Climate Change/Sustainability/ESG
Climate change and home insurance | Deloitte Insights
Rising weather-related losses and inflation-impacted costs to restore damaged assets are impacting homeowner insurers’ profitability, exacerbating pressure on a segment already stressed from years of persistent high loss ratios. In 2022, 75% of the property and casualty sector’s insured losses, or US$74 billion, were related to the US homeowner segment.1
As the severity and frequency of losses caused by natural catastrophes continue to accelerate at an estimated average annual growth rate of 5% to 7%,2 US homeowners could face up to US$118 billion in losses by 2030 due to weather events.3
FSI Predictions 2024
It doesn’t have to be that dire. Deloitte predicts that if insurers, in partnership with government agencies and policyholders, invest US$3.35 billion in residential dwelling resiliency measures, the two-thirds of US homes that are not currently built to code could be made resistant enough to reduce many weather-related claims losses. In fact, these actions could save insurers as much as US$37 billion by 2030 (see “About this prediction” for more on our methodology).
About this prediction
The Deloitte Center for Financial Services’ forecast bases weather-related insured losses on Swiss Re’s growth rate estimates. Our analysis also factors in research from the US Federal Emergency Management Agency (FEMA) and the National Institute of Building Sciences. Homes that meet FEMA’s hazard-resistant building codes or standards could see declines in average annual damages by up to 48%.5 According to FEMA, only 35% of the homes in the United States are built to code.6 The National Institute of Building Sciences’ cost-benefit multiplier of 1:11 suggests that every dollar invested in making homes resilient (to code) could generate savings of US$11.7
Rising costs and weather-related disasters jeopardize insurer profitability
The rising frequency and intensity of natural disasters are damaging more assets every year. The number of US catastrophic events increased by 32% between 2019 and 2022.8 Insured losses escalated from US$25 billion in 2019 to US$99 billion in 2022, accounting for 80% of global natural catastrophe losses (figure 1).9
Exacerbating this, between 2020 and 2023, replacement costs for property and casualty-related losses also rose by an average of 45% amid overall inflation growth of 15%.10 Climate change may be fueling disasters, but housing demands are further driving risk. Even in the face of rising climate-related risk, Americans continue to migrate to disaster-prone parts of the country, often building higher-value homes in these regions.11 For example, between 1990 and 2020, nearly 44 million homes were built in areas where wildfires are common, such as California and Colorado.12
APCIA urges homeowners to be hurricane-ready
The American Property Casualty Insurance Association (APCIA) has been quick to react following the National Oceanic and Atmospheric Administration’s (NOAA) 2024 Atlantic hurricane season forecast, urging homeowners to be as prepared as they can be.
Michael Richmond Crum, senior personal lines director at APCIA, commented: “An active and costly hurricane season could exacerbate the challenges that many policyholders across the US, but particularly in disaster-prone regions like the hurricane-exposed coastline, face with rising insurance costs and availability challenges.
“With hurricane season starting on June 1, it is critical for residents to take steps now to reduce the potential for damage to their property during hurricane season. Many insurers offer discounts for mitigation measures that help reduce the likelihood of a loss or the extent of damage. Discounts vary by company, so policyholders should contact their insurer or agent to see what discounts are available.”
APCIA’s recommendations for the upcoming hurricane season, which NOAA is predicting to be above normal, include strengthening homes against damage by trimming back nearby trees, repairing loose or damaged roof shingles, securing gutters, and sealing window or door cracks and gaps to avoid water intrusion.
News
US P&C industry posts best Q1 in 17 years on private auto return to profit
The US property and casualty industry posted its second-highest net underwriting gain in any quarter since at least 2000, just 12 months removed from its worst-on-record start to a calendar year, as carriers capitalized on top- and bottom-line catalysts.
The combined ratio of approximately 94.0% would mark the best result for the industry in a first quarter since 2007 and the best result in any quarter since the third quarter of 2013, according to an S&P Global Market Intelligence's preliminary aggregation of March 31 statutory financials released on May 21.
The industry generated a combined ratio of 102.2% in the year-earlier period, which marked an end to 11 consecutive quarters of sub-100% first-quarter results. The net underwriting gain of $10.20 billion has only been surpassed by the $11.06 billion result in the fourth quarter of 2023, not adjusting for inflation. It marked improvement of a remarkable $17.53 billion from the industry's first-quarter 2023 loss.
