Telematics, Driving & Insurance
AI Transforming Vehicle Insurance Risk Assessment
Every industry is exploring the uses of artificial intelligence and machine learning and the automotive insurance sector is no exception.
Doug McElhaney, a partner within the insurance practice at McKinsey & Company, explains that it’s not just about AI algorithms but also the data that’s being incorporated into them: “For the U.S. market most carriers will use linear algorithms and they are using a body of information – 20 or 40 pieces of information to separate high versus low risk. Advanced, non-linear algorithms can identify at a more granular level that may be missed by that rudimentary algorithm. All of AI is designed to replicate human cognition to some degree. More advanced algorithms associated with machine and deep learning do this more so than linear algorithms such as linear regression.”
He adds that with advanced AI algorithms are better at discerning the different levels of risk. An example would be the tiering of risk that’s done in automotive insurance. With an increased amount of data available to assess risk, together with advanced algorithms, there might just be an insurance classification with only 10 risk classes.
Telematics-based Insurance
Telematics-based automotive insurance products offer access to increased volumes and types of data. The data capture emanates from the vehicle itself, or from a mobile that’s being used within the vehicle. Data can be captured at high velocity and the data stream can identify specific driving behaviors, such as rapid turns or hard braking.
McElhaney elaborates: “The presence of telematics products offers carriers increased confidence. With a telematics-based product, the carriers have moved from a static rating approach to a usage-based insurance product. I capture information from you using a device that gives more information about how you drive. It’s a different type of information as compared to more traditional static rating factors.”
News
Increase in downgrades reveal challenges for US P&C re/insurers: Gallagher Re
[editor's note - more mixed signals as year end 2023 rating downgrades coincide with individual carrier, record-setting revenues] Also see Insurance Industry’s Mixed Signals: A Recurring Cycle or Permanent Change?
As per Gallagher Re’s analysis of rating actions by AM Best, the number of downgrades of US P&C re/insurers jumped significantly in the eight months to the end of August 2023 compared with the calendar year 2022.
Negative rating actions reportedly outnumbered positive actions in the period, with Gallagher Re noting that AM Best “placed more scrutiny on performance metrics” due to an increase in costly secondary perils, inflation and volatility in investment markets.
Gallagher Re continued, “Between the start of 2022 and the end of August 2023, a total of 109 companies experienced 60 rating downgrades and 64 negative outlook changes (15 experienced both).
“77 of these companies have a focus on personal lines, and 32 on commercial lines.”
Looking at the companies with negative rating actions, Gallagher Re observed that the common themes were a drop in surplus of over 20% and combined ratios on average rising to over 117%.
“Most of these companies reported an operating ratio greater than 100%, because investment income was not sufficient to offset underwriting losses. 45% of these companies also reported adverse claims development greater than 10%. This is a common contributor to negative ratings actions,” the firm added.
We're not dead yet…
Nine years ago, Daniel Schreiber and Shai Wininger (one of the founders of Fiverr) decided to set up an insurance company. The two tech entrepreneurs had no insurance experience, but how hard could it be? Armed with tech, they would storm the world with their new take on insurance. By 2017, they had raised $180 million, and in the next two years they raised another $300 million, and on July 1, 2020, they listed their new creation.
They called their new creation Lemonade, branded it bright pink (which gave them a legal fight with T-Mobile when they expanded into France) and went hard after the millennial market with chatbots and AI-based underwriting.
And for the next four years, every year, without fail, the company burned through its cash pile.
Lemonade’s latest results, released last week, just added to its share price carnage (now more than 70% down from its peak) but, according to Schreiber (who is the company’s CEO now), they were actually good news, and the company plans to increase spending, in at least some sectors at least.
Private insurers get the okay to take Citizens Property Insurance policies in Florida
Florida regulators Thursday approved proposals by three insurers to take up to 54,386 policies from the state’s Citizens Property Insurance Corp. in May.
The approvals, signed by Insurance Commissioner Michael Yaworsky, are part of what is known as a “depopulation” program aimed at moving policies from Citizens into the private market.
Insurers have received a series of approvals in recent months to remove batches of Citizens policies.
The approvals Thursday would allow Slide Insurance Co. to remove up to 25,000 policies; American Integrity Insurance Co. of Florida to remove up to 19,386 policies; and Security First Insurance Co. to remove up to 10,000 policies.
Based on past depopulation efforts, the insurers will not take the maximum number of policies.
Citizens, which was created as an insurer of last resort, has become the state’s largest property insurer during the past three years as private insurers have dropped customers and raised rates because of financial problems.
