Insurance industry grapples with rising cyber crime threat, climate change concerns: PwC  September 14th 2023

Insurance industry grapples with rising cyber crime threat, climate change concerns: PwC

In the “Insurance Banana Skins 2023” report, a joint effort by PwC and CSFI, the global insurance industry’s primary concerns have been revealed, with mounting fears over cyber crime and escalating worries regarding climate change.

The insurance industry faces its foremost challenge in the form of cyber crime. This threat encompasses the potential theft of sensitive data, phishing, and ransomware attacks.

Notably, cyber crime has held its top position as the most significant global risk since the 2021 report.

Insurers are navigating an increasingly intricate digital landscape characterised by new technologies, cloud computing, and extended supply chains. This complexity amplifies their vulnerability to cyber threats.

To counter this, the report underscores the urgent need for proactive cyber security measures integrated into both business and IT architecture.

Insurers voice concerns regarding the misuse of artificial intelligence as a potent weapon for breaching security, with a specific focus on state-sponsored cyber crime.

Rising costs associated with mitigating cyber threats are causing unease among insurers. The expansion of the insurance industry’s IT ecosystem, driven by the proliferation of internet-connected devices and reliance on cloud and third-party services, heightens the challenge of defending against cyber attacks.

Climate change has ascended to a prominent position, ranking among the top three concerns for insurers. This reflects the growing immediacy and impact of climate-related risks.

Property insurance crisis prompts Senate hearing

Washington lawmakers have come together to discuss the growing insurance crisis spurred by climate change-induced natural disasters and the exodus of insurers from high-risk states like Florida and California.

The Senate Committee on Banking, Housing and Urban Affairs convened a hearing on Thursday to explore potential solutions, receiving testimonies from insurance industry experts and consumer advocacy groups.

Witnesses at the hearing raised concerns over surging insurance premiums as the US faces a record-setting year for weather-induced property damage.

Swiss Re previously reported that the first half of 2023 saw nearly $35 billion in insured losses from severe convective storms. With the devastation caused by Hurricane Idalia, initial estimates have posited that this total could increase by billions more.

In a joint statement, the American Property Casualty Insurance Association (APCIA) and the Reinsurance Association of America (RAA) noted that the last decade of global natural catastrophe events has been the costliest in recorded history.

The groups pointed to how the average annual weather-related catastrophe losses went from $126 billion between 1990-1999 to $219 billion between 2010-2020.

Amid these escalating losses, insurers have been choosing to limit their presence in catastrophe-prone states like Florida and California, leaving many homeowners scrambling for alternative coverage that is typically at higher premiums and with reduced coverage.

Home Insurance Prices Up 21% as Homeowners Are Left to Deal with Climate Change, Turbulent Market

As the U.S. grapples with a surge in extreme weather and natural disasters, home insurance prices are continuing to skyrocket.

From May 2022 to May 2023, home insurance policy premiums increased by an average of 21%, substantially higher than the reported increase of 12% from the previous year (May 2021 to May 2022), according to a new report released today by insurtech leader Policygenius.

The analysis, which is based on internal Policygenius data from more than 17,000 policies renewing from May 2022 to May 2023, also found that in every state (plus Washington, D.C.) analyzed for this report, the average premium increase was higher than the year before. The sharp increases in recent years come amid record-high insurance industry losses, more severe climate disasters, prolonged wildfire seasons, and higher construction prices.

The 2023 Policygenius Home Insurance Pricing Report also found that:

• The vast majority of U.S. homeowners faced higher insurance premiums at renewal. Of the more than 17,000 home insurance policies quoted for renewal with Policygenius between May 2022 and May 2023, 94% were quoted a higher premium at renewal, compared to 91% of 10,283 renewals from May 2021 to May 2022.

• Home insurance prices are up 35% compared to just two years ago, with several wildfire- and tornado-prone states seeing the largest average increases. Based on an analysis of 27,156 home insurance policy renewals from May 2021 to May 2023, Policygenius found that insurance premiums increased by an average of 68% in Florida, 47% in New Mexico, and 46% in Colorado, Idaho, and Texas over the course of two years.

• East Coast states saw the smallest increases at renewal in 2023. While homeowners in these states haven't experienced the same level of sticker shock as others, home insurance premiums have still increased 10% in Vermont, 11% in New York, 13% in Maine, and 14% in New Hampshire since last year, according to the Policygenius analysis.

While most home insurance providers have raised premiums or reduced coverage in high-risk areas to remain profitable, others have gone out of business completely due to the turbulent market. The lack of affordable options has been particularly noticeable in Florida, where homeowners saw their premiums increase an average of 35% from May 2022 to May 2023, after seeing an average increase of 10% the year before.

Swiss Re: P&C insurance likely to regain profitability despite hard market

Profitability for non-life insurance companies is likely to improve globally as the industry adapts to elevated risks, according to a new analysis.

Swiss Re’s study found that although a hard market is likely to continue, 2023 is expected to be a “transition year” globally for property and casualty (P&C) insurance.

“Our analysis shows that non-life insurers’ profitability is set to improve strongly in the coming years as higher interest rates and rate hardening more than offset higher claims costs from persistent inflation,” said Jérôme Jean Haegeli, Swiss Re’s chief economist. “This will be vital to enable industry resources to grow at a rate that will match global demand for insurance protection.”

