Commentary/Opinion
Glimmers of Good News on Climate (Finally)
Stunning declines in the cost of solar and wind power are rapidly adding renewables to the world's energy mix
The recent cancellation of a major wind energy project off New Jersey's shore has cast a pall over efforts to limit climate change. But there are important signs of hope, too -- in particular, stunning declines in the cost of solar and wind power.
With the U.N.'s annual summit on climate set to start later this week, let's focus for a few minutes on the hope.
The chart from a recent article in the Wall Street Journal pretty much says it all: Three comparative charts showing How the growth of key global green technologies has outpaced forecasts.
You can see, in particular, how installations of solar power have consistently exceeded expectations -- by a lot. The 2002 projection the WSJ cites showed almost no adoption of solar by now in the grid because costs were expected to be higher than for alternative sources. Even in 2010, projections were for almost no use of solar in the grid by now. By 2020, the picture had totally changed -- but even that projection was far less optimistic than the current one. The 2023 prediction shows a full-on hockey stick of the sort that makes investors salivate.
The reason? Technology has cut costs far faster than expected.
Paul Carroll, editor-in-chief, Insurance Thought Leadership
Research
Analysts agree rate spikes auto insurers’ only choice
A recent report from Actuarial Review cites data analysts and Carfax as stating that auto insurers don’t have much of a choice in raising rates because of inflation, COVID-19 pandemic effects, and state regulations.
Total loss thresholds are decided at the state level and vary across the U.S. For example, it’s as low as 50% in Iowa and as high as 100% in Colorado and Texas. Most states that mandate total loss thresholds are at 75%.
Carfax National Sales Director Dan Hill told Actuarial Review that it’s generally 65% of actual cash value (ACV), adding that the formula is outdated, which causes collision claims to more often become total losses.
“Many insurers are stuck with vehicle damage that exceeds the total vehicle loss threshold, so they are sold as salvage vehicles and either crushed, salvaged for parts, or sold at auctions,” Hill said in the article.
He added that vehicles sold at auction and then repaired “have a significantly higher loss experience in future accidents.”
[Ed Note: Recommended] Embracing Tomorrow: Majesco Research Reveals the Top 10 Trends in 2024 Shaping the Insurance Industry
Majesco, a global leader of cloud insurance software solutions for insurance business transformation, today announced the availability of a new thought leadership report, 10 Trends Shaping the Future of Insurance in 2024.
This new report takes a detailed look at the top-of-mind issues insurers are facing as they look ahead to the upcoming year, including a need for a change in mindset – moving beyond a legacy, internal view to one recognizing a world of continuous change that demands new technology and operating model as a foundation to adapt, innovate and deliver at speed as markets shift and change continues its relentless path forward.
Looking toward 2024, the insurance industry will continue to face these challenging market economics, which will continue to impact overall operations. The insurance market is facing many headwinds, driven by heightened volatility in financial markets, heightened customer expectations, economic activity, and increased risk environment. Navigating this uncertainty is not for the faint of heart. It requires leaders to diligently execute their strategy and adapt where they need to remain relevant and competitive in this fast-changing market landscape. For insurers to remain financially strong and grow, they must focus on both operational and innovative areas for investment that accelerate their journey to the future.
“Signals about what the future holds are in play and intensifying. The market economics of inflation, supply chain challenges, rising interest rates, and low unemployment are not abating,” says Denise Garth, Chief Strategy Officer at Majesco.
“Declining profitability, increased catastrophe losses, rising loss ratios, increased claims costs, rising reinsurance prices and tightening capacity, lower disposable incomes, and a growing loss of talent from an acceleration of retirements, are all converging, creating a massive wedge for change. These top 10 trends are focused on adapting to a fast-changing marketplace and crucial areas insurers must focus on and invest in. Time is of the essence. Waiting is not an option.”
Learn more by downloading 10 Trends Shaping the Future of Insurance in 2024, on the website or by emailing info@majesco.com.
Best’s Market Segment Report: US Nonstandard Auto Insurers Aim for Improved Underwriting Results
The U.S. nonstandard auto insurance segment continues to experience poor results, although the first-half 2023 underwriting loss of $333 million was an improvement over the $773 million loss seen in the same previous-year period, according to a new AM Best report.
