Commentary/Opinion
[Ed. Note: Recommended] What's Driving the Rise in Auto Costs?
Informed insights explain those sky high Combined Ratios and auto insurance premium increases.
The overall cost of repair is another factor, with electric vehicles costing, on average, 52% more to fix in 2022 than those with internal combustion engines; claims frequency, however, was much less for EVs than ICE cars, according to a report by CCC Intelligent Solutions.
Rumors of Retail Insurance Brokers’ Demise Are Greatly Exaggerated, but to Remain Indispensable, They Must Embrace Insurtech
I’m old enough to remember when leading insurance publications offered headlines like “7 reasons the insurance agent is a dead profession” amidst the proliferation of Insurtech startups and their venture capital partners seeking to reorganize the insurance distribution channel. So is my 5-year-old.
Retail Insurance Distribution: Defying Expectations and Thriving
The good news for “traditional” agents and brokers is that their role in the channel has endured, and, if anything, retail insurance distribution has elevated itself among channel participants based on its resilience (think back to COVID-era results).
In fact, since 2016, the aggregate revenues of the “Top 100” insurance agents and brokers have increased by 77%+, while every slot on the list, one through 100, reflects a greater revenue amount — clearly not solely a function of industry consolidation.
Robert Smith is an entrepreneur and industry insider who contributes his expertise to examine the secrets of the insurance distribution channel. He can be reached at riskletters@theinstitutes.org.
Why Digital Titling Is Transformational
The adoption of digital technologies is driving a remarkable transformation in the auto insurance industry, which has long been associated with complex paperwork and lengthy processes. One example is the advent of digital vehicle titling to streamline insurance claims management for total losses and unrecovered thefts, offering convenience and efficiency while providing substantial economic benefits. This new digital solution, based on blockchain, is revolutionizing the industry and benefiting policyholders and insurers alike.
Same-Day Service
In an era of instant gratification, policyholders expect same-day service. Digital titling delivers just that. By automating manual processes and reducing reliance on paperwork, a digital titling platform enables insurance providers to process total loss claims and obtain sellable titles within a day, an amazing improvement from the previous standard of 60 days. Claims documents are delivered promptly, enabling policyholders to make informed decisions and stay up to date during the stressful occasions of a total loss or theft. This increased efficiency and responsiveness enhances customer satisfaction and strengthens insurer-policyholder relationships.
Without the conveniences of digital titling, insured parties are subject to the “time tax,” a phrase coined by the CEO of Champ Titles, Shane Bigelow, to describe the massive time commitment of securing a title with physical paperwork and a DMV visit.
“We need to reduce the time tax that each consumer pays as they wait in line to process paper and deal with DMVs," Bigelow says. "Because each state has unique systems, laws and procedures, a solution that can work with legacy systems but provide a powerful, flexible and, most important, digital system of record is needed.”
Bill Keogh currently serves as the non-executive chair of The Institutes' RiskStream Collaborative
News
US Commercial Auto Segment Expected To Remain Unprofitable in 2023
Despite continued price increases and underwriting changes, the US commercial auto insurance market will likely remain unprofitable in 2023 due to rising claims severity caused by inflation and growing litigation risk, according to Fitch Ratings.
The rating agency said it expects the US commercial auto segment's combined ratio to exceed 106 percent this year, after the year-to-date direct loss ratio for commercial auto liability increased to 72 percent during this year's first half from 69 percent during the same period last year.
"The US commercial auto insurance line has regularly underperformed, posting a (combined ratio) above 100 percent in 11 of the last 12 years," Fitch said in a Fitch Wire article, "U.S. Commercial Auto Insurance Profits Struggle Amid Inflation, Litigation."
Fitch noted that economic lockdowns that resulted from the COVID-19 pandemic led to a 25 percent decline in reported commercial auto liability claims in the 2020 accident year. This was coupled with associated declines in judicial activity and reserve development that led to a rare underwriting profit for the segment in 2021 when it posted a 99 percent combined ratio.
