Research
Social inflation to drive higher losses for US P&C re/insurers – Moody’s
Favorable reserve developments not enough to counterbalance good results
US property and casualty (P&C) insurers are facing rising challenges due to social inflation, a phenomenon marked by increased litigation, more substantial damage awards, and broader legal interpretations, according to the latest insights from Moody’s.
In 2023, the US P&C industry witnessed a downturn in favorable reserve developments, with only $2.3 billion recorded, contrasting with a total industry reserve of $901 billion. The report notes that this reduction stems primarily from a modest deficiency in long-tail casualty lines noted at year-end.
These factors are notably impacting commercial auto and general liability lines, with heightened social inflation expected to continue, prompting insurers to augment reserves and elevate pricing strategies.
In 2023, the US P&C industry witnessed a downturn in favorable reserve developments, with only $2.3 billion recorded, contrasting with a total industry reserve of $901 billion. The report notes that this reduction stems primarily from a modest deficiency in long-tail casualty lines noted at year-end.
Conversely, Moody’s explains that favorable reserve developments from workers’ compensation and short-tail lines, which totaled $12.5 billion, were not sufficient to counterbalance the $10 billion in adverse developments from general liability and auto liability sectors.
Moody's report also highlights the increasingly litigious environment as a critical driver of claims inflation, exacerbated by negative public perceptions of corporations, a greater likelihood of individuals engaging legal representation, and escalating jury awards and settlements.
News
State Farm announces major insurance policy change affecting tens of thousands of households: 'This decision was not made lightly'
State Farm, California's largest insurance provider, announced it would not renew insurance policies for approximately 72,000 homes and apartments in the state beginning this summer.
What's happening?
In March, State Farm stated that it would discontinue coverage for around 30,000 homes and 42,000 apartments, citing surging costs, increasing risks of disasters such as wildfires, and outdated insurance rules as reasons for terminating the policies, per the Associated Press.
The insurance company said the policy expirations would "occur on a rolling basis" through 2025, starting July 3 for homeowner, rental dwelling, and business owner policies and Aug. 20 for commercial apartment policies.
"This decision was not made lightly and only after careful analysis of State Farm General's financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations," the company said in a statement.
Kristen Lawrence, The Cool Down
Florida’s Home Insurance Industry May Be Worse Than Anyone Realizes
Seven property insurers in Florida went bankrupt in 2021 and 2022. The bankruptcies left thousands of homeowners scrambling to get new coverage, which often came with a big increase in cost. Worse, many had outstanding claims for hurricane damage that had not been addressed
As Home Insurance Costs Soar, Owners Are Raising Deductibles
Home insurance customers are raising their deductibles to upwards of $5,000 or even $10,000 to offset rising premiums, according to industry reports.
High-deductible policies can save customers hundreds of dollars per year in premiums, but they can prove painful if and when the homeowner files a claim: The deductible is the amount an owner must pay out of pocket before the insurance company covers rest.
Most insurance customers have deductibles between $1,000 and $2,500, but the share of policies with deductibles in that range is shrinking, Guaranteed Rate Insurance, a national brokerage, found in a recent recent report.
"This segment has decreased by 17% over the past five years in favor of even higher deductibles,” the report said. "Deductibles in the range of $5,000 to $10,000 have seen a 49% increase."
The shift to higher deductibles comes as the average annual home insurance rate has increased more than 20% from 2021 to 2023, according to Insurify, an online marketplace.
The average insurance premium is expected to rise another 6% this year to about $2,500. The trend toward higher deductibles will likely continue because it allows owners to pay lower premiums.
How the insurance industry is using the mortgage slump to get new talent
With mortgage rates still at economy-slowing levels, homeowners locked in to low rates are reluctant to refinance, making the housing market grind to a halt. This may be bad news for homebuyers and mortgage bankers, but – there is a silver lining for insurance agencies amidst the property doom and gloom.
High mortgage rates, upwards of 7%, are making it a tough environment for home buyers. Home sales were at their lowest in almost 30 years in 2023, and a demand crunch has continued. The latest weekly figures, published April 24, showed mortgage loan applications down 2.7%.