Staggering improvements in private auto results both sequentially and on a year-over-year basis, benign natural catastrophe losses, and continued benefits from a hard market in many of the commercial lines combined to help the industry make history in the first quarter. At the same time the industry's loss and loss-adjustment-expense (LAE) ratio plunged by 7.6 percentage points from the first quarter of 2023 to 68.8%, the expense ratio was 0.5 percentage point lower at 24.9% as private auto insurers continued to tread cautiously in pursuing growth initiatives after multiple years of historically poor results. Line-of-business level results will be available on S&P Capital IQ Pro by May 24.
P&C sector reports improved conditions in early 2024: McGriff - Reinsurance News
The Property & Casualty (P&C) industry began 2024 in a stronger position compared to 2023, driven by 25 consecutive quarters of premium increases, improved investment returns for insurers, and a relatively mild hurricane season, highlights broker McGriff in a recent report.
The broker highlights Fitch Ratings’ prediction for modest underwriting improvements in 2024 following poor auto insurance results and catastrophe losses in 2023. Early signs of market stabilisation were also evident in the Council of Insurance Agents & Brokers’ (CIAB) Q1 2024 Commercial Property & Casualty Market Report.
The report shows a moderation in premium increases across various business lines, with an average rise of 7.7 percent in Q1 2024, up slightly from 7.0 percent in the previous quarter.
How did US P&C insurers' investments fare last year?
In 2023, property & casualty (P&C) insurers in the United States reached record investment income levels, driven by a total of $2.7 trillion in invested assets.
As per an AM Best report, insurers were reassessing their investment portfolios amid ongoing interest rate hikes, recession risks, and early bear market indicators. The relatively short-tailed nature of many large lines led to shorter-duration investment portfolios.
As weather and catastrophe events, along with other challenges, have driven losses higher for P&C insurers, investment income has become increasingly important to offset poor underwriting results. The rebound in US equity markets and higher interest rates, leading to better yields, significantly boosted the P&C industry’s investment income in 2022 and 2023.
After more than a decade of persistently low interest rates, the Federal Reserve raised rates by 525 basis points in 2022 and 2023. This caused bond prices to drop below their carried values, but the well-matched and shorter-duration portfolios of most P/C insurers limited the overall impact.
Commentary/Opinion
AI in Insurance: Balancing Tech Innovations with Human Insight for Optimal Service
Insurance players who think they can replace independent agents with AI are likely getting in the way of greater growth. Instead, they should view AI as a tool that can augment human knowledge, making their relationships with expert agents even more powerful.
The insurance industry is going through a significant transformation driven by technological change, marketplace conditions and customer demands. Ultimately, this will result in a better insurance experience for everybody.
Technology has already reshaped how businesses and individuals get information and make purchasing decisions. Gen Z shoppers (and increasingly, most generations) expect to be able to shop online and quickly find products and solutions personalized to them—from electronics to prescription eyeglasses to insurance.
It won’t come as a big shock that few people or businesses want to spend a lot of time shopping for insurance—or even thinking about it. They’re looking for a quick way to get the protection they need at an affordable price and know they won’t be unprepared for unpleasant surprises in the future.
To meet these needs, InsurTech has risen in popularity year after year. In the Drake Star Global InsurTech Industry Report, 85 percent of insurance organizations saw digitalization as their top strategic priority. Also on the rise is nontraditional distribution like embedded insurance—which lets companies integrate cloud-based technology platforms directly into their customer experiences.
Getting this right couldn’t come at a more critical time—just ask any insurance shopper.
Belen Tokarski is the President and Chief Operating Officer of Mylo
Claims/Payments
How AI Can Reshape Claims Management
How can artificial intelligence change property and casualty insurance claim processing?
Two industry experts answered that question from a few angles during Carrier Management’s annual InsurTech Summit. Frank Giaoui, founder and CEO of Optimalex Solutions, and Shane Riedman, general manager and vice president of anti-fraud analytics at Verisk, shared how their companies tap AI to improve claims management. full article
Pet insurance claims costs up more than 17% since 2021
Since 2021, the average pet insurance claim has seen costs increase 17.5%, according to Embrace Pet Insurance, which reported that pet owners in Washington D.C. saw a nation's leading average claims cost of $592 during the first quarter of 2024.
Other states that saw higher-than-average pet insurance claims costs included California ($519), Washington State ($498), Massachusetts ($482) and Connecticut ($481).
Embrace reported the national average claim cost was $449, while Spot Pet Insurance saw a national average of $419.
During the period, a number of treatment-specific trends occurred, according to Embrace. For example, shepherd mixes saw a 248% increase in osteoarthritis claims, while there was a 31% increase in epilepsy claims across all dog breeds.