Since then, however, a recovery in both economic and driving activity has moved commercial auto claims back to pre-pandemic levels, pushing the US commercial auto segment's combined ratio over 105 percent in 2022. Other factors are influencing claims activity as well, Fitch said, including a lack of trained drivers in a tight labor market and risks related to distracted driving stemming from drivers' dependence on digital devices.
The rating agency said the negative effects of higher loss severity on commercial auto insurers' performance are expected to continue, driven by higher inflation, supply chain and skilled mechanic labor shortages, and increasing used vehicle costs. The average statutory closed claim payment in commercial auto liability increased 18 percent in 2022, Fitch said.
Crippling Home Insurance Price Surges Squeeze American Homeowners
The home insurance industry's behavior is negatively impacting Americans, fueling inflation, reducing affordable housing options, and encouraging dishonest practices in the home repair industry
Over eight years, a Texas homeowner saw his annual premium increase from $1,006 in 2015 to $3,271 in 2023, a 225% rise, averaging 18.4% annually
Despite low inflation rates in the broader US economy from 2015 to 2020, the home insurance sector experienced exceptionally high premium increases
State regulations treat home insurance as a utility and allow annual premium increases, often well above inflation rates, leading to widespread premium hikes
Insurance companies approve homeowner repair requests without rigorous scrutiny, leading to an industry of storm chasers and contractors exploiting homeowners and contributing to supply chain issues
For a publication that believes in the fundamental power of free markets and capitalism, we are alarmed at how the home insurance industry's corrupt behavior hurts Americans, fuels inflation, lowers affordable housing options, and inspires dishonest practices in the home repair industry. A colleague showed us his Texas homeowner's policy quotes for eight years. For a modest single-family home, the annual premium in 2015 was $1,006. For 2023, the premium had gone up to $3,271, an astounding 225% increase. Year-over-year, the policy hikes averaged out to 18.4%
Phone calls remain preferred method of business communication, surveys show
Phone calls continue to be the preferred way for consumers to interact with businesses, according to a report by Hiya, a call performance management cloud.
Its annual State of the Call report, updated in June, lays out how despite a growing number of ways to communicate with customers, traditional voice conversations are still favored over other methods like email or text.
“There is power in the voice call that can’t be duplicated by any other communication channels,” Hiya said. “It’s fast, efficient, reliable, and above all human — it creates a vibrant connection in an increasingly digital world.”
As it relates to auto service providers, like collision repair facilities, 39% of consumers prefer voice calls, while just 19% want to be reached by email; another 5% of customers said they’d like to hear from the business by text.
AI in Insurance
Americans Strongly Opposed to AI Insurance Agents, Survey Finds
1.6 million U.S. insurance agents can breathe a little easier this morning, thanks to a recent survey by GetSure, a leading online insurance agency.
"AI is coming to Insurance distribution and has the potential to do wonders for the customer experience," said Rikin Shah, Founder & CEO of GetSure. "Getting this right, however, will require an open dialogue with consumers, and that's exactly why we ran this survey."
The survey measured 1,000 Americans' views about working with an AI insurance agent, and revealed that:
Only 9% of respondents were "very comfortable" with the idea of an AI insurance agent while a staggering 70% did not feel comfortable
Even with the promise of discounted rates, 55% of respondents still preferred a human agent over an AI agent.
"That's a strong statement," added Shah. "Consumers are telling us loud and clear that you couldn't pay them to work with an AI."
When asked why they were reluctant to work with an AI-powered insurance agent, respondents cited the following as their top three worries:
Inaccurate recommendations (59%)
Job loss for humans (53%)
Misuse of personal information (43%)
In one of its most surprising findings, the survey found that, despite their distrust, Americans seem to have accepted that AI will be the future face of the Insurance industry. A whopping 68% expect that within 20 years, the majority of U.S. insurance agents will be AI.
"We understand the concerns and reservations consumers have about AI in insurance," said Shah. "And we're committed to maintaining an open dialogue with our customers, listening to their feedback, and continuously improving our products."