For mortgage lenders, this hesitancy is bad for business. And some fed up mortgage professionals are looking for work opportunities elsewhere.
Enter, insurance.
Insurance agencies have been adding staff at pace over the past few years, even as mortgage and other loan broker staff numbers have undergone a slide. And with insurance facing its own talent challenge – 400,000 workers across the sector will age out by 2026 – businesses are looking to make hay from recruitment opportunities that do crop up.
Leaders at top American retail insurance agencies told IBA they are actively courting mortgage talent. And the good results they’ve seen from job switchers has encouraged them to keep up the pressure on tapping into this people market.
InsurTech/M&A/Finance💰/Collaboration
Global insurtech funding falls below $1 billion in Q1 2024
Decline due to decrease in mega-round deals, says Gallagher Re
Global insurtech funding falls below $1 billion in Q1 2024
Global insurtech funding has dipped below the billion-dollar mark amid a lack of mega-round deals during the first quarter of 2024, according to Gallagher Re
In a new report, the global reinsurance broker revealed that insurtech funding in the first quarter of the year amounted to just $912.3 million. This is a 17.3% decrease from the previous quarter, making Q1 2024 the lowest period for global Insurtech funding in four years.
Andrew Johnston, Gallagher Re’s global head of insurtech, said the market has continued to see a “funding reset” since insurtech investment peaked in 2021.
The report highlighted a drop in the average size of insurtech deals, which sat below $10 million for the first time since the third quarter of 2017.
Despite the decrease in deal size, the number of insurtech deals increased to 107 from 100 in the previous quarter. Early-stage funding also increased 26.5% quarter-over-quarter.
“With activity up but average deal size down, investors are becoming more democratic in their funding allocations and spreading capital more evenly among companies,” said Johnston. “This has resulted in a more sustainable insurtech market.”
Commentary/Opinion
InsurTech is Dead, Long Live Insurance Technology—Carpe Data CEO
Ed. Note: While we disagree with the premise of this article and lean toward the cyclical nature of technology and investment as an explanation, we have the utmost respect for author Max Drucker whose industry success has been impressive and we are committed to featuring commentary by all qualified thought leaders
In his keynote at Data In Paradise, Max Drucker related a history of InsurTech that ends with a new normal when it comes to the expectation insurance carriers have for their suppliers.
The Golden Age of InsurTech is now a long way off, and it’s not going to return, according to Max Drucker, CEO of Carpe Data (Santa Barbara, Calif.), delivering his introductory remarks at the company’s Data In Paradise user group meeting in Santa Barbara, Calif., this week, the first held since 2022.
“InsureTech is never going to be exciting again,” he commented. “InsureTech is never going to be a thing again like it was before.”
This pronouncement came within a discussion of the history of the InsurTech movement, which Drucker characterized as having gone through three major phases: a Golden Age, The Covid Years, and the Dark Ages. “It’s both a sad story and an exciting story… so hopefully we’ll laugh, we’ll cry, and we’ll find redemption,” Drucker said.
Insurance Innovation Reporter
Personal Auto Insurance Competition Heating Up, Root Execs Say
Personal lines InsurTech Root reported its first-ever quarter of operating profit and first-ever gross combined ratio below 100 for first-quarter 2024 while more than doubling gross written premiums and policies-in-force.
Looking ahead, however, the company will tread carefully on growth in the coming months as its data science platforms monitor an increasingly competitive landscape in personal auto insurance, executives said during an earnings conference call.
Chief Executive Officer Alex Timm and Chief Financial Officer Megan Binkley credited Root’s continued use of data science and technology as a key determinant of the quarter’s results, but pointed to seasonality, in addition to increased competition, as another factor that would likely mean slower growth in the second quarter.
“These results are a testament to our strong product offering, disciplined execution and the power of our technology,” said Timm.
Innovation
Janover Launches New Insurtech Subsidiary, Janover Insurance Group; Expected to Revolutionize the Commercial Insurance Landscape
Janover Inc. (Nasdaq: JNVR) (“Janover” or the “Company”), an AI-enabled platform for commercial real estate transactions, today announced that it has officially launched Janover Insurance Group Inc. (“Janover Insurance”), its new insurtech subsidiary for commercial property insurance and more. The Company also announces it has been granted insurance licenses in Texas and Florida, with multiple applications in progress in several other states.
