AI in Insurance
Insurers brace for claims from generative AI surge
The surge in use of generative AI could amplify insurers' existing exposures in lines such as media liability, professional liability and cyber.
The technology, which synthesizes novel content from vast databases of existing material in response to human prompts, triggers some risks likely to be covered under existing policies. But the rapid pace of generative AI's development means the status quo will not hold for long, experts told S&P Global Market Intelligence.
A future where generative AI-related intellectual property, technology and even terrorism risks are covered under a specific policy is foreseeable, according to George Beattie, head of innovation at specialty underwriting agency and insurer CFC Underwriting Ltd.
"I think these risks will become so dynamic that the ability of the market to digest them in existing covers will become more difficult," he said in an interview.
US Regulators Add Artificial Intelligence to Potential Financial System Risks
The Financial Stability Oversight Council, which comprises top financial regulators and is chaired by Treasury Secretary Janet Yellen, flagged the risks posed by AI for the first time in its annual financial stability report.
While the group said AI could spur innovation or efficiencies at financial firms like banks, the rapidly advancing technology requires vigilance from both the companies and their watchdogs.
“AI can introduce certain risks, including safety and soundness risks like cyber and model risks,” the group said in its annual report published Thursday, adding it recommended firms and their regulators “deepen expertise and capacity to monitor AI innovation and usage and identify emerging risks.”
The panel also flagged the growing role of nonbanks and private credit as meriting close attention, and said financial institutions and regulators should continue to try to better gauge risks stemming from climate change.
Some AI tools can be hugely technical and opaque, making it hard for institutions to explain or properly monitor them for shortcomings. If companies and regulators do not fully understand AI tools, then it is possible they could miss biased or inaccurate results, the report said.
Research
Advanced Vehicle Systems Makes Up Over One-Third of Collision Repair Costs
AAA analysis of ADAS system repair shows sensor replacement and calibration adds significant cost to repairs.
A recent study by AAA found that advanced driver assistance systems (ADAS), like automatic emergency braking, blind spot monitoring, and lane departure warning, can add up to 37.6% to the total repair cost after a crash. This is due to the high cost of replacing and calibrating the sensors that operate these systems. Even minor damage to systems such as front radar or distance sensors can result in additional repair expenses of up to $1,540.
Vehicles equipped with more sophisticated safety systems are much more common now, especially since NHTSA proposed its rule requiring automatic emergency braking earlier this year,” said Greg Brannon, AAA’s director of automotive engineering. “Consumers should know about the repair costs associated with these technologies. But they must also understand the importance of fixing them since improperly functioning systems could result in a deadly crash.”
According to AAA, many variables can affect the cost of repairing ADAS, including vehicle make and model, the type and location of the sensor and the type of facility where the repair work is performed. Consumers may not realize it, but the sensors that help ADAS “see” the world around the vehicle are located at the front, side and back. AAA looked at four repair scenarios (front-end collision, side mirror replacement, rear collision and windshield replacement) to understand the costs of repairing these sensors.
The full report is available to download here
Trends in Auto Thefts Add to Rising Claim Costs
Vehicle theft rates continue to put pressure on the personal auto insurance market.
CCC Intelligent Solutions said in its year-end report that the number of vehicle thefts in the U.S. increased 2% in the first half of 2023 after rising 7% in 2022. Total losses as a result of thefts peaked at 4% of total losses in the fourth quarter of 2022 and have exceeded 3% of total losses since the fourth quarter of 2001, CCC said. Total losses from theft were less than 2% of total losses in 2018 and 2019, according to the report.
CCC’s report called out auto thefts as “a concerning trend.”
The report says thefts accounted for about 3% of total loss value in the third quarter of 2023, but varied by type of vehicles. For domestic pickups, thefts accounted for 6% of total losses, but for pickups built in Asia, thefts were the cause of only 3% of losses.
Thefts of Asian and European-built cars also were lower: The percentage of total losses was 3.5% for domestic cars but about 3.2% for Asian cars and about 2.4% for European, according to the report.
CCC said while 85% of stolen cars were recovered, the vandalism needed to break into those vehicles was also a cause of loss. Repairable claims volume for vandalism was up 22% year-over-year in 2022 and was on pace to increase another 10% in 2023.
Thefts of catalytic converters also drove claims. Citing data from the National Insurance Crime Bureau, the report said there were 64,701 catalytic converter thefts in 2022, four times as many as in 2020. CCC said its data shows that more than 70% of catalytic converter thefts were from cars seven or more years old. The average repairable catalytic converter claim had an average total cost of $1,415.
