Commentary/Opinion
APCIA CEO talks natural disasters and insurers pulling out of large parts of the country
David A. Sampson, American Property Casualty Insurance Association president and CEO, joins 'Fast Money' to talk headwinds insurers are facing as natural disasters become more and more expensive to insurers.
7 ways to prevent claims leakage
A constant challenge for the insurance industry is the continual problem of overpayment of claims and expense, often referred to as “leakage”, by claims staff during the handling of losses. A long, drawn-out claims process can drain operational budgets, as can adjuster inexperience, reinforcing the need for improved claims processing tools.
Claims leakage costs approximately $30 billion each year, according to consulting firm The Lab, which estimates the problem accounts for between 20 and 30 percent of all claims paid.
Oftentimes, mistakes leading to claims leakage are found too late, typically through audits conducted on closed claims where there is no way to rectify an error.
Preventing errors
Inefficient claims handling that leads to payment errors typically involves process inconsistencies — whether manual or automated.
One example involves an insurer with a cumbersome legacy system, requiring repetitive manual input of information by the adjuster who may be saddled with too many claim files, as well as added pressure from management to close files quickly, leading to an increased risk of errors.
Another example highlights the knowledge gap the insurance industry is facing, with many senior employees who have or will be retiring soon. This can lead to file transfers among remaining adjusters on staff or newly hired adjusters who arrive with a fresh set of biases and expectations, furthering the possibility of inconsistent claims handling and irate policyholders.
Many new hires receive little onboarding before handling claims files. Without proper training on a carrier’s policies and procedures, adjusters may be faced with complex claims too early in their careers, leading to poor decision-making and eventual errors.
Whether the result of human error or fraud, erroneous claims payments are preventable. Adjusters entrusted with handling claims payments should receive training on the proper procedures and automated systems used by the insurance carrier to reduce these types of errors.
Jane Nelson,vice president of business development for Claimplus
How Auto Insurance is Modernizing Using "As Built" Information for Vehicles: Part One
Automatic form filling processes remove the confusion, doubt, costs, and errors of manual processes. When a single source of accurate information is available, multiple guesses, opinions, and duplicate or triplicate efforts seem obviously tedious and wasteful.
Why would anyone NOT want the right data, the first time, right away?
Auto insurance companies that process policies and claims every day for the current 250+Million fleet of U.S. vehicles in operation will particularly value the speed and accuracy that VIN pre-fill data provides.
Thankfully, the accessibility of this intelligence has caught up with the need. While there have been VINs commonly in place since 1981, recent advancements and OEM participation have made these data assets available at scale. As of late 2019, dedicated teams have created a detailed, insurance-specific semantic taxonomy that makes these underlying data easy to use in everyday applications.
Marty Ellingsworth serves as Executive Managing Director, P&C Insurance Intelligence Group at J.D. Power
News
The History of Labor Day
[editor's comments: Wishing all 'Connected' newsletter subscribers a happy and peaceful Labor Day weekend. 'Connected' will resume on Tuesday, September 5th, Alan Demers and Stephen Applebaum]
Labor Day's history is as colorful as it is long
By RONNI SANDROFF Updated August 29, 2023
Labor Day has been a national holiday in the United States since 1894. To many, it may signify picnics, parades, a day off from work, or the end of summer and beginning of fall.
But the day actually celebrates a long history of U.S. workers and their immense contributions, at various periods of time under extremely difficult conditions, to the country's might, abundance, and success. 1
KEY TAKEAWAYS
The first Labor Day parade took place in New York City in 1882.
Labor Day was declared a national holiday in 1894 and is observed on the first Monday in September.
The roots of Labor Day grew out of violent clashes between labor and police during the Haymarket Riot in 1886, when thousands of workers in Chicago took to the streets to demand an eight-hour workday.
Today, Labor Day weekend marks the unofficial end of summer, but worker-oriented Labor Day parades and festivities are still part of the federal holiday.
Having the first Monday in September off from work was remarkable for American workers in 1894, when Labor Day was declared a national holiday.
