Climate/Change/Sustainability/ESG
The Growing Toll of Secondary Perils | Insurance Thought Leadership
Property insurers have always needed to watch out for large losses that shock their balance sheets. Historically, the insurance industry has considered catastrophes the largest threats. Today, however, property insurers face an existential threat from another source: skyrocketing losses caused by secondary perils. In fact, secondary perils—led by severe convective storms—have surpassed catastrophes as the leading cause of insured loss.
Severe convective storms (SCS) are localized events accompanied by lightning, thunder, strong wind gusts, intense rainfall, and, in some instances, hail. An analysis by Aon found that from 1990 to 2022, U.S. SCS losses increased at an annual rate of 8.9%.
A problem for insurers and policyholders
In 2023, severe convective storms caused $64 billion in insured losses, 85% of those originating in the U.S., according to Swiss Re. This volume of loss in the U.S. alone resulted in ratings downgrades for dozens of insurers, and four companies became insolvent. Swiss Re notes that the fastest-growing category of disaster is medium-severity events, or those causing $1 billion to $5 billion in insured losses. More SCS events are falling into this category.
Options for insurers facing large losses from secondary perils are few but consequential for policyholders. Those options are:
Raise rates or deductibles, making coverage unaffordable for policyholders
Exclude coverage, reducing protection for secondary perils
Withdraw from markets where losses from secondary perils are heaviest
When secondary perils cause company insolvencies, policyholders can lose access to insurance coverage. That leads to serious economic consequences for individuals, businesses, and communities.
Bill Clark is the CEO of Demex
KatRisk Unveils a Severe Convective Storm (SCS) Model to Revolutionize Weather Risk Management
KatRisk, a premier provider of dynamic catastrophe risk software, has launched its groundbreaking Severe Convective Storm (SCS) model. This unique-to-the-industry tool is designed to transform how the insurance industry manages volatile weather risks, such as hail, tornadoes, and straight-line wind.
With severe convective storms causing approximately $70 billion in insured losses globally in 2023, the need for advanced risk management tools has never been more critical. KatRisk's SCS model rises to this challenge by offering unparalleled precision and efficiency developed to meet the diverse needs of insurers, government agencies, and financial institutions.
Best-in-class resolution offers realistic representations of severe weather events. With a 1-km resolution for hail and straight-line wind and 100-m resolution for tornado, the model captures nuanced intensity gradients critical for accurate risk assessment.
"As we continue to see an increased impact of severe convective storms, it becomes essential for the industry to leverage advanced modeling techniques that can keep pace with these changes," said Jeffrey Chen, the CEO of KatRisk. "Our SCS model is a testament to KatRisk's commitment to innovation and excellence in catastrophe risk modeling and client service."
Vortex increases parametric hurricane insurance limit to $500,000 - Reinsurance News
Vortex Weather Insurance, a parametric weather insurtech, has announced an increased available limit of $500,000 for its parametric hurricane insurance, available to businesses along the Atlantic and Gulf Coasts.
This type of insurance provides supplemental coverage triggered by specific data, helping to cover unexpected costs such as deductibles and lost business days.
Unlike traditional insurance, this policy pays out automatically based on predetermined data specified in the policy, with payouts typically mailed within about two weeks.
Business owners can select coverage for a 20- or 20/40-mile area from the storm’s track, as determined by the National Hurricane Center. Payments are tiered based on the storm’s intensity and proximity to the business. The annual policy takes effect 30 days after purchase.
The policy triggers automatically using data from the National Hurricane Center if the specified conditions are met, without requiring claims or proof of damage. There are also no restrictions on how the payout can be used.
Andy Klaus, Vice President of Business Development, said, “Parametric hurricane insurance is an excellent gap-filling supplement that provides an instant influx of cash that business owners can use for their immediate needs.”
Research
Are quicker EVs more accident-prone? Insurance data suggests so
(Green Car Reports) – Electric vehicles are so often lauded for their loads of “instant torque” and strong, quick acceleration. Some brands even go so far as to claim quicker EV acceleration adds to safety.
But as a broad analysis of insurance industry data points out, many of those high-output EVs—the popular all-wheel-drive ones—may also be the ones linked to the continued surge in EV insurance costs.
“Our data has also shown that the extra torque delivered by the powerful EV motors (is) positively correlated with their loss cost,” said Xiaohui Lu, LexisNexis vice president of global business development, to Green Car Reports.
Specifically, EVs with more than 300 lb-ft of torque correspond with higher insurance loss cost, based on LexisNexis’ internal analysis of insurance claims across EV brands (it declined to say where top-selling EV brand Tesla stands) and across insurers. And factoring in EV curb weight and the correlation between torque-to-weight ratio, the link is even more pronounced.
The data set itself isn’t enough to say whether having so much output and acceleration on tap emboldens drivers and leads to more aggressive driving behaviors, or whether there is anything inherently less safe about high-power EVs.
