AI in Insurance
What are the benefits and challenges of AI?
AI is just an algorithm that learns based on human tasks, and humans make mistakes. It's been nine months since ChatGPT has shaken our world. I am a data scientist, applying artificial intelligence (AI) in insurance for over a decade. I have never received more AI-related questions from people around me than in recent months. They ask: What is AI exactly? How will it change our industry? How should we use AI? Will AI steal our jobs?
The interest is high, but so are confusion and fears. Those mixed sentiments prevalent in the current insurance industry are understandable. The speed of change is so fast it is hard to keep up.
Here is the good news: Over the past years, our industry has already successfully deployed many transformational tools based on AI. Visible or not, AI has already been affecting various touchpoints of our business. Those may come in other names than AI, such as machine learning, deep learning, natural language processing (NLP), large language model (LLM), generative AI and GPT (generative pre-trained transformation), but they all belong to the AI category.
Fall into unclaimed property compliance Stay informed about potential changes to anticipate for the next unclaimed property filing cycle.
My view on AI and insurance is generally optimistic: With the mature understanding and right skill sets, combined with strategic vision and ethical principles, AI will be a great catalyst, enabling 100 years' worth of insurance business transformation in just a decade. Let me suggest how such transformation can be accomplished from consumers and industry perspectives.
Antoine Ly, Chief Data Science Officer, SCOR
Building a Bionic Underwriting Team: It’s No Longer Science Fiction
AI-enabled processes could improve all key financial KPIs, according to Cytora’s Juan de Castro. More so than ever, productivity and growth are well and truly under the microscope in insurance.
With employees all over the world now working remotely, important questions have emerged among leadership teams around how to maintain pre-pandemic levels of productivity – and how to win in an increasingly competitive market.
What’s more, with today’s hardening market, insurers need to make the most of the opportunities available to set themselves up for future success.
With all of this in mind, imagine being able to automate huge areas of manual or unnecessary work. By implementing AI and transforming processes today, you could gift underwriters the capacity to focus on the tasks that can drive real value and set insurers up for future success. There really is no better time.
Cytora recently spoke on an Insurtech Insights webinar, alongside speakers from AIG and Descartes Underwriting, about how to do just that.
Implications of a hardening market
According to Sebastien Piguet, co-founder and CUO at Descartes Underwriting, “the hardening cycle is clearly impacting our industry, and the gap between offer and demand is widening.”
In today’s hard market we’re seeing rates go up and capacity reducing. As a result, insurers are being flooded with a high number of out-of-appetite submissions. This is creating a number of challenges, specifically in the underwriting process.
Many insurers – both our clients and the wider industry – are asking how to capture the opportunities this market brings. And some of these opportunities will be in new lines of business that traditionally were out-of-appetite, but are now within appetite thanks to rate changes.
In that context, imagine if you could have real-time control over what your underwriters are working on. You’d need a consistent triage of submissions, which are supported by automated decisions about how submissions are filtered and prioritised. This allows your underwriters to spend time on the most attractive business, rather than following a first in first out process.
To make this a reality, insurers need to automatically represent the risk contained in a broker email submission. This will drive the automation of decision making, which in turn enables insurance leaders to tweak and change the appetite in real time.
This isn’t just about the here and now. According to AIG’s Sima Ruparelia (Chief Actuary, UK, EMEA, Global Specialty) we’ll inevitably start to hit a soft market. The key to succeeding is to keep our eyes on the prize – to understand what we want to write and what we don’t want to write when that soft market comes. Cleaning up data now and making sure processes are in place will mean that you have the best possible information to select the right risks when the market softens.
Can AI help insurance carriers overcome low-touch claims challenges?
AI is drastically improving insurance claims processes, particularly for minor damages, and improving the customer experience.
Processing insurance claims has historically required careful assessment and analysis by a human to determine the extent of the damage, the validity of the claim and the appropriate compensation. This means a significant amount of time and effort, often leading to delays and frustrations for both the insurer and the policyholder.
Unsurprisingly, insurers are constantly seeking ways to improve the efficiency and accuracy of the claims process, as it directly impacts their bottom line and customer retention. The need for quick and accurate assessments is becoming increasingly crucial to customer satisfaction. In 2022, over one-quarter of policyholders switched providers, with the main driver being faster claims processes.
