Commentary/Opinion
Data Privacy's Dirty Little Secrets: Big Implications for the Auto Insurance Ecosystem
Data privacy is a sprawling, multi-faceted, complex, and controversial issue which means different things to different audiences but has serious implications for businesses and consumers alike. And it is sure to continue to grow exponentially with the explosive adoption of data-driven technology and digitization which will drive ever greater levels of information capture and use. Meanwhile, concerns about how personal data is captured, managed and exploited are intensifying with the emergence of more data breaches, hacking, identity theft and ransomware crimes.
Our focus in this piece is fairly narrow – namely the unauthorized use of personal information in the auto insurance claim reporting, damage evaluation and collision repair process. While this is just a subset of the broader data privacy issue, the implications are quite serious and affect millions of consumers, insurers, and their supply chain partner and present exposure to hundreds of supply chain participants. These events occur more than 20 million times a year across a multi-billion-dollar ecosystem.
Stephen Applebaum & Alan Demers
Swiss Re CEO on exposure to secondary perils
With several lines of business facing something of an affordability crisis, Christian Mumenthaler (pictured), CEO of Swiss Re, was recently quizzed on whether the reinsurance giant would be willing to take back more exposure to secondary perils, including home insurance, following a series of market withdrawals from insurers Stateside.
His reply was to put the focus firmly on local insurers – noting that as many secondary perils are local in nature, it makes sense for primary insurers to be their risk managers.
“They go and see the house, they know the owner, they know exactly where it’s located,” he said. “Whereas we are more portfolio writers, we cannot go down to everyone and make our own risk assessments. So, we think for these smaller losses that are very local, it makes sense to have good risk management on the insurer side and for insurers to carry that risk. We support them more with data and methods, and we have collaborations where we provide tools to measure those risks.”
The responsibility of reinsurers is to put a price to risk Mumenthaler said, and as climate change continues to impact properties, a feedback loop is ensuing which means that, for the first time, the cost of the climate crisis is impacting consumers.
AI in Insurance
New York holds insurers accountable for using third-party AI
New York State's new regulatory guidance for insurers using AI states that carriers should be responsible for using the technology for underwriting and pricing.
"If you're using third-party systems, you cannot punt the accountability to the third party," said Karthik Ramakrishnan, co-founder and CEO of Armilla, an AI model and verification technology company that serves the insurance, financial services, healthcare, retail and other industries. "The insurer is still accountable for the end outcomes and that's what the circular really tries to emphasize."
New York's guidance came from its Department of Financial Services, which regulates insurance, in the form of a circular related to Insurance Law Article 26. This is state law that addresses unfair claim settlement practices, discrimination and other misconduct, including making false statements. The circular specifies that the elements the law addresses should not be violated by the misuse of AI and consumer data and information systems.
What can insurers do to ensure they are compliant with the circular? Ramakrishnan recommends insurers set a governance policy for how they collect data, develop models and train models. Secondly, insurers should examine how their operational production works and their intentions for the use of models. "Where are the areas where we are okay to use AI and where we won't?" he said.
Michael Shashoua Senior Editor, Digital Insurance
Beyond The Crystal Ball: AI's Controversial Power To Predict Our Death Date
The insurance industry, traditionally reliant on statistical models and actuarial tables, is undergoing a significant transformation. With the advent of AI, insurers are exploring new frontiers in risk assessment, including the controversial practice of using AI to predict an individual's death date. This emerging trend raises profound ethical questions and concerns about privacy, discrimination, and the role of technology in our lives.
The Rise of AI in Lifespan Prediction
The core of life insurance is predicting life expectancy. Traditionally, the death date calculation is rooted in factors like age, medical history, lifestyle choices, and family health history. However, the integration of AI and machine learning is shifting this paradigm. By analyzing vast and complex datasets, AI systems can identify patterns and correlations that might elude human analysts. For instance, some insurance companies are experimenting with AI to analyze medical images, such as MRI scans, to detect early signs of life-threatening diseases. Other companies are using wearable technology data to monitor policyholders' health and lifestyle in real-time, potentially offering more accurate life expectancy predictions.
Neil Sahota, Contributor, is a globally sought after speaker and business advisor
Can artificial intelligence improve fraud detection?
