News
Deadly Houston windstorm – is it fueled by climate change?
The winds that roared out of a supercell thunderstorm Thursday night leaving a deadly trail across Houston are on the rise in a warming climate, though researchers are still teasing out the exact relationship between a rapidly heating planet and relatively small-scale weather patterns.
Power was out for almost 700,000 customers in the Houston area after an intense storm swept through the area with winds in excess of 75mph (120km/h), downing trees, blowing out windows and leaving at least four dead. Economic losses and damages could be between $5 billion and $7 billion, according to an initial AccuWeather estimate.
The trail of destruction is the result of what’s known as straight-line winds, fierce gusts that can rival their more familiar siblings, tornadoes. The atmosphere has been primed to unleash all types of violent weather this spring across the central and southern US owing to several factors.
“It seems like we cannot go a day without there being some sort of severe weather,” said John Feerick, a meteorologist at AccuWeather. “It has been active, and it looks like it will stay fairly active.”
The fast-flowing river of air in the atmosphere known as the jet stream has helped send a steady stream of unsettled weather across the region. It’s a little farther south than usual for this time of year, and it has been ejecting systems out of the Rocky Mountains and into the Southern Plains. A lingering El Niño may be helping contribute to this pattern.
The second key driver of the severe weather is the Gulf of Mexico, which has been warmer than normal. That allows ample moisture to mix with these systems giving them more power, Feerick said. The world’s oceans and the Atlantic in particular — of which the Gulf of Mexico is part — have been setting heat records for the last 13 consecutive months, Karin Gleason, monitoring section chief with the US National Centers for Environmental Information, said in a briefing Thursday.
Allstate (ALL) Unveils Catastrophe Loss Estimates for April
The Allstate Corporation ALL released estimates of catastrophe losses for April 2024. The metric is expected to be $494 million, pre-tax, or at an after-tax figure of $390 million.
Catastrophe losses encompassed 11 incidents, estimated to total $491 million, with around 80% of these losses stemming from four events involving wind, hail or tornadoes.
The incidence of such catastrophe losses dampens an insurer’s underwriting profits and subsequently, the combined ratio. Softer underwriting results may also exert strain on a company’s margins. As the results of a property and casualty (P&C) insurer usually remain susceptible to such losses, the companies have to remain equipped with measures such as rate hikes and favorable reserve development to counter the headwinds arising from such losses.
Notably, catastrophe losses in the first quarter dropped 56.8% year over year to $731 million for Allstate. After a sustained period of incurring such losses for the past few quarters, the metric finally seemed to witness a significant year-over-year decline from the fourth quarter of 2023. As a result, the insurer’s adjusted earnings per share were $5.13 in the first quarter while an adjusted loss of $1.30 per share was incurred in the prior-year quarter.
Also, frequent catastrophe losses serve as a means for insurers to accelerate the policy renewal rate to make uninterrupted claim payments. Rate hikes are expected to bring higher premiums, which usually account for a massive chunk of an insurer’s top line. P&C insurance premiums earned advanced 10.9% year over year in the first quarter.
Management remains optimistic to pursue additional rate hikes in 2024. On this front, the company had also remained quite active in 2023, wherein it implemented rate hikes of 17.9% for the Allstate brand across 55 locations. This had a favorable impact of 16.4% on total Allstate brand insurance premiums.
US property and casualty underwriting losses narrow as key lines still struggle | S&P Global Market Intelligence
US property and casualty insurers overall saw better underwriting results in 2023, but performance worsened in certain important business lines, according to an analysis by S&P Global Market Intelligence.
The property and casualty (P&C) industry's overall net combined ratio declined to 101.7% in 2023 from 102.5% a year ago. Better underwriting results within private auto insurance contributed to that small underwriting improvement while commercial auto, several commercial liability lines and homeowners reported year-over-year deterioration in their combined ratios.
The combined ratio for the industry's personal business lines, which include private auto, homeowners and farmowners insurance, came in at 106.7%, an improvement from 109.9% in 2022. Commercial lines posted a net combined ratio of 96.2% in 2023, up about 1.5 percentage points year over year.
After a historically poor year in 2022, underwriting performance of private auto insurers improved by about 7 percentage points in 2023 to 104.9% thanks to higher premium rates and expense reductions.