Further, domestic shorthair cats saw a 93% increase in abnormal behavior claims in January, which Embrace said could be attributed to New Year's Eve celebrations.
Telematics, Driving & Insurance
General Motors faces two-dozen lawsuits over sharing data with insurers
General Motors Co. is facing around two-dozen class action lawsuits that allege the company gathered data about drivers without their consent, then sent it to insurance companies, which resulted in rate increases.
The lawsuits, which Law.com Radar flagged, specifically targeted GM, its subsidiary OnStar, and data broker LexisNexis Risk Solutions Inc. The legal actions alleged that the defendants provided driver reports to insurance companies.
"We've got many, many calls from customers who are very concerned about their data being transmitted to auto insurance companies," said E. Powell Miller of Miller Law in Rochester, Michigan, who has filed at least three cases. "There's a lot of outrage about their private driving information ending up in an insurance company's possession and resulting in higher automobile insurance rates."
The GM lawsuits, brought by drivers whose insurance premiums skyrocketed, primarily allege violations of the Fair Credit Reporting Act and consumer fraud and privacy statutes in several states.
Over half of drivers of connected cars are concerned about data privacy
From your music preferences to even your most subtle driving habits, your car sees all - and unfortunately, it's not the only one. Learn more about where all your data is going. As our roads become increasingly digitized, modern cars are no longer just modes of transportation; they’re data-rich ecosystems on wheels.
Connected vehicles gather a wealth of information, from driving behavior to personal preferences, and transmit it across networks. But what happens to this data? Who owns it, and how is it used?
A recent survey commissioned by RATESDOTCA found that 57% of Canadian drivers with connected cars are concerned about the privacy of the data collected by their vehicles. As it turns out, their concerns may be well founded.
Connected vehicles, or smart cars, utilize various wireless technologies to communicate with their environment.
While the specific technology may vary among vehicles, most connected cars are equipped with a cellular modem, allowing it to connect to the internet, social media, and entertainment systems that enable drivers to interact with the environment and other devices.
Beyond direct inputs (like infotainment systems), cars gather data from cameras, microphones, and sensors.
Here’s a snapshot of their capabilities:
Data generation Connected vehicles continuously collect data during journeys. This includes speed, acceleration, braking patterns, driver destinations, infotainment settings, and even external footage (from dash cams and lights).
Telematics and usage-based insurance (UBI) Telematics systems track driving behavior, rewarding safe practices. UBI, also known as pay-as-you-drive insurance, calculates premiums based on actual driving habits.
Data transmission Cars wirelessly exchange information with manufacturers, service providers, infrastructure operators, and other vehicles. This connectivity enhances safety, efficiency, and convenience.
43% of Canadian drivers have a vehicle that connects to the internet, a smartphone and uses apps According to the survey, more people report having a vehicle that connects to the internet than don't. 43% of drivers have a car that connects to the internet, a smartphone and/or uses apps whereas, 38% don’t.
Innovation
State Farm patent notifies policyholders when their vehicle is in an unsafe location
State Farm has applied for a patent on a system that will notify policyholders when their vehicle is located in an area that poses risk, such as parked in a garage that’s recently seen a high number of thefts.
The patent titled “Systems and methods for identifying and assessing location-based risks for vehicles” was published by the United States Patent and Trademark Office late last month.
The patent says a processing server would be able to determine the risk of an incident based on information it receives from data associated with the vehicle’s location. The server then could decide to generate a notification to communicate to the vehicle operator.
“The vehicle operator can assess the risk and take action to mitigate the risk, for example by relocating the vehicle,” the patent says. “The processing server can receive updated location data for the vehicle and can determine, based on the updated location data, that the risk has been mitigated.”
A policyholder that heeds the advice of the notification could be rewarded, the patent says. One sample notification gives a policyholder a 10% discount on their next month’s premium for removing their vehicle from a garage with high thefts.
Editor's Note
Editors' Comments
We continue to talk about the industry's many "mixed signals". By most indications P&C financial performance is on the rebound. Improved conditions, lower weather losses at year-end 2023 and through Q1 2024 tell part of the positive underwriting performance story. Meanwhile 2023 investment income sets a new record-high, boosting profitability and stability.
However, much of the turn around is on the back of soaring premiums paid by consumers and businesses and should not be taken lightly as the protection gap widens and affordability diminishes. Ultra low LAE ratios are a by-product of surging top-line written premiums and will be temporary. Weather exposure remains the wild card as 2024 unfolds.
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 to 'Connected' followers: Use discount code INSURTECHCON30 and receive 30% off your conference pass Register here