Commentary/Opinion
Did insurtech live up to the hype in 2023?
The hype died, the venture capital money dried up, and 2023 might have been the year the insurtech business came face to face with reality, abandoning notions of massive technological revolutions, transformations, and disruptions, and settling into the cold, hard vagaries of the traditional insurance market and reasonable values.
“I think by most measures and for the most part, [insurtech] hasn’t delivered—at least not on its most exuberant promises,” said Dale Gonzalez, chief product officer at Axio, a leading Software as a Service (SaaS) provider of cyber risk management and quantification solutions. “We’ve certainly seen tech applied to the consumer space successfully. But we haven’t seen the promised tech-enabled disruption of traditional insurance.” Gonzalez and a many other executives contacted for this story said similar things. Many felt the initial attempts to provide technological support selling insurance beyond the consumer interface, was met with significant and unexpected headwinds. “The connection between the client, the broker, and the insurer is still very manual and ad hoc with lots and lots of rekeying of information,” Gonzalez said. “The unstructured nature of the documents supporting the process and lack of standardization has led to real limits in terms of what else can be automated. On the other hand, we have seen the emergence of alternatives to the initial “automate the existing process” approach.”
Doug Bailey is a journalist and freelance writer and can be reached at doug.bailey@innfeedback.com.
Why resolving data quality issues should be a priority for the C-suite in 2024
For insurance firms, data quality is a critical linchpin that, when poorly managed, hinders overall efficiency, competitiveness, and progress, says Jesse Power, Head of Insurance at data automation firm, Duco.
While the insurance industry is a vital component of the global financial services landscape, its path towards embracing automated solutions has been a journey marked by surprising inaction, setting it apart from other sectors. The primary culprit behind this slow progress lies in mismanaged data. However, the tides are turning as market participants recognise the impact technology can have on their business and realise the costs of further delays.
In this article, we delve into the main obstacles that have hindered the use of automation in insurance, the remarkable shifts underway, and how automation is rewriting the rules in one of the oldest sectors of financial services.
Data is the lifeblood
Anyone following the technological transformation of financial services has no doubt heard the expression ‘data is the lifeblood of financial services’ or some equally familiar cliché. While this phrase might sound overused, it remains relevant to the challenges currently faced by many companies, particularly those in the insurance sector. While data is widely recognised as the essential lifeblood, the aspect of maintaining its quality is too often overlooked or at least not correctly prioritised at the right levels within organisations.
Where the market is adapting
Data quality is essential for the successful integration of automation in insurance because it underpins the reliability, efficiency, compliance, and overall effectiveness of automated processes. Insurers know that without a focus on improving data quality and transforming their operating model (including a robust data quality & controls framework), full automation across their operations will always be out of reach.
News
Majority of Americans say car insurance is becoming unaffordable
Nearly three-quarters of Americans say personal auto insurance is becoming unaffordable for the average person or family, according to a survey from car app provider Jerry, which reported car insurance rates hit a four-decade high in October 2023. Insurance premiums were up 19% during the year, on average.
As a result of the dramatic increases, 22% of U.S. drivers bought less coverage than they wanted as a way to save money during 2023. Nearly 40% of Gen Z drivers and 32% of millennials said they purchased less coverage than they wanted last year, Jerry reported, while less than 20% of Gen X and boomers said the same.
Although policyholders were feeling the pressure from growing premiums, fewer than 40% of survey respondents said they shopped around for lower rates during the past year.
Sentiment toward telematics as a way to unlock insurance savings appears mixed; 54% of driver said they would be willing to participate for lower rates and 52% said they would consider switching insurers if their current carrier required them to agree to monitoring.
However, Josh Damico, vice president of insurance operations at Jerry, said in a report that data will become the most important pricing factor.
Best’s Special Report: U.S. Property-Casualty Insurers Cut Expenses in the Wake of Deteriorating Personal Lines Results
Despite ongoing pressure from catastrophe-related and secondary peril losses, insurers within the U.S. property/casualty (P/C) industry have been able to bolster their bottom-line financial results by cutting underwriting expenses, according to a new AM Best report.
“Insurers have been able to cut their expense ratios in taxes, licensing, and fees, which they have also passed to the agents and brokers.”
The U.S. P/C industry segment has cut 2.6 percentage points from its underwriting expense ratio over the past decade, reducing the figure to 25.7 in 2022. According to the Best’s Special Report, titled “P/C Insurers Cut Expenses in the Wake of Deteriorating Personal Lines Results,” the drop in overall expenses comes even as commission and brokerage expenses have grown.
Insurers have shared some of the expense savings with agents and brokers, which are receiving an additional 1% of direct premiums written compared with 10 years ago. Savings on general expenses and other acquisition expenses have also been passed along to agents and brokers.
