AI in Insurance
DeepSeek's AI launch highlights re/insurers’ need for transparent models
Open-source AI adoption could enhance compliance, efficiency, and data security
The latest insights from Reinsurance Group of America (RGA) highlighted how DeepSeek’s open architecture could reshape AI adoption in insurance and risk management.
DeepSeek, a Chinese artificial intelligence company, introduced its multimodal large language models, DeepSeek-R1 and DeepSeek-R1-Zero, on Jan. 20, positioning itself as a competitor to OpenAI’s o1 model.
DeepSeek’s latest models follow the December release of DeepSeek V3, a language model comparable to OpenAI’s GPT-4. The R1 model, in contrast, focuses on reasoning, aligning with OpenAI’s o1. China has been increasing its presence in AI research, with models such as Alibaba’s Qwen series contributing to advancements in the sector.
RGA said that intense domestic competition has fueled a price war, reducing the costs associated with hosting large language models and accelerating technological development.
News
Commercial insurance rates decline, but US Casualty costs rise
Global commercial insurance rates fell by 2% in the fourth quarter of 2024, marking the second consecutive quarterly decline after seven years of rate increases, according to the Global Insurance Market Index released by global brokerage Marsh
The decrease follows a 1% drop in Q3 2024 and reflects continued moderation in pricing trends across multiple lines of business.
Marsh attributed the decline to increasing competition in the commercial property insurance market, stabilization in financial lines, moderation of casualty rate increases, and further reductions in cyber insurance pricing. The trend first emerged in Q1 2021 and has continued to shape global insurance pricing.
Regional trends varied, with the Pacific region experiencing the largest year-on-year composite rate decrease of 8% in Q4. The UK saw a 5% decline, while rates in Asia fell by 3%, and both Europe and Canada recorded a 2% decrease.
John Donnelly (pictured), global head of placement at Marsh, said that while reductions in property, financial lines, and cyber insurance rates benefit clients, challenges remain.
Financial Results
Allstate Reports Fourth Quarter and Full Year 2024 Results | Business Wire
The Allstate Corporation (NYSE: ALL) today reported financial results for the fourth quarter of 2024.
Fourth Quarter 2024 Results
- Total revenues of $16.5 billion in the fourth quarter of 2024 were $1.7 billion or 11.3% higher than the prior year quarter.
- Net income applicable to common shareholders was $1.9 billion in the fourth quarter of 2024 compared to $1.5 billion in the prior year quarter, as Property-Liability underwriting results improved.
- Adjusted net income* was $2.1 billion, or $7.67 per diluted share, compared to $1.5 billion in the prior year quarter.
Full Year 2024 Results
- Total revenues were $64.1 billion, 12.3% above the prior year.
- Net income applicable to common shareholders was $4.6 billion compared to a loss in 2023.
- Adjusted net income* was $4.9 billion generating an adjusted net income return on equity* of 26.8%.
“> Allstate finished 2024 with another excellent quarter both financially and strategically,” said Tom Wilson, Chair, President and CEO of The Allstate Corporation. “Fourth quarter revenue reached $16.5 billion and net income was $1.9 billion, 11.3% and 30.1% above the prior year quarter, respectively. Operational excellence resulted in solid profitability in auto and homeowners insurance and Protection Services.
Commentary/Opinion
Insurance Industry Exploits California Wildfire Disaster to Promote Deregulation in Congress, Consumer Watchdog Says
Consumer Watchdog released data today showing that California's nation-leading insurance regulation law, voter-enacted Proposition 103, has resulted in hundreds of billions of premium savings for consumers – and fair profits for insurance companies. At a U.S. House subcommittee hearing today, an industry spokesperson is set to blame the Los Angeles wildfires on "overregulation."
Insurance in California versus nationwide
"People's homes are in ruins and the insurance industry is trying to cash in on the wildfires for financial gain. Raising prices on consumers and eliminating insurance consumer protections won't keep the country insured," said Carmen Balber, executive director of Consumer Watchdog. "That's what they tried in Florida and insurance premiums are still 2 and a half times California's, three times as many Florida homeowners have been forced into the state insurer of last resort, and insurance companies still fled the state."
California's voter-approved insurance law, Proposition 103, requires insurance companies to open their books and justify rate increases before they take effect. The public can also participate in oversight to keep the insurance companies and regulators honest. The law has saved $154 billion dollars for drivers alone since 1988, according to the Consumer Federation of America.
