Climate/Change/Sustainability/ESG
No Need to Keep Predicting Weather Crises: They're Here | Insurance Thought Leadership
As Hurricane Beryl sets records for early-season hurricanes, all the foreboding about a catastrophic summer seems to be coming to pass.
As I sit in sweltering Northern California -- where it's 105 degrees as I write this -- I realize that I barely have anything to complain about, given the crazy weather seemingly everywhere else.
The biggest problem for the moment is Hurricane Beryl, which devastated parts of the Caribbean and made landfall in Texas early Monday. The storm killed at least four, knocked out power for millions of people and caused vast damage to homes and other property.
But there are plenty of other catastrophes, too. Wildfires have created much more devastation than normal for this time of year. Heat domes have caused severe distress throughout North America, India and other parts of the world. Floods have hit the Middle East and parts of the U.S. Unusually severe storms have also crushed areas with heavy winds, hail and lightning.
And we seem to just be getting started. In particular, Hurricane Beryl's appearance as a Category 5 hurricane so early in the season -- drawing energy from water in the Atlantic that is far warmer than normal -- suggests that all the dire forecasts about hurricanes this year may, sadly, play out.
As a recent headline in Bloomberg read, "The Era of Super-Wild Weather Is Already Here."
Paul Carroll,, editor-in-chief, Insurance Thought Leadership
Economic Loss in U.S. From Beryl Between $28B and $32B, Report Shows
Total damage and economic loss from Hurricane Beryl in the U.S. is expected to be between $28 and $32 billion, according to preliminary estimates from AccuWeather.
Beryl, the earliest Category 5 hurricane on record in the Atlantic, brought numerous tornadoes and flooding through eastern Texas, into Arkansas and southeastern Missouri, before moving toward the Midwest and then New England.
Hurricane Beryl's early start highlights changing risk environment | S&P Global Market Intelligence
While US insurers can handle the losses from Hurricane Beryl, the record-breaking early appearance of a Category-5 storm signals an evolving and more unpredictable risk environment for the industry.
Overall losses for US insurers from the storm, which became the Atlantic Basin's earliest Category-5 hurricane ever, should be between $750 million and $1.2 billion, according to an estimate from BMS Group.
The early appearance of such a severe storm points to how the length of the hurricane season, which usually lasts from June 1 through Nov. 30, is changing, according to Loretta Worters of the Insurance Information Institute.
"We've seen the season going later than usual, but now we're seeing it start earlier," Worters said in an interview. "And we're seeing more frequent, more severe storms earlier in the season."
Piper Sandler analyst Paul Newsome said in a note that a Category-1 storm hitting the US like Beryl is "unlikely to create insurance-covered damage sufficient to have a material impact on the insurance industry."
CoreLogic said the storm hit both Jamaica and the Cayman Islands on July 3 at Category-5, causing estimated insurable losses of $400 million and $700 million, respectively, then passed over Mexico's Yucatan Peninsula at Category-2 and left behind less than $1 billion in estimated insurable losses.
Hurricane Beryl evolved into the earliest Category-5 storm on record on July 2 after making landfall in the Grenadines. Before that, Hurricane Emily in 2005 was the earliest, developing into a Category-5 storm on July 16.
Beryl also became the strongest July Atlantic hurricane ever recorded, with winds of 165 mph. Emily's winds reached a max velocity of 160 mph.
News
Biden-Harris Administration Finalizes Rule to Increase Resilience Against Flooding Nationwide
The Department of Homeland Security’s (DHS) Federal Emergency Management Agency (FEMA) published a Final Rule to implement the Federal Flood Risk Management Standard (FFRMS). The standard is a flexible framework to increase resilience against flooding and help protect communities.
In recent years, communities have seen repeated flooding that threatens both lives and property. Previous approaches, based on historical data, have become outdated. By using the best available science, FFRMS strengthens FEMA’s standards to incorporate both current and future flood risk, making taxpayer-funded projects far more resilient to flooding, protecting federal investments and reducing the risk of damage and loss from floods. Additionally, FEMA will pay for the applicable federal cost share to implement the FFRMS which is often 75% or more.
