Commentary/Opinion
Is Auto Insurance Becoming a Crisis?
I was perusing the BLS data following the inflation release last week and one number sticks out like Victor Wembanyana standing next to a group of kindergartners. Auto insurance was up 22% over the previous 12 months versus an overall inflation rate of 3.5%. Look at the change in auto insurance rates these past few years:
It’s like a meme stock. Since the start of 2020, auto insurance has spiked 46% against an overall surge in CPI of nearly 22%:
Most of the increase has come recently. So what’s going on here? Why is auto insurance going up so much faster than the average basket of prices? I did some research and talked to a handful of people in the insurance space. It’s not just one thing. Here are the main reasons as far as I can tell: Vehicle prices are higher. The replacement cost of other vehicles went up a lot during the pandemic. Just look at soaring used car prices:
There were pandemic-related and supply chain reasons for this, but more expensive vehicles mean higher replacement costs, which means higher insurance premiums. People are also driving larger, more expensive vehicles these days, which adds to the costs.
Ben Carlson, Director of Institutional Asset Management, Ritholtz Wealth Management
Research
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Allstate Reports Customers Using Safe Driving App Have 25% Fewer Severe Collisions
Allstate customers have a choice to opt into the Allstate app’s safe driving features and those who do are safer on the road, according to Allstate and its mobility data and analytics partner Arity.
Allstate found customers who choose to use Drivewise are 25% less likely to have a severe collision than those who don’t.
Driving behavior research from Arity also reveals that Drivewise customers handle their phones less, speed less and hard brake less on average than other connected drivers by as much as 44%. Drivewise is an optional usage-based insurance feature that customers can sign up for through the Allstate app to get safe driving feedback after each trip and help save money on their policy.
Among the 100 most populous urban areas in the U.S., average Drivewise customers compared to other connected drivers:
- Handle their phones 44% less while driving.
- Spend 23% less of their driving distance traveling at high speed.
- Have an 11% lower rate of hard braking.
Insurance leaders optimistic about AI’s impact on underwriting quality and fraud reduction but underwriter confidence lags - Capgemini
The Capgemini Research Institute’s World Property and Casualty Insurance Report 2024, published today, reveals the underwriting capabilities of insurers are being restricted by organizational constraints.
According to the report, only 8% of property and casualty (P&C) insurers are regarded as underwriting “trailblazers” who are consistently outperforming mainstream carriers by leveraging AI-driven insights and automation to make informed decisions and accurate risk assessments with efficiency. These industry frontrunners drive greater collaboration and customer transparency by keeping underwriters at the heart of all decisions.
Challenges mount for P&C insurers
As inflationary pressures hit policyholders’ pockets, there is increased demand for affordability, simplicity, and transparency from their carrier. According to the report, 42% of policyholders find the current underwriting process complex and lengthy. Additionally, 27% of policyholders switched providers in the last two years in search of lower premiums (60%) and better coverage (53%).
Q1 2024 financial costs from natural catastrophes were ‘manageable’...
Economic losses were 17% lower than the 10-year Q1 average
Expected transition to La Niña may bring active H2 weather/climate disasters
Global insured losses from natural catastrophes in Q1 2024 were minimally estimated at $20 billion, heavily driven by severe convective storm (SCS) activity in the United States, according to the Natural Catastrophe & Climate Report: Q1 2024 by global reinsurance broker Gallagher Re.
The analysis reported economic losses from all natural perils at an estimated $43 billion – 17% lower than the most recent 10-year Q1 average. Estimated insured losses in Q1 2024 were 10% higher than the decadal average of $18 billion.
When looking solely at weather and climate-related disaster costs, which excludes losses from earthquakes, volcanos and other non-atmospheric-driven events, insured losses in Q1 were estimated at $17 billion – equal to the decadal average. Economic costs reached an estimated $31 billion, lower than the decadal average of $43 billion.
Q1 was defined by major events such as several billion-dollar SCS outbreaks in the US, a USGS-registered magnitude-7.5 earthquake in Japan and an active European windstorm season. However, the overall financial cost from natural catastrophes to start 2024 were manageable for the private insurance market and public insurance entities, the report said.
US SCS is costliest Q1 peril
Following a record year in 2023 for insured losses from US SCS activity, this non-peak – or secondary peril – continued to lead the way as the costliest peril to start 2024. In fact, the first quarter marked the second-most expensive Q1 for SCS at an estimated $11 billion in global insured losses -- behind the $15 billion in Q1 2023. The US accounted for more than $10 billion of the Q1 2024 total and at least three individual billion-dollar insured loss SCS events alone, including the quarter’s costliest insured event, which was primarily driven by a modern era record number of large hail reports (2.0+ inches in diameter).
InsurTech/M&A/Finance💰/Collaboration
Lemonade Life transitions to a new partnership - Coverager
Lemonade was a sub-producer of Bestow Agency.
According to the Texas Department of Insurance, as of Feb 28, 2024, Lemonade’s latest carrier appointment is with Banner Life, a subsidiary of Legal & General.
In alignment with this, Lemonade’s website displays a message suggesting the company no longer works with Bestow:
“Lemonade Life Insurance Agency, LLC (LLIA) is acting as the agent of Legal & General America, whose life insurance products are underwritten and issued by Banner Life Insurance Company Urbana. Banner products are distributed in 49 states and in DC. Banner Life is not authorized as an insurer and does not do business in New York. The Legal & General America companies are part of the worldwide Legal & General Group.
MassMutual teams up with Insurify to add Property and Casualty Insurance to its Shelf of Offerings
Financial professionals who choose to affiliate with MassMutual can now offer their clients property and casualty (P&C) insurance, both personal and commercial lines, available through Insurify, America’s top-rated insurance comparison platform.