The challenges for low-touch claims automation
Advancements in AI have helped to automate a lot of the manual steps associated with insurance claims, particularly low-touch claims.
Low-touch claims refer to cases where the assessment and processing can be done remotely without an adjuster physically inspecting the property. This type of claim often involves minor damages that can be easily evaluated using photos or other forms of digital evidence. For example, damage to glass or glass ceramic hobs.
However, despite their relatively straightforward nature, low-touch claims still present their own challenges for insurers.
One of the main challenges is the need to accurately estimate repair costs without a physical inspection. There is also the risk of fraud, as it may be easier for policyholders to fabricate or exaggerate damages without face-to-face interaction with a claims adjuster.
To handle low-touch property claims remotely, insurers need to have access to a wide range of external data sources to ensure accurate assessments. This may include databases of repair costs, market values of properties and appliances and historical data on similar claims. These data sources help insurers make more informed decisions and provide fair settlements to policyholders. Moreover, as this data becomes more accessible and manageable for insurers, it becomes more efficient to use AI algorithms to automate low-touch claims processes.
Julio Pernía Aznar is CEO of Bdeo, a technology company that provides visual intelligence for the insurance and fleet industries.
Commentary/Opinion
The hard market – how long will it last?
Oxbow Partners’ Paul De’Ath and Greg Brown examine the supply and demand factors driving the current market cycle to assess how long it might last.
It is a good time to be a corporate and specialty insurer. The market has been hard for several years and there are no signs that the market is going to turn any time soon. Market rate movements ultimately come down to the balance of demand and supply and it is clear that demand currently outstrips supply in the corporate and specialty market.
But how long can the good times last? Sadly we all know it cannot be forever. Noting that the specialty market is not a single, homogeneous whole but a collection of classes of business which all perform to their own micro-cycles, we believe that there are another 12-24 months to run. Property cat is likely to be towards the longer end of the scale (and maybe beyond that depending on hurricane activity), whereas smaller specialty lines such as cyber are likely to be softening by renewal in 2024.
Some carriers will think that 12-24 months is a comfortable buffer. However, carriers need to think carefully about their level of preparedness for the inevitable downturn. Industry executives need to be confident they have in place a soft market ‘playbook’. For many the playbook will likely highlight gaps in operational or technological capability. Given often lengthy change and transformation cycles, 12-24 months starts to look like a very short window.
In this article we look at the supply and demand factors driving the current market cycle and make predictions for how long the market will last.
Paul De’Ath, head of market intelligence and Greg Brown, operations and technology practice lead, Oxbow Partners
News
Triple-I: Inflation caused liability claims payouts to rise by up to $105B
Social and economic inflation caused U.S. auto insurer liability claim payouts be to upward of $105 billion higher between 2013 and 2022, a new Insurance Information Institute (Triple-I) study says.
Its study, called the Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance, found that inflation drove personal loss and defense containment costs (DCC) up by $61 billion during the nine-year span. Commercial auto liability loss and DCC spiked by between $35 billion and $44 billion during the same period, Triple-I said.
Combined, the study found that rising inflation resulted in P&C auto losses that were between $96.1 billion and $105.2 billion during the time frame studied. The figures represent between 8.6% and 9.4% of the $1.1 trillion in booked losses during the timeframe, it added.
“For both personal and commercial auto liability lines, social inflation was the main source of increasing inflation before 2021,” the study said. “For 2021 and later, increasing inflation came from a combination of economic inflation and social inflation. There is evidence of a slowdown in claims payments in calendar years 2020 and 2021, likely triggered by slowdowns in court cases and other effects of the pandemic. The average annual impact of increasing inflation is approximately 0.6% per year for personal auto liability and between 2.3% and 2.7% for commercial auto liability.”
The study was conducted by Jim Lynch, Triple-I’s former chief actuary; Dave Moore of Moore Actuarial Consulting LLC and Dave Porfilio, Triple-I’s chief insurance officer.
