News
Wildfire-prone California to consider new rules for property insurance pricing
California will let insurance companies consider climate change when setting their prices, the state’s chief regulator announced Thursday, a move aimed at preventing insurers from fleeing the state over fears of massive losses from wildfires and other natural disasters.
Unlike other states, California does not let insurance companies consider current or future risks when deciding how much to charge for an insurance policy. Instead, they can only consider what’s happened on a property in the past to set the price.
At a time when climate change is making wildfires, floods and windstorms more common, insurers say that restriction makes it difficult to truly price the risk on properties. It’s one reason why, in the past year, seven of the top 12 insurance companies doing business in California have either paused or restricted new business in the state.
Allstate Records About $640M in August Cat Losses, Half From Maui Wildfire
Allstate reported about $641 million in August catastrophe losses from 18 events, with about half coming from the Maui wildfire.
The losses for the month of August were $551 million or $435 million, after-tax, partially offset by favorable reserve reestimates for prior events, Allstate said.
For the first two months months of the third quarter 2023, Allstate’s pretax catastrophe losses were $864 million, the company said.
The Northbrook, Illinois-based insurer recorded a second quarter net loss of $1.4 billion, on $2.7 billion in catastrophe losses. Allstate’s property-liability segment combined ratio for Q2 was 117.6 compared to 107.9 a year ago during the period.
Chief Financial Officer Jess Merten said that in August implemented rate increases and inflation in insured home replacement costs resulted in a 13.2% average increase in homeowners insurance gross written premium compared to August 2022.
With about 8% of the market in 2022, Allstate is the third-largest writer of homeowners multiperil insurance in Hawaii, according to AM Best.
Worsening climate disasters could spark insurance rate surges for millions: report
A growing number of homeowners are finding it difficult to afford insurance on their homes, a problem expected to worsen with impacts of climate disasters, a new report said.
A report from First Street Foundation released Wednesday said insurance companies and lawmakers have underestimated the impact of climate change on insurance premiums.
“It used to be homeowner’s insurance was an afterthought when you are looking at buying a property. Now you’ll really need to do your research into what risks there may be in that property in the coming years,” Todd Bevington, a managing director at the insurance broker VIU by HUB, told The Associated Press.
Best’s Market Segment Report: AM Best Revises Outlook on US Homeowners Insurance Segment to Negative
Given three consecutive years of net underwriting losses in the U.S. homeowners insurance segment owing to elevated natural catastrophes that have continued in the first half of 2023, combined with other ongoing market challenges, AM Best has revised its outlook on the segment to negative from stable.
According to the new Best’s Market Segment Report, “Market Segment Outlook: US Homeowners,” insurers have already been contending with headwinds such as above-average catastrophe activity, inflationary pressures and elevated reinsurance costs. Now segment carriers are being further challenged by more-frequent secondary weather perils and higher retentions and co-participation given reinsurance pricing trends. Rising loss costs, inflation and supply chain disruptions are pressuring earnings, making it difficult to maintain rate adequacy. Consequently, some market leaders have curtailed new business in catastrophe-exposed areas.
“Going forward, homeowners carriers will find it difficult to absorb these underwriting pressures while strengthening their balance sheets. A return to underwriting profitability over the near term appears highly unlikely,” said Maurice Thomas, senior financial analyst, AM Best.
While AM Best still views overall risk-adjusted capitalization as solid for most homeowners insurers, the capital cushion of some companies, especially those in catastrophe-exposed areas, has started to erode due to the persistent underwriting losses in recent years. With companies increasing their reinsurance retention and co-participation levels because of reinsurance market conditions, catastrophe activity is having a larger negative impact on results, and in some cases, this is driving increases in overall underwriting leverage, pressuring capital assessments. While the homeowners segment continues to face various challenges, carriers need to maintain their focus on rate adequacy, technology adoption and catastrophe risk management for earnings stability going forward
AI in Insurance
How insurers can leverage the power of generative AI
Generative AI is fundamentally reshaping the insurance industry from underwriting and risk assessment to claims processing and customer service.
EY’s latest article explores the role of generative AI and its transformative power in the insurance industry. You’ll discover:
- How insurers are adopting generative AI
- Three primary objectives insurers are seeking to address
- Three steps to help insurers get started
Access the report here
InsurTech/M&A/Finance💰/Collaboration
Openly Secures $100 Million in Series D Funding
Insurtech homeowners insurer Openly said has raised $100 million in Series D funding, led by Eden Global Partners.
There was additional participation in the round from a mix of current and new investors including Gradient Ventures, Clocktower Technology Ventures, Trinity Capital, and others.
David Dwek, Eden Global Partner’s CEO, has joined Openly’s Board of Directors.
“Openly’s growth continues to be fueled by the support of investors, employees, and independent agents who all value the game-changing approach we bring to the insurance space,” said Ty Harris, co-founder and CEO.
“Eden Global Partners is an ideal firm to support our pursuit of the massive, long-term opportunity to modernize homeowners insurance in the United States, and we’re thrilled to have them as our partner. It’s a perfect match.”
