News
Details of Calif. Wildfire Plan Sketchy, but a Useful Marketing Tool for Data Vendors
A proposal by California’s insurance regulator to require insurers to write more policies in areas at risk of wildfires is more a promise than a plan, but the announcement is giving data analytics vendors a new way to pitch their services to insurers.
Their message: Find the least risky properties now or scrape through the dregs later through adverse selection.
Insurance Commissioner Ricardo Lara said he has an agreement with insurers to write at least 85 percent of their statewide market share in areas with high wildfire risk.
Lara hasn’t released any more details since announcing the plan in September. For now, the most concrete impact of the proposal appears to be the opportunity it is offering to data vendors that have wide access to high-resolution aerial imagery and detailed data about historic wildfire losses.
One element of Lara’s plan would allow insurers to file rates that use predictive models to estimate risk, a significant change from current rules that allow only historic loss data to be used.
Lara approved regulations last year that allowed rate filings with mitigation discounts.
The discussion about a new way to set rates provides an opening to predictive analytics vendors such as Guidewire Analytics, based in San Mateo, Calif., and ZestyAI, headquartered in Oakland.
“If you have to go write in high-risk zones, it’s better for you to have a sniper rifle than a shotgun,” said ZestyAI Chief Executive Officer Atilla Toth.
Jim Sams, Editor, Claims Journal
Major consultancies facing wildest headwinds in years
Many have key relationships with insurance firms
It was a feast of glitz and glamor when McKinsey & Co.’s senior partners descended on Seoul last month for the blue-blood firm’s soiree.
Mayor Oh Se-hoon welcomed the attendees to the South Korean capital in a brief video.
Amazon.com Inc.’s Andy Jassy beamed in and South Korean pop star Psy, famous for the viral hit Gangnam Style, performed live. Rio Tinto Group Chairman Dominic Barton, a former McKinsey global managing partner, and Hyundai Motor Co. Chief Executive Officer Jay Chang were also present.
“I love that we are a CEO factory,” Global Managing Partner Bob Sternfels enthused in an address to senior partners in Seoul the same week.
He then quoted JPMorgan Chase & Co. CEO Jamie Dimon: “McKinsey is the firm that solves the world’s toughest problems.”
But away from the celebrating, years of rapid expansion and a spree of costly ethics scandals have left the broader $860 billion management consulting industry slashing budgets and thousands of jobs. McKinsey hopes its cuts will protect partner pay, Bloomberg News has previously reported, and some members of the rank-and-file in firms around the world are growing discontented. The industry has paid hundreds of millions of dollars in fines and settlements, and calls for greater oversight are growing. Reputational risks and global economic uncertainty are pushing some companies and government departments to rethink their reliance on the sector.
And new blow ups keep coming. Recent revelations that the Australian arm of PricewaterhouseCoopers leaked confidential government tax plans to clients including Alphabet Inc.’s Google tap into longstanding concerns about conflicts of interest. This month, Ernst & Young said it would make changes to its US business after regulators repeatedly found flaws in its audits.
Ambereen Choudhury, Amy Bainbridge and Irina Anghel, Bloomberg News
Research
What is a managing general agent?
What is a managing general agent? This question is one we are often asked by our producer-clients — typically after we advise them to remove the term “managing general agent” from their agreements with insurers. While we can spend time diving into the uses, history and evolution of managing general agents (often referred to as MGAs), this article will instead focus on what, exactly, it means to be an MGA.
The determinative factors for whether an individual or entity is an MGA can be broken down as follows:
- Any individual or entity who manages all or part of an insurer’s business (including the limited management of a division, department or underwriting office of the insurer); and
- Acts as an agent for such insurer, by performing the following three functions, either in its individual capacity or together with affiliates, regardless of the agent’s title (i.e., whether referred to as “agent,” “MGA,” etc.) and regardless of whether the MGA has authority from the insurer to perform these functions:
- Produces gross direct written premium equal to or more than 5% of the policyholder surplus of the insurer (as reported in the last annual statement of the insurer in any one quarter or year); and
- Underwrites gross direct written premium equal to or more than 5% of the policyholder surplus of the insurer (as reported in the last annual statement of the insurer in any one quarter or year); and
- Either
- Adjusts or pays claims in excess of $10,000 per claim; or ii. Negotiates reinsurance on behalf of the insurer.
