News
Progressive Q3 Earnings Skyrocket as Combined Ratio Gets Closer to Goal
Progressive Corp. posted significant improvement in third quarter earnings late last week – with net income of $1.12 billion compared to $124.1 million a year ago during the same period.
Progressive gave a snapshot of it’s Q3 earnings in announcing September results. Net income for the month was $369.3 million, reversing a loss of $684.4 million during September 2022. The Mayfield Village, Ohio-based insurer has a scheduled earnings call on Nov. 1.
In September, Progressive’s combined ratio improved drastically to 89.7 from an unprofitable 116.2 during the month a year ago. The third quarter combined ratio stood at 92.4 from 99.2 in 2022, Progressive said, as net premiums written and earned each increased 20% to $15.6 billion and $14.9 billion, respectively.
Progressive President and CEO Tricia Griffith has said the company’s combined ratio goal is 96 for 2023.
The year-to-date net income was about $1.9 billion compared to a loss of about $105 million a year ago. Compared to the first none months of 2022, net premiums grew 20% to $46.4 billion. The combined ratio as of the end of September was 97.2
AM Best Tweaks State Farm Outlook to Negative After Weather, Regulatory Issues
The AM Best financial rating firm has downgraded its outlook for multiple State Farm insurance companies due to weather losses and regulations that the rating firm said hinder the insurance giant’s ability to adequately raise rates.
“The negative outlooks on the property/casualty rating units primarily reflect recent adverse underwriting experience in the private passenger auto insurance line of business and the challenging regulatory environment that have constrained the ability of State Farm (as well as its industry peers) to increase premium rates in a timely fashion, along with continued elevated catastrophe-related loss experience in many parts of the country,” AM Best said in a news release.
The downgrades, from stable to negative, were for State Farm Mutual Automobile Insurance Co. and its affiliates, State Farm Fire and Casualty Co. and State Farm County Mutual Insurance Co. of Texas, based in Richardson, Texas. AM Best referred to those companies as the State Farm Group.
The rating firm also revised its outlook to negative for State Farm Florida Insurance Co., based in Winter Haven, Florida, and for MGA Insurance, based in Dallas. It also revised the outlook to negative for State Farm General Insurance and for State Farm Life Insurance and State Farm Life and Accident Assurance Co.
“The weather-related losses, particularly from hurricane, winter and convective storms, as well as wildfires, have put further pressure on the group’s operating performance assessment,” AM Best officials said in the press release.
Down, Down, Down….AM Best P/C Downgrades Outpacing Upgrades
The number of rated property/casualty personal lines insurers that had their credit ratings downgraded by AM Best more than doubled to 21 in the first-half of 2023, compared to 10 in first-half 2022.
Additional downgrades of 10 commercial insurers and one reinsurer brought the P/C insurance industry total to 32 for this year’s first half, compared to 18 in total for last year’s first half, the rating agency said in a report last week.
Together, the P/C downgrades accounted for 9.1 percent of all AM Best’s ratings actions taken during the first half of this year. In contrast, for first-half 2022, downgrades accounted for 5.2 percent of the firm’s rating actions.
In addition, Best reported that the number of P/C ratings placed under review more than doubled in the first half of 2023 and made up 6.3 percent of total rating actions.
Noting that personal auto insurers accounted for 11 of the 21 personal lines downgrades, AM Best characterized the prospect of a near-term return to underwriting profitability as “unlikely” for personal auto carriers. Personal lines downgrades also reflected weather-driven deterioration in operating performance.
Weather, rising claims frequency and severity and supply chain issues dented both operating results and capital levels of personal lines insurers, the report said.
Responding to Rising Social Unrest
Building resilience in an unpredictable risk landscape
Executive summary
Social unrest, strike action and political activism are on the rise across the globe, triggered by inequality and the growing concern that social liberties are being eroded. This scenario presents significant challenges and risks for governments, business operators and communities across the political divide.
Historically, insurance protection for losses relating to strikes, riots and civil commotion (SRCC) has been available under "All Risks" policies, subject to exclusions and specific terms being applied.
