News
California DA sues insurers, estimating system providers over alleged ‘lowball’ total loss payouts
Alameda County District Attorney Pamela Price’s Consumer Justice Bureau has filed suit against USAA, Progressive, CCC Intelligent Solutions, and Mitchell International over alleged total loss undervaluations in violation of several California laws.
The bureau accuses the companies of working together to create and use altered automobile valuation software that systematically undervalues totaled vehicles and pays California insurance consumers “lowball” settlements that are less than the actual value owed under their policies, according to a news release.
The complaint alleges violations of California’s Insurance Code, Unfair Competition Law, and False Advertising Law. The DA’s Bureau seeks civil penalties, restitution for California consumers, injunctive relief, and associated fees and costs.
According to the complaint, USAA uses CCC and Progressive uses Mitchell.
The insurers and their affiliates allegedly use the software portals of both estimating systems to generate a market value report (MVR) that states a monetary value for the totaled vehicle, which is misrepresented as the actual cash value (ACV) of the vehicle, and forms the basis of what the insurers tell policyholders they’re owed, according to the complaint.
The complaint states this is done knowingly by the insurers so they can reduce their indemnity losses, and that CCC and Mitchell are aware of “the intended outcome, purposeful use of their MVR software to achieve that outcome, and the effect the scheme has on California insureds.”
The insurance companies then resell the totaled vehicles at auction to minimize their losses further, according to the complaint.
These practices violate the insurers’ duty of good faith and fair dealing, failing to meet “the legal duty to make an accurate and correct indemnity payment in the first instance,” the complaint states.
CCC and Mitchell, called the “valuation defendants” in the complaint, allegedly provide off-the-shelf licenses for their MVR software that, when used according to California law, “reasonably permit the user to generate accurate and fair approximations of ACV.”
Non-customized versions of Mitchell’s WorkCenter Total Loss or CCC One are regularly used by independent adjusters and appraisers, according to the complaint.
The complaint alleges USAA and Progressive’s versions of MVR software provided by CCC and Mitchell:
“Selects ‘comparable’ vehicles that do not accurately reflect the subject loss vehicle in the local market area;
“Relies upon an exclusive matrix of comparable vehicles and condition adjustments that are only available to the insurance company defendants and which is designed to underpay total loss claims; and
“Applies arbitrary and unsupported adjustments to the condition of the loss vehicle.”
Research
AM Best: Social Inflation Key Factor in Rise of Loss Severity
Loss severity for many U.S. casualty lines of insurance business has exceeded economic inflation over the past decade, indicating other factors are influencing claims costs for indemnity and expense payments, according to a new AM Best report.
According to the Best’s Special Report, “Social Inflation Remains a Thorn in the Side of Casualty Insurers,” the lines of business most affected by social inflation are commercial auto, professional liability, product liability and directors and officers liability insurance. full article
Less than Four in Ten Investors Have a Retirement Savings Target
As economic ambiguity and inflation heighten investors' retirement concerns, Americans are coming to terms with a difficult reality: their retirement prospects are more uncertain than they anticipated, and their inability to know what to expect in the future is throwing their plans into flux.
According to Nationwide's ninth annual Advisor Authority survey, powered by the Nationwide Retirement Institute®, more than 6 in 10 (61%) investors say their expectations for retirement have changed significantly in the last five years, and nearly half say their dreams for retirement have been delayed, altered or cancelled as a result of the economic conditions seen in the last five years.
In the face of these headwinds, just 38% of investors believe in having a retirement savings target, or a specific savings goal for retirement. For those that do have a figure in mind, 42% of investors believe they need between $1 million and $2 million to retire, while 18% believe they need more than $2 million saved to comfortably retire.
Commentary/Opinion
Home Insurance Companies May Use Aerial Images to Drop Policies
It’s a notice no homeowner wants to get: Your insurance company has decided not to renew your policy, effective in 30 days. The reason? Based on aerial photos of your home, your roof is in poor condition.
Your first response might be outrage. Is your insurance company spying on you? Can it really take photos of your house at any time?
The practice is legal — and in some ways it’s nothing new, according to insurance experts. Looking at aerial photos “is just another method of doing something that insurers have always been doing,” says Bob Passmore, vice president of personal lines at the American Property Casualty Insurance Association.
Inspecting homes is part of a process called underwriting, in which an insurer evaluates how likely you are to file a claim. In the past, many home insurance inspections were done in person. Someone might drive by your house to take photos or come inside for a thorough investigation.
