Commentary/Opinion
Expert Says: Here Are 4 Big Reasons Why Car Insurance Got So Expensive, So Fast
Anyone who feels as if car insurance premiums have gotten way too expensive in the past few years is not hallucinating. Between February 2023 and February 2024, car insurance costs went up by 21%. So for example, a car insurance premium that cost $300 per month in February 2023 might cost $363 per month one year later.
Sometimes it seems like you need to be a math expert to understand car insurance prices. Fortunately, we talked to an actual math expert. Rick Gorvett, professor of Mathematics and Actuarial Science at Bryant University, offered math-driven commentary on why car insurance got so expensive.
Let's see why car insurance prices went up so fast -- and why drivers have reason to hope for cheaper car insurance on the horizon.
- Pandemic rate volatility
Even though 20% annual increases in auto insurance are painful for drivers to accept, this is a necessary part of the car insurance market correcting itself and getting back to "normal" after the pandemic. "Current auto insurance premium levels now seem to be back on a historical trend line," Professor Rick Gorvett said.
People drove a lot less during the pandemic, so car insurance got (temporarily) cheaper -- fewer miles driven at a society-wide level means fewer car crashes, and fewer car insurance claims. Then people started driving again (and getting in more crashes) after the pandemic, and car insurance rates had to surge to keep up.
"During the pandemic, largely because of the reduction in risk exposure from people driving many fewer miles during the lockdowns, premiums decreased, and insurers often returned part of the paid premiums to their policyholders in recognition of this," Gorvett said.
"When driving returned to more traditional exposure levels, auto insurers found that rates were inadequate and needed to be increased to produce a reasonable return on equity. This explains the spikes in premiums during the last couple of years."
News
Exploring embedded, parametric, UBI and micro insurance
As our climate changes and technology advances at unprecedented rates, less traditional insurance options like parametric, micro and embedded insurance are becoming all the more common.
Bringing innovative insurance models to the industry provides more tailored solutions that meet the evolving needs of individuals and businesses across insurance lines, and more coverage options may provide flexibility, accessibility and efficiency that more traditional insurance policies may fail to address.
Here are some of the more common types of non-traditional insurance options you may see more of in the near future, including the benefits and disadvantages that each unique type of coverage offers.
Grace Crane is a reporter for Digital Insurance.
Over 10,000 claims due to Maui fires top $3.29B in losses and damage
A breakdown of insurance data for the Maui wildfires shows more than 10,033 claims representing an estimated $3.29 billion-plus in losses.
Some $2.34 billion of the claims, or over 71%, were paid as of June 30, according to data released Monday by the state Insurance Division. As many as 3,782 of the claims were reported as total losses.
The data, which shows the depth of the losses and needs following the disaster, was gathered from more than 200 property and casualty insurers and nontraditional carriers doing business in Hawaii that responded to a call for data from the department.
State Insurance Commissioner Gordon I. Ito said in a statement, "Behind every claim is a person, a family member, a homeowner, or a business owner. The loss we suffered as a state is unimaginable, but the Hawaii Insurance Division has been and will continue to support the people of Maui as they begin rebuilding."
According to preliminary breakdowns, the Aug. 8 wildfires resulted in 5,239 residential property claims, of which 1,702 were total losses. The claims are estimated at more than $1.63 billion in total losses, of which $1.36 million was paid as of June 30.
The majority of the residential claims, some $1.28 billion, were for homeowner's insurance - which saw 2,816 claims, 975 of them a total loss. More than $1.04 billion has been paid in homeowner's insurance claims.
InsurTech/M&A/Finance💰/Collaboration
Insurtech funding shifts to $1.27bn in Q2, highest level since Q1'23: Gallagher Re
The global Insurtech sector witnessed a significant rise in funding throughout the second quarter of 2024, amounting to US $1.27 billion, marking the highest levels of funding seen since the first quarter of 2023, according to latest findings unveiled by reinsurer Gallagher Re.