Farmers, USAA Lead Pack in Hiking Homeowners Insurance Rates in 2023: S&P
Farmers Insurance Group of Cos. and United Services Automobile Association (USAA) have increased homeowners insurance rates by nearly 15% each to lead all other insurers.
According to S&P Global Market Intelligence‘s RateWatch application, Farmers’ year-to-date calculated effective rate change on homeowner policies through Sept. 1, 2023 was up 14.8% – just a tick higher than USAA’s 14.7% rate hikes thus far in 2023.
“Macroeconomic conditions continue to plague US personal lines-focused insurers as the past two years have seen a higher-than-average rise in homeowners’ insurance rates,” S&P said. “Between 2018 and 2021, the countrywide yearly average change was in the 3% range but jumped to about 6% in 2022. Through roughly the first eight months of 2023, the national average rise in homeowners’ premium rates was 8.8%.”
CFA calls out insurers for ‘exorbitant’ CEO compensation
As insurance rates spiked throughout the U.S., executives leading 10 of the nation’s personal insurance companies raked in “massive salaries, bonuses, and other payments,” according to a new Consumer Federation of America (CFA) review.
CFA said Wednesday that its analysis of insurance executive compensation showed that six of the major insurance companies received more than $12 million in compensation last year — each. When taking all 10 companies into account, compensation totaled $130 million in 2022.
According to CFA, the 10 top executives accumulated $250 million combined between 2021 and 2022.
“CEOs are living high on the hog while increasing insurance premiums for people living paycheck to paycheck,” said Michael DeLong, CFA’s research and advocacy associate. “Insurers are telling regulators that ordinary consumers have to pay much more for auto and home insurance because the companies are struggling with inflation and climate change but they are quietly handing CEOs gigantic bonuses.
Fitch issues strong E&S market forecast
The excess and surplus lines market is expected to generate an underwriting profit this year and next, with hard pricing in most product segments keeping pace with loss costs, Fitch Ratings said in a report issued Wednesday.
Recent growth is attributable to admitted markets shedding business falling outside of their risk appetite that is moving to the E&S market, the report says.
The sector’s direct statutory premiums written reached $91 billion in 2022, approaching 9% of total property/casualty industry premium, compared with a historical average of about 5% before a growth spurt that started in earnest in 2018, according to the report.
The sector had about a 96% combined ratio in 2022, compared with essentially break-even results in 2021, with better underwriting results relative to the overall property/casualty industry for the first time since 2015.
More Independent Insurance Agents are Shopping Premiums, Even as Carrier Satisfaction Remains at an Unprecedented High, J.D. Power Finds
While independent insurance agents continue to be satisfied with their carrier partners, the rising cost of premiums has made these relationships increasingly tenuous. According to the J.D. Power 2023 U.S. Independent Agent Satisfaction Study, released today, overall agent satisfaction with insurers of both personal lines and commercial lines has reached an all-time high, surpassing 2022’s record-setting score.
Year over year, personal lines satisfaction has achieved a significant 17-point increase (on a 1,000-point scale) and commercial lines a 6-point increase. Still, more agents have been shopping policies ahead of their clients’ renewals and are willing to move policies for a lower price to retain clients, even if an agent is content with the existing carrier.
The study was developed in conjunction with the Independent Insurance Agents & Brokers of America (IIABA). It evaluates the evolving role of independent agents in P&C insurance distribution, general business outlook, management strategy and overall satisfaction with personal lines and commercial lines insurers in the United States.
“Carriers are doing a great job of providing quality service to agents and it creates a huge competitive advantage,” said Stephen Crewdson, senior director of insurance business intelligence at J.D. Power.
“Agents are more willing to place business with a carrier when they are more satisfied with their experience. However, the uptick in agents shopping their clients’ policies shows that rising premiums are the ultimate disruptor, threatening to upend even a strong existing relationship. That puts the onus on carriers to find ways to incentivize agents to stay by offering an experience that can justify these cost hikes.”
InsurTech/M&A/Finance💰/Collaboration
Insurtech Startup Allium Data Secures $750,000 Pre-Seed Funding from Markd to Revolutionize Insurance Data Analytics
Allium Data, Inc., a disruptive insurtech startup, announced the close of a pre-seed funding round of $750,000. The funding round comes from Markd, an insurance/insurtech-focused venture capital firm. This investment boosts Allium's resources for disrupting the incredibly antiquated data acquisition and analytics market in insurance.