See generally NAIC Managing General Agents Act, MDL 225.
Jonathan M. Goeringer is a senior counsel in the insurance practice group with Foley & Lardner, based in the firm’s New York office. He focuses his practice on M&A transactions and general insurance regulatory advice.
Stephanie Pierce is an associate in the insurance practice group, based in the firm’s Austin office. She focuses her practice on providing counsel to the firm’s insurance and insurance-related clients.
Why is homeowners insurance becoming less affordable?
New research point to pressures driving up home insurance rates
The increasing frequency and severity of natural disasters, coupled with escalating home repair costs and other pressures, are pushing homeowners’ insurance out of reach for many Americans, according to a new report from the Insurance Research Council (IRC).
The IRC evaluated affordability using the ratio of average homeowners’ insurance expenditures to median household income. In 2020, this ratio stood at 1.93%, meaning that, on average, US households spent nearly 2% of their income on homeowners’ insurance.
Utah ranked as the most affordable state, with households spending 0.92% of their annual income on homeowners’ insurance in 2020. Other states with low expenditure-to-income ratios included Oregon, Wisconsin, Washington, and New Hampshire.
Commentary/Opinion
How Will Self-Driving Cars Be Insured in the Future?
Auto coverage currently looks about the same for human-driven vehicles as for autonomous technology — but that could change as systems grow more advanced
Autonomous vehicles (AVs), also known as driverless cars, aren’t quite ready for the mainstream yet, but the technology has advanced quickly in recent years. Automakers have begun incorporating certain autonomous features into vehicles, while colleges, airports and companies like Waymo and Zoox test out robotaxi services and driverless shuttles.
In this article, we at the MarketWatch Guides team will look at how the rise of autonomous cars could impact the auto insurance industry.
What Does the Rise of AVs Mean for Insurance Companies? Melba Kurman, one of the authors of “Driverless,” believes that innovation in autonomous vehicle technology is currently outpacing the ability of the auto insurance industry to keep up. Kurman is an author and technology analyst, and this book offers a comprehensive introduction to self-driving cars. One of the biggest challenges to insuring driverless vehicles, she said, is liability. If a driverless car hits another vehicle or a pedestrian, determining who’s at fault gets complicated.
The traditional model of car insurance will likely need to be adjusted to hold manufacturers or software developers liable for collisions caused by autonomous vehicles. The industry will also need to develop coverage for newer risks, like those related to cybersecurity flaws and faulty GPS systems.
In addition to the liability question, the rise of driverless cars impacts the insurance industry in a few other ways:
- Regulation: Each state sets its own regulations for car insurance, so liability is different based on jurisdiction. Some states are no-fault, where insurers pay the injured party regardless of who’s at fault, while others are tort states where the party that caused the collision pays. As the liability question becomes more complicated and potentially shifts to manufacturers, this could push the federal government to create a standard of liability that overrules state regulation.-
- Underwriting: Some factors that car insurance companies weigh when determining the cost of insurance, like a person’s driving record and the number of miles driven, may decline in importance. The make, model and type of car could weigh more heavily.
- Telematics programs may become standard in more policies as well.
- Repair costs: Even though proponents of autonomous vehicles believe the technology will ultimately reduce the number of car accidents, repair costs may increase. That’s because AVs have complex components that require automotive specialists to repair. The number of mechanics trained to work on AVs will likely increase as the technology spreads, but there currently aren’t enough. Car ownership rates: As AVs become more popular, people may opt out of auto ownership altogether. Cities, municipalities and companies may own large numbers of AVs, but the average driver could decide against purchasing a car.
Dash Lewis, contributor to the MarketWatch Guides team and Rashawn Mitchner, Managing Editor
Google Cloud’s Walsh: Insurers increasingly embracing cloud and AI technologies
Google Cloud’s Nigel Walsh has called on more insurers to follow their peers in embracing cloud technology as part of a strategy of streamlining business practices.