While these inspections still happen, many insurance companies are relying on aerial images as a cheaper, more efficient way to see your property. But to homeowners shocked by a non-renewal, it can feel like a violation.
“Just because a technological opportunity exists doesn't mean it can or should be used without guardrails and consumer protections,” says Doug Heller, director of insurance at the Consumer Federation of America. “Using images that were gathered without consumer awareness, or let alone consent, is really problematic.”
From data to decisions: CUO on AI's impact on climate risk modeling
Artificial intelligence (AI) is poised to revolutionize climate risk underwriting and modeling, according to Bob Quane (pictured), chief underwriting officer at Beazley. In an interview with AM Best TV at RIMS Riskworld 2024 in San Diego, Quane discussed how AI could transform the insurance industry’s approach to climate-related risks.
Quane emphasized that as the world grapples with increasing climate change, risks such as wildfires and floods, there is a critical need for insurers to adapt their catastrophe (cat) models to address these challenges. He noted a shift towards forward-looking cat models that prioritize recent trends over historical data. This shift aims to support clients by providing them with specialized advice to enhance their resilience to climate risks.
“We have to focus on the most recent trends, but still we’re adjusting our cat models for climate risk, particularly for US wind, so that it’s forward-looking. We’re doing this to support our clients,” said Quane. “This is to give them our specialty advice and how we can address climate change that faces this challenge.”
In addition, Quane highlighted a growing awareness among companies regarding the need for insurance protection against climate risks. Beazley’s risk and resilience paper revealed that 30% of their clients feel unprepared to deal with climate-related threats, prompting a surge in demand for insurance coverage. This demand encompasses not only natural catastrophe exposure but also litigation risks associated with greenwashing.
AI, Digital Disruption, and Climate Change: Challenges and Opportunities in Insurtech - Finovate
The week begins with a few research-related announcements in the fintech and financial services space. CB Insights announced the availability of its State of Insurtech report for the first quarter of 2024, and the Federal Reserve Board issued a summary of climate risk resiliences exercises conducted recently by a handful of big banks. While the focus on this column in on the former, the publication of the latter shines some light on potential answers to the problems raised in CB Insights’ report.
With regards to the state of insurtech, there is still a great deal of hesitation among investors. CB Insights noted that quarterly funding for Q1 of this year was only $0.9 billion, the lowest level since 2018. Property & casualty insurtech suffered the most, with a quarter-over-quarter decline of 25%. Q1 2024 was also the first time since 2018 that there were no “mega-round deals” – investments of $100 million or more. There was some good news in Europe, as the number of deals increased slightly, as did the median insurtech deal size. But the overall message continues to be caution when it comes to investor attitudes about investech.
What Ails Insurtech? Digital disruption: The challenge of digital disruption is one that the insurtechs share with the broader fintech community. The rise of enabling technologies such as AI will both steepen customer expectations as well as accelerate competition between companies to effectively deploy new, innovative solutions.
The insurance business is ripe for innovation. From the massive volume of manual processes and the document-intensive nature of the business to the challenges of underwriting and refining statistical models, the idea that AI will be a powerful ally in the insurance business is a no-brainer. One firm, Zippia, has predicted that as much as 25% of the insurance industry could be automated via AI by 2025.
What's Next for Embedded Insurance?
Since the dawn of the smartphone brought convenience to our fingertips, delivering exceptional experiences to your customers has been all but required for companies to succeed. Now, to remain competitive in a constantly evolving, digital-first world, companies are investing in even more creative solutions to meet consumer expectations. The insurance industry, known for being complicated and often confusing, is undergoing a digital revolution of its own in the form of embedded insurance.
Embedded offerings have been instrumental in the growth of the fintech industry over the past few years, offering ease of use to consumers and additional market opportunities to companies and giving organizations the ability to tailor products and services to individual industries. As embedded offerings continue to evolve and reach new customers, here are my top predictions for what to expect in 2024.
Embedded insurance is poised for significant growth throughout 2024 and beyond
As traditional and digital insurers continue to make the insurance process more accessible and seamless, the importance and value of embedded insurance offerings and partnerships will continue to grow. In fact, the embedded insurance market was valued at $63.1 billion in 2022 and is expected to grow to over $480 billion by 2032.
