Climate/Change/Sustainability/ESG
Insurers jack up rates as destructive storms like Beryl become more frequent
Destructive storms like Hurricane Beryl that knocked out power to 3 million homes and businesses in Texas are growing more frequent and intense, and insurers are jacking up rates in response.
That could mean big profits for property and casualty insurers like Allstate and Progressive in the coming year. Investors have bid up shares in the sector roughly 19% so far this year, outpacing the S&P 500’s 17% gain. Global insurance giant Swiss RE expects the broader sector’s return on equity, a key measure of profit, to grow 9.5% in 2024, well above last year’s 3.4% growth.
Rate hikes have been a way for property insurers to offset the cost of catastrophic events. Hurricanes account for most insured catastrophe losses, according to CFRA. Hurricane Ian in 2022 is a reminder of the risks facing insurers. It was among the costliest storms in U.S. history at just over $118 billion, according to NOAA. Hurricane Katrina in 2005 was the costliest at about $200 billion.
Effective rates for homeowner insurance surged by double digits for most insurance companies in 2023, according to S&P Global. Progressive’s rates rose 10.4% in 2023, compared with just a 2.9% rise in 2022. Allstate’s rates jumped 10.2%, up from 4.3% in 2022.
Disaster-struck cities fight for aid as FEMA funding runs low
A once in 200-years storm dumped 11 inches of rain over four hours on the central Massachusetts town of Leominster in September, washing away culverts, creating a sinkhole that swallowed cars at a dealership, and flooding the city council chambers with sewage.
Damages to public infrastructure in Leominster exceeded $24 million, but the federal government denied a request for reimbursement to fix everything from dams to sanitation mains, and rejected Governor Maura Healey's bid for a major disaster declaration for impacted counties in the center of her state. Then, in June, the U.S. Federal Emergency Management Agency turned down her appeal, Healey said.
"The perception of most is FEMA is there when you get into large scale events — they are going to help you," said Leominster Mayor Dean Mazzarella, who is now weighing how to pay for both a new elementary school that was planned before storms hit and the damage they caused. "Practice self reliance. If you are waiting for the federal government to help, lower those expectations."
President Joe Biden declared 71 major disasters last year, the most since the start of the pandemic. At the same time, FEMA also denied 14 requests, the most since 2016. FEMA said the damage in Leominster was "not of such severity and magnitude as to warrant the designation of Public Assistance."
US SCS activity drives $61bn insured nat cat total for H1'24: Gallagher Re
Global insurance and reinsurance industry losses from natural catastrophes in the first half of 2024 reached at least $61 billion, coming in 25% higher than the first half decadal average on the back of the second costliest H1 on record for the US severe convective storm (SCS) peril, according to reinsurance broker Gallagher Re.
Although H1 2024 insured losses beat the decadal H1 average, total H1’24 economic losses were estimated at $128 billion by the broker, which is slightly lower than the decadal average of $133 billion. The economic and insured loss totals suggest a global protection gap of $67 billion for the period, with roughly 48% of nat cat losses covered by insurance.
Gallagher Re’s H1 2024 Natural Catastrophe and Climate Report shows that US SCS activity continues to be the main driver of global insured losses from nat cats, accounting for at least $37 billion, or 61% of total H1’24 insured losses. According to the broker, this makes it the second costliest US SCS H1 total on record behind last year’s $47 billion.
News
Progressive Q2 Net Income Skyrockets Over 320%
Progressive Corp. today reported second quarter 2024 results of about $1.5 billion and a combined ratio of 91.9.
Results for the Mayfield Village, Ohio-based insurer are in comparison to second quarter 2023 net income of $345.4 million and a combined ratio of 100.4.
Net premiums written during Q2 were up 22% over the prior year quarter to about $17.9 billion.
Worlds Collide: Collision-Insurance Partnership Could Affect Glass - glassBYTEs.comglassBYTEs.com
A recent development in the collision repair industry has implications for the relationship between insurance and glass companies that provide Advanced Driver Assistance Systems (ADAS) recalibrations.
GEICO Insurance recently informed its collision repair shop affiliates that the company has partnered with scanning, diagnostics and calibration tool company asTech and is adopting a “pricing structure” based on it.
Kristen Felder, CEO of Collision Hub in Benton, Arkansas, shared a notice GEICO sent to shops on LinkedIn. According to the notice, GEICO strongly recommends its affiliate shops use asTech technology. Shops are not required to use asTech tools, but those who do not “may need to supply additional documentation to justify procedures or pricing that deviates from those provided.”
GEICO also told collision shops that, beginning August 5, it will adopt a new set pricing structure for how much it will reimburse shops per job based on asTech’s technology.
Research
Fed Up With Their Car-Insurance Bills, Drivers Shift Gears
Drivers are no longer simply accepting the fact that they have to pay more for car insurance.
Half of U.S. auto-insurance customers have actively shopped for a new policy in the past year, up from 41% in 2021, according to research firm J.D. Power. In addition to calling around and potentially switching their insurers, more drivers are also changing the policies themselves.
Among many moves they are making, drivers are increasing their deductibles to lower their regular payments. They are also examining pay-per-mile insurance plans, where drivers pay based in part on how many miles they drive. More insurance companies are offering these types of plans now than before the pandemic, said Bankrate analyst Shannon Martin.
Veronica Dagher
Commentary/Opinion
Revisiting the 'Buy vs. Build' Debate | Insurance Thought Leadership
In P&C insurance, the conversation is shifting from a pure buy-or-build dilemma to a more nuanced question: how much to build and what to buy?