Citizens reached as many as 1.412 million policies in fall 2023 before seeing reductions because of the depopulation program.
It had about 1.164 million policies as of last week.
Japan: Around 130 execs of major P&C insurers to see pay cuts of up to 50%
A total of about 130 executives at four major Japanese property and casualty insurance companies will see pay cuts of up to 50% for colluding to fix prices in contracts with corporate customers and government agencies, the companies have said.
A total of about 130 executives at four major Japanese property and casualty insurance companies will see pay cuts of up to 50% for colluding to fix prices in contracts with corporate customers and government agencies, the companies have said.
The four insurers — Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance — also submitted business improvement plans on 29 February 2024 to the Financial Services Agency (FSA) following its order to improve their operations over price fixing, reported the Kyodo news agency.
Tokio Marine & Nichido Fire Insurance president Shinichi Hirose will take a 50% cut in his monthly salary for three months.
The unit will also reduce chairman Satoru Komiya's monthly pay by 30% for three months.
Sompo Holdings said that it will slash the monthly salaries of nearly 50 executives of its group companies including chairman and group CEO Kengo Sakurada by up to 50%.
Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance also decided on up to 50% salary cuts for their presidents and more than a dozen other executives.
The four non-life insurers have also announced plans to sell all of their cross-shareholdings with client firms in their submissions to the FSA. Financial regulators have criticised the insurers’ practice of holding shares in client firms to maintain good relations with them.
Commentary/Opinion
That Insurance Talent Crisis? It’s a Global Knowledge Opportunity
Over the next 15 years, 50% of the current insurance workforce will retire. It’s a jarring number. This leaves more than 400,000 open positions unfilled, according to the U.S. Chamber of Commerce. At the same time, the industry is experiencing an unemployment rate nearly half the national average, per the U.S. Bureau of Labor Statistics. The combined result of these trends is an unprecedented loss of insurance knowledge – one that is bound to get worse.
COVID taught us that we can operate in a global remote working environment with a high degree of productivity without creating the data security risks that many feared it might. And one solution for relieving the talent crunch is outsourcing basic tasks so that your employees can focus on higher-level work. Unfortunately, traditional outsourcing only fills the most basic support roles and does not go far enough to ensure long-term success.
The reality is that the teams who are winning aren’t simply outsourcing. They’re up-sourcing: delegating increasingly complex and higher-value tasks to a global workforce – either internally or through a trusted knowledge process management (KPM) provider – with the right level of insurance knowledge, process discipline, and technological enablement to deliver results.
Failing to replace lost knowledge can quickly jeopardize the business of insurance.
Dan Epstein is the Chief Executive Officer of ReSource Pro
Geopolitical Risks: Why Underwriters Are Watching Aggregations
Executive Summary
With instances of violent unrest rising across the globe in recent years, property all-risk insurance programs bore significant losses. One reason is that sublimits for strikes, riots and civil commotion included on the programs were occurrence sublimits. The programs did not have an aggregate limit that would have prevented the sublimits from simply reinstating each time they were exhausted, observes Aspen Crisis Management Underwriter George Barratt.
Here, he also calls attention to the circumstances giving rise to elevated SRCC risks.full article
George Barratt is a Crisis Management Underwriter for Aspen Insurance.
A Tipping Point for P&C Litigation
Litigation stands as the foremost challenge within the P&C industry. From 2018 to 2023, litigation management costs for the combined P&C sector surged 19%.
As detailed in AM Best Financial reports, this escalation is reflected in an approximate $24 billion loss adjustment expense (LAE). According to alternate assessments, the top 50 carriers in the U.S. individually allocated an average of $500 million toward litigation expenses. If we conservatively estimate that litigation expenses represent only a quarter of the total litigation spending, accounting for expense and indemnity, the industry is funneling approximately $100 billion annually through its litigation departments.
However, litigation experts contend that the true extent of litigation challenges has yet to fully manifest. A prominent trade organization has identified combatting legal system abuse as the primary focus for the P&C sector in 2024. In many markets, lawyers have emerged as the dominant advertisers, often yielding substantial rewards in nuclear verdicts, which have now escalated to thermonuclear proportions. The rapid surge in litigation exposure has rendered the term "nuclear verdicts" --typically those exceeding $1 million — obsolete, with "thermonuclear verdicts," exceeding $10 million, emerging as the new benchmark. The consequences of unfettered litigation are exemplified by events such as the world's largest personal injury firm filing an astonishing 25,000 lawsuits in a single week in 2023.
