Commentary/Opinion
Social Inflation: Scourge of Hard-Working Americans or an Insurance Industry Bogeyman?
Social inflation. There’s a good chance that you’ve never heard the term before. Nonetheless, it appears to be a hot topic, particularly in the insurance industry.
What is “social inflation”? It’s hard to say, because proponents offer varying notions. To my mind, the National Association of Insurance Commissioners offers about as good a start to defining it as any: It “is a term that describes how insurers’ claims costs are increasing above general economic inflation.”1
This definition has the virtue of being testable. You simply need to define what’s included in claims costs, determine the annual rate of inflation of those costs over some defined period of time, and compare that rate to some suitable measure of general economic inflation. This form of analysis is done in other economic sectors. For example, the U.S. Bureau of Labor Statics maintains a Consumer Price Index for College Tuition and Fees, which can be compared the CPI-U or some other measure of general inflation to determine how rapidly college costs are rising.
News
What next for Florida insurance rates?
Florida, reinsurers and what comes next for the sunshine state
Storm clouds are likely to gather in the Atlantic more often than usual this year, which could bump up reinsurance rates in Florida but whether that sends a lightening bolt through them or not depends on several things, experts say.
A widely followed forecast by Colorado State University predicts “an extremely active Atlantic hurricane season.” Released earlier this month, the study estimates 23 named storms compared to an average of 14.4 from 1991-2020. It also says to expect five major hurricanes compared to an average of 3.2.
The season begins June 1, which is also the same date for reinsurance renewals in Florida. The forecast has caused much stir, but it isn’t clear how big an impact it will have on reinsurance rates.
“It would not surprise us if there are increases at the June 1 renewal date,” said Mark Friedlander (pictured above, left), director of corporate communications at the Insurance Information Institute. “Any increase in the cost of reinsurance…has a downwind effect in terms of [insurance] rates in the future.”
States with the biggest increase in fatal car accidents in 2023
Early estimates from the National Highway Traffic Safety Administration (NHTSA) indicate a 3.6% decrease in the number of Americans who lost their lives in traffic accidents in 2023 compared to the previous year.
The NHTSA noted that the final quarter of 2023 marked the seventh consecutive period of decline in roadway fatalities.
Overall, the fatality rate dropped to 1.26 fatal crashes per 100 million vehicle miles traveled, down from 1.33 fatalities in 2022, resulting in 40,990 deaths in car accidents throughout the year.
Despite the decrease in traffic fatalities, the total miles traveled on roadways increased by over 2%, approximately 67.5 billion miles, according to the preliminary 2023 data.
These declines come after a period of historically high levels of traffic fatalities, with the second quarter of 2021 experiencing the most significant quarterly increase since the establishment of NHTSA's fatality analysis reporting system in 1975.
In the preliminary data released by the NHTSA, several states stood out for their remarkable declines in roadway deaths during 2023. Alaska led the pack with a year-on-year decline of 30.5%, resulting in 57 roadway deaths for the year. Maine followed closely with a decline of 25.8%, recording 135 fatalities, while Massachusetts experienced a significant drop of 19.8%, with 348 deaths reported.
Letitia James challenges Knight Specialty insurance over Trump bond
"Vague, incomplete, and inconclusive" claim threatens Trump's assets
The New York Attorney General, Letitia James, is challenging the validity of a $175 million bond secured by Donald Trump as he attempts to appeal a verdict that found him guilty of fraud. This legal maneuver is designed to pause the enforcement of a judgment that could potentially cost him nearly half a billion dollars.
James claims that the bond in question, underwritten by Don Hankey’s Knight Specialty Insurance Company, is not supported by adequate collateral nor issued by a properly licensed entity. On Friday, James’s office filed documents with the court describing the evidence provided as “vague, incomplete, and inconclusive” regarding the funds being readily available to prevent the bond’s default.
James’s legal team has argued that the court should declare the bond insufficient and has requested that Trump secure a new guarantor within a week. Failure to comply could lead to immediate property seizures to settle the financial judgment. The court is expected to address this request in a hearing set for today, Monday, April 22.
PURE sees 2023 combined ratio improve, direct written premiums increase 14%
High net worth insurance specialist PURE Insurance has revealed that its direct combined ratio for 2023 fell to 102.2%, an improvement compared to the last two years, mainly due to stricter underwriting guidelines, pricing enhancements, and management’s efforts to reduce operating costs.
However, while the firm noted it is pleased to see an improvement, “more is needed” to fully cover the cost of reinsurance protection.
