AI in Insurance
Getting to grips with the misuse of AI in insurance
EY lead on an issue the industry needs to get on top of
“This year, we wanted to highlight the recurring theme of the global protection gap from a different angle – examining how the insurance industry can restore trust and deliver more societal value.”
Exploring some of the key themes of EY’s latest ‘Global Insurance Outlook’ report, Isabelle Santenac (pictured), global insurance leader at EY, emphasized the role that trust and transparency play in unlocking growth. It’s a link put firmly under the microscope in the annual report as it examined how the insurance market is being reshaped by multiple disruptive forces including the evolution of generative AI, changing customer behaviors and the blurring of industry lines amid the development of new product ecosystems.
Tackling the issue of AI misuse
Santenac noted that the interconnectivity between these themes is grounded in the need to restore trust, as this is at the center of finding opportunities as well as challenges amid so much disruption. This is particularly relevant considering the drive of the industry to become more customer-focused and increase the loyalty of customers, she said, which requires customers having trust in your brand and what you do.
Zeroing in on the “exponential topic” that is artificial intelligence, she said she’s seeing a great deal of recognition across the industry of the opportunities and risks AI – and particularly generative AI – presents.
News
Allstate makes progress on profitability plan with substantial rate increases in 2023
US primary insurer Allstate has reported that it continued to make progress on its plan to improve profitability in 2023, with rate increases in its auto insurance and homeowners insurance lines that resulted in premium impacts of 16.4% and 11.3%, respectively.
“In 2023, rate increases for Allstate brand auto insurance resulted in a premium impact of 16.4%, which are expected to raise annualized written premiums by approximately $4.27 billion, and rate increases for Allstate brand homeowners insurance have resulted in a premium impact of 11.3%, which are expected to raise annualized written premiums by approximately $1.16 billion,” explained Jess Merten, Chief Financial Officer of The Allstate Corporation.
The US primary insurer also disclosed that catastrophe losses were below the $150 million reporting threshold for December 2023, marking the third month in a row where this has occurred.
This compares to a relatively unstable Q3, where catastrophe losses were $1.2 billion, up 55% from the $763 million seen in Q3 2022.
Now, total catastrophe losses for the fourth quarter now total $68 million, pre-tax. Meanwhile, unfavourable prior year reserve reestimates, excluding catastrophes, totalled $199 million in the fourth quarter, with approximately $148 million related to personal auto, including costs for claims in litigation.
In December, Allstate implemented auto rate increases of 16.5% across 15 locations, resulting in a total brand premium impact of 5.0%, which includes the rate increases approved in December by the Departments of Insurance in California, New York and New Jersey.
Travelers Reports Excellent Fourth Quarter 2023 Results
The Travelers Companies, Inc. today reported net income of $1.626 billion, or $6.99 per diluted share, for the quarter ended December 31, 2023, compared to $819 million, or $3.44 per diluted share, in the prior year quarter.
Core income in the current quarter was $1.633 billion, or $7.01 per diluted share, compared to $810 million, or $3.40 per diluted share, in the prior year quarter. Core income increased primarily due to a higher underlying underwriting gain (i.e., excluding net prior year reserve development and catastrophe losses), lower catastrophe losses and higher net investment income.
Net realized investment losses in the current quarter were $11 million pre-tax ($7 million after-tax), compared to net realized investment gains of $7 million pre-tax ($9 million after-tax) in the prior year quarter. Per diluted share amounts benefited from the impact of share repurchases.
Commentary/Opinion
Net-zero transition accelerating despite geopolitical risk exposure: Swiss Re
Speaking in an interview with CNBC at the 2024 World Economic Forum in Davos, Christian Mumenthaler, CEO of Swiss Re, observed that despite geopolitics “trumping everything right now” in terms of global focus, there is no hesitation from companies in the net-zero transition, rather, “the movement is accelerating”.
“I’m co-chair of this CEO climate Alliance, and the amount of work they’re doing is huge,” Mumenthaler said.
He continued, “I think what’s going to be revolutionary in the next two, three years, is that they (companies) won’t just work on their footprint, but they will send a signal to all of their suppliers upstream.
