Commentary/Opinion
Data Privacy’s Dirty Little Secrets: Big Implications for the Auto Insurance Ecosystem
For those information providers who traffic in the unauthorized use of PII, including claims data, to produce vehicle history reports, now would be a good time to develop an alternate business model.
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: 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 partners, 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 as published in Insurance Innovation Reporter
Risk managers, insurers grapple with shifting privacy laws
An increase in online data privacy regulations being introduced at state and national levels is adding another layer of complexity for risk managers trying to master the labyrinth of overlapping or intersecting guidance for cyber breaches and related incidents.
“Navigating country regulation is a test in itself to make sure we have the right people watching it,” said Anthony Dagostino, New York-based global cyber chief underwriting officer for Axa SA, adding that both underwriters and policyholders must keep abreast of regulatory issues.
U.S. state regulations pose an additional challenge, as incident notification laws differ, he said.
Thirteen states have enacted comprehensive privacy laws, according to the International Association of Privacy Professionals, a not-for-profit organization based in Portsmouth, New Hampshire. More than a dozen others have legislation in some stage of development, such as in committee.
Insurance fraud epidemic continues; drives up operational, consumer costs
Insurance fraud is considered a $310 billion a year criminal business – and the rate of fraud continues seemingly unabated. It all started when two Greek sea merchants intentionally sunk their boat believing it would allow them pocket money lent to them by the boat’s owner, who was insured.
That was more than 2,300 years ago and though the two merchants were caught – and drowned – it didn’t stop others from trying their hand at insurance fraud. And today, it continues. A report by the U.S. Federal Trade Commission said that in 2021, there were more than 4.2 million fraud cases reported, 2.8 million were fraud related complaints and 1.4 were identity theft complaints.
Perhaps more alarming is a large and growing consensus among some demographics, particularly the younger generation, that believes insurance fraud is okay.
'Growing appetite' to tackle insurance fraud, but challenges are evolving
Why insurance organizations should "think global, not local"
There is a growing appetite among insurers to tackle claims fraud more comprehensively. At the same time, fraudsters are ramping up their strategies and targeting markets beyond the US and UK, posing huge risks to insurers operating globally.
That’s according to Steve Crystal (pictured), head of claims fraud and investigation services, international at Sedgwick, who spoke to insurance leaders and anti-fraud professionals at last week’s Insurance Innovators Fraud & Claims summit in London.
“The rest of the world has noticeably been waking up to the risk posed by insurance fraud over the last five years,” Crystal said.
“There is definitely a growing appetite to tackle insurance fraud, not just by those insurers that operate internationally, but also by those insurers who operate only in the local markets.”
News
U.S. P/C Industry Underwriting Loss Reaches 10-Year High: AM Best
AM Best published its annual tally of U.S. property/casualty insurance industry’s financial results yesterday, reporting that $38 billion of underwriting losses for 2023 was a 10-year high for the sector.
Severe weather-related losses, stubborn inflation and upward reinsurance pricing fueled the record, analysts said.
Roughly $65 billion in catastrophe losses—mainly from secondary perils—impacted the 2023 underwriting results, according to AM Best’s estimates.
“Are secondary perils secondary?” the report writers ask in one section of the report, which notes other estimators put average annual losses from secondary perils at $35 billion, making the 2023 amount almost double the average figure. Last year included a record 28 single catastrophe events that individually exceeded the $1 billion loss mark, according to the National Oceanic and Atmosphere Administration, AM Best reported. Only one hurricane made landfall.
Still, the P/C industry managed to post pretax operating profit of $39.2 billion, with higher investment yields boosting net investment income to $75.8 billion in 2023.
The report reviews components of the overall combined ratio, which came in at about 103.7, along with combined ratios by line, also offering outlooks for 2024 and discussions of loss reserve adequacy, PFAS, artificial intelligence and cyber insurance trends.
The chart below, taken from the report, reveals that the 103.7 overall combined ratio was higher than the 103.1 ratio recorded in 2022. The loss ratio deteriorated roughly 0.7 points, while the expense ratio improved slightly (0.2 points).
