Commentary/Opinion
Unprofitable Insurance - Tail Effect Hits Auto Lines
by Alan Demers and Stephen Applebaum
Since 2020 the world has seen more change, disruption and surprises than any period in recent memory – and the U.S. personal auto and property insurance market is no exception. Declining auto claims and associated consequences are now in focus.
The P&C industry has endured Catastrophes, runaway inflation, highs and lows of post/pre – Covid-era accident frequency and crushing supply chain blows driving insurer loss costs to new heights. Through all of this, auto insurance lines are recovering and are on track to achieve a, 98.4 combined ratio in 2024 per S&P forecasts. A far cry from the height of the insurance crisis peak years posting an inferior auto combined ratio of 104.9 in 2023 and a dreadful ratio of 112.2 in 2022. As premiums catch up a number of underwriting actions are now reshaping insurance products and consumer responses. One such change in consumer behavior, among several, is a decrease in auto damages being claimed.
Insurance parlance is often accused of being an insider’s only language or unnecessarily complex. The insurance ‘tail” effect, however is easy to follow and applies here – famously.
Research
US P&C insurance sector sees 5.3% post-election surge amid policy uncertainty
In a recent report by RBC Capital Markets, a financial services firm specialising in analysing the impact of political, economic, and regulatory developments across various sectors, titled Insurance Observations, the firm examines the potential implications of the recent US presidential election on the insurance industry.
While the sector is not as directly influenced by federal elections compared to others, as regulation is largely managed at the state level, there are subtle ways in which the changing political landscape might play a role, according to RBC.
Insurance stocks broadly rose in the week following the election, reflecting a positive market response. The Dow Jones P&C Insurance Index recorded a 5.3% increase, a strong performance though slightly overshadowed by gains in banking stocks and other financial indices.
Survey shows uptick in home renovation projects, but insurance coverage still lags
Though homeowners are making big investments in these projects, more than half have yet to update their insurance policies to protect their upgrades
As the housing market continues to evolve and mortgage rates remain elevated, many U.S. homeowners are choosing to invest in their current properties rather than enter the uncertain market for a new home. New data from Nationwide shows that many are opting instead to invest in home renovations, repairs, and other upgrades to meet their needs.
According to Nationwide’s most recent Homeowners Survey, 51% of homeowner say they have completed a major home renovation project within the past two years.
Empty Nesters Spending Big on Home Renovations
While share of empty nesters undertaking home renovations is similar to that of general U.S. homeowners, empty nesters are spending significantly more on these projects. The survey revealed that they spent an average of $8,670 on home renovations compared to $5,128 for the typical homeowner. They are also investing in more large-scale projects, outspending general homeowners on kitchen remodels and full home renovations.
A comparison of renovation spending by project type:
- Kitchen remodels: U.S. Homeowners - $9,702 average; Empty Nesters - $18,672 average
- Full home renovations: U.S. Homeowners - $36,900 average; Empty Nesters - $90,000 average
- Window replacements: U.S. Homeowners - $4,917 average; Empty Nesters - $15,375 average
News
Allstate Thinks Outside the Cubicle With Flexible Workspaces
After ditching two-thirds of its office space and selling its Chicago headquarters, Allstate Corp. realized that even employees who prefer working remotely still need a place to gather with their coworkers from time to time.
In the coming months, a quarter of the insurance giant’s 54,000 corporate employees in cities like Atlanta, Tampa and Minneapolis will be able to meet up with colleagues in offices booked by the day through a coworking platform called LiquidSpace. Others will work in traditional leased space where desks have been jettisoned for cozy cafes, quiet libraries and event spaces.
New York faces worst wildfire season in more than a decade
New York and the Northeast are in the midst of their worst fire season in more than a decade, with little relief in sight for weeks as drought and high winds threaten to raise the threat again by Friday.
Several blazes have broken out in New York in the past few days, a rare sight this late in the year. Amtrak shut service on its rail line between Connecticut and New York earlier this month due to a brush fire near the tracks. Fires also erupted in Brooklyn’s Prospect Park and Manhattan’s Inwood Hill Park, while schools were closed northwest of the city on Thursday and Friday because of blazes near Greenwood Lake, New York.