ChatGPT has reached its one-year anniversary and has sparked a flood of public interest. However, artificial intelligence (AI) and machine learning have been used for fraud detection and predictive analytics in the insurance industry for at least 20 years. As generative AI continues to improve, its value to the industry increases.
Claims fraud totals $308.6 billion per year, according to the Coalition Against Insurance Fraud, and insurers continue to look for better ways to fight it. AI can extend insurer oversight to more locations than is possible otherwise. Additionally, AI can look at more data points in a claim or a claim system and consolidate observations and analysis, using predictive modeling to help point claims and investigative professionals to potential fraud.
Even when a company has trained the AI, it could have "hallucinations" — that is, produce false information that the AI has created. Human review of AI outputs to identify potential bias is critical and claims professionals should not be totally dependent on AI.
Remember that AI is different from predictive analytics, which are based on the probability that a claim could be potentially fraudulent. Claims organizations must make sure that they're providing appropriate data and taking into account the potential for false positives. Like most data sets, AI is generally only as smart as the company or person teaching it, so claims professionals should still review the data and results to uncover unintentional or hidden bias.
Steve Jarrett National Director - Special Investigations, Westfield Insurance
News
AccuWeather sounding alarm bells: Super-charged hurricane season possible in 2024
It can be a "blockbuster" hurricane season, AccuWeather hurricane experts warn, as all of the ingredients are coming together for explosive tropical development in the Atlantic this year.
While the Atlantic hurricane season does not officially start until June 1, there are already “serious and growing concerns” about the impending season, AccuWeather Chief Meteorologist Jonathan Porter said.
There are two key factors that have AccuWeather forecasters sounding the early warning of a potentially super-charged season: The return of La Niña and historically warm water across the Atlantic Ocean.
Update: Zurich Insurance Reports Record Profit, Announces $1.25B Share Buyback
Zurich Insurance posted a better-than-expected annual operating profit on Thursday and announced a share buyback of up to 1.1 billion Swiss francs ($1.25 billion), as insurers ride out the impact of a global pandemic, wars and climate disasters.
Operating profit at Europe’s fifth-largest insurer rose 21% to a record $7.4 billion for the year to Dec. 31, beating the $7.1 billion average estimate in an analyst poll compiled by the company.
Insurers have coped well with unexpected claims in recent years from issues such as COVID-19, natural catastrophes and the war in Ukraine, mainly by raising premiums and excluding some business.
However, they face further risks of war or damage-related losses this year from any broader fall-out from the Israel-Gaza conflict and from elections in many countries, including the United States. Climate change is also contributing to greater losses from hurricanes and wildfires.
“It’s been a pretty unstable world for quite a long time, the group has been very resilient through that,” Chief Financial Officer George Quinn told a media call.
“There’s no reason to expect any of that to change.”
Is auto insurance keeping house payments high?
Rising auto insurance rates helped drive a recent spike in the CPI – which may have a knock-on effect on the rest of the economy.
Is auto insurance keeping your clients’ mortgage payments high?
That may sound like an odd question, but the surge in auto insurance prices is definitely having a knock-on effect on the rest of the economy.
The spike in consumer prices during January was primarily driven by increases in services costs – particularly transportation services, medical services and shelter costs. Of these, transportation services stood out due to the sharp upswing in car insurance premiums.
The cost of auto insurance has skyrocketed by nearly 21% over the past year, with a rise of nearly 2% in January alone – even without seasonal adjustments, according to a recent report by The Financial Times.
U.S. Consumers Continue to Shop and Switch Auto Insurance at Higher Rates, Dragging Down Carriers' Retention Rates
"As the industry sees rates spike and expands marketing to prime consumers for increased shopping, it will be key to observe activity on a state-by-state level," said Adam Pichon, senior vice president, U.S auto and claims, LexisNexis® Risk Solutions. "When we look at Texas, a leading state for improved profitability, both the number and size of rate increases have dwindled. While we can't predict the shopping trajectory for states still looking to achieve rate adequacy, we will watch closely to determine whether Texas can serve as a bellwether for the rest of the country."
U.S. auto insurance shopping and new policies posted positive year-over-year growth and record volumes for the final quarter of the year, both registering as 'Hot' on the LexisNexis® Insurance Demand Meter.
