Commentary/Opinion
Traveling Down a Bumpy Road in Insurance
Carrier challenges and opportunities
With rising inflation and interest rates, geopolitical tensions, climate change uncertainty, and growing competition, U.S. insurance carriers face several challenges to delivering consistent, high-quality insurance services and products to the marketplace. In response, the industry is focused on increasing collaboration with partners and investing in innovation to embrace opportunities this year and beyond.
From emerging technologies to shifting customer expectations, and the constant change in the regulatory landscape, almost every aspect of the insurance industry has been altered, touched, or transformed in some way.
A recent Gallagher Bassett global survey, “The Road Ahead: An Insight into the Carrier Industry in 2023,” looked at today’s marketplace from the insurance carrier’s point of view. Carriers across industries and geographies provided insights into their views on the top concerns and challenges throughout 2023 across a landscape that continues to shift.
Attracting and Retaining Talent
All industries have reported issues with attracting and retaining talent, and insurance is no exception. Attracting and retaining talent ranked as the number-one challenge for carriers, with over 64% of respondents flagging it as their top concern in 2023. Carriers continue to experience challenges attracting new faces and levels of expertise.
Along with this extensive talent shortage, many carriers likely feel recruitment strain due to growth plans: More than 20% of respondents identified “expanding into new regions” as their business’ biggest goal or opportunity. Growth typically requires an expanded team, and if you do not have the latter, achieving the former can be difficult, if not impossible. As a result, the ongoing talent shortage is having an impact on expansion plans, and while this issue is causing headaches today, there is the prospect of even more pain to come:
The U.S. Bureau of Labor Statistics is reporting that 50% of the current insurance workforce will retire by 2036. Organizations that need help finding quality recruits and retaining their best and brightest may need to withdraw or even shelve expansion plans or wait until the economic outlook improves. Of course, streamlining technology to process claims will ease the stress put on an already strained system.
Joseph Berrios is managing director, carrier practice at Gallagher Bassett.
Is ChatGPT an insurance fraudster's best friend?
The use of artificial intelligence (AI) to facilitate fraud insurance claims has grown over the past decade, especially as AI has become more sophisticated. But the entry of generative AI could drive insurance fraud to levels yet unseen, a digital intelligence expert told Insurance Business.
“With the technology that’s being built now, it’s easy for just the regular person who wants to exaggerate their claim to do so, as well as organized crime groups that want to make a larger play across multiple companies at the same time,” said Joe Stephenson (pictured), a former special investigator and current director of digital intelligence at claims technology firm INTERTEL.
The problem is that generative AI, such as OpenAI’s ChatGPT, has made warping photo evidence – a key mechanism to verify claims – extremely easy and quick to do.
“The question becomes which is worse: a thousand individuals making false $100 claims, or an organized crime group making $50,000 in a single fraud claim?” Stephenson asked. “It just opens the door to problems.”
Fraud claims easier than ever?
Photo manipulation apps have long been used as a tool to commit insurance fraud. As these apps became increasingly accessible, fraud proliferated.
“The apps where you can upload a picture of a car and modify damage, such as put a crack in the windshield, then send it out to an insurance company and get $400 to replace the windshield that was never broken – those have been around for almost 10 years now,” Stephenson said.
“Advanced technology is making it so easy for the average person to be able to engage in a certain level of fraud.”
Insurance companies have become adept at identifying false claims over the years, but the development of AI tools like ChatGPT has been so rapid that insurance companies are fighting to keep up.
News
Why Are Liability Rates Continuing to Rise?
Over the past 24 months, the property and casualty insurance industry has been intensely focused on economic inflation. Overall inflation, as measured by the Bureau of Labor Statistics’ Consumer Price Index (CPI), reached a 40-year high of 9.1% year over year in June 2022.
Since then, the Federal Reserve has taken steps to contain inflation; the CPI rose 3.7% year over year in August 2023. But this remains well above the Fed’s 2% target, and it appears inflation will remain high for a long period of time.
As insurers have grappled with rising loss costs for commercial property, homeowners and auto repair, they are also facing a more troubling concern: social inflation.
Social inflation fueling adverse loss development
Social inflation refers to the dramatic increase in the size of claim settlements and verdicts associated with civil litigation. This has best been exemplified by the dramatic rise in the frequency and size of so-called “nuclear” verdicts of $10 million or more.
