AI in Insurance
Insurance to drive AI reforms with the risk of increased litigation
The explosion of AI, particularly generative AI, has intensified the need for regulation globally. Calls for action from federal and local governments as well as human rights organizations will continue as countries around the world are in the nascent stage of regulation, grappling first and foremost with how to clearly define AI itself and the risks it presents.
Chief among the risks are discrimination bias and privacy concerns. With the increased reliance on generative AI, we expect to see discrimination, bias, and privacy concerns amplified as key risks and probable litigation targets. Companies relying on the use of generative AI open themselves up to liability over bias and privacy issues, as do the developers of the AI systems which will result in an intensifying push for safeguards as the lines become increasingly blurred in determining whether humans or machines are at fault. It seems only a matter of time before an AI system is sued, along with the companies relying on it. Regardless, we expect the number of AI-related cases, particularly class action suits, to increase.
Clyde & Co.
News
US property and casualty players shine as insurers get market cap lift in Q4'23
Seventeen of the 20 largest insurers trading on major US exchanges saw their market capitalization rise during the fourth quarter of 2023, according to an S&P Global Market Intelligence analysis.
Most of the increases were by 6% or more, but the nine largest gains were all realized by property and casualty (P&C) insurers.
The S&P 500 Insurance index as a whole was up 6.7% nearing the end of 2023, but the sector lagged the broader market as the S&P 500 Index rose 11.7%.
Allstate takes the lead
Despite booking a pretax loss in the third quarter for the sixth consecutive quarter, The Allstate Corp.'s property-liability underwriting and ratios have improved. The P&C insurer had the largest gain in market capitalization this quarter, a 25.7% increase to $36.63 billion, compared to $29.14 billion in the prior quarter. Allstate now ranks as the 13th-largest US insurer by market capitalization, rising one rank from the previous quarter.
The Progressive Corp.'s market capitalization also improved quarter over quarter, rising to third place from fifth.
Another P&C insurer, The Travelers Cos. Inc., reported the second-largest percentage rise, increasing 16.4% to $43.51 billion, compared to $37.39 billion in the third quarter.
Alternative capital hits record $103bn, delivers best performance ever: Aon
Alternative reinsurance capital, largely deployed in insurance-linked securities (ILS) formats, saw strong growth in the third-quarter of 2023 to end that period at a record high of $103 billion, while for the full-year ILS structures have delivered the best performance in their 20+ year history, broker Aon has said.
The last data from the insurance and reinsurance broker, up to the mid-year of 2023, had shown alternative reinsurance capital as flat at $100 billion.
Now, the latest analysis of global reinsurance capital from Aon’s Reinsurance Solutions division, shows that strong outright growth in the ILS and alternative capital space through the third-quarter of last year.
Over the first nine-months of 2023, traditional reinsurance capital grew by 7% to reach $532 billion, but alternative and ILS capital outpaced that, to grow by 11% over the period, reaching a new high of $103 billion at 9-month 2023.
Which works out as 8% overall growth for Aon’s estimate of global reinsurance capital in the period, which the broker said was driven by retained reinsurer earnings, recovering asset values for reinsurers and new inflows to the catastrophe bond market.
Aon noted that, in 2023, insurers and reinsurers have utilised alternative reinsurance capital “more than any year in the history of re/insurance market.”
International catastrophe event losses totaled $16.7 billion in 2023
There were seven catastrophe events internationally (outside of the U.S.) in 2023 that each caused losses in excess of $1 billion USD, according to the CRESTA Industry Loss Index (CLIX). In total, these events caused losses amounting to $16.7 billion. This is below the average of $17.1 billion (adjusted) caused by international CAT events over the last 23 years.
The most disastrous of these international events was the Kahramanmaras Earthquake Sequence in Turkey in February 2023, which generated an industry loss of $5.8 billion – making it the largest catastrophe loss to ever impact the Turkish insurance market.
Other international climate catastrophes with losses in excess of $1 billion include:
North Island Floods, which affected New Zealand in January 2023
Cyclone Gabrielle, which hit New Zealand in February 2023
Northern Italy severe connective storms in July 2023
Beijing-Tianjin-Hebei Floods caused by Typhoon Doksuri in China from July to August 2023
Hurricane Otis, which hit Mexico in October 2023
European Windstorm Ciarán in November 2023
The CLIX also cites the potential for two other events to join this list once ongoing investigations are completed. This includes severe connective storms that hit
Germany in June, and severe connective storms that hit Australia in December.