Walsh told The Insurer TV he had already experienced a shift, with the industry now more eager to update its processes with digital tools and services.
He said this trend was likely to continue, with the insurance industry expected to develop more specialised cloud and AI products that could help insurers to better assess their risk landscape.
“Insurance is an industry built on data, and given that, it's a great industry for us to leverage AI of all facets,” he said.
Walsh considers the industry an ideal candidate for cloud technologies and AI-based products, with a 2022 McKinsey study having described the shift to the cloud as a “generational opportunity” for insurers.
“Insurance has always had a reputation of being slower than other financial services in many cases, and I think this is true also for how we interact with the cloud,” he said.
“But over the last couple of years, we've seen people go from ‘Should I be in the cloud?’ to ‘How do I get there faster?’
Is buy vs. build still the right question for insurers?
When insurance companies consider new tools, one question usually prevails: buy or build? Is it more advantageous to work in-house, or to collaborate with a partner? Recently, however, the answer to this question has become more nuanced. In fact, even saying "buy vs. build" creates a false dichotomy. Rather than thinking in binary terms, insurers should ask themselves another question: whether it's in-house, external, or a combination of both, how can they unlock the most value from technology?
The appeal – and the limitations – of "build"
There are many reasons why carriers might be hesitant to partner with an insurtech. Adding a third party to your organization always entails some amount of change management. When handled poorly this leads to failures and inefficiencies, the opposite of what carriers are looking for. Viewed from this perspective – and considering how much data carriers already have – it may seem reasonable to work internally.
But if insurers are serious about a pure "build" option, they need to be aware of all that entails. It's one thing to look at raw data, and quite another to transform it into functional tools. Realizing the full advantages of a tech solution involves several steps:
Sourcing data: Insurers today have access to an unprecedented amount of data. But high quantity doesn't always mean high quality (over 75% of insurance executives report difficulties cleaning data before analysis) Insurers must be meticulous when sourcing data, including imagery, permit records, and peril insights, or they will make damaging decisions in the long term.
Jeff Heine Chief Revenue Officer, Betterview
Duck Creek CEO Reflects on 2023 Transition to Private Ownership
Mike Jackowski, Duck Creek CEO and member of the company’s board of directors, talks about the meaning of private ownership for the company’s strategy, its record Q4 results and its plans for the adaptation of AI and other emerging technologies to its offerings.
Duck Creek Technologies (Boston) one of the most important and enduring vendors of core systems and related SaaS technology to the property/casualty reverted to private ownership early this year with its acquisition by Vista Equity Partners (Austin, Texas).
The move recalled a similar transition undertaken by another major vendor—Majesco (Morristown, N.J.)—acquired by by Thoma Bravo, a Chicago-based private equity firm with an interest in the insurance technology space in 2020.
Duck Creek’s transaction with Vista Equity Partners was announced in early Jan. 2023 and completed in March, and followed during the year by some important announcements, including key executive appointments. In May Duck Creek named a new Chief Operating Officer, Chris McCloskey, former Chief Customer officer of Datto, a cybersecurity and business continuity company.
In July, Duck Creek announced that it would reduce its workforce by 9 percent. In September, the company named a new Chief Financial Officer, Teresa M. Kim, who has an extensive background and history in cloud computing, technology platforms, and “Big Four” public accounting. She joined Duck Creek following a 20-year tenure with Akamai Technologies, a worldwide content delivery network and cloud service company, where she most recently served as VP of finance in the company’s cloud technology group, overseeing $2 billion-plus in revenues while helping the business to build a scaling world-class platform.
To get the view from the inside about the latest phase in Duck Creek’s evolution, IIR spoke with Mike Jackowski, Duck Creek’s CEO for more than a decade, and a member of its board of directors.
Anthony O'Donnell, Executive Editor, Insurance Innovation Reporter
InsurTech/M&A/Finance💰/Collaboration
Generali Ventures commits €250m to boost FinTech and InsurTech sectors
Generali has kickstarted its latest venture capital initiative, “Generali Ventures”, aiming to bolster innovation and identify fresh market opportunities.