Social inflation’s causes are varied and complex, but include socioeconomic, legal and behavioral factors such as:
A greater propensity for litigation across the U.S.
A well-funded and organized plaintiffs’ bar.
Third-party litigation funding.
Evolving and expanding theories of liability.
Lax evidentiary standards that permit the consideration of “junk science.”
Rising anticorporate bias among prospective jury members and evolving theories of fairness.
These trends have contributed to an increasing deficiency in industry reserves associated with third-party liability losses. In recent years, liability insurers have underestimated expected losses and are now seeing significant adverse reserve development at each valuation.
Madison’s American Family Insurance confirms staff reductions - In Business Madison
Madison-based American Family Insurance has confirmed staff reductions across its five U.S. companies, according to the Wisconsin State Journal, including at the leadership level. The company has not said which positions or how many have been affected.
In the past nine years, American Family has acquired Tennessee auto insurer The General; Boston’s Homesite Insurance; and De Pere-based home and auto insurer CONNECT. In 2018, Florida-based Main Street American Group Mutual Holdings merged with American Family.
American Family says it serves all 50 states and employs nearly 12,500 workers across its companies. The company states it is working to increase efficiency and manage costs by consolidating operations across companies.
Research
Insurers Prioritizing Profit Over Growth: Exec Survey
Nearly half of 400 insurance executives responding to a recent survey said their current priorities center on improving profitability rather than growing their businesses.
Forty-eight percent of participants reported they are prioritizing profitability, as opposed to 13 percent who stated growth metrics take precedence, according to a report titled “Insurance Operations in a Changing Industry, published today by Earnix, a global provider of intelligent SaaS solutions for insurers and banks.
The survey, conducted by Market Strategy Group, LLC on behalf of Earnix in June 2023, included global insurance executives from the United States, Canada, Europe, and Australia among the 400 respondents whose roles and departments varied among C-level, IT, analytics, product, and underwriting roles. More than half, 241 respondents, are executives for property/casualty personal lines insurers, while 78 represent P/C commercial carriers.
In addition to strategic priorities, survey questions also focused on macroeconomic challenges, climate change, cybersecurity concerns, the effects of post-pandemic workforce dynamics, changing industry regulation, and technology adoption.
Among the key findings on these topics, Earnix reported:
- 35 percent of C-suite executives selected macroeconomic challenges as one of the three top trends impacting their area of the company over the last two years; executives in areas such as actuarial pricing and underwriting selected “growing cyber risks” above macroeconomic trends.
- On a 10-point scale, North American insurers rated the “anticipated significance of climate change on the operations in the next decade” at 8.06. -Insurers said the ability to attract and retain talent is a significant challenge, with large carriers giving this a score of 8.05 (also on a 10-point scale)
Most Homeowners Face Barriers to Improve Resiliency, Says APCIA Survey
As personal property owners face issues related to rising frequency and severity of natural catastrophes, a survey has found many do not have money or know where to start in order to mitigate damages.
The American Property Casualty Insurance Association (APCIA) said it surveyed over 1,000 homeowners in the U.S. and 74% said they face barriers to increase resiliency, with the top reason being expense.
Twenty percent of respondents said they don’t know where to start or what to do and another 20% said they are not concerned about their risk.
Asked about incentives to overcome concerns related to cost, 26% of homeowners said reduced costs for updated materials such as sales or income tax credits or rebates would help. Other incentives cited were lower insurance premiums such as discounts, reduced property taxes, and financial aid such as low interest home improvement loans or federal/state grants.
Three in four small US businesses underinsured
A new insurance survey’s findings showed that 75% of small businesses are inadequately insured, and a considerable 70% lack a clear understanding of the scope of their business insurance.
Specialist insurer Hiscox conducted this survey that brought to light critical gaps in insurance coverage and understanding within the small business sector in the US. The survey involved interviewing 1,000 small business owners in the US.
Other key revelations
The survey emphasized the invaluable role of local insurance agents and brokers for small business owners. Despite the rise of online platforms, a significant 70% of small business owners with insurance still prefer purchasing through an agent or broker. Moreover, 56% found them to be the most helpful source of information.
The survey also highlighted a comeback for physical businesses, with 42% of respondents opting to purchase insurance in person, countering the global shift to online purchases seen during the pandemic. In comparison, 29% chose online platforms.