“We’ve worked together on certain rules and how to help a lot of suppliers.
“Some small and medium-sized companies don’t know how to do it, so we have a lot of resources to help them. These signals will be massive, and I think this is going to lead to some snowball effects.”
Insurers’ Advertising Spending in Reverse, But for How Long?
You probably know them well: the GEICO Gecko, Flo from Progressive, the Liberty Mutual Emu, Allstate’s Mayhem, Jake from State Farm.
In a nearly $800 billion dollar industry, with nearly half of it in personal lines, property/casualty insurers seek to obtain profitable business through name recognition—mainly accomplished through advertising.
But TV viewers saw those characters less in 2022 as private passenger auto carriers struggled with profitability issues and cut back on the easiest expense for a carrier to adjust—advertising. Some insurance icons started to re-emerge in 2023 as rate hikes began to earn into underwriting results. Even the GEICO Caveman reappeared in a new ad during the holiday season.
While expense figures aren’t yet available for 2023, a look back at 2022 gives a sense of which carriers may be spending more ad dollars in 2024.
But TV viewers saw those characters less in 2022 as private passenger auto carriers struggled with profitability issues and cut back on the easiest expense for a carrier to adjust—advertising. Some insurance icons started to re-emerge in 2023 as rate hikes began to earn into underwriting results. Even the GEICO Caveman reappeared in a new ad during the holiday season.
While expense figures aren’t yet available for 2023, a look back at 2022 gives a sense of which carriers may be spending more ad dollars in 2024.
Christopher Graham is a senior industry analyst, industry research and analytics for AM Best.
Are insurers 'out of step' with market demands, challenges?
Now is the time to reshape the insurance business model and technology foundation.
While 2023 is behind us, the year’s impact continues to resonate in our strategies and operational plans for 2024, because many of the challenges and shifts we experienced continue to be in play and are intensifying.
Market economic factors such as inflation, supply chain challenges, rising interest rates and low unemployment are not abating. They are applying increased pressure to do business differently.
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 on insurers, creating a massive rationale for change.
Over the last 10 years, most insurers have been on a non-stop quest to transform and optimize the business. But unfortunately for many, their efforts have often been incremental and short-sighted; creating or intensifying many of the operational challenges faced today.
Insurers must move beyond the legacy and internal mindset of “this is how insurance is done,” to one that recognizes the world has shifted, and we must as well. Now is the time to reshape the business model and technology foundation. The slow, steady 3%-4% of DWP technology investment is incremental at best and not sufficient to meet the pace of change and demands in today’s marketplace.
Denise Garth (denise.garth@majesco.com) is chief strategy officer at Majesco, where she is responsible for leading marketing, industry relations and innovation initiatives. Any opinions expressed here are the author’s own. This article is republished from the Majesco blog with the author’s permission.
Research
Teslas crash more than gas-powered cars. Here’s why
Hertz recently announced it was selling 20,000 electric cars out of its fleet, and replacing them with gasoline vehicles. One reason the company gave was that drivers kept crashing the cars.
Hertz CEO Stephen Scherr noted that the costs of repairs of an electric vehicle are also much higher. And Hertz’s step back from EV sales indicate a broader problem for the EV industry. Researchers at LexisNexis Risk Solutions looking at insurance data have found that, evidently, rental car drivers aren’t the only ones having issues keeping EVs in one piece.
Scherr’s statements echoed findings by insurance analysts at LexisNexis who found that, when vehicle owners switch from gasoline-powered cars to electric cars, they tend to crash more. Drivers also tend to crash somewhat more when switching to gas-powered vehicles, too, but the increase is more pronounced with EVs. The frequency of insurance claims rises by about 14.3% while the severity of claims, or the amount that has to be paid out, increases by 14.5%, according to the data.
The increase in incidents is highest during the first year or so after drivers get the new electric vehicle, but then tapers off after that, according to LexisNexis, presumably as people get used to driving the new model. There is much less of a problem when a driver changes from a gasoline-powered vehicle to another gas-powered one, they found.
