AI in Insurance
In the Big Top Spotlight: NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers
The Innovation, Cybersecurity, and Technology (H) Committee of the National Association of Insurance Commissioners has been in the big top spotlight the past year as it has been developing its model bulletin on the use of artificial intelligence systems by insurers. As swift as trapeze artists, the committee quickly drafted and exposed for comment three versions of the model bulletin before the NAIC’s 2023 Fall National Meeting. Drafting of the model bulletin brought together various performers from 15 states who collaboratively sought to set forth the industry regulatory expectations for the responsible use of AI by insurance companies.
During the H Committee’s portion of the meeting, there was only a minor sideshow as to comments on the third version of the model bulletin. The use of the term “bias” in the model bulletin was juggled about:
North Dakota Commissioner Jon Godfread suggested the references to “bias” be replaced with the phrase “unfair discrimination.”
Iowa Commissioner Doug Ommen expressed concerns about the replacement of “bias,” and bantered about questions as to whether the term “unfair discrimination” would be uniformly understood among regulators or the industry.
Colorado Commissioner Michael Conway took a stab and proposed “statistical bias” as an alternative.
Rhode Island Superintendent Elizabeth Dwyer pointed out the varying uses of the term “bias” throughout the model bulletin.
written by; Carlton Fields
Want your company to be gen AI-literate this year? 'Start small, aim large' | Insurance Business Canada
Generative artificial intelligence (AI) technology’s influence on insurance is rapidly widening, and at least one financial expert sees Canada’s financial services sector on the cusp of a workplace transformation.
Organizations of all sizes can start priming themselves for this transformation by “starting small, aiming large,” said Ryan Favro (pictured), managing principal and R&D lead at consulting firm Capco.
“If you want to be experimenting with gen AI and turn those experiments into small production use cases where you always get a return on your investment, start small and then scale, scale, scale each iteration until your entire organization is completely gen AI literate,” Favro told Insurance Business.
“That includes your applications, your workforce, and your corporate policies in terms of how you operate your business.”
Commentary/Opinion
2024: Higher total loss thresholds, more parts repairability
The latest P&C industry trends report from Enlyte — the parent company of Mitchell International, Genex, and Coventry — highlights key issues collision repairers and insurers will likely face this year, including higher total loss thresholds, more parts repairability, and higher overall repair costs.
The “2024 Enlytened Trends Report” provides detailed commentary from Mitchell Claims Performance Director Ryan Mandell on claims frequency and severity as well as parts and vehicle repairability.
Due to high used and new vehicle prices, the total loss threshold for insurers has risen, which means more collision-damaged vehicles are likely to be repaired now rather than declared a total loss, according to Mandell.
“As a result, average repairable severity is above where we would normally expect it to be,” he said.
The repairability of parts, however, has slowly decreased over time, in part, due to vehicle material choices by OEMs.
“Although it is possible to repair aluminum body panels, for instance, the material properties of the panel make it more likely that the collision’s crash energy created a pattern of damage that prevents a safe repair,” Mandell said. “In early 2022, 17.5% of parts on an estimate were repaired. In 2023, it was 17.1%.”
Distracted driving is to blame for some of the 1% increase in claims volume experienced during the first half of 2023 compared to early 2022, as is an over-reliance on ADAS technology by drivers, Mandell added.
We Need to Rethink the Future of Cars
Surging sales of hybrids and slowing growth for EVs suggest the path to an electric future may be more complicated than generally thought.
When I moved my older daughter to Washington, DC, a year ago, we piled all her worldly possessions into a 16-foot truck and made the 2,982-mile trip from northern California in 72 hours. While we weren't exactly a Formula 1 pit crew when we refueled, we could fill up the tank and get on the road again for the next 400 miles in 10 minutes.
Now imagine how this might look in 25 years in an all-electric future if she returns the favor and moves me into a retirement home. It could take an hour or more to recharge a battery big enough to move a truck hundreds of miles. My daughter is great company, and all, but we were already getting plenty of together time and didn't need to be sitting across from each other at a recharging station.