“Our ability to navigate large complex transactions in a marketplace model, particularly in multifamily and commercial property finance, fits perfectly in the insurance brokerage model,” said Blake Janover, Chairman, and CEO of Janover Inc.
“By offering both multifamily and commercial property insurance services, we are able to provide a suite of modern financial services for our clients, adding more value, and reducing frictions and costs in the process. We believe our generative AI applications coupled with our best-in-class customer service and experience will make for very happy customers.”
“From the perspective of our shareholders, we are not only delighting our clients, but we are enhancing our revenue mix through the introduction of sticky recurring revenue and creating another touch point with our valued customers. Commercial insurance represents a high gross margin, recurring revenue business, aligned with Janover's growth strategy. It is also important to note that as an agent, we do not bear underwriting risk, allowing us to ensure we are providing clients with the best possible product for their needs while maintaining a balance sheet light technology platform. Looking ahead, Janover Insurance anticipates obtaining licenses in additional states, with the ultimate goal of offering national coverage and additional product offerings.”
People
Corrado Sciolla new CEO of telematic provider Octo
Corrado Sciolla has been appointed the new Chief Executive Officer (CEO) and member of the Board of Directors of Octo, a company in telematics and data analytics services for the Insurance, Fleet Management, and Intelligent Mobility sectors.
Corrado Sciolla, previously general manager of Wind, President of BT Group Europe and CEO of Cedacri, will lead the global company from Italy, with the aim of consolidating its leadership in the connected mobility sector. "With his new role, he brings extensive experience in leading international renowned organizations, a focus on technological development and data management, together with the skills acquired in over 20 years of service development in vertical markets, all key factors for ensuring the company’s success", states Octo in a press release.
Fabio Sbianchi, Founder and President of Octo, comments: “We are happy to welcome Sciolla and entrust him with the mission of turning the page after a difficult period of change. Corrado is a highly experienced leader, who has already demonstrated his ability to draw the best from technology and digital service companies. We count on his skills to grow our Company and achieve all our goals.”
Webinars/Podcasts/Interviews
S&P webinar: Challenges continue for US insurance industry as inflation persists | S&P Global Market Intelligence
The outlook for the domestic insurance industry remains complicated as stubbornly high inflation weighs on the sector, experts said during an April 30 S&P Global Market Intelligence webinar
Inflationary pressures have moderated from prior levels but remain elevated compared to the pre-pandemic years.
➤ The US Federal Reserve's efforts to address inflation have not hit their targeted goals.
➤ The property and casualty industry remains in a hard market even as rates may have peaked.
The inflationary cycle has largely been a curse for the industry, said Tim Zawacki, principal research analyst for S&P Global Market Intelligence. Though the inflation rate has come down from its peak, it remains significantly than where it was prior to COVID-19 pandemic, he said, pointing to the cost of used cars as a prime example.
"You can't separate from the inflationary pressures that the [property and casualty] industry has been seeing on loss costs, and that's labor costs and the amount that skilled labor commands in the marketplace," Zawacki said. "Those who work at body shops or rebuild homes, those kinds of individuals continue to command a much higher compensation than would have been true pre-pandemic."
The US Federal Reserve has attempted to cool inflation by raising interest rates to their highest levels in more than two decades, but their success has been limited, said Raghu Ramachandran, head of Insurance Asset Channel, S&P Dow Jones Indices.
Both CPI and Personal Consumption Expenditure continue to come in above expectations, which is impacting claims costs and pushing premiums for P&C products up, Ramachandran added.
EMEA
Exclusive: British auto data start-up Wejo in talks to go public in $2 billion SPAC deal - sources
Wejo is closing in on a deal to go public through a reverse merger with a blank-check company that would value the British connected car data start-up at more than $2 billion, two people familiar with the matter said.
Wejo, which organizes data from about 15 million connected vehicles for such clients as General Motors Co, Hyundai Motor Co and Daimler, is still working to finalize a deal with a special-purpose acquisition company, or SPAC, said the sources, who asked not to be identified.
The Manchester-based company is being advised by Citigroup, the sources said.
Wejo declined to comment.
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