The Best’s Market Segment Report, “Nonstandard Auto Insurers Aim for Improved Underwriting Results,” states that the results of the companies that make up AM Best’s private passenger nonstandard auto (PPNSA) composite reflect persistent rate inadequacy concerns, as well as inflationary pressures that have contributed to rising claim costs. The adverse results are lingering despite efforts to use available data tools and technology to effectively address increased loss costs and loss severity trends, as well as achieve greater rate adequacy.
Although improved underwriting results remain elusive, according to the report, the push for premium adequacy has resulted in record-setting quarterly premium volume, with direct premium written (DPW) eclipsing $6 billion for the first time in a single quarter in first-quarter 2023.
“The need for higher premiums demonstrates the prevailing effect of inflation on loss costs and the efforts of nonstandard auto insurers to catch up with, if not get ahead of, those negative trends,” said David Blades, associate director, Industry Research and Analytics, AM Best. “These efforts may result in some progress in offsetting higher claim costs, partially mitigating the recent upsurge in the composite’s combined ratio and worsening underwriting losses.”
News
NAIC expected to vote on climate strategy as data collection continues
As federal officials continue to push for more detailed climate data from insurers, the National Association of Insurance Commissioners (NAIC) is emphasizing climate concerns during its annual fall meeting this week in Orlando. The Climate and Resiliency Task Force is expected to adopt a National Climate Resilience Strategy for Insurance in a bid to stabilize the insurance market.
The task force meets Sunday at the NAIC fall meeting. "It’s part of our overarching mission to manage risks, ensure the availability and reliability of insurance products, promote insurer solvency, and close protection gaps," the strategy reads. "Our work to identify, assess, and communicate risk and risk reduction solutions, as well as to improve oversight of the insurance sector, has positioned state insurance regulators to implement a climate resilience strategy." Several major insurance companies abandoned or reduced coverage in areas hardest hit by natural weather disasters.
The Department of the Treasury’s Federal Insurance Office is proceeding with its first-ever data collection from insurers to assess climate-related financial risk. The effort is opposed by NAIC regulators, but Treasury officials announced Nov. 1 that it will proceed.
InsurTech/M&A/Finance💰/Collaboration
Synchrony to sell pet insurance subsidiary for $750M gain
The Synchrony spokesperson declined to comment on how much the company paid for Pets Best in 2019, or the cash amount Synchrony gets from the deal with Raleigh, North Carolina-based Independence Pet Holdings.
In the filing, Synchrony said the gain on the sale took taxes into account and could change based on “the carrying amount of net assets of Pets Best and the final valuation of consideration to be received at closing.”
In the human healthcare market, CareCredit is one of the top companies offering medical credit cards, according to a May report from the Consumer Financial Protection Bureau. The number of CareCredit cardholders nearly tripled over a decade, from 4.4 million in 2013 to 11.7 million cardholders this year, the CFPB’s report said.
In July, the CFPB, Department of Health and Human Services and the Treasury Department launched an inquiry into medical credit cards and installment loans as part of a broader effort by the federal government to get healthcare costs under control.
Third-party medical credit cards “often include teaser rates and deferred interest features that lead to higher costs for consumers,” said Neera Tanden, the White House domestic policy adviser, during a July conference call announcing that inquiry.
AI in Insurance
AM Best panel explores how GenAI & ChatGPT are reshaping the insurance industry
A recent panel hosted by AM Best, that included insurance and technology experts, examined how Generative AI and ChatGPT technologies will play a key role in driving the customer experience across the industry.
The panel featured, Arun Balakrishnan, Chairman & CEO of Xceedance, Ray A. Mirza SVP of Berkshire (BHSI), and Praveen Reddy, COO of Velocity Risk.
Mirza explained that Berkshire BHSI’s approach to AI and ChatGPT internally is primarily twofold, with one area being to really have a focus on “education and awareness.”
“We have had a big push around that this year, educating our colleagues around the world on ChatGPT and other offerings. And we have started to talk about the use cases, as well as the benefits, but most importantly, the pitfalls and the risks.
“The second thing now is that we are starting to vet real use cases and something that we’re looking very closely at and its quite exciting that we are moving forward with it, is our first use case, which is in the area of submission processing.”
Moreover, Balakrishnan also explained how both GenAI and Chat GPT are still new forms of technology and that across the industry he is seeing different levels of “excitement, exuberance and caution” by different companies.
“In a personal lines world we are seeing a lot of experimentation in customer experience. Like how it engages with the customer service when somebody’s calling in, from making your charts more engaging, all the way to comprehensions. So there are a lot of experiments, but largely limited in the customer interaction world when it comes to personal lines.
