Climate/Resilience/Sustainability
Insurers harness next-generation data to combat wildfire risks
The wildfires that swept through the Texas Panhandle have reignited concerns about the increasing frequency and severity of wildfires across the United States. The Smokehouse Creek Fire, the largest wildfire in Texas history, serves as a poignant reminder of the urgent need for proactive measures to address the risk of wildfires.
Last year, we saw the collateral and financial damage these natural catastrophes could cause when several major insurers declared they were withdrawing from California, the nation’s largest insurance market. This left homeowners and business owners with fewer options and more risk.
Wildfires have become a growing threat across the U.S. and globally in recent years, exacerbated by warmer temperatures, prolonged droughts and changing climate patterns. As temperatures are projected to rise and weather patterns seem more unpredictable, the risk of wildfires looms, posing significant challenges for insurers tasked with assessing and managing this risk.
In California, which has seen over 8,500 wildfires per year over the past decade, newly proposed insurance reforms seek to address the threat and the regulatory and reinsurance issues exacerbating it. These reforms aim to improve transparency and accountability in wildfire risk assessment, requiring insurers to provide greater visibility into their wildfire risk models and offer discounts to homeowners who take proactive measures to mitigate their risk of wildfire exposure.
Next-gen solutions
However, addressing wildfire risk requires more than regulatory reforms. It demands innovative solutions. One area of innovation insurers should explore is upgrading risk assessment with next-generation data and risk models.
News
Some states will see homeowners insurance increases as high as 23% in 2024
The effects of climate change are putting some states that have historically had lower premiums in the line of fire for more frequent and severe weather events.
Despite the impact it has had on insurance rates, only 25% of those surveyed told Insurify they believe climate change has hurt their home value.
Between 2021 and 2023, home insurance premiums in the United States increased by 19% — from an average of $1,984 per year to $2,377 — largely driven by climate disasters and inflation, according to a new report on home insurance affordability from Insurify. While an intense hurricane season has the potential to cause premium increases next year, Insurify predicts Americans will see a more modest premium increase of 6% in 2024, putting the average annual homeowners insurance rate at $2,522 by the end of the year.
Some areas will experience much more dramatic increases, however. The report forecasts the states that will see the largest home insurance rate increases in 2024 are Louisiana (+23%), Maine (+19%), Michigan (+14%), Utah (+13%), Montana (+12%), South Carolina (+11%), North Carolina (+10%), Illinois (+10%), Connecticut (+9%) and Nevada (+9%).
Louisianans have dealt with high home insurance premiums for quite some time, thanks to the area’s vulnerability to extreme weather. However, the effects of climate change are putting some states that have historically had lower premiums in the line of fire for more frequent and severe weather events, which is pushing their premiums upward, as well.
One example of this expansion of catastrophe risk is Maine, which the Maine Climate Council predicts will see a 1.5-foot relative sea level rise by 2050. As the risk of coastal storm impacts increases in frequency 10 times with each foot of sea level rise, the state could see a very dramatic shift in both weather patterns and risk over the coming decades
144A catastrophe bond issuance surpasses $4bn, setting new Q1 record
The first-quarter of 2024 has seen records fall in the catastrophe bond market and the period is the first time that the starting months of the year have ever seen over $4 billion of 144A catastrophe bond issuance, according to Artemis’ data.
Our new quarterly catastrophe bond market report will be published next week and it will review all of the quarter’s key cat bond issuance data points. Watch out for our announcement next week when it is released, or you can always find all of our quarterly cat bond market reports here.
But, our catastrophe bond market charts and visualisations are kept up to date as every new deal settles or old cat bonds mature, so you can keep up with issuance as it progresses throughout the year.
Now, with the last two new catastrophe bonds of the first-quarter settling today, it’s clear from the data that Q1 2024 has set new records, a notable one of which we thought we’d highlight today.
It is the first first-quarter of any year where 144A catastrophe bond issuance has reached above $4 billion.
The previous record was 2020, when 144A issuance reached $3.96 billion, so it’s only just a record, but still a notable one we feel.
This year, January 2024 saw the second highest level of new cat bond issuance on record for the month, but it is really March that has driven the records.
Research
State Farm® educates current and future homeowners about hail
Weeks of research, measuring, marking, cutting, and hammering culminated in a significant moment for a group of science students from Thomas Metcalf School.
