Commentary/Opinion
[Editor's note:] Throughout the history of risk and insurance, there have been periods of crisis and reform. Structural insurance transformation is needed now. ‘Predict & Prevent’ Can Rescue Insurance
"Soaring combined ratios demonstrate P&C insurance is due for fundamental, structural reform. Innovative solutions are available."
In 1735, Benjamin Franklin wrote that “an ounce of prevention is worth a pound of cure.” He was referring not to medicine but to fire safety, because central Philadelphia, where he lived, consisted of connected wooden row houses. In fact, he was a founding member of the Philadelphia Contributorship, the first fire insurance company in America. Today, prevention may very well be the cure for the ailing insurance industry.
Throughout the history of risk and insurance, there have been periods of crisis and reform. In 1971, no-fault auto insurance was adopted in Massachusetts and spread to 19 states by 1974 with promises of lowering high auto premiums. In the mid-1980s, liability insurance rates soared, leading to tort reform. Most recently, Florida, California and Louisiana are enacting reforms in the face of threats from weather, inflation and legal system abuses.
As the property & casualty insurance industry struggles with the severe impact of extreme weather events, rapidly shifting market conditions, growing social and economic inflation and a rapidly transforming automotive and alternative transportation landscape, it has become obvious that fundamental, structural change is necessary and inevitable. Each of these single pressure points is striking. Collectively, they may represent the “new normal.” In any case, cost of insurance is on the rise while availability has become problematic, with both consumers and businesses absorbing the impact.
Alan Demers and Stephen Applebaum as published in Insurance Thought Leadership
Safer Than Ever in a Risky World by Staying Connected
No matter how you define a household, or a customer, home is where you should feel safe. Modern insurance carriers are creating safer spaces with proactive predict and prevent personalized products and services where being connected means being protected—and that’s good for the policyholder, the carrier and their relationship.
At home, office, on the road, and anywhere in between, staying connected is offering a neighborhood effect to the world around us where knowing what safe means includes understanding what is just around the corner, for us and our households and neighbors near and far.
Feeling safe includes the “now” and the “next,” where not only the current state of awareness can verify that everything is okay, but that imminent or unexpected changes can trigger alerts and improve your readiness and as needed resilience. Today, you don’t even need to be present at home to monitor that location, same with your vehicles, businesses, family members, friends, and other people, places, pets, services, and things that matter to you—being connected and continuously situationally aware helps us all feel more safe, informed, and gives us peace of mind. Sharing this same information with insurance carriers wraps it all together so that financial risk transfer is continuously available and adequate to the world around us.
While the risks around a home, like heatwave, wildfire, storm, sea-rise, convective deluge, flood, wind, blizzard, ice storm, fog, tornado, hurricane, even earthquake, may be unavoidable in a time of climatic and weather realities, the risk within a home, and particularly inside of a car and with each other, are much more actionable. Savvy insurance carriers are adapting to broadscale changes in perils at the environmental level, but they need to partner with consumers and businesses for sharing data and for optimizing safety and prevention best practices. No one wants a loss or injury, after all.
Martin Ellingsworth, President, Salt Creek Analytics
Evolve Digitally to Keep Your Agency Moving in the Right Direction
In an industry like insurance that competes on quality of service and price, embracing digital is a requirement for survival in 2023 and beyond. Even longtime agents with loyal customers understand that leading-edge technologies will help them improve workflows and achieve better customer engagement.
Automation technology, for one, has earned a spot in many agencies’ tech stacks, affording significant efficiencies that translate to big cost savings, productivity gains and an improved customer experience. This is why 68% of agents are planning to or have added automation tools to their business, according to Nationwide’s Agency Forward survey.
“Efficiency is certainly a key element to agency success in today’s environment,” said Kasey Ketcham, senior associate vice president of Digital Enablement at Nationwide. “Technologies like automation help streamline processes so that agents can refocus their efforts on taking a more consultative and advisory role. In this way, they’re able to really personalize the customer experience while elevating their own.”
How insurers can appeal to students and Gen Z
Now that a fresh school year is underway, it seems like an opportune time to examine how our industry is connecting with and embracing students and other members of Gen Z.
The truth is, there are still plenty of misconceptions out there from one generation to another.
Many more seasoned workers look to these newcomers and assume they fit certain stereotypes. They see these young people as disconnected, uninterested in face-to-face communication and professionally motivated by jumping from company to company.
Insurance leaders who succumb to generalizations like these run the risk of bypassing energized, eager-to-learn talent who could be the long-term solution to the insurance industry’s ongoing talent problem. Many insurance companies have deployed career building programs, and many educational institutions have adopted insurance-focused courses of study. So much is being done to interest this new generation in the field of insurance. Now, we need to not only find a way to welcome them into our companies but meet them where they want to be met and give them the tools and resources they need to propel our industry into the future.