PURE explained that despite its positive relationships with reinsurers and niche portfolio of members, it was not immune to the industry-wide rise in reinsurance costs, which increased by over 40% in 2023.
“PURE will continue to maintain a reasonably conservative reinsurance program to offset potential volatile underwriting results and is expecting more stable reinsurance market conditions in the upcoming program renewals,” the firm added.
Looking at some of the most impactful catastrophe events in 2023, PURE observed that the winter storm at the start of the year drove 155 membership claims totalling more than $26 million in losses.
Research
US Property & Casualty outlook: Personal lines are healing, commercial lines face uncertainty - Swiss Re
Strong premium gains, easing claims cost inflation and higher investment returns are boosting industry results after a difficult period.
There's momentum in the US P&C insurance industry. Strong premium gains, easing claims cost inflation and higher investment returns are boosting industry results after a difficult period. We expect personal lines to drive improved profits, with segment underwriting results having already started to close the gap with commercial lines. We also provide a review of personal auto inflation. Based on data from industry rate filings, we estimate that the March CPI over-estimates personal auto insurance inflation by 9 percentage points (ppt). This results in 27 basis points (bp) and 34bp over-estimates of headline and core CPI, respectively. We forecast industry return on equity (ROE) at 9.5% in 2024 and 10.0% in 2025, close to cost of capital between 10-11%. We forecast premium growth of 8.0% and 5.0%, in 2024 and 2025, respectively.
Our outlook for 2024 remains decidedly more favorable than 2023, with continued strong premium growth and easing inflation pressures.
We raise our premium growth estimate to 8.0% for 2024 (from 7.0%) and forecast 5.0% growth in 2025.
We forecast industry ROE of 9.5% in 2024 and 10.0% in 2025.
Personal lines are the key driver of growth this year; commercial lines remain bifurcated, with strong property growth offset by weak liability growth.
Higher yields resulted in a 31% higher investment return y-o-y.
Thomas Holzheu, Chief Economist Americas, Swiss Re Institute & James Finucane, Senior Economist, Swiss Re Institute
Climate Change/Sustainability/ESG
Nat cat costs "manageable" in Q1 2024 – Gallagher Re
Gallagher Re has delivered a verdict on the financial impact of natural catastrophes in the first quarter of 2024, with the reinsurance broker calling the costs “manageable” for both federal governments and the insurance industry.
According to the reinsurance broker’s report, the economic loss from all natural perils during this period amounted to a minimum of $43 billion, which is 17% below the average for the past decade’s first quarters ($52 billion). The insured losses were reported at a minimum of $20 billion, exceeding the decade’s average by 10% ($18 billion).
This year’s first quarter losses were also significantly lower compared to the same period in 2023, which saw economic losses of $108 billion and insured losses of $33 billion.
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Gallagher Re explained, however, that first quarter losses typically develop further throughout the year, particularly affecting agriculture due to weather-related impacts on planting and harvests.
When isolating weather and climate-related disasters, excluding geological events like earthquakes and volcanoes, the economic cost was at least $31 billion — below the 10-year average of $43 billion. Insurance coverage for these events matched the decadal average at $17 billion.
For context, in the first quarter of 2023, the economic and insured costs for similar events were $61 billion and $26 billion, respectively.
Europe Is Being Scorched and Flooded by Growing Climate Extremes
The European Union endured its joint-hottest year on record in 2023, according to new scientific analysis, pointing to a more perilous future for what is already the world’s fastest-warming continent.
Europe experienced its largest wildfire on record last year, as well as one of its costliest-ever floods, according to scientists at the Copernicus Climate Change Service and World Meteorological Organization said in their annual roundup of the region’s climate. There’s been no relief from extreme weather across the globe this year, including severe floods that hit Dubai and parts of Russia.
Data Privacy
Experian shares data paths to its vehicle histories, panel weighs data mining pros and cons
An Experian Automotive executive shared last week during a Collision Industry Conference (CIC) panel the ways in which they seek out data for vehicle history reports, and how the company believes it improves data by working with dealers, vehicle auction businesses, and body shops through that process.
Experian was asked by the Data Access Privacy and Security Committee to speak on an often-discussed issue within the industry over the last five years — how customer data generated by repair facilities results in a vehicle history entry or accident report.
Dan Risley, CCC Intelligent Solutions vice president of quality repair and market development, told the audience in Seattle at the April 17 CIC meeting that CCC gets one complaint a month about data being reported to a vehicle history reporting company such as Carfax.
AI in Insurance
Insurers to use 40% AI with synthetic data by 2027
18% of businesses are using synthetic data to comply with privacy regulations and enable secure data exchange.