Working conditions in the country’s factories, railroads, mills, and mines were grim. Employees, including children, were often required to work 12 or more hours a day, six days a week, in crowded, poorly ventilated spaces. Supervision was harsh and punishments were handed out to those who talked or sang as they worked.
Calls for shorter workdays and better conditions came from worker strikes and rallies in the decades after the Civil War. On Sept. 5, 1882, union leaders in New York City organized what’s thought to be the first Labor Day parade.
Hurricane Idalia insured losses to near $2.2 billion, says KCC - Reinsurance News
Catastrophe risk modeller Karen Clark & Company (KCC) has pegged privately insured losses from Hurricane Idalia at close to $2.2 billion, the majority of which relates to wind and storm surge impacts in the U.S.
KCC’s estimate is low compared with other early insured loss estimates for Idalia, and includes privately insured damage to residential, commercial, and industrial properties, as well as automobiles.
The close to $2.2 billion estimate does not include damage to boats, offshore properties, or National Flood Insurance Program (NFIP) losses.
Although Hurricane Idalia weakened from a Cat 4 storm to a Cat 3 prior to landfall on Florida’s big bend region, it was still the strongest hurricane to make landfall at this location since 1986.
AI in Insurance
Why using AI to minimize risk should be at the forefront of the insurance industry - Insurance News
The insurance industry has long been driven by data, but currently more than 40% of the time spent by underwriters is spent doing menial tasks. This results in billions of dollars lost over several years. However, there is a simple fix to this issue: artificial intelligence. AIThanks to the recent boom of AI improvements across the board, more companies in a variety of industries have begun to use it for streamlining basic tasks. This is especially needed in the insurance space, where AI usage can improve workflow and save companies money with little effort.
The incorporation of AI technology is a powerful tool to revolutionize underwriting and claim adjusting processes. AI's ability to aggregate vast amounts of data and extract valuable insights offers distinct advantages that human underwriters or claim adjusters may not consider. By harnessing AI's capabilities, insurers can enhance their efficiency and accuracy, ultimately benefiting the insured by streamlining operations and expediting claim settlements. AI streamlines work and mitigates riskAI can analyze vast amounts of data to assess risks more accurately and efficiently than employees who are simply going through the motions. Thus, the focus of an insurance company’s AI usage should be finding algorithms to determine premiums based on individual risk profiles. This not only enables more personalized policies and fairer pricing for the client, but it allows for the insuring company to save time.
Van Carlson is the founder and CEO of SRA 831(b) Admin
How can generative artificial intelligence assist the insurance industry? - Lexology
Generative Artificial Intelligence (AI) utilises machine learning algorithms that learn from data to generate a human-like output. Large language models have the potential to assist insurers as information can be provided for it to grasp, summarise, analyse, translate and create an output, based upon the instructions and data set it is given.
How can AI help insurers?
By analysing previous statistics, drawing on relevant points and predicting future risks, the efficiency of risk research may be furthered, assisting underwriters to make more informed decisions. The technology also has the potential to support with client communications, by being programmed to respond to general queries. This may allow for conversations surrounding claims, policies and other matters to be dealt with by the model. With the ability to draft documentation too, AI has the potential to reduce the amount of time spent on administrative tasks by employees, allowing them to focus on more complex tasks.
However, AI also poses a number of risks and challenges, including:
Inconsistent outputs – AI will not always produce the same outputs, even where the same input is provided. This can cause Conduct Risk challenges as there is an increased risk of unequal customer outcomes.
Operational resilience – AI is still in its relative infancy. Any insurer using AI as part of its processes must take steps to ensure that those process are sufficiently resilient to maintain suitable levels of operational continuity
Material outsourcing – where AI is provided by a third party software provider, additional steps will need to be taken to ensure regulatory requirements relating to material outsourcing are complied with AI is not infallible – there are countless of cases of AI producing output that is incorrect. Until AI improves, users should always double check the veracity of its output, which may nullify any efficiency gains from using AI in the first place
Bias – AI uses historic data sets, which can include biases, so checks are required to ensure that insureds are not experiencing discrimination, for example, where premiums increase as a result of a risk prediction
InsurTech/M&A/Finance💰/Collaboration
Lemonade's 'Synthetic Agent' Nonsense
Recently, Lemonade entertained us with their last pyrotechnic: "the synthetic agent." That follows a long list of shining and exotic concepts, which have been as essential in their DNA as their bloody combined ratio (for each dollar written, they have consistently spent more than $1.40).