On March 1, the students visited the State Farm® Technology Research and Innovation Laboratory (TRAIL) in Bloomington, IL, to face the ultimate test: Could their student-built roofs stand up to the State Farm Hail Simulator, a piece of research equipment designed to mimic the wrath of Mother Nature herself.
Around the room, the students’ sample roofs made of asphalt shingles and metal – and even one built with ecologically sustainable materials– were getting final tweaks. Then, with nervous excitement, the students placed the roofs below a tower of tubes loaded with steal ball bearings that simulate the impact energies of free-falling hail. Some roofs held up better than others. It is all part of the learning process.
The students were also treated to a demonstration of an ice launcher that is used by State Farm researchers to study the performance of roofing materials.
Doug Dewey, Senior Research Analyst, State Farm Enterprise Research, worked with the Metcalf students prior to the big test day. “I am incredibly grateful for the opportunity to participate. What a wonderful group of students who truly have a passion for physics and science”, said Dewey. “I especially enjoyed my discussions with each of the project teams and their thought processes in developing their real-world roofing solutions to combat wind and hail.”
With Doug’s guidance, the students absorbed a rainfall of knowledge about roofs, the science behind hail and how it ties to being prepared for severe spring weather. “We have an incredible group of researchers here at State Farm with decades of experience”, says Laurel Straub, Assistant Vice President of Enterprise Research at State Farm. “Anytime we can leverage our internal expertise to help educate our community, we get excited to be involved.”
Should Distracted Driving Laws Apply to Your Dog? Erie Insurance Survey Shows Americans Equally Divided on the Issue
New survey additionally reveals why so many Americans are driving with their dogs.
Laws restricting cell phone usage to prevent distracted driving are becoming more commonplace. But what about legislation designed to address another common distraction in your car—your cute fluffy dog? That was the focus of a recent survey commissioned by Erie Insurance and conducted online by The Harris Poll, which documented that a vast majority of dog owners with a driver's license (92%) take their dogs in the car with them.
Is it time for your dog to buckle up? A new survey commissioned by Erie Insurance shows Americans are equally divided as to whether or not they think their dogs could be distracting enough to cause an accident.
It's true. All that barking and jumping can be distracting. And if that distraction causes an accident, the consequences could be serious. According to the advocacy group Bark Buckle UP®, an unrestrained 60-pound dog can turn into a 2700-pound projectile in a 35-mph car crash when you apply mechanical force calculations.
But does that mean we need laws requiring our pups to be restrained, much in the same way that humans are required to wear seat belts? Some states seem to think so, which could soon make a loose dog in your car illegal. Although the reality is that only a few states have passed legislation that specifically mandates dog restraints (Rhode Island, Hawaii and New Jersey), more states are starting to apply general distracted driving standards to situations with unrestrained dogs and citing drivers whose dog's behavior is considered disruptive.
AI in Insurance
[Ed. Note: Highly Recommended] AI and Auto Body
Artificial intelligence is making an impact in the auto body industry, streamlining the estimating process and improving the customer experience.
Does anyone remember Deep Blue? The IBM supercomputer that beat world champion Garry Kasparov in a six-game chess match in 1996? That was a “wow” moment for me and one of the first examples of how powerful and effective artificial intelligence (AI) could be.
Here we are in 2024, and AI has permeated all aspects of our lives. When you rent a horror movie on Amazon Prime Video, you start seeing a “Movies We Think You’ll Like” section suggesting other horror-related flicks. That’s AI working invisibly in the background. When you click on a cooking video on Instagram and start seeing more cooking videos as “Suggested Reels” in your feed, that’s AI. When Google Photos assembles the latest snaps from your family vacation into a video, titles it “Trip to South Carolina” and adds background music, that’s AI.
Jason Stahl has 30 years of experience as an editor, and has been editor of BodyShop Business for the past 18 years. He currently is a gold pin member of the Collision Industry Conference. Jason, who hails from Cleveland, Ohio, earned a bachelor of arts degree in English from John Carroll University and started his career in journalism at a weekly newspaper, doing everything from delivering newspapers to selling advertising space to writing articles.