AI in Claims; the good, the unknown, and the opportunity
In an era where the insurance industry strives for innovation through technology, focusing more on data than ever before, the significance of talent and skills development cannot be overstated. This article explores how the convergence of technology, data and skills can shape a successful claims proposition. It introduces the concept and role of Intelligent Assistants (the new IA) as a new lens through which to view the use of technology in claims processing.
Redefining AI as IA in Claims
Rather than the often and more recently discussed hot topic of Artificial Intelligence (AI) in claims, we propose a shift in mindset to Intelligent Assistants (IA).
This perspective emphasizes the practical application of AI within the claim’s lifecycle, promoting a balanced approach that maximizes customer value, interaction and product promise, without excluding the human factor.
Careful Integration of AI into Claims Models
To fully realize the potential of AI, it is crucial to embed it thoughtfully within the structure of insurance operations. AI should be integrated seamlessly into the claims serving model, strategically applied during critical data touchpoints in customer and product decision-making processes. This approach establishes a partnership between data, algorithms, claim specialists and insured parties, creating business value and enhancing customer experiences.
Lee Elliston, Chief Operating Officer, Global Claims, Aspen Insurance Group
Generative AI expected to impact many different insurance lines: Aon -
The insurance market’s overall understanding of generative AI-related risk is still within it’s early stages, but this developing form of the technology is expected to impact many different lines within the sector, such as Technology Errors and Omissions / Cyber, Professional Liability, Media Liability, Employment Practices Liability, and more, reports Aon.
Generative AI is a type of artificial intelligence that contains the ability to create material such as images, music or text. This form of AI is already proving to be quite a disruptor across the industry, and its adoption is said to be growing at an “explosive rate.”
In its Global Insurance Market Insights report for the third quarter of 2023, broker Aon highlights how insurance policies can potentially address AI risk through affirmative coverage, specific exclusions, or by just “remaining silent”, which ultimately creates ambiguity.
According to Aon, insurers are defining their strategies around this rapidly changing risk landscape through a combination of different factors.
One of these involves insurers building out their underwriting requirements which are already very robust.
Innovation
How insurance technology will enable more human experiences
Closing the gap between insurers and consumers is the essence of insurance humanization.
Humanized experiences happen across every touchpoint of the insured’s journey through the insurance lifecycle.
Consider the large multi-line North American commercial insurer creating an intuitive website that makes it quicker and simpler for members to get a quote and buy auto and home insurance.
But humanized insurance experiences aren’t just about the pre-bind activities; they can and absolutely should occur during the moment of truth in delivering on the promise of insurance.
Closing the gap between insurers and consumers is the essence of insurance humanization. It’s also about helping consumers realize the full value of their policies.
Having the right technology stack in place — one that connects insurers to their customers more directly and authentically to build lasting, mutually beneficial relationships — is critical to achieving humanized experiences. Continuous updates in SaaS core systems will make it easier for insurers to enhance their operations, organization and ways of working — creating more humanized experiences and earning them the right to serve their customers for life.
How upgrades can block innovation
A trend in the insurance industry is that core systems have continued to evolve from legacy mainframes and hosted on-prem to “evergreen” SaaS. Evergreen means the systems are always up-to-date and flexible solutions that can adapt to your business’s ever-changing requirements.
Nick Lien, vice president of Product at Duck Creek Technologies
2024 PREDICTIONS
What to Expect: 8 InsurTech Predictions for 2024
2023 has been a tough year for InsurTechs to raise the Venture Capital they need to grow.
Investors turned their backs on whole categories like full-stack carriers and direct-to-consumer startups. Insurance companies focused on risks and losses in their own businesses.
But InsurTech entrepreneurs demonstrated their resilience by adding new words to their vocabulary, like “profitable growth” and “breakeven”—and investing is picking up for outstanding business models and teams.
Here are eight trends to look for in 2024.
Martha Notaras is a General Partner at Brewer Lane Ventures
Property, along with most lines, to see rate increases: WTW
North American commercial insurance buyers will see continued property insurance rate hikes in 2024, while casualty rates could harden, according to a report issued Monday by Willis Towers Watson PLC.
Nearly all lines of coverage continue to see rate increases, albeit primarily in the single digits, while the property market remains “relatively hard,” WTW said in its Insurance Marketplace Realities 2024 report.
Certain clients and industry sectors still face spiraling premiums at renewal, prompting greater take up of alternatives such as captives and parametrics, not just in property but in auto liability, cyber risk and terrorism, WTW said.