Let's talk about some of these magnificent pearls:
- Charity giveback. The storytelling, "Lemonade takes a flat fee and treats the rest of the money as yours, not ours," and their iconic slice of pizza have fascinated insurance professionals.
The hard reality: Last year, half a cent for each dollar of written premium in 2021 went to charity. The charity giveback has merely been crumbs of the pizza! I'm sure many insurance incumbents are donating a higher percentage of their premiums.
Claim settlement world records. It was a Christmas gift in 2016, and in June 2023 their PR team did it again 👇
Alumni. At the 2022 investor day -- in answer to the question about the 30% to 40% churn rate -- Lemonade disclosed that it doesn't lose policyholders, they create alumni! Standing ovation for the guts to claim this!
Seasoned policyholders. The investor day was full of pearls! CEO Daniel Schreiber described portfolio pruning as "seasoning."
The synthetic agent. This is the most recent creation. A lender receiving a 16% interest rate is presented as a (synthetic) agent. The same day, Daniel gave one of the most honest comments I have ever seen from him:
Screenshot of a post from Daniel Schreiber with post of the words faded with a section bolded
His second explanation has been definitely more polished: "It may be tempting to dismiss synthetic agents as "good old-fashioned debt that's been given a glossy makeover. [...] Here are four key differences that make all the difference: 1. Cash Flow Synchronization vs. Fixed Schedule [...] 2. Adaptive vs. Static [...] 3. Operational Freedom vs. Restrictions [...] 4. Their Risk vs. Our Risk [...] ."
For my fellow actuaries reading this edition of the newsletter, you may enjoy the video below from some Lemonade fans.
Let's look at Lemonade customer growth and their marketing expenses (the Metromile acquisition at the end of July '22 should be pro rata reflected in the Q3 '22 data and entirely in the Q4 '22).
Customer growth and acquisition chart from 2021 through 2023
Customer growth from the end of Q1 '21 to the end of Q1 '23
At the end of Q1 '23, their customer base reached 1.85 million (compared with 1 million at the end of Q1 '21), but the growth has significantly slowed (excluding the quarter when Metromile was added). Total marketing costs stayed around $36 million until Q3 '22 and have been reduced below $30 million in the last two quarters. This sales and marketing spending has to deal with replacing the ALUMNI, and not much is left to grow the customer base.
The synthetic agents are supposed to provide that growth, but the interest paid will be on top of the already bloody combined ratio.
Matteo Carbone is founder and director of the Connected Insurance Observatory and a global insurtech thought leader
West Bend Mutual Insurance Adopts ZestyAI Property Risk Analytics Platform
West Bend Mutual Insurance (West Bend, Wisc.) has engaged ZestyAI (Oakland, Calif.), a provider of climate and property risk analytics solutions powered by artificial intelligence, to analyze property risk in the insurer’s existing portfolio and enhance the inspection process.
As time passes, properties evolve and change, and as a result, their risk profiles also evolve and change, notes a statement from ZestyAI. Factors such as roof condition, debris, and overgrown vegetation can significantly impact a property’s risk, according to the vendor. Using ZestyAI’s property risk analytics platform, Z-PROPERTY, ZestyAI reports that West Bend will conduct a comprehensive review of its residential portfolio, with a specific emphasis on assessing roof condition. To get a comprehensive analysis of roof quality and condition, the vendor adds that West Bend will leverage its Digital Roof solution within Z-PROPERTY, which ZestyAI describes as an AI-generated, 3D analysis offering unparalleled insights on roof condition, complexity, and potential points of failure.
. “As a carrier, assessing the condition and ability of a roof to withstand exposure to risks like hail and wind is key to effective property underwriting,” comments Jonathan Schulz, AVP, Personal Lines, West Bend. “The technical capabilities and roof analytics of ZestyAI provide greater perspective and efficiencies while evaluating the properties we insure.”