Q2 2024 saw AI-centred Insurtechs obtain a grand total of $445.81 million in funding, with early-stage organisations receiving 17 out of the 21 deals.
However, the average size of AI InsurTech deals was smaller compared to non-AI deals during the period, Gallagher Re highlighted.
Moreover, early-stage InsurTech funding also experienced a notable increase during the quarter, reaching a total of $377.60 million, the highest level since Q1 2023.
From what we understand, the average deal size rose to $18.46 million, the highest level since Q3 2022, which clearly indicates “a growing appetite” for larger investments in the industry.
Boost Insurance Secures Major Investment from BHMS | Business Wire
(“Boost” or the “Company”), the leading infrastructure platform for MGAs, independent brokers and agents, and emerging digital insurance providers, announced today that it has secured a meaningful equity investment from BHMS Investments, LP (“BHMS”), a private investment firm with a specialty in middle market insurance and insurance-related businesses.
BHMS joins Boost's core group of strategic stakeholders that includes Markel, RenaissanceRe and Canopius US Holdings, along with meaningful participation from Boost management. Proceeds will be used to support the Company’s continued MGA program and customer growth, expansion of its suite of complementary technology products and services, as well as select acquisitions.
Boost has emerged as a category leader in the burgeoning digital insurance space by providing its Managing General Agency (“MGA”) and broker customers with highly configurable, tech-enabled solutions that include (i) underwriting, program management and claims administration resources; (ii) diversified ‘A’-rated fronting carrier paper and dedicated reinsurance capacity; and (iii) turnkey policy administration technology to power end-to-end workflow automation and data analytics. Boost’s infrastructure platform, powered by the Company’s proprietary technology and a team of industry experts, aims to provide customers with a more capital efficient and streamlined solution than in-house approaches. The Company’s core MGA platform is complemented by the industry’s only real-time risk and performance analytics tool, Boost Data Insights, and its efficient reinsurance capital deployment vehicle, Boost Re.
“Boost is well ahead of the market in terms of building foundational infrastructure for the fast-growing MGA marketplace,” said Kevin Angelis, Managing Partner of BHMS. “Not only do Boost’s customers gain the benefits that come with leveraging its best-in-class technology, but Boost’s team of underwriting, compliance and risk capital experts also make the Company the most comprehensive, collaborative and scalable solution that we have seen in the market.”
Since launching its first program in 2019, Boost has underwritten approximately $200 billion in coverage behind a growing list of customers that range from well-established industry giants like Amwins to high-growth emerging leaders such as cyber insurance provider Cowbell, commercial lines retailer Newfront and pet wellness platform Wagmo, among others. The Company has maintained a profitable portfolio of program business since inception, taking a patient and disciplined approach that has produced consistent results for its stakeholders across the value chain.
USAA Teams up With Aflac to Provide New Insurance Options for Members
USAA Teams up With Aflac to Provide New Insurance Options for Members
USAA, a leading provider of insurance, banking, and investment and retirement solutions to members of the U.S. military, veterans and their families, is excited to announce a new relationship with Aflac, the leading provider of supplemental insurance in the U.S.1 This collaboration aims to expand the range of insurance products available to USAA members, offering them greater financial security and peace of mind.
This press release features multimedia. [View the full release here] (https://www.businesswire.com/news/home/20240731177351/en/)
Financial Results
Insurtech Lemonade's 2Q 2024 Results - A Financial Inception
In the world of Insurtech, Lemonade has always played the role of the avant-garde protagonist, consistently pushing the boundaries of traditional insurance.
Their latest quarterly report for Q2 2024 feels like an epic blockbuster movie, filled with both thrilling highs and perplexing plot twists. If this report were a movie, it might resemble Christopher Nolan’s mind-bending movie “Inception” — layered, intricate, and leaving the audience questioning what is real.