Grace Grant is executive director for Gamma Iota Sigma
News
[Ed. note: Recommended] The Fast and the Curious - Emerging Trends in AutoTech
In continuing our series on Vertical Software (VSaaS), we're spotlighting the latest sector we’ve been focused on: Autotech. We’ve highlighted before that we believe successful VSaaS companies emerge from fragmented markets with low efficiency so it should come as no surprise that the automotive sector scores highly here.
Shawn Chance, Partner at OMERS Ventures, via LinkedIn
Record heat unleashes deadly floods from New York to Libya
Extreme heat is usually associated with drought and wildfires. But across five continents this year, it’s also unleashed a different kind of disaster: deadly flooding.
Cities around the world have seen record rainfall 139 times in 2023. A rare hurricane-like storm inundated Libya last month, killing thousands. More than 100 people died across Asia during an intense monsoon season in July. After fatal floods pummeled the U.S. Northeast over the summer, torrential rains paralyzed New York City in late September.
Soaring temperatures were at the root of all these weather calamities. June, July and August were the hottest ever for that period. Higher air temperatures mean the atmosphere can hold more moisture, leading to heavier rainfall, while record-hot oceans provide fuel for storms. And as the climate warms, flooding is poised to get worse.
“We are now seeing record-smashing ocean temperatures, record-smashing global temperatures and record-smashing floods,” said Jennifer Francis, a climate scientist at the Woodwell Climate Research Center. “It’s all connected.”
In the U.S., two major flood events this year — in California from January to March and the Northeast in July — killed 32 people and caused $6.7 billion in damages, according to the U.S. National Centers for Environmental Information. The damages are the highest since 2019, when accounting only for flood incidents totaling more than $1 billion.
Research
How Enhanced Driver Cell Phone Tracking Can Uncover Crucial Insights into Crash Risk
Roadside cameras and telematics data have the potential to provide more accurate and comprehensive information about drivers’ use of their cell phones than is currently available, and could lead to better understanding of distracted driving crash risk and how to address it.
Those are the highlights of two new studies released on Thursday by the Insurance Institute for Highway Safety, a nonprofit financed by the insurance industry.
“One of the challenging aspects of combating cell phone-related distraction is the absence of good information about where, when and how drivers are using their phones,” stated David Harkey, president of the Insurance Institute. “Roadside cameras and telematics could help fill in the gaps, improving our understanding of how cellphones affect crash risk.”
The first study compared the accuracy of images from roadside cameras with human observations at specific intersection sites from the National Highway Traffic Safety Administration‘s (NHTSA) annual roadside survey, considered the most up-to-date information about driver cell phone use, the safety group said.
The photographs taken with cameras were nearly as good as in-person monitors at identifying drivers who were using their cellphones. However, the increased amount of data that camera-based observation could provide would likely offer “a significant overall benefit in measuring distraction,” researchers said. This is due to the fact that roadside cameras can be deployed in more locations, including ones that would be too dangerous for a human observer, which would allow for better monitoring of cellphone use in fast-moving traffic. (The federal surveys only record information about drivers who are stopped in traffic.)
Untrustworthy data driving sizeable hike in reinsurance premiums
A pressing issue across the industry comes under the spotlight in a new whitepaper released by reinsurtech Supercede: the silent crisis of unreliable reinsurance data and its costly implications for cedents.
The firm delved into this challenge by conducting interviews with over 30 senior global reinsurers, brokers, and cedents. The findings revealed that subpar data is more than a mere inconvenience; it is a substantial financial burden on results. Cedents are directly bearing the cost through escalated reinsurance expenses, reduced capacity, and missed opportunities for innovation.
Rewards and punishments
Across the industry, Supercede revealed unity across reinsurers in what to expect from their cedents: improvements in the standard of submission data. Those which do so stand to be rewarded, provided they continue to provide better data, while those who do not will continue to be punished.
Research cited by the whitepaper unveiled that the quality of submission data varies heavily across the market, with most of the respondents noting substantial variation even in the same regions and business lines. With poor-quality data comes consequences, which affect not only cedents but brokers and reinsurers as well.
Supercede President, Ben Rose
InsurTech/M&A/Finance💰/Collaboration
Are layoffs the 'new normal' for Insurtechs?
After a period of extensive hiring, layoffs have become the new normal for the InsurTech space, as companies contend with a challenging capital raising environment.
At last week’s Inside P&C Conference, executives pointed out that over the past few years, InsurTechs hired a broad mass of employees, especially in the technology space.
However, now that the tides have turned from a “growth-only” to a “profitability first” mindset, companies are letting go of the additional hires and focusing on insurance fundamentals and insurance expertise.
Koffie co-founder and COO Mike Dorfman noted that the goal is now to blend domain talent with insurance-specific talent.
Venture capital specialist Adrian Jones said that in 2020 to 2021, investors were not "discriminatory enough” with choosing which ventures to support. Now, they are deploying their capital more deliberately.