Investments to make communities more disaster resilient, requiring insurance companies to recognize those efforts, moving the insurance industry out of the fossil fuel business, and strengthening state consumer protections are necessary to keep people insured across the country, said Consumer Watchdog.
The group released the following data points today in advance of the Thursday, 10:00 AM hearing of the U.S. House Judiciary Subcommittee on the Administrative State, Regulatory Reform and Antitrust:
Insurance companies are not going broke in California. The home insurance industry was more profitable in California over the last two decades than it was nationwide, with an average return on net worth – a profit measure that includes the investment income where insurance companies make most of their money – three percentage points higher than the national average.
InsurTech/M&A/Finance💰/Collaboration
Click-Ins and Auto3P Partner to Deliver the Automotive Industry’s First Truly End-to-End Damage Detection and Cost Estimation Solution - Insurtech Israel News
Two of the automotive industry’s leading innovators, Click-Ins and Auto3P, have partnered to deliver a transformative solution for vehicle damage detection and cost estimation.
This partnership unites the expertise of Click-Ins, known for its unparalleled AI-powered damage detection technology, with the extensive parts, labor catalog and automated cost estimation solutions of Auto3P, creating a powerful end-to-end solution for insurers, OEMs, Marketplaces, and fleet and rental managers.
This collaboration addresses a key challenge in the industry: the need for a solution that is both highly accurate and practical – providing damage estimation in “one click”. Together, Click-Ins and Auto3P are delivering a platform that doesn’t just promise results – it consistently delivers them.
Research
APCIA outlines potential impacts on insurance industry if tariffs go into effect - Financial Regulation News
The American Property Casualty Insurance Association (APCIA) outlined some of the impacts of President Donald Trumps proposal to increase tariffs on trade partners.
On Tuesday, a 10 percent additional tariff went into effect on imports from China. Further, Trump had signed an order calling for 25% tariffs on imports from Canada and Mexico, but those tariffs have been paused for 30 days as Canada and Mexico agreed to beef up border security.
APCIA provided some stats on the potential impact of these tariffs, if they all went into effect.
Currently, according to APCIA, about 6 out of every 10 auto replacement parts used in U.S. auto shop repairs are imported from Mexico, Canada, and China. If parts become more expensive, car owners will pay more each time they need something fixed. In addition, repairs would take longer if the supply chain does not provide parts from other countries. This would lead to storage fees and additional expenses, including rental cars. And insurers would need to pay more per claim.
In addition, tariffs on construction materials could increase construction costs as well as insurance costs that cover property loss or damage. This will significantly impact rebuilding after catastrophes, like the LA wildfires or Hurricanes Helene and Milton.
Additionally, APCIA estimates that the potential impact of the tariffs, if they are enacted, would increase claim costs for personal auto insurance alone by approximately $7 billion to $24 billion.
Announcements
Aon, Swiss Re, and Floodbase reveal parametric insurance solution to mitigate hurricane storm surge losses
Aon plc, a professional services firm specialising in risk management, insurance, and reinsurance brokerage, has introduced a new parametric insurance solution aimed at reducing financial losses caused by hurricane-related storm surges along the US coastline.
This initiative, developed in partnership with Floodbase, a specialist in parametric flood risk, and Swiss Re Corporate Solutions, a global commercial insurer, seeks to address gaps in traditional insurance policies, which often include high deductibles or exclusions for storm surge damage.
According to Aon’s 2025 Climate and Catastrophe Insight report, Hurricane Helene was the most destructive natural disaster of 2024, generating approximately $75 billion in economic losses, primarily due to inland and coastal flooding in the US.
Insurers faced around $37.5 billion in claims from Hurricanes Helene and Milton, including payouts from the National Flood Insurance Program. In some cases, storm surge damage can contribute to more than a third of the total cost of hurricane-related losses.
Telematics, Driving & Insurance
FTC gets tough on telematics data privacy
The Federal Trade Commission (FTC) has taken action against General Motors (GM) and its OnStar system over data privacy and protection issues surrounding the telematics system. The recently settled legal case is the first time the FTC has acted over connected vehicle data and raises important questions for both fleets and employees who drive vehicles with tracking technology.
The FTC, an independent US government agency tasked with protecting consumers, alleged that GM and OnStar collected, used, and sold drivers’ precise geolocation data and driving behaviour information, without adequately notifying them or obtaining their consent.
The case involved data collected from millions of vehicles, which GM and OnStar then sold to third parties, including consumer reporting agencies. These agencies then sold the data to insurance companies, which could use the information to set policy premiums or deny insurance.