The growing frequency, scale and severity of SRCC events has led underwriters to re-evaluate their risk appetite, with tighter scrutiny on terms, exclusions and policy wordings, along with country-by-country consideration for global insurance programs. As the terrorism and political violence insurance market continues to mature, insurance specialists and risk managers continue to play a critical role in providing an effective response to meet the evolving needs and expectations of an unpredictable risk landscape.
Since 2017, more than 400 significant anti-government protests have erupted worldwide, according to the Carnegie Global Protest Tracker. The speed at which events are erupting, the ability to amass and organize, and the more globalized nature of discontent are changing how the threat is perceived.
Businesses from all industries and of all sizes have become collateral damage in the wave of civil commotion, strikes and political violence events being reported across the globe. The importance of having a robust crisis management and critical response plan in place is heightened — a plan that equips business operators to stress test their insurance programs, ensures they're fit for purpose and allows normal business operations to continue in the event of a claim.
A specialist political violence insurance market offers broad coverage for a range of events, encompassing smaller scale strikes and protests through to acts of terrorism and violence.
Arthur J. Gallagher & Co.
More Americans find it difficult to afford home insurance as climate change disasters drive rate hikes
A growing number of Americans are finding it difficult to afford insurance on their homes, a problem only expected to worsen because insurers and lawmakers have underestimated the impact of climate change, a recent report said.
A report from First Street Foundation released in September said states such as California, Florida and Louisiana, which are prone to wildfires and damaging storms and flooding, are likely to see the most dramatic increases in premiums.
But the fire that destroyed the Hawaiian community of Lahaina on August 8, as well as the historic flooding that happened in Vermont and Maine in July, are examples of events that could drive up insurance costs for homeowners in other states.
“If you’re not worried, you’re not paying attention,” said California Sen. Bill Dodd, whose district includes the wine-country counties devastated by the LNU Complex fires in 2020.
First Street estimates, factoring climate models into the financial risk of properties in its report, that roughly 39 million properties — roughly a quarter of all homes in the country — are being underpriced for the climate risk to insure those properties.
“Some places may be impacted very minimally, but other places could see massive increases in insurance premiums in the coming years,” said Jeremy Porter, head of climate implications at First Street and a co-author of the report.
First Street, a New York-based non-profit, has been a to-go researcher on the financial implications of climate change for years. Their research is used by Fannie Mae, Bank of America, the Treasury Department and others for understanding the potential risks to properties.
Lloyd’s new data tool highlights extreme weather vulnerability
Lloyd’s has launched a tool that models the economic impact of extreme weather events that lead to food and water shocks.
The Cambridge Centre for Risk Studies is working with Lloyd's to help businesses and policymakers explore the potential impacts of the global economy becoming increasingly subject to systemic threats.
In the first in a series of nine systemic risk scenarios, researchers explored how an increase in extreme weather events, linked to climate change, could lead to crop failures in key production regions of rice, wheat, corn and soy, and significant global food and water shortages.
Societies around the world could see widespread disruption, damage and economic loss, promoting major shifts in geopolitical alignments and consumer behaviour.
Only a third of the global economic losses caused by extreme weather and climate-related risks are currently insured, it says. The research aims to help risk owners better understand their exposure to critical threats such as extreme weather, and the role of risk mitigation and insurance protection to build resilience.
Lloyd’s CEO John Neal says the market is committed to building better resilience and protecting customers against increasing climate threats.
“It is critical that our market continues to collaborate with the public and private sectors to address this challenge at scale and ensure a sustainable future,” he said.
Commentary/Opinion
Why Fortegra's Joe Lettween is underwhelmed by current InsurTech innovation
The InsurTech sector for commercial insurance carriers has not evolved as quickly as expected, according to Joe Lettween, chief innovation, data science, and technology officer at Fortegra.
Lettween has a long-standing track record in innovation. Prior to joining Fortegra, he spent nearly a decade working within private equity, primarily in the realm of enterprise software. While working at Vista Equity Partners he led a team focused on value creation around technology, and data and analytics. The team worked with portfolio companies to explore how machine learning technology could improve value. During this time, Lettween worked with several players in the InsurTech space.