As a result, many InsurTechs have been forced to drastically cut their workforce, with about half laying off an average of 31%, he added. Jones aggregated data from around 400 start-ups and tech-driven companies in the insurance space, based on adding up LinkedIn company page headcounts.
The headline data showed ongoing headcount growth in Q2, but additions were typically from the largest and smallest InsurTechs, with mid-sized firms struggling.
For the 193 companies (almost half the data set) that are down by at least 5% from their max headcount, the average reduction vs. peak has been 31%. Therefore, nearly half of InsurTechs are off their max headcount by almost one-third, as of July 19.
Profiles may not have been updated immediately to reflect the total breadth of layoffs.
Over the past 12-18 months, names such as private companies Cowbell, Branch, Pie, Buckle, Corvus, Next Insurance and Policygenius and public carriers Root, Hippo and Lemonade have all announced layoffs to rein in expenses in worsening economic conditions.
Profitability concerns drive September swoon for insurtechs
A sharp decline in stock values for insurtech companies in the third quarter is an indication of investors' waning confidence in a sector beset by underwriting and profitability issues.
Hippo Holdings Inc., Lemonade Inc. and Root Inc. all experienced a rough September, during which their stocks each fell at least 12%.
Those declines indicate how much institutional and retail investors have "soured" on the companies, said Kaenan Hertz, managing partner for Insurtech Advisors LLC. Investors have changed their attitudes since getting interested in the "insurtech boom" after some of the initial IPOs.
"The whole conversation in the marketplace is about profitability, it's about loss ratios, and it's about customer acquisition costs," Hertz said in an interview. "And for the most part, Hippo, Root and Lemonade were having significant problems."
Hippo's stock value had fallen 18.99% this month through Sept. 28, while Root was down 14.90% and Lemonade was off 12.72%.
The numbers are worse for the third quarter for two of the three, with Hippo down 50.83% and Lemonade 28.54% lower. Root is up 8.95% for the quarter through Sept. 28, but Hertz said that is just "the tail" of a boost from a reported buyout offer in June from Embedded Insurance Inc.
The Brainy Insights: Insurtech Market to Reach US$82.3bn by 2032
Market research company The Brainy Insights anticipates the global insurtech market to reach US$82.3bn in its latest report. This would constitute a compound annual growth (CAGR) of a mammoth 28.9% in the nine years between 2023 and 2032. But, why does the company anticipate such a rapid rise in a market worth (only) US$6.5bn today, and how will the insurtech industry achieve it? Insurtech growth: North America
Per The Brainy Insights, the bulk of this growth will be concentrated in North America, which emerged as the leading insurtech region in 2022, accounting for 55% of market revenue share in 2022.
North American businesses – particularly insurers – are expected to continue requiring the services of insurtechs over the next nine years, namely for their automation, prompt, and enhanced efficiency services. Dominant insurtech players in the insurtech market are expected to entrench their leading positions, the likes of DXC Technology Company, Insurance Technology Services, Majesco and Oscar Insurance included.
A robust internet infrastructure combined with the rising integration of modern technologies in the insurance sector is expected to safeguard significant growth in the region, contributing to insurtech’s 28.9% CAGR.
Insurtech Start-Up Breach Insurance Launches Crypto Shield Pro: Institutional-Grade Crypto Insurance and Free Active Wallet Monitoring Service
Breach Insurance, a Boston-based global insurance underwriter that provides insurance technology and regulated insurance products for the cryptocurrency market, has announced the launch of Crypto Shield Pro – an innovative crypto custody insurance policy for institutional clients of crypto custody solutions. Following the launch of the company’s new Bermuda class IIGB carrier, the new institutional crypto insurance product protects policyholders from the theft, loss, and destruction of private keys and crypto assets held in custody that have traditionally been available only to large, established crypto institutions.
The company’s capacity is backed by Accelerant, a data-driven risk exchange that empowers specialty underwriters and has earned a financial strength rating of “A-”(Excellent) from A.M. Best. Limits up to $10M per policy are available, with higher limits and custom coverage available with additional underwriting.
Along with Crypto Shield Pro, Breach is also making their free Active Wallet Monitoring service available to all. The service provides a complete picture of on-chain risks associated with wallets and allows anyone with a crypto wallet to gain free insights into wallet transactions across all major blockchains and cryptocurrencies, real-time identification of financial crime exposures, and flagging transactions linked to thieves, money laundering, terrorist financing, and sanctioned entities, which is critical to licensed and regulated entities.
“We are proud to be partnering with established broker relationships to offer institutions with a reliable, reinsured, and fully-regulated crypto insurance solution that protects policyholders from real financial risks. Breach continues to be on a mission to create new insurance capacity and products for the crypto economy, and the release of Crypto Shield Pro and our free Active Wallet Monitoring service is demonstration of our ability to continue to innovate and execute on our promises.” said Eyhab Aejaz, Co-Founder and CEO of Breach.