Home Insurance to Change Under New Bill as States Face 'Catastrophe'
A leading California Senate candidate is looking to execute a proposal that could change the insurance business in the hope that will lead to lower costs in the state which has struggled over expensive coverage that in some cases led to providers ceasing operations.
Adam Schiff, the current U.S. House representative from the Golden Gate state and is currently seeking to get elected to the Senate, has offered a plan that will allow residents in his state and potentially other parts of the country to secure alternative and cheaper insurance. The "insurance catastrophes" face states beyond California, Schiff said in an interview with Bloomberg.
"There are huge numbers of Californians and people around the country who should be able to buy insurance and yet, because of the way the system has not worked, they're just unable to buy coverage that's the least bit affordable," Schiff said in an interview. "This is something we have to address."
California has battled increased climate change-related weather disruptions which have exacerbated the costs of coverage, including for homeowners insurance. Some companies, including State Farm and Allstate, have cited increased costs for ceasing to provide coverage to customers in the state.
Schiff's plan will aim to offer a federal reinsurance alternative that can be less costly than what is currently available in the market. The proposal revealed in January aimed to establish what the lawmaker described as a "federal catastrophic reinsurance program" by mitigating the rise of coverage costs that can emerge from climate-related incidents.
Commercial Insurers Captured 22 of Top 25 Spots in S&P Global Market Intelligence U.S. Property and Casualty Industry Performance Rankings
The U.S. Property and Casualty (P&C) Insurance Performance Rankings published by S&P Global Market Intelligence, an annual ranking of the 100-largest P&C carriers in the country, found that commercial insurers outperformed their peers in key metrics measuring earnings, underwriting profitability, balance sheet growth and other indicators of success. Commercial insurers benefited from an underwriting margin that outperformed the long-term average, despite slowing year-over-year growth in direct premiums written.
They are determined using 13 financial metrics from 2023 statutory filings grouped into six buckets: rates of return, underwriting profitability, balance sheet expansion, investment performance, prior-accident-year reserve development and premium growth. The categories are given distinct weightings to calculate performance scores for each of the 100-largest U.S. P&C entities based on 2023 net premiums written.
Kinsale Capital Group Inc. ranked as the top performing U.S. property and casualty insurer for the second consecutive year, scoring particularly highly on the basis of growth in premiums, assets and policyholders' surplus. Direct premiums written growth of nearly 42.4% was the highest among the top 100 P&C entities, and Kinsale's $1.57 billion in 2023 volume marked an increase of 105.2% from only two years prior. The U.S. subsidiary of Arch Capital Group Ltd. secured the second spot, while the U.S. subsidiary of FM Global Group ranked third.
"For a second consecutive year, specialty commercial lines underwriters dominated the U.S. Property and Casualty Insurance Performance Rankings, benefiting from continued favorable pricing, terms and conditions on many categories of business," said Tim Zawacki, insurance sector strategist at S&P Global Market Intelligence. "Diversity in product mix and a focus on disciplined underwriting served as common themes among the top performers.".
Research
Personal lines drag US property and casualty to another loss
US property and casualty underwriting losses topped $US20 billion for a second straight year as personal lines struggled, AM Best says.
The $US21.6 billion ($32.5 billion) net underwriting loss last year followed a $US25.8 billion ($38.8 billion) loss the previous year, mainly driven by a $US32.8 billion ($49.3 billion) loss in personal lines.
The private passenger auto line’s underwriting loss of nearly $US17 billion ($25.5 billion) was about half as big as 2022’s loss, but homeowners/farm owners losses more than doubled to $US16 billion ($24 billion).
AM Best associate director for industry research and analytics David Blades says most catastrophe losses were from secondary perils, with only one hurricane making landfall in the US last year.
“Personal lines insurers have been aggressively pursuing rate and pricing increases for a few renewal cycles now to reflect calculated rate needs more accurately, and to spark a reversal of recent underwriting losses,” he said. “However, regulatory constraints, inflationary pressures and more frequent and severe weather-related events continue to dampen results.”
Commercial lines achieved a net underwriting profit of more than $US10 billion ($15 billion) after pricing increases and more effective risk selection.
Workers’ compensation remained profitable with continued reserve releases, while property and medical professional liability improved but remained unprofitable.