According to a recent AM Best report, claim trends in general were rising for personal auto in 2022. The average claim jumped to $11,102 from $9,542 for the prior year, an 11% jump. The average defense and cost containment expense also increased by 29%, while adjusting and other expenses increased by 18%.
News
Allstate approved for double-digit rate increases in California, New York and New Jersey
Allstate announced Thursday double-digit rate increases for auto insurance in California, New York and New Jersey, following comments CEO and President Tom Wilson made last week that the company would drop insurance customers in those states, if rates weren’t increased.
California approved a 30% increase, New York a 14.66% increase and New Jersey a 20% increase, according to an Allstate press release. It states the rates will be implemented in December with effective dates through February.
The announcement comes just days after Wilson said, during a Goldman Sachs Financial Services Conference, that the company would exit those states if auto insurance rates weren’t increased.
Westfield entering international property D&F insurance
Westfield Specialty Ltd., a unit of Ohio Farmers Insurance Co., said Thursday it is entering international property direct and facultative insurance.
Westfield Center, Ohio-based Westfield Specialty, a unit of the Ohio Farmers Insurance Co., said in a statement the international property division will be led by Richard Wood, executive vice president, head of property, international insurance, who will join the company in July 2024.
He has been group head of D&F property at Lancashire Insurance (UK) Group, and Lancashire Australia Sydney.
Chris Prior will join Westfield as D&F property class underwriter in December from Lloyd’s Inigo Syndicate 1301.
Westfield introduced a suite of management liability coverages for public, private and nonprofit organizations in March.
InsurTech/M&A/Finance💰/Collaboration
Terminal raises $3.1M, wants to be the ‘Plaid of trucking’
API integrations are crucial for trucking telematics companies. They enable seamless communication among various systems, improve operational efficiency and accurate monitoring of fleet activities, and provide the ability to integrate with other industry-specific tools, enhancing overall fleet management capabilities.
For example, fintech solution Plaid significantly enhanced the banking community by providing seamless access to financial data and enabling secure transactions through its API services, making it simple for banking information to be verified and protected and promoting the development of innovative financial instruments.
Startup telematics integration solutions provider Terminal, looking to become the “Plaid of trucking,” announced Tuesday it has closed its seed round to continue building upon its Unified API, giving companies that build insurance products, fleet software and other financial services the vehicle and locations data they need.
The investment round was led in September by Golden Ventures with participation from Y Combinator, Wayfinder Ventures, Northside Ventures, McVestCo (Trimac Transportation), Boon Fund and angel investors Matt McKinney (Loop), Liz Wessel, JJ Fliegelman and Eli Brown.
Statement from Aflac Incorporated and Trupanion Confirming Commitment to Strategic Alliance in North America
"Since the establishment of a strategic business alliance in November 2020, Aflac Incorporated and Trupanion have shared a common belief that employers should consider a package of benefits for their employees to address the increasing number of consumers whose pets are a vital part of their families. Our collaboration addresses the growing need for solutions that help pet owners manage rising veterinary care costs.
Together, we have launched a suite of high-quality pet medical insurance products available at U.S. worksites. After testing this alignment in Japan, a key market for Aflac, a decision was made to withdraw from development in Japan, and instead the companies are focusing on the larger, underpenetrated North American pet insurance market.
Aflac Incorporated's $200 million investment in Trupanion and our distribution alliance underscores our mutual commitment to unlock the significant, long-term potential of this category and our belief in the products offered by Trupanion, the largest provider of pet medical insurance in North America. Our corporate worksite solution addresses increased interest to provide employees with comprehensive benefits for their pets, just as Aflac has helped provide financial protection for policyholders for nearly seven decades."
3 London insurance tech startups eye Hartford presence
Three London-based, early-stage insurance technology companies plan to establish a presence in Hartford, a move precipitated by a 2022 partnership struck between Connecticut and UK officials to create an InsurTech Corridor between the two regions.
The announcement was made by Emma Wade-Smith, the UK’s trade commissioner for North America, during the MetroHartford Alliance’s annual meeting on Tuesday at the Pratt & Whitney Hangar Museum in East Hartford.
Three London-based, early-stage insurance technology companies plan to establish a presence in Hartford, a move precipitated by a 2022 partnership struck between Connecticut and UK officials to create an InsurTech Corridor between the two regions.
The announcement was made by Emma Wade-Smith, the UK’s trade commissioner for North America, during the MetroHartford Alliance’s annual meeting on Tuesday at the Pratt & Whitney Hangar Museum in East Hartford.
Wade-Smith was involved last year in the formation of the InsurTech Corridor, which aims to create stronger business ties between Connecticut and the UK.
