Research
Motor insurance: price rises to decelerate from current heights as claims inflation eases
The sharp gains in motor prices in advanced markets over the last two years came as insurers sought to repair underwriting profits. US personal motor insurers lost a cumulated USD 53 billion in 2022-23. We anticipate that the rate increases will decelerate soon, driven mainly by disinflation, improved underwriting performance, and increased competition. We highlight too that the rate increases reported in the US appear overstated, which could have also led to an overstatement of headline and core CPI.
Key takeaways
- We expect price increases in personal motor to flatten soon.
- In the US, an overstatement of motor inflation meant the March core CPI print was likewise likely overdone.
- The rise to current highs has come as insurers re-priced premium rates to repair underwriting results. In the US, personal motor insurers lost USD 53 billion 2022-2023.
- We expect improved profitability, falling prices for used cars and repairs, economic disinflation generally, and increasing competition to drive the slowdown in premium rate gains.
- In the US, the CPI vs PPI comparison, and in the UK data on renewed vs new policies written signal that competition is on the rise.
James Finucane, Senior Economist, Swiss Re Institute & Mahir Rasheed, Senior Economist, Swiss Re Institute & Diana Van der Watt, Senior Economist, Swiss Re Institute & Arnaud Vanolli, Economist, Swiss Re Institute
News
Verisk discontinues telematics offering and more
Verisk hosted its Q1’24 earnings call on May 1, 2024, highlighting observations on AI, automation and connected car data.
Verisk recently hosted its flagship Verisk Insurance Conference (VIC), where its Extreme Events division launched Next Generation Models (NGM), a suite of over 100 models for risk assessment across all perils.
‘With next-generation models, our clients can make better financial assessments of loss potential and more accurately represent the risk to their policyholders, their businesses, and their partners,’ said CEO Lee Shavel. ‘NGM also offers new advantages to support complex insurance policy structures and to address new terms and conditions that were previously unmodeled.’
Finally, regarding their auto sector, Verisk has decided to discontinue the existing telematics offering due to recent changes in their data source. The financial impact of this decision is considered immaterial for 2024, with less than $1 million in revenue impact anticipated.
When asked by Toni Michele Kaplan from Morgan Stanley’s Research Division about the discontinuation of the auto telematics offering, Shavel explained that the decision was primarily due to the entities providing the data deciding to stop doing so. He acknowledged that while discontinuing the telematics offering had a negligible financial impact, their commitment to serving auto insurers remains strong. They continue to offer a variety of products such as LightSpeed auto, coverage verifier, and damage assessment from a claims perspective. “The simple answer is that the entities that were providing that data to us decided to discontinue collecting that data. And so there was really not sufficient analytical value in that without the data that was being provided. And I think it’s fair to assume that it’s a function of some of the media attention to collect connected car data. So that really was the simple reason.”
Coverager
Warren Buffett’s PacifiCorp Now Faces $30 Billion Fire Claim Demand
Berkshire Hathaway Inc.’s PacifiCorp now faces a demand for $30 billion from victims of Oregon’s 2020 Labor Day wildfires, an escalation of a legal onslaught on the largest grid operator in the western US.
While the amount sought in an amended complaint filed Monday is about two and a half times what the utility is worth, it’s also much bigger than the payout PacifiCorp might be expected to face based on claims resolved so far.
Chubb readies $350 million payout tied to Baltimore bridge collapse
Chubb Ltd., which had insured Baltimore’s Francis Scott Key Bridge, is getting ready to pay $350 million to the state of Maryland, in what could be the first major payout tied to the collapse of the bridge in March.
The payment is expected to be authorized within weeks, a spokesperson for Willis Towers Watson PLC, the broker for the bridge's insurance policy, confirmed Thursday.
The payout is likely to be the first of many related to the disaster that analysts have said might cost insurers up to $4 billion, making it a record shipping insurance loss.
The tragedy that killed six people occurred after the Singapore-flagged container ship Dali collided with the landmark bridge.
The FBI has also launched a criminal probe into the incident that led to the closure of one of the busiest U.S. ports.
AI in Insurance
The evolution of AI in the insurance industry | Swiss Re
From rule-based algorithms to new machine learning-based AI, this blog explores the dynamic nature of AI and what this means for insurance industry.
Have you ever come across a definition of Artificial Intelligence (AI) that explains the topic in a succinct, understandable way? One way I explain AI to friends and family is: Artificial Intelligence helps computers mimic human actions to solve problems and accomplish tasks more efficiently.
In the business context, it is essential to articulate the capabilities of AI with precision and acknowledge its dynamic nature. In the early days of automation, the insurance industry utilised systems grounded in rule-based algorithms, facilitating processes such as underwriting, risk assessment, and claims management. However, they required considerable manual input for development and upkeep, reflecting the lack of autonomous learning and adaptivity.