“The emergence of new types of liability is a challenge for commercial casualty insurers, particularly in light of evolving legal and societal attitudes towards dietary supplements and nutraceuticals; for example, the advent of new chemical and materials technologies, genetic engineering research and other trends,” senior industry analyst Christopher Graham said.
Commentary/Opinion
Are catastrophe models misunderstood?
Expert addresses common misconceptions by brokers
Extreme weather events have driven billions of dollars in losses for the insurance industry. Amid one of the busiest hurricane seasons in the Atlantic, there are concerns that another major catastrophic event could plunge the property market into chaos.
One of the common scapegoats for the property hard market is catastrophe models. While they provide insurers with an analytical means of assessing risk, overreliance on cat models can cause underwriters to overlook unique, property-specific risk factors that these assessments may not capture.
However, one expert is seeking to clarify the misconception about cat models. “The model is the starting point for [carrier pricing],” explained Bruce Norris (pictured), EVP – National Property Practice at Jencap Group. Norris noted that while models provide a foundation for risk pricing, real-world conditions and constraints significantly impact final pricing decisions.
“The carrier is aggregating the capacity they have in an area,” he said. “Let’s say you got $100 million to sell in a certain county or zip code, and they’re at $95 million because the values are going up constantly, they are going to increase their price.”
Auto Insurance: Perennially Predictably Profitable: Marty Ellingsworth
Personal auto carriers should report eye-popping Q2 results, but they still miss a key point that could greatly improve pricing accuracy.
We had a doozy of red ink recently that is now ready to be smothered in black.
As we get ready for 2Q2024 earnings season, which I expect to be a whopper for personal auto, let’s take a look at an excerpt from the NAIC March 4, 2024, news release focusing on personal auto: “Total private passenger auto insurance has the largest amount of direct premiums written reported as of March 4th, 2024, at $314,788,570,644, which is about 33% of all written premiums.”
That implies that at a 65% pure loss ratio target, there is more than $100 billion allocated to running the business and profits. After massive layoffs and writing restrictions in the past several quarters, profits will be eyepopping this summer, again.
It’s no secret that insurance companies are for-profit operations, whether they are organized as private companies, public companies, mutuals, captives or any other form of risk transfer. And anyone who makes a living on a percent-of-premium basis is wondering when there’s going to be a knock on their door, asking, “What are you doing for me next”?
Marty Ellingsworth is president of Salt Creek Analytics. He was previously executive managing director of global insurance intelligence at J.D. Power.
Seven Questions For Insurers To Ask When Choosing Technology Partners
When it comes to sourcing external technology providers, insurance companies need to be strategic and discerning.When it comes to sourcing external technology providers, insurance companies need to be strategic and discerning. The right or wrong tech partner can make a world of difference.
The past two decades of my career have been at the intersection of insurance and technology. After running a property inspection business and witnessing firsthand the challenges insurers face in property losses, I co-founded a business to develop technologies that better serve their needs. During the insurance tech boom, I also witnessed many companies promise insurers a better way to manage property risk, with varying results.
So, if insurers are to stay ahead of market challenges and optimize their operations, what do they need to know? What follows is a high-level guide on what to ask when evaluating potential technology partners.
- Does the partner have industry experience and expertise?
First and foremost, you want a provider with deep experience in the insurance industry. This isn’t just about how long they’ve been in business but about their understanding of the unique challenges insurers face. A provider with a robust track record in insurance will have a better grasp of the complexities of risk management, regulatory requirements and the intricacies of underwriting.
Look for case studies and testimonials from other insurers. If a tech provider has successfully helped other insurance companies navigate similar challenges, that's a strong indicator they can deliver value for your organization as well.READ ON
David Tobias, GM of insurance at Nearmap
InsurTech/M&A/Finance💰/Collaboration
Marsh McLennan Agency to Acquire The Horton Group
Marsh McLennan Agency said it has a definite agreement to buy Illinois-based brokerage The Horton Group, Inc.
Waller Helms Advisors provided the fairness opinion to the Board of Directors of The Horton Group in connection with this transaction.
Terms were not disclosed. The deal is expected to close during the third quarter 2024.
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