“For this time of year, moving into November, this is pretty unusual,” said Steve Marien, a US government fire weather meteorologist.* “Typically there is a fall season, but for as warm as it has been and the lack of rainfall, it is pretty unusual for this long a period. It’s the worst since 2012.”
New York, New England and the rest of the Northeast have seen little rain for weeks, with nearly 96% percent of the landscape abnormally dry and more than 58% in drought — the highest amount since 2002. This has left the land primed for fire, and with leaves falling from trees and dry winds rushing through the area, blazes have been able to spark and spread freely. New York issued a statewide ban against burning brush and trash, as well as camp and cooking fires, through Nov. 30.
“Places like New York City, Newark, Philadelphia, and Wilmington are lacking more than 7 inches of rain since the start of September. The forecast shows little precipitation, meaning drought relief appears limited,” Samantha Borisoff, a climatologist at Cornell University, said in a statement. “Impacts such as an increased number of brush fires and declining water levels in waterways, wells, and reservoirs will likely continue until meaningful rainfall is seen.”
AI in Insurance
Guidewire Outlines Vision for How Modern Core Platforms will Unlock a New Era of Efficiency and Effectiveness in P&C Insurance
[Ed. note: as of today's publishing time, Guidewire's Connections conference is live and underway]
Guidewire (NYSE: GWRE) will showcase its commitment to improving risk selection and pricing, indemnity management, and claims efficiency in property and casualty insurance at its annual customer conference, Connections. The event will unveil future underwriting and claims application capabilities enhanced by AI, introduce Claims Intel*, a Guidewire Industry Intel product, and announce Las Leñas, Guidewire’s latest release. Connections keynote sessions will be livestreamed and available on-demand. To view the livestream, visit the Connections website
The keynote will feature roadmap highlights including:
AI application service: A cloud service powering AI across all applications, facilitating the best LLM models and ensuring data privacy, security, and compliance with P&C standards.
Underwriting with GenAI: An assistant that streamlines commercial submissions, reducing quote turnaround, improving risk selection, and enhancing pricing accuracy.
Claims servicing with GenAI: An AI-driven adjuster experience that automates document ingestion and summarizes claim notes, improving efficiency, customer satisfaction, and claims cycle times.
Developer productivity with GenAI: Native AI integration that boosts development efficiency, assisting with code translation, integration design, and more.
“Guidewire’s AI-powered applications will help insurers improve risk selection and pricing, optimize indemnity management, and enhance claims efficiency by automating tasks, providing deeper data insights, and streamlining workflows across the insurance lifecycle,” said Mike Rosenbaum, Chief Executive Officer, Guidewire.
Roots Automation Releases Whitepaper on Unstructured Data Challenges and Opportunities for Insurers
Roots Automation, creator of the AI-powered Digital Coworker and InsurGPT™, the world's first generative AI model for insurance, today announced the availability of a new whitepaper, "Solving the Insurance Industry's Unstructured Data Challenge with AI." The whitepaper, being released at Guidewire Connections 2024, provides an overview of the challenges and opportunities available to insurance leaders seeking to transform unstructured natural-language data - which constitutes around 80% of all data across insurance according to Accenture - into structured, machine-readable "decision data."
Revenue leakage due to inefficient underwriting and claims represents significant loss for insurers. According to AM Best, in 2023, Property and Casualty underwriting losses totaled over $21 billion. One of the main drivers of this lost value is insurers' inability to easily and effectively transform unstructured data into structured data for informing underwriting and claims decisions.
With human power being one of the most common solutions for trying to address the ever-growing amount of unstructured data, the information inside this data is often incompletely analyzed, misread or unused. Also, the insurance industry's dependency on human experts to perform non-core and administrative activities (e.g., manually entering and reworking information from insurance documents) will contribute to an estimated $85-$160 billion in value lost to inefficiency by 2027, per an Accenture study.
"The insurance industry's unstructured data challenge is massive, but for companies that effectively harness this information, the opportunities are equally as significant," said Chaz Perera, CEO and co-founder of Roots Automation. "AI-driven solutions empower insurers to discover the value
How Insurance Can Help Manage the Darkside of 4 Emerging Technologies
Whether it's AI or self-driving cars, new tech seems promising to many. Are we ignoring potential pitfalls?