If this continues through 2024, insurers could pump an additional $40 billion directly to their courtroom opponent – plaintiffs’ personal injury attorneys. full article
Wesley Todd is the CEO and founder of CaseGlide
Top 4 Alternatives to Purchasing Homeowners Insurance
Homeowners insurance companies are having a rough year. What’s worse is that they seem to be taking it out on us, their customers. According to an article on Policygenius, the cost of homeowners insurance went up an average of 21% between May 2022 and May 2023. On top of that, many insurance companies have stopped writing new homeowners policies in states like Florida, California, Louisiana and others.
Insurance agents and insurance consumers are having a harder time finding affordable insurance coverage in many parts of the country. Some are electing to obtain coverage through the excess and surplus (E&S) market, which in many cases would be a perfectly acceptable alternative to the standard market, especially as it shrinks in many areas.
But what if you don’t want to pay the high insurance premiums that your insurance company is billing you for? What if you aren’t confident in the E&S market? What if there are no E&S companies writing homeowners’ insurance in your area?
We have compiled our top four alternatives to buying homeowners insurance. Before you read on, please note most of these options will not satisfy your mortgage company. If you have a mortgage on your home and you are considering any of these options, please consult with your lender to determine whether they comply with the spirit of the agreement that you have with them.
Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance
AI in Insurance
AI solutions for insurers and repair facilities helped CCC grow in 2023
CCC’s advancements in AI solutions for insurers and repair facilities helped it end 2023 with $886.5 million in revenue for 2023, an 11% increase from 2022, according to its final fiscal year results and earnings call.
Githesh Ramamurthy, CCC Chairman and CEO, said in an earnings call that AI solutions have played a part in the company’s forward movement.
“I’ve noticed a significant change in my conversation with clients over the past few months,” Ramamurthy said. “While claims and repair cost inflation continue to be a concern, clients are increasingly turning their attention to the accelerating retirement of their workforces.”
Businesses are concerned that one-third to one-half of their experienced workforce will retire by the end of the decade, he said.
Claims
Liberating today’s insurance industry from yesterday’s legacy systems
In an age defined by technological advancement, the insurance industry continues to grapple with the complete digitization of operations that have long been reliant on legacy systems for decades.
Despite worldwide technology spending projected to increase 4.3% from 2022-2023, antiquated processes such as unsupported platforms and outdated servers have maintained a significant role in the insurance claims sector, widening the gap between carriers and policyholders with respect to customer experience, data optimization and development of internal processes.
The impact of legacy systems on today’s evolving insurance landscape is twofold. While insurance professionals face challenges in abandoning their old, tried and trusted practices due to business complexities and regulatory obstacles, their policyholders remain exposed to the potential adverse effects of processing inefficiencies and delays. Data silos, information inaccessibility and limited analytics capabilities are all examples of how insurance professionals fail to benefit from gaining valuable insight for operational improvement with new and advanced tools readily available today.
The inability to meet policyholders’ growing expectations, combined with the increasing demand for streamlined interactions, provide a stronger case for the integration of newer age digital claims solutions. This article takes a look at how insurance companies can benefit from the application of advanced insurtech tools.
Troy Stewart is president and COO of Brush Claims
People
The Hartford Announces New Organizational Structure Combining Operations And Technology
Insurer expands Deepa Soni’s role as chief information officer and head of Technology, Data, Analytics & Cyber to include Operations
The Hartford is bringing together its Operations and Technology, Data, Analytics & Cyber functions under Soni’s leadership to advance the company’s strategy and deliver exceptional value to customers and business partners.
“Over the past several years, we have invested aggressively in technology – expanding digital capabilities, simplifying processes and platforms, and applying data, analytics and artificial intelligence to enhance products, services and customer experience across the enterprise,” said The Hartford’s Chairman and CEO Christopher Swift. “Combining customer-facing operations with our technology centers of expertise accelerates the benefits of our investments and supports the company’s ambitious growth agenda.”
John Kinney, who joined The Hartford in 2003 and has led Claims and Operations since 2021, will leave the company effective April 5. With Kinney’s departure, Steve Deane, the company’s chief claims officer, now reports directly to Swift. Apart from Kinney’s departure, all changes are effective immediately.
Soni, who remains a direct report to Swift, joined The Hartford in 2019 after growing her career in the banking sector. Since assuming her current role in 2021, she has led the company’s technology transformation, including migration to cloud-based digital platforms, and increased use of automation/artificial intelligence and advanced data and analytics.