InsurTech/M&A/Finance💰/Collaboration
Top insurtech funding rounds, September 2023
There were about 40 funding events in the insurtech sector between September 1 and September 30, 2023, according to a review by Digital Insurance. What follows is a selection of these, focusing on those in the P&C and life insurance sectors that are part of the venture-capital financing model. (Other funding events, such as private-equity infusions, are included in the overall count.)
A portion of the data was sourced from Crunchbase. Other information, including quotes from investing VCs, comes from company announcements. For our previous edition, which covered the month of August, click here. These updates will continue monthly.
Safely raises $8M for its short-term rental insurance and screening tools
Since its founding, Safely has raised more than $20 million in a combination of funding and venture debt and has insured more than four million nights.
Safely, an Atlanta-based company that provides insurance and safety tools for vacation rental homeowners and property managers, has raised $8 million.
The funding is led by Highgate Technology Ventures with participation from LAGO Innovation Fund.
Founded in 2013, Safely provides insurance policies for rental properties that cover personal injury and damage to property contents and structures. The company also provides guest screening, by checking government records, criminal databases and other watchlists. Safely’s solutions connects with more than 30 property management systems to automate the integration of insurance and screening.
“Our mission at Safely is to protect homeowners when they rent their homes on Airbnb, Vrbo, and Booking.com because they can only make money if they let internet strangers sleep in their beds and use their stuff,” said Andrew Bate, founder and CEO at Safely.
“We built our insure-tech infrastructure before COVID and were able to take advantage of rapid growth in the short-term home rental markets. We spent much of this year building our own insurance platform as a Lloyd's of London Coverholder, which gives us access to 80-plus countries and some amazing underwriters. And we process all of our claims in-house and now pay 90% of claims in three business days.”
Bate said the company is now focused on growth, including expansion in Europe.
Lemonade faces uphill battle as profitability remains elusive: BMO Capital Markets - Reinsurance News
In a recent analyst report by BMO Capital Markets, Lemonade, the innovative insurtech company, has found itself in a precarious financial position, with its profitability prospects looking increasingly distant.
The report highlights several key factors contributing to Lemonade’s challenges, including its significant cash burn rate, rising reinsurance costs, and supply constraints in the reinsurance market.
According to the analysts, the elusive light of profitability at the end of the tunnel appears increasingly distant for Lemonade.
Lemonade, known for its disruptive approach to home, auto, renters, and pet insurance, has been burning through approximately $40 million or more in cash per quarter.
This staggering cash burn rate is concerning, given the estimated unencumbered cash position of $573 million. The report suggests that this ongoing cash drain is unsustainable, making it imperative for Lemonade to address its financial situation promptly.
Awards
[Ed.Note: Congratulations from 'Connected' to all of this years' P&C 360 Insurance Luminaries.
When someone is referred to as a “leading light,” it means they are respected, prominent and influential in their endeavors: Think George Washington Carver in agriculture, Albert Einstein in physics, J.P. Morgan in finance or Martha Graham in dance.
This is also a fitting idiom for the 59 companies, individuals, teams, products and programs selected as honorees in the 2023 PropertyCasualty360 Insurance Luminaries recognition program.
This marks the third year that PropertyCasualty360.com has highlighted P&C insurance professionals and organizations that are pushing for fresh thinking around some of the most pressing issues of our time. Honorees this year are recognized in five categories that reflect the state of the industry: Claims Innovation, Coverage Innovation, Risk Management Innovation, Technology Innovation, and Innovation in Workplace Culture.
Nominations were submitted online during the spring and early summer, and then scored using a 25-point rubric that took into account each nominee’s success in setting and achieving goals, impacting the industry, illustrating results, furthering modernization and serving as preeminent examples when it comes to business service and standards.
Webinars/Podcasts/Interviews
[Ed. Note: Recommended Webcast] Collaboration Is Key to Innovation - Bryan Falchuck
In his book, Bryan Falchuk, managing partner of Insurance Evolution Partners and CEO of PLRB, details how insurers and insurtech providers can work together to bring solutions to market, and the factors needed to move companies forward.