Lemonade proudly announced that they were net cash flow (NCF) positive in Q2 2024, an impressive feat for any company. At first glance, this seems like a happy ending. However, digging deeper, it’s reminiscent of the dream layers in “Inception.” Despite this positive cash flow, the company reported a net loss of $57 million. It’s as if David Copperfield made the Statue of Liberty disappear while leaving its shadow behind. How can these two realities coexist?
- Combined ratio for the quarter was 198%, compared to 223% in Q2 2023.
- Net loss for the quarter stood at $57.2 million, an improvement of 15% compared to the same period last year.
Kaenan Hertz is a professional in the areas of block chain, telematics, wearables, analytics, artificial intelligence (AI) and Insurtech. He has played a key role in innovating many start-ups and established carriers
AI in Insurance
AI boosts insurance tech financing, deepfakes a risk, report says
Global financing for insurance technology (insurtech) firms rose 40% to $1.27 billion in the second quarter from the previous three months, helped by money going into AI-focused businesses, reinsurance broker Gallagher Re said on Thursday.
The use of artificial intelligence in insurance presents challenges, however, because of the risks of so-called "deepfakes" in fraudulent claims and of the exclusion of potential customers by AI models, Gallagher Re said in a report.
Global insurtech funding reached a peak of $16 billion in 2021, but funding has cooled since then as valuations shrank.
Companies are nonetheless betting on AI to help them automate tasks and cut costs, though there are fears it could lead to dramatic job losses.
Around 33% of total insurance tech funding in the second quarter went into AI-focused insurtechs, according to the report from Gallagher Re, a unit of Arthur J Gallagher (AJG.N), opens new tab. AI was valuable in insurance pricing and underwriting, but "where underwriting has been entirely delegated to AI, success has been limited", the report said.
AI was valuable in insurance pricing and underwriting, but "where underwriting has been entirely delegated to AI, success has been limited", the report said.
"It is becoming clearer that removing the human entirely is a mistake."
AI-enabled risk assessments could drive a shift to individualised pricing, which could benefit some customers but leave others uninsurable, the report said.
The use of AI to create deepfakes, or convincing images and videos, could be used in insurance fraud, the report added.
Legal System Abuse/Social Inflation
Defense Institute Aims to Educate, End ‘Skyrocketing’ Nuclear Verdicts
The U.S. Chamber of Commerce Institute for Legal Reform reported in May that nuclear verdicts are on the rise, noting that there were a record number of “mega nuclear verdicts” — verdicts of $100 million or more — in 2022. Preliminary data indicates that record was again broken in 2023.
So, for the third straight year, Tyson and leaders of the Nuclear Verdicts Defense Institute (NVDI) recently hosted a four-day program aimed at teaching insurance defense and claims professionals how to end the “surge of skyrocketing jury verdicts across the country.”
By Allen Laman, Content Editor, Wells Media
Three states passed restrictions on commercial litigation funding in 2024..
Industry concerns that third-party litigation funding (TPLF) poses a national security risk and is encouraging meritless claims that drive up the cost of insurance have led to a record three states imposing restrictions on the industry this year, with the potential for more action ahead.
Laws passed this year in Louisiana, Indiana and West Virginia more than doubled to five the number of existing states with statutes requiring parties to disclose, at least in some circumstances, when third parties are bankrolling a case.
The laws aim to crack down on a system that opponents say encourages litigants to push for bigger and bigger settlements and has forced some insurers to consider increasing reserves to accommodate increased legal costs.
But efforts to bring judicial reforms to courthouses across the country are not likely to stop there. That’s because nearly a dozen other state legislatures had reform measures proposed this year that may resurface in coming years, according to an Insurance Insider US review of proposed bills and interviews with experts who see momentum growing to reform the industry.
“It's gaining tremendous traction,” David Meyerson, the director of state and international affairs at the US Chamber of Commerce Institute for Legal Reform (ILR), told this publication.