Year-over-year shopper growth showed the strongest Q4 growth since 2020.
Quarterly year-over-year growth for new policies outpaced shopper growth for the sixth consecutive quarter, meaning consumers continue to switch carriers at an increasing rate when they shop.
Not resigned to higher rates, 41% of insured households shopped their auto insurance at least once in 2023.
Retention levels have dropped a staggering three percentage points since Q1 2022 as consumers hit the market
Research
A dozen of the highest paying P&C insurance jobs
There are career entry points at ever level of an insurance operation, and many of these jobs open the door to potentially lucrative salaries, according to ZipRecruiter.com.
It follows that The Labor Market Study indicates that 63% of carriers expect to increase hiring in 2024.
Why pursue an insurance career? Colleague camaraderie, intellectual satisfaction and service to others are all reasons that longtime industry professionals give for enjoying and promoting insurance jobs.
The industry also provides ample opportunities for advancement, thanks in part to its many training and certification programs.
Whether you’re looking to start a career, change fields or hop into a more challenging insurance job, be sure the consult the slideshow above, which illustrates some of the industry’s top-paying positions, according to ZipRecruiter.com.
Fitch Forecasts 2024 Improvement in US P-C Insurance
According to Fitch Ratings, the US property-casualty (p-c) insurance industry is poised for modest underwriting improvement in 2024. This follows a challenging period in 2023 marked by poor auto insurance results and substantial catastrophe losses. Fitch believes that persistently high inflation and a projected slowdown in economic growth, with gross domestic product expected to drop from 2.4 percent in 2023 to 1.2 percent in 2024, could introduce uncertainties in loss reserve adequacy, particularly affecting commercial auto and liability product lines.
Fitch anticipates that individual companies may experience unfavorable loss reserve development in this economic climate. However, the rating agency believes that few insurers are expected to face significant capital deterioration due to future loss reserve weakness, maintaining capital within ratings expectations.
The accuracy of insurers' loss projections, particularly related to claims severity influenced by inflation and litigation risks in commercial auto and liability business, will determine the industry's ability to sustain its 19-year streak of favorable calendar-year loss reserve development in 2024. Additionally, it will play a crucial role in determining if unusual adverse reserve development persists in personal auto business, Fitch said.
Recommended Events
SIR 2024 Annual Conference & Exhibit Fair | April 28-30 | Boston, MA
*SIR's 2024 Annual Conference *
The business of insurance is changing. Gone are the days of analog processes, paper billing, and handshake deals. Their replacements: digital platforms, automation, competent artificial intelligence, and others can be seen as allies or threats to doing business.
Yet, as we face these changes, the biggest question remains the least heard: Now what? As always, this question is answered in our cooperation with our industry peers because this is our new normal and it will not be addressed easily or quickly. Join us in Boston, April 28-30th as we address the evolution of the insurance business model and how it can help us adapt to evolving risks and market appetites. Only working together and sharing knowledge can we be assured of a promising future in insurance.
EMEA
Inflation, climate and legal risks among headline challenges for Euro P&C insurers in 2024
As per a new report from Moody’s, claims inflation and increased exposure to weather events are the “main credit risks” for European property & casualty (P&C) insurers in 2024.
According to Moody’s analysts, consumer price inflation is receding, but wage increases “will fuel a continued rise” in claims expenses. In turn, P&C insurers will reportedly need to “push through” further price increases to compensate.
Moody’s highlighted that this will be particularly challenging for motor insurers in fragmented and competitive markets, especially Germany and France.
Meanwhile, the rating agency’s analysts also noted that primary insurers did not buy additional protection against climatic events during the January 2024 reinsurance renewals, amid “mounting catastrophe losses globally” which made reinsurance protection significantly more expensive.
“This leaves them exposed to a repeat of 2023, when they absorbed most of an above-average weather-related claims bill in some countries,” the report explained.
At the same time, Moody’s highlighted that reinsurers have become reluctant to provide cover for frequent medium-sized events such as hail storms.
“We estimate that European insurers’ risk retention has risen by 10% on average for most catastrophe events, with retention rates rising fastest for low-frequency events,” Moody’s added.