Embedded insurance offerings are nothing new. Travel insurance and services like Apple Care have been around for years. Digital insurance companies were born out of the need to simplify the insurance process for consumers and were designed to quickly adjust to the ever-changing insurance landscape, making them prime contenders to lead the charge into the new age of embedded insurance.
Nick Mabunay is the director of partnership growth at NEXT Insurance.
InsurTech/M&A/Finance💰/Collaboration
CoverTree Raises US$13 Million in Series A Funding to Transform Manufactured Home Insurance
Led by Portage with participation from AV8, Distributed Ventures, and Detroit Venture Partners, CoverTree launches an enterprise suite to provide homeowners with leading quality insurance coverage.
CoverTree, an insurtech company specialising in manufactured home insurance solutions, announced today the successful completion of a $13 million Series A funding round led by Portage, with participation from investors such as AV8, Distributed Ventures, Detroit Venture Partners, Ludlow Ventures, Annox Capital, and more.
To date, CoverTree has raised $23 million to provide affordable insurance solutions to the growing manufactured housing economy. This Series A investment underscores the growing demand for modernized insurance products in the ever-evolving homeownership industry.
The Series A funding will enable CoverTree to invest in product development, scale its operations, and attract top talent to continue its mission of reimagining home insurance. The round also marks a pivotal moment for the company, allowing it to expand its product offerings and strengthen its market presence within a historically overlooked market.
According to reports, over 22M Americans live in manufactured homes in the US, and 11% of new single-family homes in 2022 being those of manufactured homes, CoverTree provides an affordable and high-tech offering to the growing market.
The funds raised will be used to build out an enterprise suite including the launch of Maple, a resident insurance management software for property managers, Bonsai a binding and underwriting platform for independent agents and lenders, and Sequoia an automated underwriting and quoting system for insurance book conversions
Innovation
The untapped potential of smart-home insurance solutions
Smart home insurance solutions are not only making a difference in customers' lives but also shaping national policies and societal changes.
Insuretech Denver recently hosted the second installment of a panel discussion highlighting the insurance benefits inherent to smart homes.
The group brought together representatives from both fire prevention and water prevention, alongside experts in distribution and installation, to analyze the growth and importance of today's smart home technology.
The topic is close to my heart, given my background in both smart home technology and insurance. It's amazing to see how these innovations are not only shaping the insurance industry but also extending their reach into other sectors.
Our panel included:
Ryan Kim, founder and CEO of Phyn, which specialize in smart water monitoring, leak detection, and management solutions for residential and multifamily properties. Phyn's technology significantly reduces catastrophic water-related claims;
Paul Vacquier, CEO of Beagle Services, which focus on professional deployment and monitoring of smart home technologies, particularly in water management. Their goal is to enhance the customer experience and mitigate risks for insurers;
Ken Deering, CEO of IGuard Home Solutions, which is dedicated to preventing property and casualty risks through innovative smart-home solutions. Their products are designed to address the primary causes of fires and other hazards; and
Jim Anderson, vice president of business development for Whisker Labs, makers of Ting. Ting is an IoT device that predicts and prevents fire and water-related losses in homes and small commercial buildings. The company partners with insurers to offer proactive policyholder solutions.
People
Mike Zukerman Named CEO at CSAA Insurance Group
CSAA Insurance Group, a AAA insurer, has elected Mike Zukerman its president and chief executive officer, effective immediately. Zukerman was named interim CEO in August 2023.
"Mike has demonstrated excellent leadership while serving as the interim CEO. With a deep understanding of both the business and the importance of our AAA club partners, there is no doubt that he is the right person to lead CSAA Insurance Group moving forward," says Mary Hennessy, chair of the board of directors.
"I am grateful for the tremendous support of our board of directors, and it is an honor to lead an organization that is deeply committed to serving AAA members and our AAA club partners," says Zukerman. "With the combination of a strong leadership team, incredibly talented employees and a customer-focused culture, CSAA is well-positioned to achieve our business goals this year and into the future."
Before being named interim CEO in 2023, Zukerman served as CSAA Insurance Group's executive vice president and chief legal officer for 12 years. Zukerman currently serves on the boards of the American Property Casualty Insurance Association, the California Chamber of Commerce and the Bay Area Council.
Prior to joining CSAA Insurance Group, he held senior executive roles at various insurance and technology companies, including GeoVera Holdings, Critical Path, Sega and Netopia.
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