ZestyAI’s says its Z-PROPERTY platform uses computer vision and machine learning to extract insights from aerial and satellite imagery, among other unique data sources, for over 150 million residential and commercial properties. ZestyAI reports that continuously monitors and accounts for changes in property condition, maintenance, and upgrades, enhancing the accuracy of risk assessments. Digital Roof is a suite of roof attributes and characteristics within Z-PROPERTY that go beyond roof quality to include facets, angles, penetrations, and objects for a complete view of every roof in the U.S., according to the vendor.
ControlRooms.ai Raises $10 Million in Series A Funding Led by Origin Ventures
ControlRooms.ai, the leading provider of AI-assisted troubleshooting for heavy industry, today announced that it has closed an oversubscribed $10 million Series A financing round. The round was led by Origin Ventures, with participation from Amity Ventures, Tokio Marine Future Fund, S3 Ventures, GTM Fund, Alpha Square Group, and FJ Labs among others.
The funding will be used to accelerate ControlRooms.ai's product development and go-to-market in the chemical, energy, and materials segments of heavy industry. ControlRooms.ai is live at industry leaders such as OCI Global and Ardagh Group.
With the ControlRooms AI-assisted troubleshooting application, teams enhance productivity, minimize downtime, and optimize resource allocation. ControlRooms.ai does not rely on pre-programmed, static rules to identify operational problems. Instead, its AI dynamically learns plant behavior on its own and surfaces issues before humans or alarms can detect them.
Cannabis insurance startup Frontier Risk raises $3 million
Frontier Risk Group, a commercial insurance startup focused on the cannabis industry, has raised $3.1 million in seed funding led by Casa Verde Capital.
Why it matters: This comes on the heels of news that U.S. health officials recommended that the DEA move marijuana to a lower-risk category under the Controlled Substances Act, which could be a massive boon for the cannabis market.
Details: Connecticut-based Frontier Risk has agreements with reinsurers, many of whom don't understand or directly service cannabis, and argues that stringent regulations on cannabis growers means they have less intrinsic risk than do their agricultural peers.
People
AXA XL appoints Lucy Pilko as Chief Executive Officer, Insurance in the Americas.
AXA XL today announced that Lucy Pilko has been appointed Chief Executive Officer for the Americas region of its insurance operations, effective October 30, 2023.
Ms. Pilko assumes the role from Joseph Tocco who has decided to retire, after more than 12 years as a senior executive in the company's Insurance business, including his current position as Chief Executive for the Americas. He will remain as a special advisor through 2023.
Ms. Pilko will lead AXA XL's insurance business in the Americas, comprised of its U.S., Canada, and Bermuda operations. She brings over 20 years of insurance industry consulting experience, most recently as Managing Director and Senior Partner for Boston Consulting Group (BCG), leading its North American Insurance practice across Commercial Lines, Personal Lines, Brokerage, Individual and Group Life and Reinsurance. In this role, Ms. Pilko developed a particular focus on operating models and digital transformation and served on BCG's large-scale transformation and people and organization practices.
Commenting on Ms. Pilko's appointment, AXA XL CEO Scott Gunter said: "Given her decades of insurance industry consulting experience, Lucy brings a unique cross-industry perspective. Together with the Americas leadership team and our deep bench of underwriting, risk consulting and claims expertise, Lucy's experience will be valuable as we push forward on our strategy, building our recognition and positioning AXA XL for further growth across the Americas."
Canada
Onlia Insurance partners with car subscription service Roam | Insurance Business Canada
Move offers personalized rates and simplified insurance for car subscribers
Onlia Insurance has partnered with Roam to offer personalized insurance rates for car subscribers.
Roam’s car subscription service acts as a pay-as-you-go alternative to traditional car ownership. Roam also includes insurance, routine maintenance, roadside assistance, and other benefits in its subscription plans.
Prior to its partnership with Onlia, Roam offered subscribers a fixed insurance rate, regardless of their individual driving and insurance history.
By teaming up with the digital insurance provider, Roam will be able to introduce personalized rates based on subscribers’ individual driving records.