Commentary/Opinion
Prep homes, businesses now for severe spring weather with IBHS Thunderstorm Ready guides
Last year Americans saw that storms don't need to make national headlines to wreak havoc on homes and businesses, as more than 20 states were impacted by 19 severe convective storm events, each causing over $1 billion in damage. With most billion-dollar storms occurring between March and June, the Insurance Institute for Business & Home Safety (IBHS) urges property owners to act now using its research-based Thunderstorm Ready guides to help prevent damage before this year's severe spring weather strikes.
"Property owners should never underestimate the damage a single severe thunderstorm can cause," says Dr. Ian Giammanco, lead research meteorologist at IBHS. "In 2023 alone, thunderstorms caused over $50 billion dollars in losses. Yet, there are steps you can take now, some more substantial and others that are do-it-yourself, to prevent costly damage and disruption in the future."
"Property owners should never underestimate the damage a single severe thunderstorm can cause."
The two most significant ways a home or business owner can retrofit to reduce property damage from severe thunderstorms are re-roofing to the FORTIFIED Roof™ standard and upgrading to a garage or commercial roller door rated for wind speeds above 130 mph.
Research
How much risk will insurers take on in 2024?
A new global study conducted by Ortec Finance indicates a trend among insurers toward embracing greater risk in their investment strategies for 2024.
Surveying investment management professionals from life insurers, London market re/insurers, and investment managers catering to the insurance industry, the research found that over the last year, 51% of respondents observed an increase in the risk profile of the funds they manage.
Conversely, 41% perceived a decrease. Looking ahead, 59% of those surveyed anticipate a further increase in risk levels within the next 12 months, with 14% expecting a significant uptick, while 39% predict a decline.
Respondents foresee a shift in portfolio allocation, with a substantial 81% projecting an increase in their allocation to US equities and 80% expecting to raise their investment in investment-grade fixed income over the next 24 months.
Inflation emerged as the top concern among the surveyed professionals, with 72% marking it as a principal risk, followed by fears of a stock market correction (57%) and climate change (49%). Geopolitical instability was identified by 39% as a main risk, but only 7% included the possibility of a recession in their top three concerns.
News
Swiss Re posts huge rise in net income as P&C Re CoR strengthens to 94.8%
Large European reinsurer Swiss Re has today reported a significant rise in net income to $3.2 billion for 2023 and a return on equity of 22.3%, as underwriting margins improved and the firm’s P&C reinsurance arm delivered income of $1.9 billion.
Group-wide, net income increased by 578% from the $472 million recorded in 2022, as net premiums earned and fee income jumped 4.4% to $45 billion.
The reinsurer benefitted from substantially higher recurring investment income and a strong capital position, with the full year return on investment rising to 3.4% from 2%, and the recurring income yield rising to 3.6% from 2.6% in 2022, driven by reinvestments in the higher interest rate environment.
In its P&C reinsurance business, net income rose significantly to $1.9 billion compared with $312 million in 2022, which Swiss Re primarily attributes to a resilient underwriting performance and disciplined renewals.
While the reinsurer strengthened reserves in the casualty part of the business, this was offset by strong margins and positive reserve developments in property and speciality lines, while a solid investment performance also supported the result.
Arch tops estimates on strong underwriting, investment income
Arch Capital Group’s fourth-quarter operating income surpassed market expectations, as the insurer reported Wednesday that it benefited from stronger underwriting and better returns on its investments.
Buoyed by employer-guaranteed and government-mandated policies, the demand for insurance remains resilient irrespective of the broader economic conditions.
Arch Capital said its gross written premium increased 12% to $4.25 billion in the quarter. It posted a combined ratio of 78.9%, compared with 73.5% a year earlier. A ratio below 100% means the insurer earned more in premiums than it paid out in claims.
Investment returns at major insurers have rebounded as global capital markets rallied on hopes that the U.S. Federal Reserve is nearing the end of its rate-hike cycle.
Arch’s net investment income improved to $313 million, compared with $181 million in the year-earlier period.
The company's after-tax operating income came in at $2.49 per share, compared with analysts' estimate of $2.03 per share, according to LSEG data.
Ford CEO: Forget Tesla, 'Pro' unit is auto industry's future
Ford Pro is made up of the automaker's traditional fleet and commercial businesses as well as emerging telematics, logistics and other connective operations.
Ford Motor CEO Jim Farley on Thursday urged Wall Street to forget about Tesla and its FSD driver-assistance systems as the future of the auto industry, contending investors should instead focus on the Detroit automaker’s “Pro” fleet business.