With so many businesses and individuals rushing to embrace new technologies like AI and self-driving vehicles, carriers need to be vigilant.
All new technologies bring with them new exposures, and it will take the insurance industry some time to create appropriate solutions.
“It’s incumbent on the carrier to understand these specific use cases,” said Jason Keeler, integrated technology insurance product manager at Philadelphia Insurance Companies (PHLY).
“The potential for injury varies considerably depending on what they’re using it for.”
Here’s a look at four new emerging technologies and the potential exposures and insurance challenges companies could face because of them.
1) Beware of AI Lawsuits
Just shy of two years ago, OpenAI released ChatGPT. Since then, the industry has continued to train AI models with a number of different specialties. Some are trying to harness the tech to help doctors or lawyers. Since then, the industry has continued to train AI models with a number of different specialties. Some are trying to harness the tech to help doctors or lawyers.
The tech captured many people’s imaginations, making folks eager to use it. However, people’s optimism may be ahead of the tool’s actual skills. Applying AI too quickly involves a lot of risk, both reputational and tangible.READ ON
Financial Results
Progressive Reports October 2024 Results
Progressive Corporation reported its October 2024 results, with net premiums written and earned increasing by 19% to $6.577 billion and $6.387 billion, respectively.
Net income rose 1% to $408.2 million, with a combined ratio of 94.1. The company also saw a 16% increase in total policies in force, with personal auto policies up 19% and commercial lines up 3%. Progressive's total pretax net realized losses on securities were $88 million, a 1% increase from the previous year.
Lemonade Outlines Path to US$10 Billion Growth and Future Profitability
Lemonade has announced plans to provide detailed updates on its ambitious growth strategy, targeting a tenfold increase in its “force premium” from US$1 billion next quarter to $10 billion in the coming years.
According to reports, as part of its strategic roadmap, Lemonade will unveil plans that leverage its AI capabilities and explain the business model that achieved cash flow positivity in Q3 2024. The company also reaffirmed its expectation to achieve Adjusted EBITDA profitability by 2026.
A statement released by the insurtech said :”At Investor Day [November 19th, 2024], management will provide detailed updates on how the company expects to 10x, going from an estimated $1 billion next quarter to $10 billion in force premium in the coming years. The sessions will cover Lemonade’s strategic expansion plans, a behind the scenes look at Lemonade’s AI, and a walkthrough of the model and mechanics that delivered cashflow positivity in the third quarter, and are expected to deliver Adjusted EBITDA profitability during 2026.”
The news follows on from a busy year for the insurtech – which saw Lemonade donate $2 million as part of its annual ‘Giveback’ marking more than $10 million donated to 86 organisations since the scheme’s inception, the launch of a new Buildings and Contents Insurance policy in the UK, and the launch of homeowners insurance in France.
Claims
Verisk Introduces Benchmark Reports via Guidewire to Streamline Weather-Related Claims
Verisk Benchmark® Reports are now accessible through Guidewire, offering insurers precise weather verification data early in the claims lifecycle. This data aids in claim routing, segmentation, and investigation. Additionally, these reports provide valuable insights into historical events at specific locations, delivering a comprehensive history of events at each site.
The addition of products such as Benchmark Reports to the Guidewire Marketplace is part of Verisk’s open ecosystem strategy, enabling interoperability within the insurance industry.
"With more severe weather events impacting a growing population across the U.S., we continue to see increases in the number and complexity of claims associated with these events,” said Tory Farney, vice president of weather solutions at Verisk. “By bringing trusted Benchmark Reports to Guidewire, insurers can significantly improve the efficiency of claims processing and handling to provide customers with a streamlined experience."
How Verisk’s Benchmark Reports work Insurers and adjusters can validate claims by using location-specific data on what kind of weather events happened and what the timeframe was for each weather event. In addition to recent events, the Benchmark tool provides insights into historical events for most locations in the U.S. and Canada. This report also provides insights on historical damage that occurred prior to the current policy being initiated. Guidewire users can now request and receive Benchmark weather history reports and alerts for hail, wind and lightning claims at the beginning of the claim lifecycle, facilitating faster, more accurate claims processing. Additionally, insurers can leverage detailed, location-specific data to better assess risks and ensure that claims are handled fairly and efficiently.
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