However, the report also notes that commission and brokerage expenses were relatively flat for personal lines business, reflecting the state of the personal lines market.
“In contrast, the commercial lines have improved significantly and performed better than the P/C industry overall,” said Christopher Graham, senior industry research analyst, AM Best. “Insurers have been able to cut their expense ratios in taxes, licensing, and fees, which they have also passed to the agents and brokers.”
Allstate Sues Florida Pain Clinics, Alleging Millions in Fraudulent Billings
After an Allstate Insurance investigation alleged that a well-known Florida pain clinic had conspired with an injury law firm and had fraudulently billed the auto insurer for unnecessary surgeries and risky procedures, Allstate took the unusual step of striking an agreement with the clinics to stop the practices.
Less than a month after that November agreement was signed, though, the clinics had breached the agreement and were at it again, Allstate claims in a federal lawsuit asking for millions of dollars from Florida Anesthesiology & Pain Clinic and its manager and chief physician, Dr. Ravi Xavier.
“The defendants’ relationships with their personal injury attorney referral sources directly and intentionally led to the bills for medically unnecessary and excessive services detailed herein,” reads the complaint, filed Dec. 28 in the U.S. District Court for Southern Florida.
One law firm that made the referrals was Steinger, Iscoe & Greene, now known as Steinger, Greene & Feiner, one of the largest injury firms in Florida, the complaint reads. The firm went through a shakeup in 2019 when several employees filed suit, alleging that the firm’s leaders had pressured them to encourage clients to undergo unnecessary surgeries to boost the size of auto accident claims and bills sent to insurance companies. “No surgery, no case” was the law firm’s alleged rule, the lawsuits argued.
CCC Intelligent Solutions Announces Pricing of Upsized Secondary Offering of 22 Million Shares of Common Stock
CCC Intelligent Solutions Holdings Inc. (the “Company”) (NASDAQ: CCCS) today announced the pricing of the previously announced secondary offering of shares of the Company’s common stock (the “Offering”) by affiliates of Advent International, L.P. (the “Selling Stockholders”). The Offering consists of 22 million shares of the Company’s common stock, upsized from the previously announced 20 million shares.
The shares will be offered from time to time for sale through negotiated transactions or otherwise at market prices prevailing at the time of sale. The Offering is expected to close on or about January 8, 2024, subject to the satisfaction of customary closing conditions. The Offering consists entirely of shares of the Company’s common stock to be sold by the Selling Stockholders, and the Company will not receive any proceeds from the sale of the shares being offered by the Selling Stockholders.
J.P. Morgan, Barclays and Citigroup are acting as joint book running managers for the Offering. The Offering is being made pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-267793), which has been filed with the Securities and Exchange Commission (“SEC”) and became effective on October 14, 2022. The Offering is being made only by means of a prospectus supplement and the accompanying base prospectus. You may get these documents for free, including the prospectus supplement, once available, by visiting EDGAR on the SEC website at www.sec.gov.
Alternatively, copies of the prospectus supplement, once available, and the accompanying base prospectus may be obtained by contacting: J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, by mail at 1155 Long Island Avenue, Edgewood, New York 11717, by telephone: (866) 803-9204, or by email at prospectus-eq_fi@jpmchase.com, Barclays Capital Inc., c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717, by telephone at (888) 603-5847 or by email at barclaysprospectus@broadridge.com or Citigroup Global Markets Inc., c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717 or by telephone at (800) 831-9146.
Research
State Farm Secures Top Spot in Lifestory Research 2024 America's Most Trusted® Home Insurance Company Study
In the ever-evolving landscape of consumer choices, a reliable home insurance company is the guardian of one's most cherished possessions. Today, Lifestory Research unveils the results of its 2024 America's Most Trusted® Home Insurance Company Study, reinforcing the importance of trust when safeguarding homes.
Study Overview:
Lifestory Research, a renowned leader in consumer-based survey research, annually conducts a comprehensive study to discern the trustworthiness of home insurance providers. In this year's study, spanning opinions from 8,402 participants across the United States, respondents anonymously rated their trust in various home insurance brands.
Key Findings:
State Farm emerged as the top-rated, securing the most trusted home insurance brand for the second consecutive year. State Farm had the highest trust rating among the most popular home insurance companies, with a Net Trust Quotient Score of 105.3.
InsurTech/M&A/Finance💰/Collaboration
ReSource Pro snaps up Texas-based firm
ReSource Pro has announced the acquisition of Texas-based Helix Agency Services, a provider of managed technology services for insurance agencies and brokers in the P&C space.
“Every agency has a management system – these are complex systems that require constant maintenance and investment, yet only a small set of power users get the most out of them,” said Dan Epstein, CEO of ReSource Pro. “Adding Helix expertise to our service offerings will enable our clients to realize greater return on investment from both their staff and their technology investments.”