Farley compared the unit, which roughly doubled pretax earnings last year to $7.2 billion, to where Deere & Co. was seven years ago. The farm equipment maker’s stock has increased by about 235% since then.
“If you’re looking for the future of the automotive industry, stop looking at FSD and Tesla . Look at Ford Pro. It’s got half a million subscribers with 50% gross margin,” Farley said during a Wolfe Research conference.
Ford Pro is made up of the automaker’s traditional fleet and commercial businesses as well as emerging telematics, logistics and other connective operations for business customers – ranging from local plumbers and electricians to massive corporations. It also includes parts and services for businesses.
Ford expects the Pro unit’s pretax earnings to increase to between $8 billion and $9 billion this year, the automaker said earlier this month. That compares with earnings expectations for the company’s “Blue” traditional business of about $7 billion to $7.5 billion and projected losses in its Model e EV business of $5 billion to $5.5 billion.
Tesla does not break out revenue or earnings from its premium driver-assistance software, marketed as its Full Self-Driving Beta, FSD or FSD Beta. Many Wall Street analysts have speculated that such software could bring in tens of billions of dollars per year by 2030.
The population problem driving one insurer's US expansion
Sompo Holdings will be keen to keep the momentum going after an overseas profit hike, with Japan’s top three P&C insurer squaring up to an aging population problem at home.
Sompo International reported a Q3 underwriting income bump up to $518 million, with adjusted profit up at $860 million. The results come as parent company, Tokyo-headquartered Sompo Holdings, has targeted aggressive global expansion.
One glaring reason that Sompo needs its international business to perform and grow – as highlighted by Sompo COO Mikio Okumura in a 2023 report – is Japan’s population demographic squeeze.
The third largest P&C insurer in Japan must face up to a “harsh reality” in its quest to reach sustainable growth, Okumura cautioned.
“We need to take these demographic changes to heart and not remain stuck in a business model that assumes a steadily growing population and economy, as has been the case in the past,” Okumura, who is expected to take over as Sompo CEO at the end of March, said.
In particular, the COO flagged a growth threat amid the “strongly correlated” nature of its property & casualty (P&C) insurance business with population.
NAIC Announces 2024 Strategic Priorities
Today, the National Association of Insurance Commissioners (NAIC) announced its 2024 strategic priorities. NAIC Members annually finalize the priorities and discuss potential workplans after assigning committee responsibilities.
"Built on the foundation of coordination, cooperation, and collaboration, the state-based insurance regulatory system is well equipped to keep taking on the shared challenges and responsibilities of a world more interconnected than ever before. The NAIC's regulatory priorities for 2024 reflect our commitment to pursuing innovative and effective solutions to the most pressing issues affecting consumers, the insurance sector, and markets," said NAIC President and Connecticut Insurance Commissioner Andrew N. Mais.
NAIC 2024 Priorities (in alphabetical order)
- Climate Risks/Natural Catastrophes and Resilience
- Insurer Financial Oversight and Transparency
- Marketing of Insurance Products
- Race and Insurance, Financial Inclusion, and Protection Gaps
- Use of AI by Insurers and Cyber Risk
In addition to our strategic regulatory priorities, NAIC Members will continue to implement and execute on critical model law and model bulletin adoption, work toward comparability for our Aggregation Method internationally, and focus on enhanced Member service and connectivity through our State Connected strategic plan
AI in Insurance
'Rate Pain' Rap
By Alan Demers & GPT
Two of my favorite topics are the P&C Insurance industry and the emergence of technology. Surges in premium rates, insurer profitability and the impact to businesses and consumers is all the buzz. Emerging technology and high expectations for GPT or generative AI to help insurance become more efficient is equally, all the rage. So I blended the two together and asked ChatGPT to help me write a rap song. You can use your own imagination on the beat - and yes, there are all sorts of apps that will convert your text to music or simply generate a song based on selected genre, topic and theme.
Here goes - Enjoy
(Verse 1)
Yo, listen up, I got a tale to relate,
'Bout a situation that's got folks irate,
It's about these rates, they're on the rise,
In the insurance game, it's no surprise.
P&C insurance, that's the name of the game,
But lately, these rates are causing some pain,
Insurers hiking prices, it's a tough pill to swallow,
Leaving policyholders feeling hollow complete lyrics
AI’s potential impact on the re/insurance industry
Gallagher Re, a reinsurance broker, highlights AI as a major focus of the InsurTech narrative in 2023, marking a turning point where AI gained serious traction in the re/insurance industry.