Nationwide reports another year of record sales
"I'm proud of what we accomplished in 2023," says CEO
Financial services and insurance giant Nationwide has reported another year – the third in a row – of record sales.
The achievement, according to Nationwide, was thanks largely to the success of its financial services division. Notably, the significant milestone was reached even while providing members almost $23 billion in claims payments and benefits during a challenging period characterized by high inflation, rising interest rates, and extreme weather conditions.
The company’s total sales surged past $60 billion, an increase of $3 billion from the previous year, marking the third consecutive year of record performance. Net operating income, meanwhile, held steady at $1.3 billion. As for last year’s total adjusted capital, a nearly 5% increase resulted in $25 billion.
Kirt Walker, Nationwide’s chief executive, commented: “I’m proud of what we accomplished in 2023 – capital growth, record top-line growth, and strong net operating income. We faced many challenges and, through it all, our associates persevered and delivered on our promise of protection for our customers and our communities. That’s the mark of a resilient company.
Tesla Insurance hits nearly half a billion in premiums
That’s the problem with Great Big Ideas. They may be great but they’re also BIG which means, more often than not, deep pockets are required. And Tesla having its own insurance (because the cars can drive themselves so well of course) could be deemed one of those ideas.
It’s not that Tesla isn’t backed by someone with deep pockets. Hey anyone who can buy something, name it after one third of a Vin Diesel movie and then watch it lose $25 billion in value - and then still sleep at night has got to have pretty deep pockets, right?
Which is why Elon Musk probably hasn’t lost any sleep after Tesla announced its 2023 insurance figures.
Overall, the numbers look impressive – $497 million in written premiums is just three million short of half a billion. That’s more than some countries’ entire gross national product (Micronesia, Kiribati, Nauru and Tuvalu we’re talking about you – yes you have endless sunshine and great beaches – electric car insurance? Not so much.) But the big headline number is critically linked to a combined ratio, in some states at least, of 145%.
Overall, Tesla insurance saw a year-on-year increase in premiums of 115% and with a fronting arrangement with State National, it has become the specialty insurer’s largest producer. Tesla Insurance is also distributed through the company’s two licensed carriers – Tesla Property & Casualty and Tesla General Insurance.
Research
Interview: Ryan Mandell, Mitchell discusses "Plugged-In: EV Collision Insights"" reports; year-over-year EV claims volume up by more than 40%
Mitchell, an Enlyte company, today announced the publication of its latest trends report: Plugged-In: EV Collision Insights. This issue provides a year-over-year analysis of electric vehicle (EV) claims volume, which increased in 2023 by more than 40% in the U.S. and Canada.
According to the report, claims submitted for repairable EVs rose to its highest level in 2023, ending the year at 1.97% in the U.S. and 2.86% in Canada.
Key findings in the report include:
- Claims Severity: Last year, average severity in the U.S. for repairable EVs was $6,018 compared to $4,696 for ICE alternatives, a difference of $1,322. This represents a year-over-year decrease of 5% for EVs and an increase of 3% for ICE vehicles. In Canada, severity was $6,795 for EVs versus $5,122 for ICE-powered options, jumping 8% from 2022 to 2023.
- Vehicle Complexity: For 2020 and newer collision-damaged automobiles, EV repairs were 50% more likely to include an operation associated with the sensors used in advanced driver assistance systems (ADAS) based on 2023 data than ICE vehicles—which also rely on ADAS.
- Parts Repairability: EVs are more likely to use parts made of lightweight materials, which can impact repairability. In 2023, on average only 12% of EV parts were repaired versus replaced. For ICE-powered options, the percentage of parts repaired was closer to 15%.
- Material Construction: EVs tend to be heavier than ICE automobiles due to the battery weight. That may be one reason why they had a higher frequency of air bag deployments (3.62%) than ICE options (2.45%) last year, adding to repair costs.
Ryan Mandell, Director, Performance Consulting, Mitchell an Enlyte Company
Telematics, Driving & Insurance
From telematics to connected insurance [Interview with DriveQuant]
This interview is brought to you in partnership with DriveQuant, a company operating its the telematics and connected insurance space, across Europe.