Allium, established in 2022, is a platform company with several products currently in market. Allium's data analytics product is unique in its ability to source and digitize current in-force policy and premium data. With nearly 40,000 policies and $10,000,000,000 of premiums analyzed, agents, brokers, and carriers can use this information to better prospect, price risk, and develop market insights.
Extending from this core product, Allium introduces a game-changing technology to automatically parse, analyze, and structure insurance data. This groundbreaking development marks the end of the era in which agents are burdened with manual policy data entry and policy or quote comparisons. Powered by state-of-the-art machine learning (ML) and generative artificial intelligence (AI), this product has been designed to empower insurance brokers by streamlining the client administration process.
"Parker Beauchamp is a bold, out-of-the-box thinker in the insurtech space" says Michael Rost, CEO of Allium. "He has a background rooted as an independent insurance broker, and because of that, he understands the failures and opportunities inherent in the legacy systems and distribution better than anyone I know."
Markd's Beauchamp iterated, "Michael is a sharp, veteran insurance lawyer that discovered a remarkable opportunity to help agents, brokers, carriers, and insureds. His use of data, powered by today's technologies, for the purpose of good is exciting to be a part of."
California regulator settles with insurtech and underwriter over claims mishandling
The California Department of Insurance has announced that it has reached two settlement agreements with Go Maps and its insurance underwriter, Topa Insurance, following an investigation into numerous complaints regarding mishandling of consumer claims for over two dozen drivers.
As per the terms of the agreement, Go Maps has consented to surrender its insurance license, pay a fine of $150,000, reimburse costs amounting to $50,000, and furnish the department with all necessary information to ensure compliance with statutory requirements concerning existing policyholders.
Topa, on the other hand, received a fine of $2,108,000 and committed to maintaining permanent access to all policies handled by future general agents, certifying the appropriate licensure of all general agents and associated entities, and refraining from seeking money from consumers who may have been undercharged due to rating errors in the Go Maps/Topa program.
Among various violations, Go Maps and/or Topa:
Neglected to pay claims within 30 days post determination of coverage or settlement
Failed to acknowledge claims, provide necessary forms or instructions, or initiate investigations within the statutory 15-day requirement, surpassing the legal 15-day requirement by over eight days on average
Did not respond to consumers’ inquiries about their claims within 15 days, exceeding the legal 15-day requirement by an average of more than 11 days
Did not approve or deny claims within 40 days, surpassing the legal 40-day deadline by an average of more than 25 days
Employed an unlicensed insurance adjusting firm for claims adjustment
Canada
Aviva Canada partners with RentHaven to offer Canadians rent deposit alternatives
The primary objective of this partnership is to introduce a groundbreaking solution to the Canadian rental market. RentHaven’s product, which replaces conventional cash deposits with a bond, will now receive the backing and support of Aviva Canada in a bid to make that a reality.
Aviva Canada is a renowned insurance company known for its comprehensive range of insurance products and services. With a strong presence in the Canadian market, Aviva Canada has a track record of offering innovative solutions to meet the evolving needs of its customers.
RentHaven, on the other hand, is a Canadian startup that has gained recognition for its unique approach to rental security. The company’s product provides renters with an alternative to the burdensome practice of paying substantial upfront security deposits. RentHaven’s solution aims to enhance housing affordability and reduce financial strain on renters.
The partnership addresses a significant gap in the Canadian rental market. While alternatives to security deposits are well-established in the US, UK, and Europe, there has been a notable absence of such alternatives in Canada. This collaboration aims to ease the financial burden on renters, who are grappling with rising rents and the overall cost of living. Additionally, it offers protection to landlords against unpaid rent.
Andy Armstrong, Head of Developer Surety & Home Warranty at Aviva Canada, expressed the significance of this pioneering partnership, stating, “Many renters are straining under the pressure of rising rents and trying to keep up with inflation and the cost of living. This first-of-its-kind partnership is the way of the future. We are making things easier for Canadians renting, they will no longer have to pay large upfront deposits and at the same time, protecting landlords from unpaid rent.”