$50 billion opportunity emerges for insurers worldwide from generative AI's potential to boost revenues and take out costs
Insurance businesses worldwide have a $50 billion dollar financial opportunity from generative AI to harness the technology in ways that could boost their revenues by as much as 20% and cut their costs by up to 15%, research from Bain & Company released today finds.
Bain's report, It's for Real: Generative AI Takes Hold in Insurance Distribution, concludes that leveraging generative AI in insurance distribution has the potential to yield more than $50 billion in annual economic benefits for companies in the sector.
"For insurers, benefits due to generative AI will come through three routes," said Bhavi Mehta, global lead of AI in Financial Services at Bain. "This includes raising productivity, lifting sales through more effective agents and digital advice, and better risk identification and targeting that will help both customers, agents and the enterprise. At Bain, we remain committed to helping our clients not only within insurance ‒ but across industries ‒ identify and realize AI's full business potential."
Generative AI will transform insurance distribution in four ways
Early use of generative AI within insurance suggests the technology will transform distribution in four ways, including:
Agent productivity: The technology will help agents to navigate and produce content faster. It will reduce low-value interactions and provide coaching for more effective interactions with customers.
Customer self-service and sales support: An always-on virtual assistant will extend the availability of agents and help customers with product comparisons and digital purchases.
Hyper-personalization at scale: Tailored conversations, content, and offers will more readily respond to individual customer needs.
Business insights and decisions: Combining signals from unstructured data with structured data will yield new insights and aid in risk identification.
Claims
Allstate applies for augmented reality crash scene patent
Allstate has applied for a patent of a system that can produce an augmented reality visualization of crash scenes, according to a patent published March 5.
The device would allow users to correspond with vehicles, real-world locations, and other objects, such as trees, the patent says. It also can include weather and the time of day.
“The accident re-creation system provides the capability to re-create the accident site on a mobile device before or soon after leaving the scene utilizing augmented reality,” the patent says. “Multiple users, such as other witnesses, other drivers, police officers, etc. may also provide input.”
Currently, claims processing may involve interactions with multiple insurance agents, claims adjusters, and subrogation representatives, the patent says. The process also includes the processing of paperwork, telephone calls, and face-to-face meetings.
Commentary/Opinion
Majority of industry respondents expect use of parametric triggers in reinsurance to rise in 2024
According to a recent Reinsurance News poll, over 80% of industry respondents anticipate the use of parametric triggers in reinsurance arrangements to rise in 2024.
Parametric news has featured heavily in our pages so far this year, though admittedly, this has been largely insurance-related.
For example, speaking in an interview with Reinsurance News, Martin Hotz, Head Parametric Nat Cat, Swiss Re Corporate Solutions, suggested that the demand for parametric insurance will continue to rise in 2024, as “there is no fine print in a parametric policy, which clients appreciate in these uncertain times.”
According to Hotz, the demand for parametric insurance has been “rising steadily” in recent years, and he expects this to continue this year.
“The three main qualities of parametric insurance are speed, flexibility in the use of payouts and transparency,” he explained.
InsurTech/M&A/Finance💰/Collaboration
PayPal dips toe into insurance
Multimillion-dollar investment into personal lines
PayPal Ventures has marked its entry into the Indonesian insurance industry by investing in Qoala, an Indonesian insurtech start-up.
The investment, part of a $47 million Series C funding round, underscores PayPal's strategic move towards diversifying its portfolio in the rapidly evolving insurance market. Co-led by PayPal Ventures and MassMutual Ventures, the round also saw contributions from MUFG Innovation Partners, Omidyar Network, and several returning investors, bringing Qoala's total funding to over $130 million since its foundation.
Emerald Bay Risk Solutions launches with Bain Capital backing & Ingrey as CEO
Emerald Bay Risk Solutions, a collaborative underwriting carrier, has formally launched with a significant strategic investment from Bain Capital Insurance, the dedicated insurance investing unit of Bain Capital.
Led by Dave Ingrey as Chief Executive Office (CEO), Emerald Bay is an innovative program specialist focused on leveraging core underwriting expertise and data-driven approach to align interests across the entire risk value chain.
It uses a blend of established competencies to deliver tailored insurance solutions, consistent underwriting results, and long-term, mutually valuable partnerships with a select group of high-performing managing general agents (MGAs) and market-leading reinsurance partners.
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