Commentary/Opinion
Why has Tesla Insurance fallen short for some customers?
When Tesla announced it was venturing into auto insurance in 2019, it promised a better and cheaper insurance experience for electric vehicle (EV) drivers beset by high repair costs and premiums.
But nearly four years since it launched, Tesla Insurance has faced significant challenges and questions over its viability. A slew of consumer complaints drew lawsuits and regulatory scrutiny last year, and the brakes appear to have been put on Tesla Insurance’s launch in Europe, originally slated for 2023.
One analyst Insurance Business spoke to said the EV giant seems to have run into the same problems that other tech firms fall into while trying to enter insurance. At the same time, Tesla may have struggled in handling the operations of its insurance arm.
We are actually looking for revolutionary actuaries for Tesla Insurance! Please inquire, if interested.
“First of all, when Tesla first came into the industry, they didn’t actually keep the risk themselves; they were just a distribution channel,” said Adam Denninger (pictured), global industry leader for insurance at Capgemini.
“What you’ve seen for a long time is that a lot of technology companies coming into the industry on the distribution side – offering new agent experiences, new mechanisms of gathering data, even occasionally doing the underwriting piece as well – all have had a similar experience. They lost a lot of money.”
Tackling technical debt in the insurance industry
Similar to financial debt, technical debt accrues “interest” over time, manifesting in maintenance challenges and suboptimal outcomes. In the insurance domain, this technical debt manifests as outdated pricing models, fragile spreadsheets, manual workflows, and limited accessible data. This impediment stems from several factors unique to the insurance landscape.
One core reason for technical debt in insurance lies in the sprawling legacy systems that insurers grapple with. These systems, though integral to operations, often lack effectiveness due to their outdated nature. Attempts at patching or updating these systems often fall short in addressing the root issues.
Moreover, insurers face a shortage of in-house technical expertise. The industry’s historical reliance on traditional practices contrasts with the recent integration of modern coding languages and powerful software. Bridging this gap demands a shift in approach, urging insurers to invest in advanced technical skills and third-party collaborations.
Risk aversion further complicates the scenario, as insurers are cautious about implementing changes to existing systems. Past unsuccessful endeavours contribute to project fatigue and uncertainty regarding the return on investment, amplifying the reluctance to tackle technical debt.
Trends to watch: New and emerging risks
Digital Insurance reached out to insurance professionals about new and emerging risks. Artificial intelligence will be transformative for the insurance industry. With it will come expanding complexities that must be identified and managed. While AI can accelerate underwriting, increase efficiencies by leveraging workflow copilots and improve risk analysis, it can also introduce bias and security risk into processes. Strong safeguards must be incorporated to protect data and prevent biases. Insurtechs can help design new tools to bring transparency to models, evaluate on-going validity, and provide a sound basis for communicating with stakeholders and regulators who will be keeping a watchful eye.
As the already hard market copes with increasing pressures from climate change and global politics, insurtechs can continue to innovate by integrating advanced short-duration parametric products with conventional indemnity solutions. This strategy can draw alternative capital sources from asset managers like hedge funds, family offices and pensions to the market. Investors can be attracted to these liquid investments with no/low correlations to equity beta returns. Additional capital sources can help fortify the insurance industry's financial resilience in an increasingly challenging environment.
Calif. insurers continue tactics to slow new policies, stem losses - Insurance News
California auto insurers are “slow walking” new policy applications and engaging in a host of tactics to discourage, delay, and deny customer access to insurance in a strategy to stem losses, according to the state’s top insurance regulator. Just before the Christmas holiday, California Insurance Commissioner Ricardo Lara warned companies about the practices and threatened enforcement action if they don’t clean up their act.
“These alleged passive-aggressive tactics by insurance companies to slow down drivers’ access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara said. “I am taking action…to ensure these insurance companies are acting according to the law and giving drivers the coverage they are paying for at the rate they qualify for. We will continue to monitor the situation and take any and all steps necessary to protect California consumers.” Lara said he is reacting to multiple complaints about waiting periods, confusing questionnaires and surveys, and unreasonable application requirements unrelated to eligibility. In online forum platforms such as Reddit and Facebook, drivers have been complaining for nearly a year about higher premiums, delayed quotes, and questionable insurer practices.