He later left Vista to help build a new private equity firm that focused on real estate, taking a two-year break from the technology world. However, when joining Fortegra in late 2022, he was surprised the InsurTech space had not advanced as anticipated.
He said, “It’s been interesting to see that it hasn’t progressed for the commercial insurance space as much as you would have thought having missed an interim of many years.”
This isn’t to say there has not been any development in the past three years, with Lettween pointing to the rise of generative AI and LLMs within insurance, but commercial insurance-specific solutions haven’t advanced significantly.
“I’m sure I’m missing things and have not come across some things yet, but I’m not terribly impressed by what’s sort of out of the box available.”
There appears to be a major market for customizable solutions for areas like underwriting, workflows, policy and premium administration, claims management, and risk mitigation. Whether it is buying a software solution from Salesforce, ServiceNow or any number of other custom development shops, there are a wide range of options for insurers to rework a tool to help automate their workflows, he noted. But when it comes to pre-built point solutions that can be used out of the box, there are not many options.
Lettween noted a lack of robust platforms in the market that address core insurance use cases, such as transaction systems, customer engagement, and claims processing.
“It still feels like the insurance industry is trying to take from the broader landscape of financial services and back-office software and just pay money to customise it. I haven’t seen a ton of new offerings that are significantly different from that.”
Joe Lettween, chief innovation, data science, and technology officer at Fortegra
AI in Insurance
Inside Nationwide's 'bionic business model'
Since joining Nationwide, Chief Technology Officer Jim Fowler has worked to foster what he calls a “bionic business model” in which machines work together with humans to propel the business into the future.
Here’s the current state of insurance technology as Fowler sees it:
Insurance organizations have moved on from talking about “digital transformation” and are now engaged in the work of “digital innovation.”
People in the industry no longer have the luxury of either specializing in insurance or technology; now all insurance professionals must be conversant in both. It follows that such digital-savvy insurance people are embracing generative AI for its power to enhance efficiency.
Jim Fowler is Executive Vice President and Chief Technology Officer of Nationwide. In this role, he is responsible for the company’s technology strategy, IT capabilities and business transformation programs. Prior to joining Nationwide in 2018, Fowler spent 18 years with General Electric.
Fowler recently sat down with PropertyCasualty360.com to talk about Nationwide’s approach to digitalization and how the carrier plans to manage (and grow with) generative AI.
AI in underwriting will grow but not displace human experience
Evolving tech likely to augment human judgment in evaluating risks
One of the oldest and most-repeated sayings about insurance is, “It’s a people business.” With the advent and rapid development of artificial intelligence (“AI”), one might wonder if that saying will remain true.
There are good reasons to believe insurance will always involve human intervention and human relationships – but AI and other technologies will play increasingly influential roles, particularly in underwriting.
Due to its ability to sort through large volumes of data, AI has the potential to support tasks such as assessment, analysis, and pricing of risk. These core functions of underwriting are repetitive actions that eat up a lot of time for insurance professionals. AI’s capability to alleviate that repetitive work could free up human underwriters to consider more complicated risks and to come to informed opinions more quickly and with increased accuracy. Let’s look a bit closer at what AI in underwriting might look like.
Less than 10 years ago, technology in many lines of insurance was still comparatively rudimentary. It was not uncommon for underwriters to manage their books of business using manually updated spreadsheets. Risk assessment in the era before data-driven underwriting required underwriters to parse through information without always seeing the whole picture, untying knots as they completed their research. Fortunately, in the years since, more sophisticated technology – including AI – has been implemented and put to good use. Underwriting processes and tools are much more robust and better integrated now.
AI today is being used to classify risks and sort through submissions according to North American Industry Classification System (NAICS) codes or Standard Industrial Classification (SIC) codes. This is time-saving and helpful. It also gives human underwriters a second set of “eyes” able to flag information that may not have been captured or correctly classified. Deciding to accept a risk with missing or incorrect data could result in an insurer significantly underpricing that risk or inadvertently taking on risks outside the company’s appetite.