Helix’s services include system administration, data reporting and conversion, automation, and carrier password management, ReSource Pro said.
2024 Insurance Mergers & Acquisitions Outlook - Brown & Brown Insurance
As we look back on 2023, it’s clear that the intensity of the post-pandemic mergers and acquisitions (M&A) surge has been gradually winding down. But what does that mean for 2024?
Insurance M&As were down 24% in the first half of 2023[1] from the same period last year, with the lowest first-half tally of deals since 2020. The drop continued into the third quarter, with 34% fewer deals year-over-year[2]. The total M&A deal count for 2023 is an anticipated 750 transactions, less than any year in the post-pandemic bubble.
In the past decade, private equity firms have seen substantial returns due to the low cost of borrowing and the increase in valuation multiples. But the pendulum is beginning to swing the other way. In the past 18 months, the cost of capital has risen, and valuation multiples have plateaued and even decreased slightly in some cases.
Here are three key trends that will impact insurance M&A deals in 2024:
Economic pressures will continue to impact cash flow. The financial landscape for highly leveraged firms — firms with more debt — hinges on the delicate balance between inflation, interest and the hardening of rates. Recent trends indicate a plateau in inflation while interest rates may remain high, meaning highly leveraged firms may not have as much capital to invest in acquisitions. In this scenario, firms with low debt will only be marginally impacted. However, the significant loss of positive cash flow to highly leveraged firms could create financial challenges and potentially slow down growth and expansion plans, impacting their attractiveness to sellers.
These “softer” values are now considered steadfast and non-negotiable aspects of evaluating the worthiness of a buyer. Both selling and buying firms are looking for transaction partners who can not only appreciate the current value of the firm but also enhance it with additional business capabilities and career opportunities for their team.
Verisk LightSpeed® Small Commercial Accelerator Added to Guidewire Marketplace
Integration helps small business insurers bind new business in seconds
Verisk, a leading global data analytics and technology provider, is pleased to announce the integration of its LightSpeed® Small Commercial solution into Guidewire Marketplace. This integration can help small business insurers automate underwriting workflows and bind new business in seconds.
LightSpeed Small Commercial quickly provides insurers with reliable exposure data including the minimum core attributes needed in an automated process (NAICS, SIC, #Employees, payroll and revenue) as well as insights for more informed decision-making with only the input of basic information. The automation is driven by deep underwriting data and analytics that allow insurers to efficiently classify, quantify, and qualify risks for more targeted risk selection and increased straight-through processing.
“Insurers face the challenge of delivering quotes at a rapid pace while meeting business growth and profitability targets,” said Elizabeth Casas, vice president of commercial lines underwriting at Verisk. “When it comes to small business insurance coverage, it’s all about the details. Our LightSpeed Commercial accelerator accurately optimizes in seconds, and now it will enable Guidewire customers to enhance operational efficiency, better serve customers, and drive profitable growth.
Frankenmuth Insurance, a super-regional insurance carrier based in Frankenmuth, Michigan, is a new client of Verisk, and will be deploying the technology in 2024. “Leveraging the LightSpeed Small Commercial accelerator will allow us to quote new business faster, resulting in a quicker, easier buying experience for our customers,” said Tim LeClair, vice president of commercial lines at Frankenmuth Insurance. “Verisk has provided a clear path to grow our portfolio and strengthen customer relationships.”
More than 30 Verisk solutions have been integrated onto Guidewire Marketplace, including 360Value®, which helps insurers from underwriting to renewal with reliable, claims-driven, component-based estimates that account for virtually all material and labor required to rebuild structures.
Innovation
Parametric insurance is reshaping commercial property coverage
The commercial-property insurance landscape is undergoing a notable evolution, marked by a discernible shift toward non-traditional solutions.
As alternative products gain traction and bridge the gaps left by traditional coverage, one innovative approach stands out: Parametric insurance.
Also known as index-based insurance, parametric insurance policies have most frequently been implemented in developing economies. They’re also gaining momentum among U.S. businesses in disaster-prone areas.
This paradigmatic shift is not merely an adaptation to changing times; it’s a pivotal reimagining of how businesses protect their assets in the face of unpredictable risks.
The rise of parametric insurance
Unlike traditional indemnity-based insurance, which assesses losses after they occur, parametric insurance operates on predefined parameters such as wind speeds, earthquake magnitudes or rainfall levels. It functions on the principle of triggers: When a predefined event occurs, such as a certain level of seismic activity or a specified wind speed, policyholders receive a predetermined payout.
Mark Pennebaker is senior vice president and Commercial Lines practice leader at Foundation Risk Partners. These opinions are the author’s own.