According to data from Google, there has been exponential growth in AI interest across all industries since early 2023, peaking later in the year.
Although AI has been around since 1956, recent years have seen significant advancements, making it a rapidly evolving field with widespread applications.
In a recent report, Gallagher Re explores AI’s potential impact on insurance and reinsurance, particularly within InsurTech, focusing on its practical applications across the value chain: distribution, pricing/underwriting, business operations, and claims processes.
Firstly, Gallagher Re’s report suggests AI could drive growth by enhancing distribution channels. As consumer spending hesitancy rises, AI becomes crucial for tailoring offers to individual customers and selecting the most effective distribution channels, optimising outreach, increasing acceptance rates, revenue, and market expansion while cutting expenses.
Insurance fraud fighters are planning to accelerate adoption of AI tools
By 2026, 83% of anti-fraud professionals from across industries expect to be using artificial intelligence-driven tools, according to the Association of Certified Fraud Examiners (ACFE) and SAS, which surveyed worldwide fraud fighters from industries ranging from entertainment and insurance to utilities and warehousing.
“Generative AI has made great strides these last few years, so it’s no surprise that organizations are incorporating it into their anti-fraud initiatives,” ACFE Research Director Mason Wilder said in a release. “As a society, we are still learning all the advantages and disadvantages to using the technology, but more organizations are beginning to take that first step.”
As it stands, more than 90% of organizations use some form of data analysis to fight fraud. However, just 18% of fraud fighters currently use AI and machine learning (ML), while 32% expect to implement those specific technologies within two years.
Fraud-fighting professionals in the insurance sector have a slightly higher AI and ML adoption rate, as 24% of industry professionals said they currently count these technologies among their fraud-fighting tools. Further, 30% of insurance fraud fighters anticipate adding AI and ML to their fraud arsenal in the coming years.
While AI and ML tools draw a lot of interest, the adoption rate of these technologies for fraud detection and prevention has only grown around 5% since 2019. This is well below earlier projections, ACFE reporting, pointing to 2019 and 2022 studies that anticipated adoption rates of 25% and 26%, respectively.
Breaking the 'POC Purgatory' Barrier in AI
In 2024, "model benchmarking" is set to be one of the emerging trends in AI adoption, particularly within the insurance sector. Enterprises have struggled to address the persistent challenge of "POC purgatory," where promising AI solutions often become stalled in the proof-of-concept (POC) stage and struggle to scale across the organization.
To combat this issue, specific benchmarking criteria will gain prominence. These benchmarks will serve as essential metrics to evaluate progress during the development and deployment phases, enabling businesses to make informed decisions on whether to scale, ultimately streamlining the AI implementation process.
Understanding Model Benchmarking
Model benchmarking involves assessing AI solutions based on their performance and impact. There are two main categories:
Technical Benchmarks:
These benchmarks employ various metrics, such as precision, accuracy, recall and F1-score, to gauge how effectively the model performs specific tasks. These metrics help assess the model's ability to make correct predictions:
Precision: The ratio of correctly predicted positive observations to the total predicted positive observations.
Accuracy: The ratio of correctly predicted observations to the total observations.
Recall: The ratio of correctly predicted positive observations to all actual positives.
Dustin Ping is a senior associate at Silicon Foundry
Innovation
Geotab Safety Center Supports Next-Generation Solutions Leveraging AI And Predictive Collision Insights
In 2021, there were more than half a million commercial vehicle collisions in the United States, with more than 100,000 resulting in injury*. Collision costs can include significant reputational impacts, property damage, productivity loss, injury and legal costs. To protect drivers and avoid repercussions, commercial fleets are implementing proactive measures, driven by quality data to help combat unsafe driving before a collision occurs.
Geotab, the global leader in connected transportation solutions, has been working closely with fleets to tackle ongoing safety challenges, and today announced its next-generation of fleet safety tools driven by data intelligence, predictive collision insights and AI.
"We understand the gravity of safety concerns in the transportation industry and are proactively taking steps ahead utilizing the power of quality data and AI. With Geotab Safety Center, we're not just providing visibility into risks, we're helping companies to predict and prevent them," said Sabina Martin, Vice President Product Management at Geotab. "Our enhanced and predictive collision insights put data-driven decisions at our customers' fingertips, helping to transform the way they approach safety, and ultimately fostering safer roads for everyone."
As part of Connect 2024, Geotab is also unveiling its Enhanced Collision Detection feature as part of its 2024 safety suite of tools. This feature will advance how fleets can detect both major and minor collisions, increasing collision detection precision and accuracy.