The question of whether insurers should “buy or build” needs to evolve. It’s not a simple, binary choice like flipping a coin. Risk management is complex, further complicated by current economic pressures, rising reinsurance rates and the increasing frequency of severe weather. Many insurers simply don’t have the time or resources to build new tools. Thus, the conversation shifts from a pure buy-or-build dilemma to a more nuanced question: Is investing in external technology worthwhile? And to what extent should one buy or build?
Who Buys, and Who Builds?
In exploring who tends to buy or build, it’s clear that size and resource availability are decisive. For instance, historically, many insurers are more inclined to buy and adopt new technologies. Building a robust solution in-house requires significant time and resources. Even if an insurer could build their own solution, the software would need continuous updates to stay effective and efficient. Building any comprehensive software solution is difficult, and insurers already have enough on their plates.
Some carriers opt to build partial solutions, with an eventual goal of an end-to-end solution. If they have the infrastructure to build internally, they often will. They may even possess data science and engineering teams dedicated to creating a customized solution, and building in-house allows them to maintain control over their data and processes. However, this approach still presents significant challenges. Despite available resources, it’s nearly impossible to avoid long development timelines and continuing maintenance needs while keeping up with the latest tech advancements. Building a full end-to-end solution is an arduous journey.
David Tobias serves as the general manager of insurance at Nearmap
Legal System Abuse/Social Inflation
Social Inflation: Decades Of Insurance Litigation Abuse
Stephen Applebaum and Alan Demers
The scourge of legal abuse in insurance is hardly new or even recent but rather has been insidiously growing throughout the industry for decades. Referred to today as social inflation, the stakes are higher and so-called “tort reform” seems distant, with no signs of slowing.
Some 86% of Americans agree state and federal lawmakers should address the abuses of the U.S. legal system (see APCIA/Munich Re survey results below).
The insurance industry can no longer rely on current strategies and responses to this threat, nor can it continue to absorb and pass along the associated costs to policyholders.
Rising Homeowners Insurance Costs Since Pandemic Driven by Persistent Inflation, Replacement Cost Increases, Prolonged Supply Chain Issues, and Legal System Abuse
The recent rise in U.S. homeowners insurance costs have been driven by a combination of increasing natural catastrophe losses and extraordinary inflation coming out of COVID, according to the Insurance Information Institute’s (Triple-I) latest Issues Brief. Even more, Triple-I noted that legal system abuse is also proliferating the cost increases.
“Much like Americans are experiencing higher prices for virtually all material goods, a key driver for homeowners insurance has been around the likes of construction materials, which are an important element used when insurers help customers rebuild after catastrophe strikes,” said Sean Kevelighan, CEO of Triple-I. “According to Triple-I’s own economic analysis, cumulative replacement costs related to homeowners insurance soared 55% between 2020 and 2022.”
Triple-I noted that Americans are moving to places with a high risk of climate disasters, such as the Southeast and Southwest, despite extreme weather events increasing in frequency and intensity in recent years. Losses related to natural disasters have increased tenfold from the 1980s to the 2020s (in 2023 dollars).
Disaster losses along coastal areas are likely to escalate in the coming years, in part because of significant increases in building and development.
“Another unfortunate factor proliferating the rising costs of insurance is legal system abuse, which basically entails billboard attorneys swaying Americans toward litigation as a first step, rather than one of last resort,” said Kevelighan. “This unfortunate phenomenon is a problem that needs more attention and fixing. For example, one element, which involves third parties funding litigation for profit has virtually zero transparency. Third-party litigation funding has become a multibillion-dollar global asset class of dark money, in which the likes of foreign governments can even invest and profit from the U.S. legal system. Beyond being a potential national security threat, these sovereign funds usually do not pay taxes on these investments,” he added.
Even before COVID, homeowners insurers struggled to maintain profitability, as premium rates have not kept up with rising costs. The 2023 net combined ratio of 110.9 marked the industry’s worst underwriting results since 2011. In other words, for every dollar taken in, insurers paid out almost $1.11 in claims and expenses last year.
Data Privacy/Cyber Security
Healthcare Companies Are Sending Customer Data to Big Tech
California-based health system Kaiser Permanente recently alerted millions of people that their private information was inappropriately shared with tech giants, angering patients who weren’t aware of the practice.
A Bloomberg News analysis showed the same kinds of online trackers remain on the websites of the nation’s largest health-care companies, often unknown to their millions of patients.
Awards
InsurTech100 for 2024 - Nominations open - InsurTech100 2024
The world’s most innovative InsurTech companies that every leader in the insurance industry needs to know about in 2024
We are excited to launch the 7th annual InsurTech100 Awards.
As the pre-eminent industry ranking, once again the list will highlight the world's most innovative InsurTech companies that every insurance firm needs to know about in 2024.
The previous InsurTech100 lists received widespread attention. Companies that won places on the list generated huge awareness among insurance firms and the wider insurance community with the final report being downloaded more than 17,500 times. Many were approached directly by financial institutions and insurers while others got a warmer reception from prospective clients and partners.
Nominations for the 2024 InsurTech100 list are now open to all businesses providing technology solutions that address challenges or opportunities faced by insurance companies in the areas of distribution, underwriting, risk management, operations, claims, customer engagement and compliance.
To nominate a company, simply fill in the form on the website. You can find full information about key dates and criteria for assessment on the InsurTech100 website.
In addition, if you haven't registered already don't miss our upcoming Global InsurTech Summit - USA in New York on September, 19th! Sixteen registered companies will be invited to present for free - make sure you don't miss out!
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