Climate/Change/Sustainability/ESG
Extreme Weather Is Transforming the Insurance Industry — Here’s What One Expert Recommends
Bankrate asks an expert: how will extreme weather transform insurance in the U.S.?Key takeaways
Our interview with Mark Friedlander
Mark Friedlander has been active in the insurance industry for decades. Based in St. Johns County, Florida, he served in a consultant role with the Insurance Institute for Business & Home Safety and 13 years as head of corporate communications at the property and casualty insurer Main Street America Insurance before joining the Triple-I in the summer of 2019.
In response to climate change, many insurers are shifting to a “predict and prevent” approach to property and casualty risks, rather than just covering damage when it happens.*
All areas of the U.S. are now subject to severe weather risks with the potential to generate insurance claims.
Flood insurance may be a key part of a “climate-proof” insurance policy in 2024.
Policyholders should work to fortify their homes and vehicles against severe weather and natural disasters in addition to investing in adequate coverage.
The U.S. insurance industry is in crisis, and climate change is a major player.
As extreme weather events become more frequent, natural disaster costs are contributing to rising insurance premiums for drivers and homeowners. In states like California and Florida, climate-driven disasters, like wildfires and hurricanes, have made home insurance — and with it, homeownership — less affordable for many Americans.
Where does this leave homeowners and vehicle owners who need coverage that they increasingly can’t afford? To get an industry expert’s perspective on how climate change is impacting the U.S. insurance market, we spoke to Mark Friedlander, director, corporate communications at the Insurance Information Institute (Triple-I) and a member of Bankrate’s expert review board.
Bankrate: Climate change — which is increasing the rate of severe weather incidents and natural disasters in many areas of the U.S. — is a major factor in the recent increase in property insurance rates in the past few years. What strategies are insurers using to address the impact of climate change and avoid a future of constantly snowballing rate hikes?
Data shows hurricanes and earthquakes grab headlines but inland counties top disaster list
Floyd County keeps flooding and the federal government keeps coming to the rescue.
In July 2022, at least 40 people died and 300 homes were damaged when the eastern Kentucky county flooded. It was the 13th time in 12 years that the rural county was declared a federal disaster. These are disasters so costly that local governments feel they can’t pay for it all, so the governor asks the president to declare a disaster freeing up federal funds.
“After that flood I had 500 homeless people looking at me, ‘Judge what are we going to do’?” recalled Judge Robbie Williams, administrator for the county of a bit more than 35,000 people. “It’s overwhelming and it’s just a matter of time before it happens again.”
It did. In 2023, Floyd County was declared a disaster again for 14th time, starting in 2011. And Floyd County isn’t even the nation’s most disaster-prone county. Neighboring Johnson County has 15 disasters declared by the Federal Emergency Management Agency since 2011.
Allstate, State Farm sued over $4B Maui fire settlement
A half-dozen Maui wildfire victims sued a group of insurers, including State Farm and Allstate, accusing them of throwing a wrench into a tentative $4 billion deal to settle their claims.
The lawsuit filed Friday in state court in Maui targets insurers who wrote homeowners' policies for demanding almost $2 billion from the settlement fund as reimbursement for claims paid out for destruction on the island last year. Bloomberg News reported on the proposed deal Thursday. The blazes damaged or destroyed 2,207 structures — the majority of them residential.
"This action arises out of the greed of Hawaii's insurance industry to put their own selfish profits ahead of the suffering of the people of Maui who are the true victims of the Maui fires," according to the lawsuit, filed by lawyers for homeowners and business owners.
The proposed accord — which still awaits final approval — would resolve lawsuits on behalf of thousands of residents against Hawaiian Electric Industries Inc. and other companies blamed for causing the fires, which killed 102 people and reduced the historic town of Lahaina to cinders.
News
Industry braces for barrage of claims due to CrowdStrike outage
Cyber insurance policyholders are said to be gearing up to file claims following the global CrowdStrike outage, which founder and chief executive George Kurtz has clarified was not a cyberattack.
A cybersecurity firm whose systems are used by the likes of banks and airlines, CrowdStrike recently saw clients being disrupted as a result of a content deployment issue during a software update. As noted by the company, those impacted experienced a bugcheck or blue screen error.
In a statement, Kurtz said: “I want to sincerely apologize directly to all of you for the outage. All of CrowdStrike understands the gravity and impact of the situation. We quickly identified the issue and deployed a fix, allowing us to focus diligently on restoring customer systems as our highest priority.
“The outage was caused by a defect found in a Falcon content update for Windows hosts. Mac and Linux hosts are not impacted. This was not a cyberattack.