And trucks don't really lend themselves to electrification, anyway. Those using internal combustion engines (ICEs) are already plenty heavy -- even without my daughter's 20 boxes of books -- and the huge batteries needed to move all that weight make EVs far heavier. That means less range, which means more frequent recharging, which means even more time on a plastic chair at the recharging station, drinking bad coffee.
Paul Carroll, editor-in-chief, Insurance Thought Leadership
News
US P/C insurers brace for headwinds in 2024 amid inflation and liability challenges: Fitch
In a recent report, Fitch Ratings anticipates a challenging year for the U.S. property casualty insurance (P/C) industry in 2024, marked by modest underwriting improvement following a tough 2023 with poor auto insurance results and significant catastrophe losses.
Persistently high inflation and a slowing economy, with GDP expected to drop from 2.4% in 2023 to 1.2% in 2024, pose significant challenges, particularly in commercial auto and other liability lines.
Fitch warns of a potential unfavourable shift in loss reserve adequacy, clouding the earnings outlook for insurers.
The report suggests that individual companies may experience unfavourable loss reserve development, but widespread material capital deterioration is not expected, with most issuers projected to maintain capital within ratings expectations.
The accuracy of insurers’ loss projections, particularly in the face of inflation and litigation risks in commercial auto and liability business, will play a crucial role in determining whether the industry can sustain its 18-year streak of favourable calendar-year loss reserve development in 2024.
Swiss Re forecasts strong growth and improved profitability for US P&C insurance in 2024
The US Property and Casualty (P&C) insurance industry is poised for a robust year in 2024, as indicated by a recent report from the Swiss Re. The US Property and Casualty (P&C) insurance industry is poised for a robust year in 2024, as indicated by a recent report from the Swiss Re Institute.
The industry enters the new year with strong momentum, following a period where profitability lagged behind insurers’ cost of capital.
However, 2023 saw a turnaround, with strong premium increases, easing claims cost inflation, and higher investment returns contributing to a boost in industry results by the second half.
The report predicts a significant improvement in industry Return on Equity (ROE), estimating it at 9.5% for 2024 and further rising to 10.0% in 2025.
This marks a substantial increase from the estimated 5.0% in 2023. Personal lines are expected to drive this growth, benefitting from faster premium increases and easing economic inflation.
The combined ratio is anticipated to improve, led by personal auto. The industry net combined ratio is forecasted at 98.5% for both 2024 and 2025, a notable improvement from the estimated 103% in 2023.
Despite challenges in 2023, the third quarter saw a positive differential between net premiums earned and claims incurred, a trend expected to continue into 2024.
APCIA skeptical of legislation proposing a federal catastrophe reinsurance program
A trade body representing America’s insurers has expressed reservations about a new bill seeking to establish a federal catastrophe reinsurance program within the Department of Treasury.
According to the American Property Casualty Insurance Association (APCIA), the bill could make coverage even more expensive for “vulnerable policyholders,” in addition to potentially putting homeowners at greater risk of losing access to insurance
California representative Adam Schiff introduced the Incorporating National Support for Unprecedented Risks and Emergencies (INSURE) Act late last week. Its main focus is the creation of a federal reinsurance program that would set a cap on insurers’ liability in the event of a catastrophe.
Insurers participating in the program would also be required to provide coverage for all natural disasters, as well as invest in loss prevention and risk mitigation strategies.
TRUE reciprocal acquisition to help create "healthy competition": Florida CFO
Florida’s Chief Financial Officer (CFO), Jimmy Patronis, has lauded the recent developments in the state’s insurance market, particularly with the approval of the acquisition of Trusted Resource Underwriters Exchange (TRUE).
The move is expected to not only bolster the existing company’s presence in Florida but also ignite a surge in healthy competition within the homeowners’ insurance sector.
Patronis expressed his optimism, stating, “As your CFO, it’s good to see Florida’s insurance market moving in the right direction. With this acquisition, we are seeing a huge investment in Florida’s insurance market, that will undoubtedly create healthy competition for anyone who is looking to acquire homeowners’ insurance.”
Private investment firm Gallatin Point Capital and insurer, American Family Insurance Group, have successfully closed a new partnership whereby funds managed by Gallatin Point will acquire a majority stake in the attorney-in-fact for TRUE.