Homeowners insurers posted their worst net combined ratio in at least a decade, at 110.9% in 2023. While a mild hurricane season gave Florida homeowners insurers a reprieve, those in Hawaii were impacted by a devastating wildfire. Aon PLC in its 2024 Climate and Catastrophe Insight report estimated losses of $3.5 billion from the Hawaiian fires. The US also experienced a record-setting year in 2023, with 21 billion-dollar insured loss events due to convective storms. Overall, convective storms racked up $58 billion in insured losses.
The segment's combined ratio was significantly worse than the last 10 years' previous high of 107.2% in 2017 when several major hurricanes battered multiple parts of the Atlantic Coast and wildfires raged in California.
Auto, general liability drive insurance rate hikes in Q1
Continued increases in commercial auto liability and general liability rates accelerated insurance rate increases in the first quarter, but rates in other lines moderated or fell, according to the Council of Insurance Agents & Brokers latest pricing survey.
Commercial insurance premiums increased by 7.7% on average in the first quarter, accelerating from the 7% increase in the prior quarter.
Commercial auto rates jumped 9.8% in the quarter, up from 7.3% in the fourth quarter, and general liability rates increased 4.1%, up from 3.8%.
In other major lines, rates hikes eased or prices fell. Commercial property again saw the biggest increase at 10.1%, but that was down from 11.8% in the fourth quarter of 2024; umbrella rates rose 7%, compared with 7.6% in the previous quarter, and workers compensation rates fell 1.8%, the same as the previous quarter.
In various specialty lines, directors and officers liability rates fell 0.8%, compared with a 0.1% increase in the fourth quarter; cyber rates edged up 0.4%, compared with 0.7%; employment practices liability increased 0.8%, compared with 1.6%; and medical malpractice increased 1.4%, compared with 1.7%.
By size of account, pricing for medium-sized accounts rose 8.5%, up from 8.2%, and small and large accounts rose 7.3%, compared with 6.7% and 6.1%, respectively.
Research
U.S. Consumers Continue to Switch Auto Insurance at Higher Rates, Leading Carriers to Continue Focus on Renewal and Retention
U.S. consumer auto insurance shopping activity registered as "Hot" on the LexisNexis® Insurance Demand Meter, as quarterly year-over-year shopping grew 2.9% for Q1 2024 (slowing slightly from last quarter's 4.7% increase year-over-year).
The quarterly year-over-year growth for new policies was "Sizzling," up 8.7% for Q1 2024 (and up again from +7.0% last quarter).
Quarterly year-over-year new policy growth increased, trending up for the seventh consecutive quarter and 20th straight month, meaning consumers continue to switch carriers at an increasing rate when they shop.
Even as March saw a slightly lower shopping growth rate from the previous year – which may be attributable to fewer workdays and more weekends than in 2023 – 42% of insured households shopped in the last 12 months.
When comparing all years back to 2021, the consumers most likely to be retained by their existing insurance company – or those who have been loyal for 10+ consecutive years – comprised less than 20% of the shopper pool. Through Q1 2024, this cohort has grown to 24% of total shoppers.
More drivers entering the market: In Q1 2024, the growth in new drivers largely offset the number of leavers. This bucks the trends observed in 2022 and 2023 where a record number of consumers left the market in response to higher premiums.
Commentary/Opinion
How ‘Kitty Cats’ Are Wrecking the Home Insurance Industry
The rising cost of homeowner’s insurance is now one of the most prominent symptoms of climate change in the United States. Major carriers like State Farm and Allstate have pulled back from offering fire insurance in California, dropping thousands of homeowners from their books, and dozens of small insurance companies have collapsed or fled from Florida and Louisiana following recent large hurricanes.
The problem is fast becoming a crisis that stretches far beyond the nation’s coastal states. That’s owing to another, less-talked-about kind of disaster that has wreaked havoc on states in the Midwest and the Great Plains, causing billions of dollars in damage. In response, insurers have raised premiums higher than ever and dropped customers even in inland states such as Iowa.
These so-called “severe-convective storms” are large and powerful thunderstorms that form and disappear within a few hours or days, often spinning off hail storms and tornadoes as they shoot across the flat expanses of the central United States. The insurance industry refers to these storms as “secondary perils”—the other term of art is “kitty cats,” a reference to their being smaller than big natural catastrophes or “nat cats.”
