joining forces with an esteemed platform like TrustedChoice.com," said Steve Upshaw, CEO of Cinch Home Services. "This partnership is an extension of Cinch's continued investment in the critical insurance channel, and through it, we look forward to working with the independent agent community to deliver exceptional value to their customers with our product."
Cinch offers affordable home protection plans that help cover the repair or replacement of major appliances and systems. By combining home insurance with a Cinch protection plan, homeowners are protected from not only unexpected accidents and emergencies, but also every day breakdowns of critical home systems and appliances.
"We are thrilled to welcome Cinch Home Services as a company partner," noted Vinnie Savarese, Senior Vice President of Company Relations for TrustedChoice.com. "Through this affiliation, our agencies will now have access to the products they need in order to offer fully comprehensive protection of a client's home."
Irys Insurtech, Inc. the Revolutionary Insurtech Challenger, Closes $3.5 Million Seed Round to Take on Legacy Competitors
Irys Insurtech, Inc., a pioneering insurtech startup, has closed a seed funding round of $3.5 million, marking its entrance into the market dominated by stagnant legacy agency management systems. The funding round was led by Markd, known for its keen interest in groundbreaking insurtech innovations. This investment heralds a new era where traditional insurance distribution processes are challenged and redefined.