“We are working closely with impacted customers and partners to ensure that all systems are restored so you can deliver the services your customers rely on.”
Meanwhile customers of CrowdStrike – whose team is “fully mobilized” in response to the incident – are advised to check the company’s support portal for updates.
At the same time, affected users with cyber coverage are preparing to file their insurance claims.
According to broking giant Marsh, its clients have already provided notice to their insurers in relation to claims they are looking to file.
Personal Auto Driving P/C Insurers to 2024 Underwriting Profit
S&P Global Market Intelligence is forecasting a combined ratio of 99.2 for the U.S. P/C insurance industry overall in 2024, signifying a return to underwriting profitability for the first time since 2021.
According to the analysis, private passenger auto insurance is expected “to make a dramatic return to underwriting profitability,” with S&P GMI projecting a personal auto 2024 combined ratio of 98.4, down from 104.9 in 2023 and 112.2 in 2022. With personal auto representing almost 35 percent of overall P/C insurance industry premiums written, that turnaround is what will drive the overall underwriting profit for the industry, according to S&P GMI projections presented in the “S&P Global Market Intelligence 2024 U.S. P&C Insurance Market Report” published late last week.
The combined ratio for the industry overall will drop 2.5 points to 99.2 from a level of 101.7 in 2023, and improve a bit more to 99.0 in 2025, the report shows.
S&P GMI’s forecast that industrywide underwriting results will be back in the black this year contrasts projections from analysts at the Insurance Information Institute and Milliman. They indicate that the industry will record another overall underwriting loss—and an underwriting loss in the personal auto line—in 2024, with recovery not anticipated until 2025.
Research
IIHS research shows rear driver intervention technology is one of the most effective crash avoidance systems | Repairer Driven News
Seven out of eight small SUVs tested performed well in the Insurance Institute for Highway Safety (IIHS) rear crash prevention evaluation, which addresses low-speed backing crashes.
Those types of collisions account for a large portion of insurance claims, according to IIHS.
The Ford Escape, Honda CR-V, Mitsubishi Outlander, and Subaru Forester earned the highest rating, superior. The Mazda CX-5, Toyota RAV4, and Volkswagen Taos were rated advanced. The Hyundai Tucson earned a basic rating.
“The rear AEB evaluation is designed to test how well these systems prevent the most common backing crashes,” said David Aylor, vice president of active safety at IIHS. “These are challenging scenarios in which a pole or another vehicle is behind you and off to the side. Meanwhile, you are backing up and sometimes turning at the same time.”
IIHS first tested rear crash prevention systems in 2018 and has periodically added to the ratings since then, according to the release.
“Since 2018, new vehicles have been required to come with a rear camera that makes it easier to see where you’re going when you’re backing up,” said IIHS President David Harkey, in a news release. “Rear automatic emergency braking systems aren’t required, making the feature far less common. That’s too bad because our research consistently shows that technology that intervenes on behalf of the driver is more effective in preventing crashes than other types of solutions.”
Vehicles with parking sensors that issue warnings and/or only rear cross-traffic alerts earn a basic rating. Ratings of vehicles with rear automatic emergency braking (AEB) are determined by how their systems perform in three tests. The tests use a passenger vehicle target with different approach angles. One test uses a bollard representing a pole or garage pillar.
Tests with a pedestrian dummy are not included because the ultrasonic sensors used by most of today’s rear AEB systems aren’t designed to detect people; however, they sometimes do, IIHS said.
Only About 1 in 4 Gen Z Adults Can Define 'Deductible' and 'Co-Pay'
A new survey from the National Association of Insurance Commissioners (NAIC) found that 35% of Gen Z adults currently pay for a cellphone protection plan, while only 21% have renters insurance. It may be because many don't understand their risks and why having the right insurance coverage matters.
Today, Andrew N. Mais, President of the NAIC and Connecticut Insurance Commissioner, discussed the survey and shared why Americans, especially young adults, need to prioritize insurance coverage during a satellite media tour broadcast from the University of Connecticut's Stamford campus. Nine television and nine radio outlets interviewed Commissioner Mais during the Monday session.
Over half of respondents (54%) shared they feel "overwhelmed or anxious" at "the thought of dealing with insurance." About 1 in 3 young adults (34%), for instance, said they were "going to try to wait as long as possible" to get their own life insurance, with over 1 in 4 (28%) saying the same for health insurance.
Just over 1 in 4 Gen Z adults could correctly identify the insurance terms "deductible" (27%) and "copay" (29%). A higher percentage (36%) said they could identify "out of pocket," while only 19% said they could define "out of network." The survey also found 22% of Gen Z respondents have little or no awareness of the importance of auto insurance, and 14% have little or no awareness of the importance of health insurance.