The excitement in the industry today is centred machine learning-based AI. This advanced form of AI is characterised by its ability to train extensive datasets to recognise patterns and make predictions or decisions autonomously, without task-specific programming. However, currently this type of AI is mostly used for narrow, task-specific applications such as classifying submissions and claims.
Like many, I am intrigued by Generative AI, a subset of modern AI and its remarkable ability to create novel content such as text, images, music, or intricate designs. It achieves this by learning the patterns in its training data, thereby generating new data. Regardless of how AI evolves, it's crucial that humans always have full control of the decision-making and that potential risks posed by AI are mitigated
By Pravina Ladva, Chief Digital & Technology Officer & Antonio Grasso, Entrepreneur, Technologist, Founder & CEO
Insurers seek to keep pace with explosive use of AI
As companies add generative artificial intelligence capabilities, the insurance sector weighs how the technology changes risks
The meteoric rise of artificial intelligence across numerous industries has led insurers, brokers, lawyers and others to pause and consider what new risks and exposures the developing uses of the technology may create.
While generative AI and its use in “deepfakes” are grabbing attention, commercial insurance claims for losses related to the emerging technology have yet to reach the critical mass necessary to spur insurers to adjust policy language or issue widespread exclusions.
Change has nonetheless begun, as governments move to develop parameters for the new technology (see related story), and at least one company has introduced an affirmative AI coverage endorsement.
Matthew Lerner
Lemonade Sees AI Drive Efficiency as Insurance Goes Digital-First
Digital insurance platform Lemonade said its AI investments continue to bear fruit.
The company’s latest shareholder letter — while reporting a 25% increase in total revenues and a $47 million net loss, an improvement of 28% — also examines the way artificial intelligence (AI) and automation technology has impacted its loss adjustment expense (LAE) ratio.
As co-founder Shai Winiger noted during a Wednesday (May 1) earnings call, it’s a little-discussed insurance industry metric, one the company said measures the operational overhead of managing claims.
“LAE is an essential piece of the loss ratio and for large insurers who enjoy the benefits of scale, it tends to run around 10%,” he said. “I’m happy to report that after years of technology-driven improvements in our claims automation and operations, with nearly 50% improvement in the last two years alone, we ended Q1 at an impressive 7.6 percent LAE ratio.
Beyond that, CEO Daniel Schreiber spent part of the call discussing how this technology helps on the customer service side of the business.
“We have a lot of documents that are inbound, whether it’s receipts or more complicated documents, health reports from vets, the state of a building, from surveyors … verbose 50-page technical documents that need to be reviewed in some detail, and then you will have to generate responses based on them,” Schreiber said. “And we’ve been able to harness these very, very rapidly…when everything is built digitally, we’re able to harness these capabilities.”
InsurTech/M&A/Finance💰/Collaboration
Only 52% of last decade's largest M&A transactions created long-term value: ACORD
As per ACORD’s Carrier Mergers & Acquisitions study, only 52% of last decade’s largest M&A transactions created long-term value.
The firm’s new study, set to be officially presented at ACORD Industry First on May 21st, screened nearly 15,000 transactions, focusing on those publicly disclosed valued at $1 billion or greater.
The deals analysed in-depth reportedly represented a total value of nearly $290 billion, accounting for more than one-third of the value of all carrier M&A transactions worldwide.
According to the disclosed results, mid-sized deals performed better than the largest or smallest transactions studied.
Bill Pieroni, President and CEO of ACORD, noted that while the largest deals may garner headlines and high hopes, they typically are not the most likely ones to create value in the long term.
Pieroni continued, “A transaction that is too large may simply be too big for the acquirer to successfully digest. One that is too small, on the other hand, may not draw sufficient attention and oversight.
“Insurers must carefully consider their ability to manage existing operations without disruption, while effectively integrating the benefits they hoped to achieve by the transaction.”
Events
USA'S LEADING INSURTECH CONFERENCE Javits Center | New York | 5-6 June 2024
The insurance industry, no stranger to gauging risk, is facing its most profound disruptions in decades. Artificial intelligence, machine learning, Internet of Things, blockchain, data analytics and other emerging technologies are rising to prominence. Are you ready to transform your business?
Special Discount for 'Connected' followers: Use discount code INSURTECHCON25and receive 25% off your conference pass Register here
Telematics, Driving & Insurance
Understanding Distracted Driving: 5 Questions for Arity’s Henry Kowal : Risk & Insurance
Some insurance trends are hard to identify. Rising auto insurance premiums is not one of them: All 10 of the largest auto underwriters raised their premiums by double digits in 2023, per S&P Global Market Intelligence. According to Bankrate, this translated into a 26% year-over-year increase in the average cost of a full-coverage car insurance policy.
During the work-from-home boom of 2020, the number of auto accidents per mile dropped, but the number of auto accident fatalities went up, even measured in real terms. Over the following year, 2021, auto fatalities didn’t just rise to pre-pandemic levels — they reached the worst levels we’ve seen since 2005, a jump that represents the largest year-over-year increase in almost half a century, according to recent figures from the National Highway Traffic Safety Administration (NHTSA).