It’s also hard to make a comparison to models in the gasoline-powered fleet, as such vehicles with more than 300 lb-ft of torque are far less statistically common, and they tend to be in niche performance models, so there may as well be a distinct difference in the types of people who are buying them. But apples to apples, gasoline vehicles don’t demonstrate such an abrupt risk threshold.
It’s complicated—not just EV drivers but repair costs and more
Correlation does not imply causation, and insurers will simply need to get a deeper understanding on why high-torque EVs are potentially spiking rates for everyone else.
“While torque contributes to the higher insurance loss cost of electric vehicles, it is important not to view these numbers solely through the lens of torque,” underscored Lu. “For instance, higher torque vehicles often have higher prices, more expensive repair costs, and sometimes even higher daily mileages, all of which are also linked to increased insurance loss costs.”
News
U.S. property insurance rates fall for first time since 2017
U.S. property insurance rates are decreasing for the first time in almost seven years, after insurers returned to profitability amid lower losses tied to catastrophes.
The average U.S. property insurance rate decreased 0.94% in the second quarter from a year earlier, following several periods of softening increases over the past year, according to a property market report from Aon Plc. It's the first time rates have decreased since the third quarter of 2017.
"We, along with our clients, are excited that rates are finally decreasing," Vincent Flood, Aon's US property practice leader, said in an interview. "Clients definitely had rate fatigue."
In recent years, more frequent losses weighed on U.S. insurers' profitability, leading rate increases to surge past 30% in the third quarter of 2020. Then, rising interest rates put further pressure on the sector as investors left the reinsurance market in search of alternative investments, Flood said.
Last year, lower losses from catastrophes meant insurers returned to profitability, allowing them to allocate more capital to their property insurance businesses, boost their growth ambitions and adopt aggressive pricing strategies.
Rate moderation is expected to continue in the current quarter and could persist if losses tied to catastrophes remain low during the last months of the year, according to Flood.
"If we were to have a significant event, then I would see the market stabilizing again," he said. "But absent of that, I think we'll continue to see rates decline in 2025."
Material softening of the P&C Re market not expected heading into 2025: Goldman Sachs
According to Goldman Sachs, the market backdrop for property & casualty (P&C) reinsurance remains favourable, following rates hardening following the impact of Hurricane Ian, and 2023 seeing the strongest subsector return on equity’s (ROEs) of the past seven years.
Goldman-SachsAnalysts noted that P&C Re risk-adjusted rates have been stable to moderately declining in 2024, albeit from a much higher base.
However, looking ahead to 2025, Goldman Sachs is not expecting to see a material softening of the P&C Re market, due to a number of factors:
Firstly, analysts are expecting to see greater demand for property, driven by higher underlying values, urbanisation and the impact of inflation on repair costs.
At the same time, demand for specialty remains strong, with Goldman Sachs anticipating to see growth in engineering, in line with the positive outlook for construction.
There is also continued demand for cyber reinsurance, and there has not been an influx of new capital to the space.
“Overall, we believe that this points to a relatively balanced supply-demand picture as the reinsurers continue to focus on delivering consistent and sustainable returns,” Goldman Sachs said.
Commentary/Opinion
Report: E&S insurance market demonstrates ongoing strength
Wholesale & Specialty Insurance Association President and CEO Brady Kelly dissects fresh E&S market research.
Surplus lines insurers in 2023 reported another year of improved underwriting and operating results, with most performance metrics outpacing the broader P&C industry, according to the annual wholesale insurance market report card compiled by AM Best and the WSIA Education Foundation.
The report's authors say this is an indication of just how essential wholesale insurance options have become.
"The wholesale and specialty channel is there to provide solutions when the standard market either cannot or will not take on the risk," Brady Kelly, president and CEO of the Wholesale & Specialty Insurance Association (WSIA) says on this week's episode of Insurance Speak. Kelly sat down for an interview in the run up to his organization's 2024 Annual Marketplace, an event in which thousands of insurance professionals converge in San Diego to fortify business relationships and forge new ones.
AI in Insurance
NeuralMetrics Introduces Autonomous AI Assistants to Modernize Commercial Underwriting | Insurance Innovation Reporter
NeuralMetrics (Denver), a provider of AI-generated commercial underwriting data, has announced announced the launch of two AI assistants designed to support commercial insurance underwriting teams. The vendor describes GIA and ARKUS as task-oriented, self-learning AI assistants within the NeuralMetrics Smart Adaptive Multifunctional Assistant (SAMA) platform.
With GIA and ARKUS, insurer and program administrator/MGA underwriting teams can efficiently refine in-appetite risk selection, enrich exposure analysis, improve pricing and quoting accuracy, and enhance service to agents and policyholders, according to a Neural Metrics statement. The vendor characterizes the AI assistants as digital coworkers, enabling insurance organizations to streamline risk-assessment workflows, increase capacity, and grow books of business with their current underwriting resources.