Another revelation was the widespread misunderstanding among small business owners regarding fundamental insurance policies. A notable 71% had no understanding of what a business owner’s policy covers, and 83% could not accurately describe a general liability policy’s coverage.
The survey also raised a red flag with a significant portion of small businesses lacking essential insurance coverage. More than three in 10 did not possess general liability insurance, a fundamental policy. Almost four in 10 that had been operating for 10 years or more had also never updated their general liability insurance.
InsurTech/M&A/Finance💰/Collaboration
Buffett watchers tout next value play
Insurers are among the next potential targets
Warren Buffett’s buying of Japanese trading firms helped propel the nation’s stocks to multi-decade highs. Six months on, insurers and banks are emerging as the next potential value targets.
Insurers have low price-to-book ratios, strong fundamentals and relatively high returns, said Masakazu Takeda, who manages the US$294 million Hennessy Japan Fund for Sparx Asia Investment Advisors Ltd. in Hong Kong.
Major banks are also prospects on the likelihood of tighter monetary policy, said analysts at Mizuho Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co.
An endorsement from the billionaire goes a long way. The five trading firms that Buffett favored — Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Marubeni Corp. and Itochu Corp. — are up more than 20% since a report in April said he raised holdings in the sector and was looking to increase exposure to Japanese stocks. Gains were even greater three weeks ago, before the market flirted with a correction amid higher bond yields and a small recovery in the yen.
Top 10 insurtech hotspots worldwide 2023
We round down the 10 cities who have the strongest claim to being an insurtech hotspot, a hub, a centre of insurance innovation.
We round down the 10 cities who have the strongest claim to being an insurtech hotspot, a hub, a centre of insurance innovation. In an increasingly connected and global world, the question of where to do business is, perhaps, more pertinent than ever. London, New York, Paris? There are a number of cities that have a strong claim to being an insurtech hotspot, and we've summed up 10 cities with the strongest claims.
Here are our Top 10 insurtech hotspots in the world right now.
16 insurtech entities with the most direct premiums written in 2022 | Digital Insurance
Carriers owned by insurtechs achieved a significant increase in the number of direct premiums written in 2022, with many seeing triple-digit growth.
The top three insurtech-owned carriers in the ranking had more than $10 billion combined in direct premiums written. Scroll through to see which carriers are in the top 16 and how they fared in 2022.
Source: S&P Capital IQ
Allianz Partners & bolttech to offer embedded insurance solutions
Allianz Partners, a B2B2C insurance and assistance service, and bolttech, an international InsurTech have announced a partnership to provide embedded device and appliance protection insurance across Asia Pacific and the United States.
The cooperation between Allianz Partners and bolttech will deliver embedded solutions for business partners such as retailers and e-tailers for electronic products and household devices, telecommunication providers, banks, insurers, and original equipment manufacturers (OEMs).
The collaboration aims to make it easier and more convenient for customers to purchase protection at the point of need for a range of household products, including mobile and digital devices, and household appliances (white and brown goods).
bolttech’s technology and servicing capabilities will combine with Allianz Partners´ strengths to enable the distribution of device protection and other personal insurance products into digital and hybrid customer experiences, fully supported by proven technology and operational and customer service capabilities.
People
Plymouth Rock Names Max Malaret Vice President of Claims
The insurance industry veteran joins Plymouth Rock Independent Agency Auto Group with more than a decade of claims experience.
Plymouth Rock Assurance Corporation (Boston) has announced that Max Malaret has joined its Independent Agency Auto Group as Vice President of Claims. In this role, Malaret will lead the Physical Damage team and provide oversight to claims training and leadership development, and drive strategic direction for claims operations. Malaret will also be responsible for the subrogation and special investigative units.
Malaret comes to Plymouth Rock with more than 16 years of insurance industry experience, spending over a decade in a variety of claims-specific roles in areas such as claims strategy, planning, analytics and, most recently as VP of Claims Process for Auto Physical Damage, Subrogation and Salvage with Liberty Mutual in Boston.
“Max brings a breadth of experience from across the claims discipline,” comments Paul Measley, Chief Claims Officer, Plymouth Rock Assurance Corporation. “He brings a combination of strategic advancement, leadership and technical know-how. Max will play an important role as Plymouth Rock continues to advance our claims operations, adopting new and innovative practices, and ensuring our customers have the best possible experience.”