But the damage from these secondary perils has begun to add up. Losses from severe convective storms increased by about 9 percent every year between 1989 and 2022, according to the insurance firm Aon. Last year these storms caused more than $50 billion in insured losses combined—about as much as 2022’s massive Hurricane Ian. No single storm event caused more than a few billion dollars of damage, but together they were more expensive than most big disasters. The scale of loss sent the insurance industry reeling.
“As insurers, our job is to predict risk,” said Matt Junge, who oversees property coverage in the United States for the global insurance giant Swiss Re. “What we’ve missed is that it wasn’t a big event that had a big impact, it was a bunch of small surprise events that just added up. There’s this kind of this reset where we’re saying, ‘Okay, we really have to get a handle on this.’
Jake Bittle, Grist
Hippo’s McCathron: Insurtechs’ focus on loss ratio means less innovation
Hippo president and CEO Rick McCathron has commented that the trend of insurtechs focusing on underwriting profit comes at the cost of leading to less innovation.
Speaking at Reuters’ The Future of Insurance USA conference in Chicago, McCathron suggested that the relatively recent trend of insurtechs focusing on profitable loss ratios is the result of the broader technology investment environment.
“I think macro trends do actually matter,” he said during a panel discussion titled “From Insurtech 2.0 to 3.0: What Comes Next”.
“There is a lot of conversation about insurtech companies are finally recognising that the loss ratio matters, that profitability matters. It matters more because the current environment demands less innovation, more profitability.”
He continued: “One of the questions that nobody ever asked when we started Hippo was, ‘How long until you get cash flow positive?’ In fact, if you gave an answer that you will be cash flow positive in three years, the response from the investor would have been, ‘Why? No, I want you to spin money. I want you to innovate. I want you to invest.’”
The executive continued that around the time that Hippo went public in 2021 “everything pivoted and everything shifted”.
“That has impacts on all insurtech companies at their various stages,” he said. “Now what you're seeing is companies like Root that they finally have an underwriting profit, Hippo that's near profitability, Lemonade that just brought in their earnings expectations for adjusted Ebitda profitable by the end of this year.
“So you're seeing all these companies have to react and strike that balance between innovation and profitability. If you have a lot of cash, you can still innovate. If you are needing more cash, you better get profitable really, really quickly because it's really hard to raise capital right now.”
McCathron believes that venture capitalists investing in early-stage companies do not want them to be cash flow positive quickly.
AI in Insurance
UW–Madison's Karumbaiah awarded American Family Insurance funding for research on bias in artificial intelligence - School of Education
Shamya Karumbaiah, an assistant professor in the School of Education’s Department of Educational Psychology, has been awarded new funding for her research aimed at identifying harmful biases in artificial intelligence tools.
Karumbaiah’s project will develop a framework to audit large language models (LLMs), which power AI applications, for such biases. The framework will make fairness failures and consequent harms more transparent, build stakeholder trust in issues of bias, and improve LLM reliability in diverse deployment contexts and populations by informing future work on fairness failures. This direct, transparent approach to LLM evaluation will build stakeholders’ agency and power to be critical consumers.
Broadly, Karumbaiah’s research focuses on human-centered artificial intelligence, algorithmic bias, learning analytics, and learning sciences. Another of her ongoing projects is developing a tool to support teachers in understanding the benefits and harms of using an AI tool in their classrooms. And, in partnerships with the School of Education’s Diego Román and philosophy professor Harry Brighouse, she is examining how large language models can be made more equitable for multilingual students and how human values like fairness and privacy can be deployed when building AI tools responsibly.
Karumbaiah is among nine campus PIs whose projects were awarded funding in the latest round of the American Family Funding Initiative, a unique sponsored research partnership between American Family Insurance and UW–Madison through the Data Science Institute.
American Family Insurance has committed $10 million over 10 years to support UW–Madison research with potential to fuel discovery in data science, while creating value for industry and society. Since its launch in spring 2020, 40 teams of UW–Madison faculty and collaborators have been awarded nearly six million dollars through this internal funding competition.