Commentary/Opinion
[Ed. Note: Recommended, in Depth Article] ----- EVs Are Here to Stay. Deal With It.
For automakers still waffling, a culling is coming before the next waves of electric vehicles plug in. Only the strong and adaptable will survive.
The need for personal mobility is timeless. So, too, is the act of judging your neighbors based on what they choose to get where they need to go. But it's only in the past few years that those choices have become the hotbed political issue we see today.
I am, of course, talking about the swelling anti-EV sentiment, mostly bubbling out of various conservative-minded pockets of social networks and then spilling over into the mainstream consciousness. (It’s even become part of the Republican Party’s platform to end EV mandates and double down on gas-powered vehicles.) There's a misbegotten belief that EVs are failing, that they're unwanted, or even that they're worse for the environment than the standard of internal combustion.
Tim Stevens, Writer, Ryan Lugo, Illustrator
InsurTech/M&A/Finance💰/Collaboration
Applied Systems Acquires Planck
Strategic acquisition to significantly expand and accelerate the delivery of AI capabilities across Applied’s global product portfolio
Applied Systems (“Applied”) today announced that it has acquired Planck, the leading Artificial Intelligence (AI) company for the insurance industry. This strategic acquisition will significantly expand Applied’s AI capabilities, accelerating its vision for the next generation of the digital roundtrip of insurance and creating more value at every stage of the insurance lifecycle for the benefit of agencies, carriers and their clients.
“We believe the time is now to take bold steps to lead the insurance industry in discovering and implementing the benefits AI has to offer,” said Taylor Rhodes, CEO of Applied Systems. “By acquiring Planck, we will be investing behind a world-class team of AI and Data Science experts to accelerate the application of leading AI capabilities to insurance workflows. With our unique set of insurance technology assets that span both the agency and carrier sides of the market, our investment in Planck will deliver a significant opportunity to create AI-driven value throughout the next generation of the digital roundtrip of insurance in ways that will help our clients know more, do more of what differentiates them the most, and win more often.”
Over the past 18 months, Applied has released our first versions of AI-powered features in select Applied and EZLynx products, while also experimenting with various AI capabilities through our Applied AI Lab in collaboration with some of the industry’s largest agents and carriers. These use cases have highlighted significant opportunities for the insurance industry to reduce inefficiencies from redundant tasks and unlock the value of data, creating a more accurate and comprehensive view of business operations to fuel additional growth. By leveraging AI capabilities, Applied aims to enhance the speed and quality of critical business processes, including marketing, sales, underwriting, renewals, servicing, and advisory services. This acquisition will further expand opportunities to harness AI’s value in secure and practical ways, delivering intelligent automation throughout the insurance lifecycle.
TWFG closes $187M IPO
A Texas-based property and casualty insurance broker, TWFG, closed its initial public offering (IPO) on July 19, raising $187 million after selling 11 million shares.
The company, which is also known as The Woodlands Financial Group, priced the IPO at $17. TWFG will receive about $168.3 million after underwriting discounts, commissions and expenses. The broker plans to use the proceeds to repay outstanding debt, for potential strategic acquisitions and investments in business and technologies, according to the press release.
TWFG distributes personal and commercial insurance with a focus on small business. It has 400 branches across 17 states and Washington, D.C. with over 2,000 managing general agencies across 41 states. The company is backed by RenaissanceRe.
J.P. Morgan, Morgan Stanley, BMO Capital Markets and Piper Sandler are acting as joint lead book-running managers; RBC Capital Markets, UBS Investment Bank, Keefe, Bruyette & Woods, A Stifel Company and William Blair are acting as joint book-running managers; and Dowling & Partners Securities LLC is acting as co-manager for the offering, according to the press release.
Kaitlyn Mattson Managing Editor, Digital Insurance
Legal System Abuse/Social Inflation
Social Inflation: Decades of Insurance Litigation Abuse | Insurance Thought Leadership
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.
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, legal abuse's stakes are higher, with no signs of slowing, and so-called tort reform.
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.
Events
Global Insurance Forum 2024 | Presented by the IIS | Miami | Nov. 17-19
Global Insurance Forum 2024 | Presented by the International Insurance Society Miami | Nov. 17-19
Nov. 18: Global Innovation Awards Reception
Celebrate excellence and explore the impact of insurance innovation at the Hyatt Regency Miami on Nov. 17-19. The Global Insurance Forum comprises a diverse audience of c-suite leaders, offering you a unique opportunity to connect with your international colleagues and discuss the issues facing insurers and the world at large.