Launched in 2019, Openly said it now serves 30,000 independent agents across 21 states in the U.S.
Commentary/Opinion
The insurance bubble could make the value of your house plummet
If you own a house in California, it keeps getting harder to insure it. After years of devastating wildfires, Allstate stopped offering new policies in the state last November. State Farm announced the same thing in May, citing “rapidly growing catastrophe exposure.” Farmers Insurance is limiting new policies. Some smaller insurers have followed.
Thousands of other homeowners have been told that their policies won’t be renewed—and for some, the only option left is a much more expensive last-resort insurance program set up by the state. On average, the program, called FAIR, costs more than twice as much as traditional insurance. (That’s partly because California regulations don’t currently let insurers raise rates based on future climate risk, so traditional insurance is artificially cheap.)
The same problem is playing out in other states, like Louisiana, where the risk of extreme wind is increasing, and in Florida, where more than 1.8 million properties are at risk of severe flooding—and insurers are also pulling out.
A new report looks at how much these rising insurance costs could make home values drop. “We have this accumulating climate debt over the past few decades that is just starting to come due,” says Jeremy Porter, a researcher at First Street Foundation, the nonprofit that published the report.
P&C insurance market shows resilience, risk awareness, and tech commitment: KBW
The KBW Insurance Conference 2023 shed light on the current state of the Property and Casualty (P&C) insurance market, revealing a landscape marked by pricing resilience, careful risk assessment, and a commitment to technological advancements.
Despite exceptions in sectors like Directors and Officers (D&O) insurance and workers’ compensation, most personal and commercial insurance lines are witnessing steady or accelerating rate increases. This upward trend in pricing positions insurers to exit from competitively-priced D&O accounts.
Importantly, these rate increases continue to outpace respective loss trends, suggesting a positive outlook for core underwriting margins in the second half of 2023 and into 2024. The compounding effect of personal auto rate adjustments is expected to drive near-term improvements, with earned rate adequacy anticipated by 2024 or early 2025.
Insurers are closely monitoring steadily-high claim cost inflation, driven by factors such as economic inflation, social inflation related to litigation, and climate change-related trends. To account for unusual loss trend volatility, particularly in auto and property lines, insurers are incorporating conservative judgment into their assessments.
There is also a recognition that favourable workers’ compensation trends may not persist, which is keeping profitability in focus.
Digital Self-Service Platforms: Benefits and Risks for Insurance Companies
Digital self-service platforms are finally taking root in the insurance industry. Although large carriers and MGAs have led that charge, smaller MGAs, independent brokers and agencies are now following suit. The reason? Customer convenience. A recent survey by Zendesk reveals that 75 percent of consumers view self-service as a more convenient way to solve customer service issues. Solutions like chatbots, user forums, and customer portals are rapidly changing how customers engage with insurance companies.
The right self-service automation solution can be a win-win for MGAs and their customers. However, the wrong or incomplete solution can irritate your customers and risk losing them to a competing agency. There are a number of benefits and considerations to keep in mind when deciding if and when to implement a self-service platform.
Digital Self-Service Platforms: The Pros
Before your organization goes through the process of digitizing certain aspects of insurance to accommodate self-service for customers, let’s take a look at why you’d want to do it in the first place.
Eric Ayala is the senior vice president, Americas for Novidea
5 Lessons learned from insurance claim investigations
Navigating the complex landscape of insurance claims requires a mix of empathy, problem-solving and expertise.
As claims adjusters, we’ve spent decades developing our skills and collaborating with underwriters, administrators and policyholders to investigate both common and unusual claims. We’ve compiled important insights that shape our approach to claims investigations.
This article is the first in a series about the fundamental lessons that shed light on what it takes to do the job successfully. We hope to provide an insider’s perspective on how skilled adjusters really operate. The slideshow above illustrates five key lessons about insurance claim investigations.
In truth, we don’t just work for insurance companies. A crucial part of our job is fulfilling the promise to pay claims, which often requires us to advocate on behalf of claimants to help them receive the compensation they deserve.
A fair and just conclusion
Insurance claims adjusting is a dynamic field that demands a deep understanding of policies, meticulous investigation and effective communication.
Through our experiences, we’ve come to understand and define these fundamental lessons. We’ve learned to appreciate the delicate balance between thoroughness and efficiency, as well as the importance of building trust with claimants.
Louis Pippin is chief claims officer at Venbrook Group
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People
QBE names CEO for North America
QBE has appointed Julie Wood as CEO of the company’s North America division.
Wood, who joined QBE in 2023 as group head of distribution, had been serving as interim CEO since the exit of predecessor Todd Jones in August.
She previously held senior roles at Marsh, where she served as a member of the company’s US executive committee. Prior to Marsh, Wood spent more than 15 years in senior executive roles at Zurich Insurance Group, including in global customer management and underwriting leadership.
"Julie brings deep industry expertise with a strong customer focus, underwriting expertise and knowledge of the North America market," Andrew Horton, QBE group CEO said.