AI and Insurance Fraud: Easier to Commit and Catch
Insurance fraud is a persistent issue that costs the industry over $300 billion annually, but with advancements in technology—particularly artificial intelligence (AI)—the landscape is rapidly changing.[1]
In the past, insurance fraud relied heavily on manual efforts from both fraudsters and insurance companies. Fraudsters would fabricate claims, exaggerate damages or stage accidents while insurance companies deployed teams of investigators to sift through mountains of paperwork to find red flags.
However, the rise of AI, machine learning and other technological tools is reshaping both the ways fraud is committed and how it is detected.
The Evolution of Insurance Fraud Scams with Technology
With the advent of AI and automation, fraudsters have found new, more sophisticated methods to commit fraud. Digital tools have made it easier to manipulate data, fake identities and create false documentation. Below are some examples of how technology is being leveraged by those on the wrong side of the law:
- Deepfakes and Synthetic Identities AI-powered deepfake technology, which can manipulate audio, video and images, allows fraudsters to create entirely new "people" with synthetic identities. By using deepfakes, fraudsters can bypass traditional verification systems, submitting claims as fake individuals with convincing credentials. These synthetic identities are often built using a combination of stolen personal information and fabricated data.
The sheer speed and volume at which fraudsters can operate have been magnified by these technological advancements. Unlike the traditional, slow-moving tactics of old, today’s scams can be orchestrated and executed in a matter of minutes. FULL ARTICLE
How insurance AI improves trust, accuracy and personalization
AI bias occurs when an algorithm produces prejudiced results due to erroneous assumptions in the machine-learning process.
Gen AI insurance agents could one day act as skilled virtual coworkers, the data showed, by managing multiplicity, directing with natural language, and working with existing software tools and platforms to ease the automation of complex and open-ended use cases.
As Gen AI continues to impact global business at an increasing rate, PropertyCasualty360.com spoke to Provoke Solutions CEO Andy Lin about implementing the technology into today's insurance industry.
PropertyCasualty360.com: What is the crucial role of AI-augmented human agents in maintaining accuracy and trust?
Lin: Agents provide speed and durability against a large quantity of data beyond the capabilities of humans. However, the AI generation of insights, recommendations and other content is always in need of the "human in the loop" philosophy when nuance and not so obvious context is in play.
Existing governance and compliance processes must continue to be enforced, by humans, but the output can and should be generated by AI around the clock and at velocities an order of magnitude or faster. This creates a world where results come faster, based on a larger dataset, and improves accuracy and trust.
Gen-AI in particular is elevating the quality of predictive analytics by combining large datasets with enterprise data and finally personal data. The NLP capabilities enable generated content to not only be more specific and targeted but more intuitive and easy to understand.READ ON
Events
ITC Vegas 2024 - The world’s largest gathering of insurance innovation
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ITC Vegas combines unbeatable networking with what’s new and next, ensuring your time will be spent meeting more people, sourcing more solutions, and creating valuable partnerships.
Discover solutions to your biggest challenges, gain access to unique and meaningful education, and meet the insurance industry’s best and brightest. Join the insurance event that doesn’t just bring the industry together – it moves the entire industry forward.
The future of insurance is here – at ITC Vegas. If you aren’t here, you are missing out on the conversations that are propelling the industry forward
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Claims
Snapsheet Introduces Snapsheet Total: Transforming Total Loss Claims with Unmatched Accuracy, Cost-Effectiveness, and Efficiency
Snapsheet, a leader in claims management technology, announces the launch of Snapsheet Total, a groundbreaking solution set to transform the total loss vehicle claims process. By integrating modern technology, configurable automation and appraisal experts, Snapsheet Total streamlines the handling of total loss claims from valuation, offer creation through customer engagement, and ultimate resolution. Built on Snapsheet's all-in-one claims platform, this product scales to any insurance situation requiring total loss
Launched in July 2024, Snapsheet Total accelerates claim calculations, facilitates communication of settlement offers, and manages negotiations to support vehicle buyouts. This solution is designed on a foundation of expert appraisal and advanced technology, ensuring efficiency and precision throughout the claims process.
Key Features:
Offer Creation: Accurately calculate taxes and fees. Validate lien holders to ensure precise settlement amounts.
Settlement: Create detailed settlement offers for customers and manage any necessary offers or clarifications promptly.
Customer Interaction: Clearly communicate offers to customers, ensuring transparency. Finalize and document settlement outcomes to the satisfaction of all parties.
Resolution: Finalize accepted settlement offers, determining whether the owner or company retains the vehicle. Coordinate the last date of rental communication.
Facilitate the transfer of vehicles to salvage.