IDC FutureScape predicts that by 2027, 40% of AI algorithms used by insurers will incorporate synthetic data to ensure fairness and regulatory compliance. This integration spans from underwriting to claims handling.
However, privacy and bias concerns necessitate insurers to align with evolving regulations like the European Union AI Act.
According to IDC's 2022 survey, 18% of enterprises are integrating synthetic data to address privacy regulations and facilitate secure data exchange in insurance services.
Synthetic data mirrors real-world scenarios whilst protecting privacy, offering benefits such as privacy preservation and unbiased risk assessments. IDC's AI predictions for 2024 and beyond include:
AI Empowered Sales: By 2027, generative AI-based tools will lead to a 5% increase in distribution sales volume and a 10% boost in sales ROI.
Outcome Optimization: By 2025, insurtech consolidation will drive outcome-based pricing adoption by 15% of tier 1 and 10% of tier 2 insurers.
Accelerating Insurer Digitalization: By 2024, 25% of insurers will increase investments in external app development services, increasing digital revenues by 10%.
Insurance enterprises are increasingly integrating GenAI-powered synthetic data to enhance AI accuracy whilst safeguarding privacy. This aligns with broader trends in AI empowerment in sales and outcome optimization. Insurtech consolidation drives outcome-based pricing adoption, fostering efficiency and partnerships.
Meanwhile, insurers are increasing investments in external app development to bolster digitalization and revenue streams.
Various innovations are reshaping the insurance landscape:
Embedded Payments: By 2024, embedded payments in property and casualty (P&C) insurance will cut operational costs by 12%.
Protection Gap: By 2025, 30% of health insurers will collaborate with telehealth providers.
Sovereign Cloud Solution: By 2026, 15% of insurers will adopt sovereign solutions to foster regulatory compliance.
Auto Insurance Transformation: By 2029, 30% of auto insurers adopting claims process digital twins will reduce casualty claims adjustment expenses and fraud losses by 20%.
InsurTech/M&A/Finance/Collaboration
Chubb expanding in pet insurance sector with Healthy Paws purchase
Chubb has served as the exclusive underwriter for the pet insurance brand since 2013.
Insurance company Chubb is expanding its presence in the U.S. pet insurance sector as it agreed to purchase Healthy Paws, a U.S.-based managing general agent specializing in pet insurance, from Aon PLC. Terms of the transaction, which is expected to close in the second quarter, were not disclosed.
While Chubb will become Healthy Paws new parent company, the two organizations have a history. Since 2013, Chubb has served as the exclusive underwriter for the pet insurance brand. The companies' shared histories will help fuel future growth and ensure a seamless transition for employees and policyholders, according to the acquiring firm.
"Chubb has been an important part of our journey for more than a decade and is an ideal partner to enable us to continue our mission on a larger scale and offer even greater value to the pet community," Jon Harris, president and COO of Healthy Paws, said in a release. "There are tremendous opportunities ahead to expand the positive impact we have on pets and pet parents."
Harris will continue to lead the pet insurance business after the acquisition's close, Chubb reported.
Innovation
State Farm files patent for system to suppress calls and text while driving | Repairer Driven News
State Farm has filed a patent for a system that suppresses calls and notifications to a driver’s phone while they are operating a motor vehicle, according to patent documents recently published by the United States Patent and Trademark Office.
“An increasing number of motor vehicle accidents occur each year as a result of drivers using their mobile devices,” the patent says. “Drivers frequently talk on their cellular phones or send and receive text messages while driving. Such behaviors pose significant hazards to the drivers themselves as well as nearby drivers of other motor vehicles, passengers, pedestrians, and sometimes property.”
The patent goes on to outline how insurance premiums are based on driver risk.
“The auto insurance industry carries a portion of the risk posed by the drivers who use their mobile devices while they drive,” the patent says.
The patent stops short of saying if State Farm would monitor the system and create premium reductions or discounts based on usage, similar to the way most major insurers allow policyholders to opt-in to the usage of apps that track data, such as speed, acceleration, and braking.
State Farm gives three options for how a driver’s phone could connect to the system:
Bluetooth interface configured to connect to a device associated with the vehicle
Wireless communication interface configured to receive wireless communication from a remote device
A processer coupled to the wireless communication interface and the Bluetooth interface
After being connected by one of the three options, the system would suppress any notifications once it determines the vehicle is operating. It could be determined the vehicle is in operation by tracking speed and location data, the patent says.
The patent presents possible options for emergency calls to bypass the system. This includes giving a caller a voice prompt to enter a bypass code in case of an emergency.
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