Senator involvement
Last February, Senator Edward J Markey, a member of the Senate Commerce, Science, and Transportation Committee, called on the FTC to investigate the data privacy practices of auto manufacturers.
“With new advances in vehicle technology and services, automakers have been vacuuming up huge amounts of data on drivers, passengers, and even individuals outside the vehicle,” he said. “Based on public reporting and responses to my own inquiries into these practices, automakers face few, if any, limitations on the collection, use, and disclosure of this data. Consumers are often left in the dark.”
Los Angeles Wildfires
LA wildfire losses seen as high as $164B, UCLA reports
Total economic losses could make the January catastrophe the second-costliest natural disaster in U.S. history.
Insured losses may cover only a fraction of the costs for fire victims, the UCLA economists said. Many property owners seeking to rebuild were underinsured, while those without mortgages may have had no policies or were dropped by private insurers.
Economic losses from the fires that tore through Los Angeles County in January range from $95 billion to $164 billion, according to a new report, potentially making the blazes the second-costliest natural disaster in US history.
The Eaton and Palisades fires, which both erupted Jan. 7, killed at least 29 people, charred more than 37,000 acres (15,000 hectares) and destroyed 16,000 structures, including 11,000 single-family homes. Insured losses are estimated at $75 billion, according to the report released Tues., Feb. 5, 2025, by University of California at Los Angeles economists Zhiyun Li and William Yu.
They estimate that the disaster will reduce LA’s gross domestic product by $4.6 billion, or about 0.5%, in 2025.
“In terms of economic magnitude, it’s very big,” Li said in an interview. “It takes time for the local economy to recover from it, and whether it recovers remains to be seen.”
The costs from the blazes are exacerbating an insurance crisis in California after many large companies had dropped coverage, leaving some homeowners without enough funds to rebuild. The state, meanwhile, is working to secure more federal aid. Democratic Governor Gavin Newsom is traveling to Washington this week for meetings, including one with President Donald Trump, according to an official briefed on the plans. Newsom will also meet members of Congress to lobby for disaster funds, according to his office.
Allstate expects $1.1 billion of losses from Los Angeles fires
Allstate Corp. said it expects about $1.1 billion of losses from the wildfires that ravaged swaths of Los Angeles last month.
The anticipated cost partly reflects Allstate’s decision to reduce market share beginning in 2007, the insurer said in a statement Wednesday, when it reported fourth-quarter results.
Last week, Chubb Ltd. said it expected $1.5 billion of losses in the first quarter. Estimates of the total cost for the industry have climbed to as much as $40 billion.
The California insurance market has been in crisis in recent years, with carriers pulling back from wildfire-prone areas, blaming the rising cost of disasters and stringent state regulations limiting their ability to increase insurance rates.
Last year, Allstate said it would start writing new business in California on the condition that insurers be allowed to use catastrophe models and incorporate the cost of insurance in their pricing. Those two regulatory changes were adopted.
LA Fire-Related Capital Hit Prompts State Farm Emergency Rate Request
State Farm General Insurance revealed that it has asked the California Department of Insurance to approve an “interim emergency” homeowners insurance rate hike, citing declining capital and a potential downgrade as reasons.
State Farm General Insurance Company, the State Farm provider of homeowners insurance in California, is seeking interim emergency rate increases averaging 22 percent for non-tenant homeowners insurance and 15 percent for tenants to try to shore up its financial condition as it works to pay out claims related to the 2025 California wildfires.
“Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital,” the company said, referring to the fact that a 40 percent drop in capital in 2023 prompted AM Best to downgrade the company’s previous financial strength rating of “A” (fair) down to a “B (excellent)” in March 2024, and its long-term issuer credit rating to “bb+” (fair) from “a” (excellent).
2025 PREDICTIONS
Gallagher identifies five emerging risks for businesses in Q1 2025
Gallagher’s retail brokerage experts are monitoring several key trends as they enter the first quarter of 2025, focusing on issues that could shape the insurance and risk management landscape.
Soaring social inflation
Social inflation, which refers to the rising costs of insurance claims due to factors such as increased litigation, higher jury awards and broader definitions of liability, continues to be a key concern.
In particular, the frequency of “nuclear” and “thermonuclear” verdicts, where damages exceed $10 million and $100 million, respectively, is at record levels. These verdicts are often fueled by the growing public sentiment that businesses can absorb these costs.
Additionally, litigation funding is increasing, with third parties financing lawsuits in exchange for a share of any recovery.
Social inflation is impacting commercial auto liability, driving up jury awards, legal costs and premiums. The cost of claims is expected to continue rising in 2025.