I'm thrilled to have the opportunity to speak with its CEO, Philippe Moulin, who will enlighten us today on what telematics is and why we should probably talk about "connected insurance". He will also outline the latest developments in this field and how this technology can benefit car insurers who adopt it.
In a second episode, we will delve more specifically into DriveQuant's offering, its technological differentiation, and the ROI achieved by its insurer clients in Europe.
You can check DriveQuant's LinkedIn profile to learn more about their solution.
Florian Graillot, Investing in InsurTech with astoryaVC
InsurTech/M&A/Finance💰/Collaboration
Insurance M&A Activity Set to Rebound in 2024: Deloitte Report
After a lull in 2023, Deloitte predicts a resurgence in insurance M&A activity in 2024, driven by private equity and external investments.
The insurance mergers and acquisitions (M&A) landscape, which experienced a lull in 2023, is poised for a resurgence in 2024, with an influx of private equity and other investments expected to stimulate activity, according to a report by Deloitte.
There were 537 insurance M&A deals in 2023, down 21% from 2022. While brokers accounted for the largest number of deals last year, at 485, that volume was down 17% from 584 deals in 2022.
Property/casualty insurers accounted for 35 M&A deals, down 8% from 2022, while life and annuity insurers had 17 deals, up from 16 the year before.
While the number of deals was generally lower, deal value increased, according to Deloitte. The aggregate insurance M&A deals totaled $28.9 billion in 2023, up 63% from 2022. However, that figure was skewed by Aon’s $13.6 billion acquisition of NFP Insurance Services, the consultancy reported.
The life and annuity (L&A) market, which saw subdued M&A activity in 2023 due to a mismatch between available capital and uncomplicated balance sheet assets, is set to witness an M&A revival, Deloitte said. This is expected to be driven by an influx of private equity money and external investment. Furthermore, the report predicts that more public insurance companies will turn to divestiture as a strategy to mitigate the impact of Long-Duration Targeted Improvements (LDTI).
Deloitte observed that insurtech went “mainstream” in the P&C sector last year.
Construction Insurtech Shepherd in California Raises $13.5M in Series A Funding
San Francisco, California-based insurtech Shepherd announced it raised a $13.5 million Series A funding round led by Costanoa Ventures with participation from Intact Ventures, Era Ventures, Greenlight Re and Spark Capital.
The company says it will utilize the funds to expand its underwriting and software team, accelerate product development and scale its software offerings.
Shepherd is an insurance tech platform for commercial construction.
Shepherd is also rolling out a new software service, Shepherd Compliance, designed to streamline and automate vendor compliance reviews.
Claims
UVeye Collaborates with Acadia Insurance to Transform Auto Claims with AI
UVeye, creator of the AI-driven automated vehicle inspection platform, today announced a strategic collaboration with Acadia Insurance, a leader in the insurance industry. The companies will reshape the automotive insurance claim landscape by enhancing efficiency and accuracy in Acadia's appraisal process, leveraging UVeye's AI-powered computer vision inspection systems to streamline claims for vehicles involved in accidents.
UVeye's drive-thru systems enable appraisers to conduct comprehensive, instantaneous assessments of vehicle damage with an unprecedented level of precision and granularity, overhauling the traditional, manual inspection process and streamlining claims management. The AI-driven systems elevate the overall customer experience by slashing wait times and ensuring total transparency throughout the appraisal process.
The collaboration is a milestone in the integration of AI in the insurance industry, ushering in a faster, more reliable claims process that benefits both insurance companies and policyholders.
"Insurance has long been characterized by traditional, manual processes, but this boost of computer vision gives us a glimpse into the future," said Keith Gleason, Chief Claims Officer at Acadia Insurance. "We're proud to work with UVeye to pioneer this transformative AI-driven approach, introducing a new standard in insurance claims management, one that prioritizes accuracy, efficiency, safety and ultimately, customer satisfaction. It's a win-win for both the insurer and the insured."
This initiative represents a significant leap forward in claims management, with UVeye and Acadia spearheading the drive towards a more efficient, customer-centric future.