TRUE is a reciprocal insurer established by American Family in 2020 to serve homeowners in storm-prone regions of Florida, and other parts of the country.
Research
Florida OIR Report Shows Indemnity Paid was Much Higher for Litigated Claims
Stakeholders have continued to react to a recent Florida Office of Insurance Regulation report on the property insurance market, a report that underscored the impact that excessive claims litigation had on insurers but which also noted that some key data was not available.
“I was struck by the fact that OIR is still not getting all the data that’s required by Senate Bill 76,” a bill approved by Florida lawmakers in 2021, said Kevin Comerer, a consultant with Turnbull & Associates, a lobbying group that represents a number of insurance carriers.
The 10-page OIR analysis, titled the Florida Property Claims and Litigation Report, noted that 621 U.S. companies had been notified of the data call on 2022 claims litigation, but only 180 submitted information. It did not explain why more carriers did not participate or which ones did. At a 2022 OIR workshop, insurance representatives argued that SB 76 and OIR were asking for information that insurers aren’t privy to. That includes the dollar amount of plaintiff’s attorney fees on each claim, which is not often made available. And the electronic OIR form left no clear alternative if the amount was unknown.
Weather trends insurance pros (and clients) should monitor in 2024
CoreLogic, the global property information, analytics and data-solutions firm, recently compiled a review of the most impactful storms, wildfires and natural disasters of the past year.
During 2023, catastrophes such as severe hail across the central and southeastern U.S., hurricanes Idalia and Hilary, which battered the Florida Gulf and California Coasts, and devastating wildfires on Maui all caused widespread destruction and loss.
Add to that severe thunderstorms, which are also called severe convective storms, to round out the year’s most damaging weather events.
In this episode, CoreLogic Catastrophe Response Director Jon Schneyer talks about recent weather trends in order to pinpoint the environmental and climate trends that insurance pros and risk managers should monitor during the year to come.
InsurTech/M&A/Finance💰/Collaboration
North American Insurtech, Foxquilt, Announces Strategic Collaboration with Markel
Foxquilt, a leading North American company specializing in embedded small business insurance technology, is thrilled to announce a strategic and long-term capacity relationship with global specialty insurance provider, Markel. This meaningful collaboration spearheads embedded insurance innovation for more small business owners, agents/brokers, and enterprise partners across North America.
Foxquilt utilizes a full-stack underwriting platform, powered by data analytics, to recommend tailored coverage and pricing from Foxquilt's own proprietary commercial insurance products. Small business and micro-enterprise owners can also, in turn, quote and bind entirely online - creating a true end-to-end insurance journey. All of Foxquilt's IP has been built in-house, allowing for an agile response in integrating to each unique agent, broker, and enterprise partner's ecosystem - ultimately creating embedded success and enhanced underwriting profitability.
"In a world where buyer autonomy and instant end-to-end results have been normalized, the insurance space has lacked the technology investment that affords this, now, table-stakes experience. Small business owners should have the opportunity to access fair value business insurance at any point of sale or trading experience with an enterprise partner," says Mark Morissette, Foxquilt CEO and Co-Founder. "Our disciplined focus on innovating great technologies and products as the bridge between small business owners and their enterprise partners has translated into valuable, compounding returns of growth and underwriting profitability. This collaboration with Markel not only supports the distribution of Foxquilt's proprietary insurance products but also validates that an innovation leader like Markel believes in our forward-thinking vision of insurance as well."
Innovation
Wearin' IoT Fall Detection Sensor From: Wearin'
Wearin’has developed a solution connecting workers with teams working on production and remote areas of construction sites. Based on Internet of Things (IoT) technology and powered by AI, the solution comprises two platforms, one physical and the other digital, communicating with each other in real time.
"The trend we're seeing in this sector is a strong and genuine concern on the part of companies for the health and safety of their employees. These companies no longer want to limit themselves to ticking the boxes on safety checklists provided by regulatory authorities. They demand real solutions to the real-life issues specific to their operations. In this respect, Wearin' provides an end-to-end connectivity solution that is not only ultra-reliable, but also modular and scalable, capable of adapting to the specific security typologies and requirements of each client organization," said Jonathan Brossard, CEO of Conextivity Group.