Data Privacy/Cyber Security
Two more Congress members ask FTC to investigate alleged consumer data selling by automakers
U.S. Sens. Ron Wyden and Edward J. Markey have asked the Federal Trade Commission (FTC) to investigate automakers’ alleged disclosure of driving data from millions of American consumer vehicles to data brokers.
The letter follows a New York Times investigation earlier this year that exposed how driver behavior data was collected by General Motors, Honda, and Hyundai then sold to the insurance industry.
“If the FTC determines that these companies violated the law, we urge you to hold the companies and their senior executives responsible,” the senators wrote.
Wyden’s office confirmed with General Motors, Honda, and Hyundai that they shared driver data such as acceleration and braking data with broker, Verisk Analytics, according to the letter. GM also confirmed that it disclosed customer location data to two other companies, which it refused to name.
“One of the company’s products, which it shut down in April 2024 following New York Times’ reporting, scored drivers on their safe driving habits using data from internet-connected cars,” the senators wrote in their July 26 letter.
Awards
CCC Intelligent Solutions Named Winner of 2024 AI Breakthrough Award | CCC Intelligent Solutions
CCC Intelligent Solutions Inc. (CCC), a leading cloud platform powering the P&C insurance economy, announces today that it has been recognized with a 2024 AI Breakthrough Award for “Best Overall Computer Vision Solution.”
In its seventh year, the annual awards program conducted by Tech Breakthrough recognizes the world’s most innovative companies, technologies and products in the AI industry today.
“CCC is honored to be acknowledged for our work in AI, specifically for computer vision. Our AI-powered solutions analyze and assess vehicle damage photos for any make and model, helping speed up the automotive claims and repair process," said John Goodson, chief product and technology officer at CCC. “This award underscores our commitment to helping our customers deliver intelligent experiences and leveraging advanced AI to tackle industry challenges like labor shortages and increasing vehicle complexity.”
CCC is a leader in AI-powered solutions for the auto insurance and repair industry. Its broad solution offering applies more than 300 AI models that leverage computer vision, natural language understanding and deep learning, to improve customer interactions, streamline operations, and digitize assessments across estimating, casualty and subrogation.
“The auto insurance and collision repair industries are facing challenges that include workforce shortages, inflation, supply chain issues, increasing vehicle complexity and rising consumer expectations. These factors have led to a significant increase in repairable, total loss, and casualty claim cycle times and costs,” said Steve Johansson, managing director, AI Breakthrough.
“CCC is tackling these challenges head-on. We’re proud to award them with ‘Best Overall Computer Vision Solution.’ With their proven AI and technology, CCC is driving the industry's next evolution by helping companies make earlier decisions, streamline processes and support teams facing labor shortages.”
CCC recently introduced the CCC Intelligent Experience (IX) Cloud™ platform that will bring intelligent experiences to life through a new event-driven architecture that overlays onto CCC's existing cloud applications, customer workflows, and customer and partner systems. This microservices-based approach will proactively provide additional insights about business events, infuse the latest AI into workflows and cascade innovation across customer operations.
CCC introduced its first AI solution for vehicle damage assessment in 2013 and has since developed a powerful offering of AI-powered solutions which have been adopted by more than 100 auto insurance companies and thousands of collision repair operators.
Visit CCCIS.com to learn more about the company's AI-enabled solutions.
Podcast Sponsor
Audio Version: 'Connected: The Podcast' --- Sponsored by Pulse Podcasts
Co-curated by Alan Demers and Stephen Applebaum, The Connected Podcast is a condensed audio version of the day's "Connected' newsletter, a daily scan of all the happenings in the world of Insurance & InsurTech News.
Pulse Podcasts: Introduce a new way for your audience to hear your voice! We are a podcast creation service that helps businesses turn their written content, like blog posts and news articles, into beautiful podcasts. Our platform writes the script, records the voices, and mixes the audio to create engaging content for your audience. It's affordable and has super fast turnaround!
LISTEN AND SUBSCRIBE BELOW