The agreement aims to remove jurisdictional barriers to cooperation, and encourage knowledge and resource sharing that would enable insurers in both Connecticut and the UK to explore and expand into each other's markets.
The three startups that plan to establish a presence in Hartford include:
- Previsico, which has developed technology to forecast flooding events;
- Matrix iQ, which provides data analytics to aid with risk management;
- Gaia, which uses predictive analytics to try to re-risk the costly IVF fertility treatment process.
EMEA
At COP28 the insurance industry commits to climate action
At COP28 the insurance industry commits to climate action
As the UN's global climate talks came to a close, Europe's insurance industry reconfirmed its commitment to fighting climate change and overcoming climate protection gaps – the uninsured losses from natural catastrophes – which are increasing as the impact of climate change materialises.
The Director-General of Insurance Europe, Michaela Koller, remarked, ''The science is unambiguous: climate change is causing more regular and severe natural disasters. In 2022 alone, global losses hit USD 275bn. Without significantly cutting the world's carbon emissions, this trend will accelerate. This will have many negative consequences, one of which will be that insuring against the effects of climate change will become increasingly costly.''
She added, ''Besides reducing emissions, it is equally important to step up adaptation efforts in order to reduce as much as possible the effects of climate change. Here, the main responsibility is with public authorities, but the insurance industry is committed to playing its part, and many insurers and insurance associations are in fact already involved in a whole range of initiatives to accelerate adaptation”.
Across Europe, insurance companies are contributing to the mitigation and adaptation of climate change. In particular as the largest group of institutional investors in Europe with over €10 trillion in assets, the insurance industry is supporting the sustainable transition. The industry also continues to support climate adaptation, raising awareness on the need to increase disaster resilience, sharing risk expertise and working with governments to maximise insurance coverage, for instance by building effective public-private partnerships.
More information about how Europe’s insurance and reinsurance industry is contributing to the fight against climate change and to meeting European and international climate objectives can be found on Insurance Europe's Sustainability Hub.
2024 PREDICTIONS
Data will drive personalized insurance experiences in 2024
Technology drives efficient and personalized insurance experiences in 2024.
This has been an eventful year that leaves me with a mix of feelings. Interest rates have surged, and the economic environment is weighing on consumers and the tech workforce, leaving them feeling grim about the future. Natural disasters continued — in fact, 2023 hit the record books as having the most number of climate disasters in a year. Major climate events — and the impact they have on those affected are leaving many of us with a heavy feeling.
This year, tech-savvy criminals made us realize why cyber and data security needs to be a top priority for companies. Recent data breaches and the ripple effects have left millions of people vulnerable. Like it or not, cybercrime has grown to be the "industry within" nearly all aspects of business and technology (and insurance).
While these moments are unsettling, 2023 also gave me plenty to feel optimistic about. The fluctuating global economy, the emerging risks, and the evolving regulatory landscape remind us that the insurance industry is here to prepare us for the unexpected.
What I'm looking forward to in 2024
The insurance industry is complex, and the need to move with speed — protecting people and places, physical and digital assets — is even more important in the face of those challenges. What I'm most optimistic about in 2024 is how agile and innovative the industry continues to become.
We're already starting to see this take shape: insurers are leaning on data insights and making more informed, impactful decisions with customer-centricity top of mind; immersing themselves in the positive impacts of technology like Generative AI; and building tech innovations at the core of their digital transformation journey.
Jess Keeney, Chief Product & Technology Officer, Duck Creek
Woodruff Sawyer predicts single-digit rate increase in 2024 for P&C rates
Single-digit rate increases are expected in 2024, similar to the ones seen in 2023, according to Woodruff Sawyer’s recently published P&C Looking Ahead Guide.
Despite economic and social inflation continuing to contribute to premium increases in the P&C insurance market, and rising reinsurance costs due to severe weather events that have led to higher property costs, analysts do not expect significant rate increases next year.
According to Carolyn Polikoff, Woodruff Sawyer’s Commercial Lines President, whether this trend continues depends on three factors that are impacting P&C premiums: inflation, more frequent and severe catastrophic losses, and reinsurance costs.
She explains: “Inflation has the strongest impact on the property and auto markets. Increasing costs for materials, parts and labour affect loss costs leading to ever higher insurance rate requirements.
“Counterbalance to this challenge is that inflation leads to higher interest rates on bottom portfolios, which is where most insurers invest their premiums. The combination of decelerating inflation and higher Investment Portfolio yield will improve insurer results, which should result in more favourable premiums, but that will likely not materialise until later in 2024.”