The same report identified a 12% year-over-year increase in fatal crashes involving at least one distracted driver.
Our pre-pandemic benchmarks were nothing to boast about, either: In 2019, according to NHTSA data, distracted driving — defined as handling a phone or taking calls while driving — was a factor in thousands of accidents, claiming untold lives and inflicting $98 billion in damage.
Things have only gotten worse since then. In a study released last year by Arity, a mobility data and analytics company founded by Allstate in 2016, data showed a 30% increase in distracted driving between 2019 and 2023. In fact, the rise of distracted driving mirrors the rise of smartphones quite closely, and anecdotal evidence suggests that collisions with stationary objects now make up a larger proportion of accidents. It’s not hard to connect the dots.
Unsurprisingly, Arity’s latest study on distracted driving, released April 1, shows that distracted driving has risen yet again in 2024. Writing about distracted driving in Fast Company, Arity president Gary Hallgren said that “our transportation system is broken, and it’s incurring a significant human cost … By using the vast amount of data available to us, we can better understand the shape and nature of problems, identify effective solutions, and build on progress over time.”
Risk & Insurance® spoke with Henry Kowal, director, outbound product management, insurance solutions at Arity, to gain more insight into what’s influencing the surge in distracted driving and how we can tackle the problem. This interview has been edited for length and clarity. full interview
Breaking New Ground: Sentiance Introduces First Mobile Crash Detection for Motorcycles
Sentiance, a leader in road safety solutions, today announces a significant advancement in motorcycle safety with the expansion of its mobile Crash Detection technology. Originally developed for cars, this first-of-its-kind solution is now tailored specifically for motorcycles.
Built on state-of-the-art interpretive AI and machine learning models, Sentiance's Crash Detection technology utilizes smartphone sensors and GPS data to analyze motion data in real-time. This enables the system to detect potential impacts with exceptional accuracy and reliability, addressing the unique dynamics of motorcycles. Unlike other systems, Sentiance's technology operates directly on-device, ensuring a high level of privacy and data security.
"Today we see around 30% of all road crash deaths globally involving motorcycles, with countries like Thailand having an average of 5,000 motorcyclist deaths recorded annually. Ahead of the game, we're not just enhancing safety features for those motorcycle riders, we are fundamentally transforming their safety landscape," said Toon Vanparys, CEO of Sentiance.
"This technology is not only a game-changer for individual safety but also addresses a significant need in markets where motorcycles are essential for daily transport and industries like food, grocery, and document delivery."
Commentary/Opinion
What the NFL Draft Can Teach Us | Insurance Thought Leadership
The instant grades, based on completely inadequate data, illustrate the dangers of false precision that show up in lots of projections about insurance.
As soon as the NFL draft ended Saturday night, we all waited anxiously to see how the various pundits would grade our teams' selections. But if you step back even a little bit, you see how ridiculous those grades are — and that they are symptomatic of an issue that can skew the judgment of lots of executives, including in insurance. The issue is false precision.
It's certainly fair to judge the players and the teams drafting them. How big, fast, strong, etc. is a player? What does the tape show about how they fared against competition in college? How well do they fit a team's needs? And so on. But that sort of general analysis isn't enough for the analysts — or for us as fans. All the attributes of a player get boiled down to a grade. Some player is an A- pick, while another is a B or a C+. The same sorts of ultra-precise ratings are rendered for teams.
Yet the data doesn't come close to supporting such precision. As the saying goes, those being drafted have to this point faced a lot of college players who are now headed off to become accountants, and not a one of the players has yet faced a pro team. Who knows how a quarterback will react when he realizes that TJ Watt is going to hit him all game?
Paul Carroll,editor-in-chief, Insurance Thought Leadership
Innovation
Best’s Special Report: Highly Innovative Personal Auto Carriers Have Significant Competitive Edge
U.S. personal auto insurers are the furthest ahead when it comes to innovative processes like automated claims management and the use of data to automate underwriting, according to a new AM Best report.
“Highly Innovative Personal Auto Carriers Have Significant Competitive Edge.”
Not all auto writers are at the same level, and carriers that are more innovative have a competitive advantage and are reaping benefits, yet even some innovation leaders still struggle to transform their initiatives into underwriting profitability. These are among the key findings in a new Best’s Special Report titled, “Highly Innovative Personal Auto Carriers Have Significant Competitive Edge.”
AM Best has been scoring and assessing insurers’ innovation efforts since 2020, which reflects its important role in helping insurers keep pace with a changing market environment. “Personal auto as a line of business is well suited to innovation,” said Helen Andersen, industry research analyst, AM Best. “Carriers deal with large homogenous risks, allowing initiatives to be scaled and replicated relatively easily.”