Swiss Re added that despite the positive outlook, profitability within the P&C insurance sector is likely to remain lower than the rising cost of capital this year.

Turning the corner will require insurers to become more disciplined with their capital and use it more efficiently, the study found.

Best's Review Examines the Mutual Insurance Sector

The September issue of Best's Review looks at the U.S. mutual insurance sector, using AM Best data to compare the performance of property/casualty mutuals and stock insurers. While the sector posted a net loss of $6.2 billion in 2022 due to results in both the private passenger auto and homeowner lines, mutuals have a long history of weathering storms.

AM Best Director Brian O’Larte describes the difference between stock and mutual companies using a seacraft analogy: Stocks are fast, unpredictable and risky speedboats, while mutuals are steady, careful cargo ships with a clear destination. Whether enduring world wars, great depressions or other economic setbacks, mutuals have a long history of navigating through rough seas. Read further in “The Mutual Mindset: Slow and Steady.”

Best’s Review is AM Best’s monthly insurance magazine, covering emerging issues and trends and evaluating their impact on the marketplace. The complete content of Best’s Review is available here

Wholesale insurance reaches new heights

During the past 4 years, the wholesale insurance market has stepped up to fill coverage gaps and provide stability as the world faced unprecedented challenges, which included a global pandemic, major supply chain issues, increasing natural disasters, economic turbulence and social inflation.

In 2020, as COVID-19 closed down the world and created previously unimagined new risks, the excess & surplus lines market was having its “best, worst year.” Amid chaos and disruption, E&S professionals responded, supporting insureds and providing relief and stability in uncertain times. The pandemic also spurred new questions about business interruption coverage and regulatory scrutiny around the ability — or more likely inability — of the insurance industry to underwrite a future global pandemic along with discussions about the possible need for public-private solutions.

The pandemic and return to work continued to reshape business and risk in 2021 along with new economic turbulence, continuing supply chain challenges and a tightening labor force. While still grappling with persistent economic turbulence, including historic inflation, and lingering COVID-19 impacts, the industry also faced unpredictable weather events, bigger storms and destructive wildfires in 2022.

Soaring premiums

“Despite the inflationary challenges, the E&S market continues to be a great opportunity,” says Markel Chief Wholesale Officer Wendy Houser. “In the near term, the market continues to rise, and we believe it will once again secure a record amount of E&S premium. In fact, for the market as a whole, there hasn’t been a retraction in E&S premium growth since 2011. The market has grown every year.”

Commercial insurance prices up in Q2: WTW

U.S. commercial insurance prices increased by 6.1% in the second quarter, up from 5.6% in the first quarter, Willis Towers Watson PLC said in a report released Monday.

WTW’s latest Commercial Lines Insurance Pricing Survey compared prices on policies underwritten during the second quarter of 2023 to those for the same coverage in the year-earlier period.

Commercial property saw the largest hike with another double-digit increase in the quarter, higher than in the year-earlier period.

Commercial auto and excess/umbrella liability also saw near double-digit increases as nearly all lines continued to see higher prices.

Directors and officers liability and cyber saw price decreases at even greater rates than in the year-earlier quarter, while workers' compensation maintained its trend of price decreases

Judge in $6B 3M Settlement Issues Order to Stop Litigation Funding

A federal judge has barred attorneys and claimants involved in 3M’s $6 billion settlement with U.S. military service members from any third-party litigation funding agreements.

District Judge M. Casey Rodgers in the U.S. District Court for the Northern District of Florida said in an order late last month that it is “important that [claimants] are not exploited by predatory lending practices.”

Rodgers also ordered attorneys to disclose any funding agreements made by the 250,000 or so claimants before or after the settlement was made to resolve the multidistrict litigation case— one of the largest in U.S. history—over 3M’s Combat Arms Earplug products. Plaintiffs claimed the earplugs were defective and led to hearing damage.

IRC Survey Finds Support for the Use of Insurance Rating Factors

Most Americans agree U.S. insurers price personal auto and homeowners policies by using fair rating variables yet nearly half of them (47 percent) said paying for coverage was a challenge, a newly-released Insurance Research Council (IRC) survey found.

"Insurance Research Council (IRC) survey data shows overall positive attitudes toward rating variables, with variations across demographics."

“Survey data shows overall positive attitudes toward rating variables, with variations across demographics,” the IRC’s report, Public Perceptions Regarding the Fairness of Insurance Rating Factors, stated. “In general, consumers were more favorable toward rating factors that are perceived to be directly related to the risk of the insured property (condition of the home, cost of rebuilding, miles driven, vehicle information, etc.). Consequently, consumers were less likely to rank fair on factors tied to the insured's personal profile.”

Personal auto insurers are being fair with policyholders when pricing policies based on a driver’s previous traffic violations (85 percent), their claims-filing history (76 percent) and on information derived from telematics devices (75 percent), IRC survey respondents said. Telematics devices are installed in vehicles or on smart phones with the driver’s permission to track driving and vehicle patterns.

Less than half of survey respondents felt it was fair for personal auto insurers to use a driver’s level of formal education (45 percent), gender (42 percent), and marital status (41 percent) when pricing a policy. Yet those were the only three—out of 14 rating variables—which did not secure majority support among survey respondents.