InsurTech/M&A/Finance💰/Collaboration
Lemonade Extends Financing Partnership with General Catalyst to Boost Growth Strategy
Lemonade has announced the extension of its partnership with General Catalyst (GC) which involves GC financing up to 80% of Lemonade's expenses specifically related to customer acquisition cost
According to reports, under the original agreement, GC committed to financing up to US$150 million of CAC spend for the 18 months spanning July 2023 through December 2024. The latest development sees the extension of this agreement through December 2025, with an additional $140 million becoming available to Lemonade. Importantly, all other essential terms in the original agreement remain unchanged.
The extension is seen as a strategic move, providing Lemonade with increased certainty and support for its capital-light growth strategy, a fundamental aspect of the company’s multi-year liquidity outlook discussed in the Q3 2023 Letter to Shareholders.
Innovation
How Location Intelligence Can Minimize Bankruptcy In The P&C Sector
The combination of inflation and weather events has created a perfect storm for P&C (property & casualty) insurers, pushing them toward bankruptcy and causing more individuals to vacate their homes to avoid their destruction. Inflation erodes the value of insurance policies, making it difficult for insurers to assess and cover potential losses.
At the same time, the growing incidents of severe natural events are causing an unprecedented surge in claims. In return, insurers are struggling to keep up with the mounting costs associated with these devastating storms and natural disasters, which could ultimately lead to bankruptcy.
The Root Of The Problem
Inflation is making it more expensive for P&C insurers to pay out claims, largely driven by the increase in the cost of building materials for U.S. residential construction. The price of materials has increased over 20% in the last year, and homebuilder confidence has dropped for the last four consecutive months. This means that P&C insurers must pay more to rebuild homes and businesses that are damaged by weather events—and the increase in natural disasters is contributing to the problem. With $165 billion in damages caused by 18 weather events in 2022 alone, these factors amounted to one of the most expensive years for insurers on record.
In addition to the rising cost of claims, P&C insurers are facing other pervasive challenges: the rise of interest rates and a challenging reinsurance market. With all these issues compounding, it’s difficult for many P&C insurers to turn a profit, causing some to go bankrupt.
Tony Agresta has extensive experience in sales, marketing, product management and operations for technology companies, including Nearmap.
Webinars/Podcasts/Interviews
Drabik Digest: Inside the J.D. Power Property Claims Satisfaction Survey
Inside the J.D. Power Property Claims Satisfaction Survey
Who will top J.D. Power’s 2024 Property Claims Satisfaction Survey—and why? With this year’s report just weeks away, J.D. Power Director of Insurance Intelligence Mark Garrett joins InsurTalk with an exclusive preview.
On tap: insights on the biggest challenges and most promising opportunities for claims organizations seeking to achieve unbeatable customer satisfaction and loyalty.
Laura Drabik, Insurance Industry Thought Leader & Guidewire Chief Evangelist
2024 PREDICTIONS
Report: Advanced Tech Leads Carrier Innovation in 2024
Leveraging data for increased underwriting accuracy, customized policies and streamlining business operations are some of the top trends for property/casualty insurers in 2024, according to a report by Capgemini.
As P/C carriers look for ways to better assess customer insurability, they will rely on predictive analytics to recalibrate their underwriting processes for more precise risk assessment.
Many carriers are re-evaluating underwriting and risk-pricing strategies as climate-related perils and emerging liabilities grow in complexity and frequency, Capgemini’s Insurance Top Trends for 2024 report stated.
With many carriers reducing coverage and increasing premiums to address heightened risk concerns, they are now looking to enhance risk assessment and underwriting procedures for more precise risk categorization.
According to the report, data collection is a top priority for insurers “as they work to harness historical data and tie it in to data collected via connected cars and other smart devices.”
2024 AND BEYOND: CHANGE BECOMES NON-NEGOTIABLE
We cannot imagine a riskier undertaking than predicting the future given the totally unforeseeable events of recent years, the current state of the insurance industry and the world in general. On the other hand, there are some basic principles that help guide us through the exercise. In addition, we have hedged our prediction by widening our guidance to not just 2024 but also to the near future.
Stephen Applebaum and Alan Demers