The venture fund has a dedicated allocation of €250m, with a primary spotlight on the InsurTech and FinTech realms.
Born out of comprehensive research spanning over 100 venture capital funds in 2022, Generali Ventures pledges its commitment to discovering and backing the most compelling investment ventures. It has already strategically channeled funds into three pivotal initiatives: Mundi Ventures, which majors in InsurTech technologies; Speedinvest, which supports start-ups in their embryonic pre-seed and seed phases; and Dawn, which is vested in B2B software solutions.
The enterprise’s quest for external innovation extends to a wide array of technologies transforming the insurance sector, covering niches like mobility, artificial intelligence, cybersecurity, and healthcare. Their investment lens is broad, scouting innovative start-ups from their inception to later stages. Their geographical ambition isn’t limited and expands to venture capital endeavors in both Europe and the United States.
InsurTech Top 10: 2023's Fast-Growing Innovators
InsurTech Digital looks at the Top 10 growing insurtechs of 2023 from across the globe, featuring companies with new funding and triple-digit growth rates
The insurtech industry, much like fintech and a swathe of other emerging sectors, has been devoid of funding in the second half of 2023, ushering in an era of consolidation.
While this may be easier for more entrenched insurtech companies, newer companies in need of funding have found it harder to raise the capital required.
In this Top 10, we look at the insurtechs bucking the trend by continuing to scale at pace. Whether an established insurtech consolidating its position or a new player securing scarcely available funds, these companies continue to chart a course for continued growth in 2023.
Awards
AIA, PAK Programs and Swiss Re Recognized for Excellence in Insurance Innovation
The International Insurance Society (IIS) and Insurance Thought Leadership (ITL) announced the winners of the first-ever Global Innovation Awards at the 56th installment of the Global Insurance Forum on Nov. 6, 2023, at the Hilton Singapore Orchard. The awards recognize companies that have shown exceptional achievement in driving innovation and fostering sustainability within the insurance and risk management industry.
Insurtech Predict & Prevent Innovator of the Year: Swiss Re
The Insurtech Predict & Prevent Innovator of the Year award, determined by audience vote during the Insurtech Lightning Round session, goes to Swiss Re for their submission "Risk Data & Services: Empowering Risk Control and Enhancing Resilience." The platform provides essential tools and models for assessing, quantifying, and prioritizing risks. Swiss Re's innovative approach enables businesses to make informed decisions about sharing risk insights, thereby enhancing data confidentiality.
IIS and ITL are affiliates of The Institutes
Events
Connections 2023 Keynotes: Celebrating the Power of Community | Guidewire
You can watch the Connections 2023 Guidewire and customer keynotes, as well as select breakout sessions, on-demand by registering on the Connections website starting Monday, November 27
2024 PREDICTIONS
Forrester's top 5 insurance industry predictions for 2024
Now is the season when news columns include predictions for the coming year – followed by New Year’s resolutions that will pop up in a few weeks.
Predictions are always tricky – and resolutions rarely fulfilled. Weren’t we supposed to all have jet packs or flying cars by now? Wasn’t Hillary going to be president? And what about those Red Sox?
Cambridge, Mass.-based Forrester Research – “one of the most influential research and advisory firms in the world,” or so says Forrester. Forrester – is out with its 2024 predictions for the insurance industry that offer reasonable-sounding insights for the near future and maybe some cautions about what’s ahead for insurers.
Return to profitability expected
Overall, Forrester says that after a couple of years of rising claims expenses, 2024 should see insurers return to greater profitability and stability as they continue to pass on the higher costs to customers and benefit from rising interest rates.
“This will result in moderate tech budget increases and a renewed appetite for tech and product innovation,” Forrester says.
While many carriers will chase the dream of embedded insurance and generative AI, these won’t have a substantial business impact next year. Climate adaptation, on the other hand, will become very real, as insurers scale back activities in the regions most affected by climate change and explore new types of heat-linked policies.