In cyber risk underwriting, for example, AI is widely used to conduct scans of public-facing information technology infrastructure. With this data, AI tools generate risk scores according to vulnerabilities uncovered by the scans. All of this happens quickly, presenting digestible insights that inform underwriting decisions. AI can analyze loss data for different threat vectors, determine a median risk score, and let underwriters apply different pricing scales to accounts above or below a certain score.
Benjamin Walker is Assistant Vice President – Cyber and Technology Errors and Omissions Underwriting at Munich Re Specialty Insurance
InsurTech/M&A/Finance💰/Collaboration
CLIMATE RISK ANALYTICS FIRM RISKTHINKING.AI, LAUNCHES A NEW PRODUCT TO SOLVE THE COMPLEX PROBLEM OF CLIMATE RISK MANAGEMENT
Riskthinking.AI, an award-winning, innovative climate risk start-up located in Toronto, Canada, has announced today the release of its product, VELO®.
Climate change is no longer a "tomorrow" problem; today, businesses and governments worldwide are feeling its effects. The physical, economic, social, and natural assets we all depend upon are increasingly exposed to loss and disruptions associated with greater physical and transitional risk.
It's more important than ever that companies, financial institutions, and governments understand how, where, when, and why they are exposed to climate risk so that they can:
Continue to thrive in this new environmental and regulatory environment.
Generate strategies to mitigate/adapt to risks and capitalize on opportunities.
Quantify and report their exposure to investors and other stakeholders.
Yet, most organizations lack the critical data and models to facilitate this understanding. Dr. Ron Dembo, Founder and CEO of Riskthinking.AI explains: "It is a tremendous challenge to address, requiring access to a vast amount of data including the physical asset make-up of companies, forward-looking climate risk data across multiple hazards, and transition risk data such as the future price of carbon. But having the data isn't enough; you need reliable modelling and analysis to make sense of it and use it to make decisions."
Events
Chicago AI Conference: Reshaping the Future of Finance with AI in Chicago
Never before has technology evolved as rapidly as it has over the past century. According to McKinsey forecast, more than 70% of companies will adopt at least one AI solution, furthermore their stimulation showed that AI could generate additional growth of 1.2% of global GDP. It is already faster than humans in uncovering insights from huge amounts of data, contributing to fraud detection and cancer diagnosis.
However, beneath the surface of this futuristic promise lies a dualistic reality. While AI offers great benefits, it also presents challenges and pitfalls. AI-driven bank assistants, hiring tools, and healthcare diagnostic systems have displayed alarming biases based on gender and race. With a vision to shape global AI agendas and foster public-private collaboration, the Chicago AI Conference is set to take place on October 26, 2023, in Chicago.
Organized by the AI 2030 initiative, FinTech4Good and co-hosted by partners including Chicago AI Council, Star Consulting, Evolving Summit, this event brings together industry leaders, innovators, and experts from around the globe to discuss the latest technology advancements, cutting edge use cases, responsible artificial intelligence (AI) best practices, and real-world applications of AI in regulated industries such as financial services, insurance, payments, healthcare, and so on.
Additionally, on October 27, we will host an exclusive Executive Roundtable. Distinguished AI 2030 stakeholders will convene to discuss pivotal topics including the Open Source Responsible AI Framework, the Global Task Force, AI for Financial Professionals, and the AI2030 Accelerator programs.
Recommended Reading
Announcing The Future of Insurance Volume IV. Asia Rising
Available globally today, the next entry in The Future of Insurance series, Volume IV. Asia Rising, inspires the world on what we can do to evolve our industry.
In The Future of Insurance, Volume IV. Asia Rising, Theresa Blissing with Bryan Falchuk take you on an exploratory odyssey across Asia’s innovative insurance sector. Here, tradition meets disruption, where tech giants in China are as impactful as the nimble InsurTechs insuring the growing middle-class in Southeast Asia.
Through captivating stories, Blissing challenges the Western-centric view of innovation, suggesting that the future of insurance is already being shaped in Asia.
Armed with eight real-world examples, Blissing delves deep into the factors that have allowed Asian companies to not just overcome but leapfrog traditional barriers like tech development stages and legacy systems. She contends that these Asian models could very well serve as blueprints for global reform in the insurance industry.
Read More here»