This is one of the latest additions to MassMutual’s suite of wealth management and protection solutions.
“Those that seek to build wealth must address the myriad risks that can sabotage value over a long period, and property and casualty insurance is an important piece of the backbone of wealth protection and financial security,” said Vaughn Bowman, CFA, head of wealth management with MassMutual.
“With the addition of P&C insurance through Insurify to our robust mix of wealth management and protection solutions, we have yet another valuable option for financial professionals affiliated with MassMutual as they seek to offer the best possible advice and financial strategies to their clients.”
With this new offering, financial professionals affiliated with MassMutual can:
- Access leading AI-driven technology alongside a dedicated in-person specialist team for all administrative and operational needs, including recommendations based on client criteria, competitive quotes, and policy placement and renewal services
- Offer clients seamless, online insurance comparison from over one hundred quality P&C insurers in one place
"We created a customized platform and tools for MassMutual-affiliated financial professionals to compare quotes and buy money-saving auto, home, and commercial insurance policies online or through our dedicated MassMutual agency. Insurify’s platform offers advisors a personalized experience that helps them build trust and respect with existing clients," said Insurify CEO and founder, Snejina Zacharia.
News
Travelers CEO on Q1 Results: ‘We’re Firing On All Cylinders’ With Net Income Up 16%
The Travelers Companies, Inc. today reported first quarter net income of $1.123 billion, compared to $975 million in the prior year quarter.
Core income in the current quarter was up 14% to $1.096 billion, compared to $970 million in the prior year quarter. The insurer reported a combined ratio of 93.9, an improvement of 1.5 points over last year’s first quarter.
J.D. Power: Customers shopping for auto insurance policies at record rates
Auto policy shopping has become more active, as the number of customers "just browsing" quotes has dropped.
Insurance customers shopped for auto policies at record rates in the first quarter of 2024 after three continuous months of decreased shopping to end 2023, according to the latest J.D. Power LIST Report.
In December 2023, the auto shopping rate settled at 11.7% before it began to tick upward to 12.1% in January, then 12.5% in February and 13.5% in March – the highest shopping rate recorded by the LIST report since the LIST series began in September 2020. Overall, the shopping rate for Q1 2024 was 12.8%.
The rate of customers who actually switched auto carriers increased, as well, from 3.6% in Q4 2023 to 3.9% in Q1 2024.
The rising quote rate was universal across all regions of the U.S., but those in the South saw the largest jump in shopping, from 13.2% in Q4 2023 to 14.4% in 2024. This also set a new record for the LIST report as the largest regional jump in shopping since the report’s inception.
Insurers with the highest rates of loyalty, based on the percentage of their auto customers who were policy shopping in Q1, were NJM, USAA, Erie, Mercury and The Hanover. The lowest loyalty rates were seen with customers from Kemper, Progressive, National General, Auto-Owners and GEICO.
Climate/Resilience/Sustainability
CSAA Insurance Group Releases Impact Report Detailing its Significant Initiatives and Contributions in 2023
CSAA Insurance Group, a AAA insurer, today released its 2023 Impact Report, assessing its collective progress toward its goals for planet, people and practice and highlighting its accomplishments in these areas.
"We recognize that addressing one audience or one area in isolation may not lead to our desired outcomes," said Mike Zukerman, CSAA's interim president and chief executive officer. "That's why we've started to employ a broader lens – total social impact – when looking at our imprint on our planet, our people, and the communities we serve as we progress on our journey in these spaces."
Key highlights from the 2023 Impact Report include the following:
50% reduction of greenhouse gas emissions The company's goal of a 50% reduction of greenhouse gas emissions by 2025 was achieved in 2023 – two years ahead of plan. (Note: Inclusive of Scopes 1, 2 and 3, inclusive of business travel, employee commute, work-from-home energy, and paper emissions, vs. 2016 baseline.)
Improved CDP score For the second year, CSAA voluntarily submitted its climate journey, including its emission inventories, to the CDP (formerly the Carbon Disclosure Project), a not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. CSAA scored a B for 2023, a significant improvement from its 2022 score of a C. This milestone will help the company propel its work forward and better understand its strengths and opportunities.
AI in Insurance
AI in Insurance Market to Surpass USD $91 bn by 2033
The global AI in insurance market is poised for substantial growth, with its value projected to increase from USD 5 billion in 2023 to approximately USD 91 billion by 2033. This remarkable expansion, translating to a compound annual growth rate (CAGR) of 32.7% over the forecast period from 2024 to 2033, can be attributed to several key drivers. Foremost among these is the increasing adoption of AI technologies for automating underwriting and claims processes, which significantly enhances operational efficiencies and customer service.
Additionally, the integration of AI in risk assessment and management offers insurers the ability to develop more accurate pricing models and personalized products, further stimulating market growth.
Despite the promising outlook, the AI in insurance market faces several challenges that could impede its progress. Regulatory and compliance issues present considerable hurdles, as the use of AI must align with evolving global standards on data privacy and consumer protection. The inherent complexity and cost of implementing AI technologies also pose significant barriers, particularly for smaller insurers with limited resources
Tajammul Pangarkar is a CMO at Prudour Pvt Ltd
Innovation
National Alliance for Insurance Education & Research Launches AlliBot: An AI Knowledge Bot for Risk & Insurance Professionals
The National Alliance for Insurance Education & Research is thrilled to announce the launch of AlliBot v2.0, the Artificial Intelligence Knowledge Bot built exclusively for the risk and insurance professional.
AlliBot is a knowledge bot developed with The National Alliance’s industry-renowned curriculum and publications.