InsurTech/M&A/Finance💰/Collaboration
OpenRoad Announces Entry into Collector Vehicle Insurance Market
Open Road Insurance LLC ("OpenRoad") is pleased to announce its formation as a managing general agency specializing in collector vehicle auto insurance. The company has received its license from the Texas Department of Insurance and plans to launch across select U.S. states later this summer as a new alternative for collector vehicle insurance policyholders. OpenRoad is led by CEO Richard Hutchinson, an insurance industry veteran with over three decades of experience including executive leadership roles at Progressive, Hagerty, and Forge.
OpenRoad is capitalized by majority investor, Griffin Highline Capital LLC ("Griffin Highline"). "OpenRoad is led by a specialized, experienced team, and we are excited to support the formation of a best-in-class collector automobile insurance provider," said Michael Doak, Founder and Managing Partner of Griffin Highline. "We are also grateful for the opportunity to collaborate with National Interstate Insurance Company ("National Interstate"), a member of Great American Insurance Group ("Great American") and believe, under Richard's leadership, that there is a large market opportunity ahead for OpenRoad."
National Interstate will provide underwriting capacity to OpenRoad. National Interstate is a leading specialty property and casualty transportation insurance company and is rated "A+" (Superior) by A.M. Best. As part of this new relationship, Great American has made an equity investment in OpenRoad. "The OpenRoad team has an exceptional track record and we're excited to pair our capabilities and financial strength in specialty transportation insurance with their vision and expertise," said Shawn Los, President & COO of National Interstate.
Canada
Auto theft crisis deepens as insurance claims top $1.5 billion for first time
Canada’s auto theft crisis is deepening, as insurance claim costs top $1.5 billion for the first time.
New data from the Insurance Bureau of Canada (IBC) shows insurance providers handled 49,679 claims for stolen vehicles in 2023, with costs eclipsing $1.54 billion for the year. Overall, the number of claims has spiked 56 per cent since 2018, while costs have gone up 254 per cent.
“These numbers indicate that the auto theft crisis persists, disrupting the lives of Canadians and causing them concern and trauma,” Liam McGuinty, vice-president of strategy at the IBC, said in a news release. “It places a heavy burden on law enforcement and courtroom personnel who work tirelessly to address these crimes.”
Car owners ultimately end up paying higher insurance premiums due to the high rate of theft. A 2023 report from Rates.ca found frequently stolen vehicles — such as the Honda CR-V and Dodge RAM 1500 Series — could face premium spikes of more than 25 per cent and a $500 high-theft surcharge.
“Canada’s auto theft crisis is also placing pressure on drivers’ insurance premiums — as auto theft continues to increase, so do the associated costs,” McGuinty said. “Auto theft is not a victimless crime.”
Auto theft is most pronounced in Ontario, where claim costs have climbed 524 per cent since 2018, eclipsing $1 billion.
Ontario Transportation Minister Prabmeet Sarkaria told reporters last week that a car is stolen in Ontario every 14 minutes.
The Ontario government recently announced stiff new penalties for those convicted of the crime, which include a lifetime driver’s licence suspension for repeat offenders.
In February, the federal government announced $15 million in funding for police agencies to ramp up auto theft enforcement.
Canada’s extreme weather events are costing billions, new data shows
The increasing rate of natural disasters like wildfires, frigid cold and hurricanes is leaving many Canadians and their insurers forking out billions of dollars, according to a new study from Statistics Canada.
From 1983 to 2008, insurance companies in the country spent about $400 million on average annually on catastrophic claims, but since 2009 that number has rise to almost $2 billion. Recent hurricanes, floods and historical wildfires saw that number balloon to $3.4 billion in 2022 and $3.1 billion last year — 50 per cent more than the yearly average.
“Insurance rates are always going to be reflective of the current condition of the market and the kind of claims being paid out on a year-to-year basis,” Rates.ca insurance expert Daniel Ivans said. “As average claims begin to increase, as payouts increase, insurance premiums will match that.”
With more claims, the study by StatCan notes that insurers are in turn facing more risk with reinsurance rates — effectively insurance for the companies — trending upwards by as much as 25 to 70 per cent. This allows insurers to avoid taking on 100 per cent of the risk and even avoid insolvency, but with ongoing disasters, the study notes it’s becoming more costly for the companies to manage their risks.
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