InsurTech/M&A/Finance💰/Collaboration
Majesco Acquires the DRC Business Bringing Market Leading Enterprise Rating and Complementary Core Platform for the Rapidly Growing MGA, MGU and Smaller Insurer P&C Market
Acquisition advances Majesco P&C Solutions by delivering crucial technologies that accelerate growth strategies, innovation, and speed to market to meet rapidly changing risk and market demands
Majesco, a global leader of cloud insurance software solutions for insurance business transformation, today announced the acquisition of the Decision Research Corporation (DRC) business, a SaaS-based insurance software company delivering market-leading enterprise rating, a reinsurance solution, and core for the P&C insurance market. Majesco will add over 20 P&C customers to their growing customer community.
DRC designed and delivered a market leading enterprise rating for large insurers with complex rating demands and the core platform for the rapidly growing MGA/MGU market and unique demands for smaller insurers in a rapidly changing marketplace. The DRC acquisition expands the breadth and depth of solutions to improve operational optimization, innovation, and speed to market for all parties within the P&C market. The announcement furthers Majesco’s customer-centric growth strategy and reinforces its commitment to making insurance faster, easier and better for all.
“We’re thrilled to welcome DRC’s customers to our community and look forward to working with them to fast-track their growth, innovation and customer excellence strategies,” said Adam Elster, Majesco CEO. “DRC’s market leading solutions complement and extend our cutting-edge solutions for the P&C insurance segment, offering a portfolio of some of the most robust and innovative solutions in the market. We are excited to have the talented DRC team bring their extensive knowledge and market experience in these crucial and growing market segments and support our growing customer base.”
Awards
<em>Business Insurance</em> opens nominations for Break Out Awards
Business Insurance this week opened nominations for the 2024 Break Out Awards.
The program, which recognizes the next generation of leaders in the insurance sector, is open to all up-and-coming managers and executives in the risk management and commercial property/casualty field.
Honorees from across the United States will be recognized for their leadership, expertise and professional skills and can work in any area of the industry — risk managers, brokers, insurers, reinsurers, wholesalers, agencies, MGAs, MGUs, captive managers, third-party administrators and other service providers.
While there is no age limit, nominees must have worked in the industry for no more than 15 years. Nominees will have already established themselves in their careers and will be on a leadership trajectory.
The deadline for entries is Feb. 12. Winners will be announced online in March, and their profiles will be published in the June 2024 edition of Business Insurance.
Innovation
Modernizing The Underwriting Process In Commercial Insurance
The commercial insurance industry is at an inflection point due to several economic uncertainties like inflation, sluggish rate growth, competition for distribution partner preferences and more. These factors, along with increasing natural catastrophes and the growing threat of cyber risks are challenging insurers.
It is now necessary that carriers examine and transform their product portfolio strategies and pricing sophistication approaches and focus on customer experience. At the heart of this expansive industry transformation lies the pivotal function of underwriting. Market pressures drive the need for a more modernized underwriting process.
To enhance underwriting capabilities, commercial insurance carriers can utilize advanced augmented intelligence, modern analytics, prefilling information, process automation and digital capabilities for a superior agent and customer experience. (Disclosure: My company assists with these technologies, as do others.)
People
Terry Fortner, Former LKQ, Nationwide head named CAPA executive director
The Certified Automotive Parts Association (CAPA) has named former LKQ and Nationwide Insurance administrator Terry Fortner as its new executive director.
Fortner assumed the role on Jan. 1, succeeding Clark Plucinski, who works with The Boyd Group. Plucinski is chair of the CAPA Board of Directors.
“Terry will bring a wealth of experience to CAPA, and I am thrilled to hand over to someone with his knowledge and enthusiasm,” Plucinski said in a news release. “The Board looks forward to CAPA’s continued success under his leadership.”
Before becoming director, Fortner spent two years working with CAPA until it was decided his role would be expanded. He spent 32 years in leadership at Nationwide then joined LKQ Corp. in 2009. During his 13-year tenure, he led industry relations and corporate accounts then served as North America vice president of sales and marketing. Fortner is currently chief advisor for Fortner Advisory and Development. He has also served as chair and chairman emeritus for the Collision Repair Education Foundation (CREF).