Commentary/Opinion
P&C INSURANCE: MIND THE GAP(S)
The expression 'Mind the Gap' dates to the 1960s when it was first announced on the London Underground. The purpose was to warn passengers of the potentially dangerous gap between the train door and platform which are not perfectly aligned. It has since evolved to become a general warning about the danger of open space or gap between two points.
It applies especially well to the many risks and headwinds faced by the insurance industry today. And if unattended, may be irreversible or much harder to close.
The P&C industry is by design, resilient with layers of financial insulation. Reinsurance, surplus capital, low-risk and liquid investment portfolios are just some of these layers with individual state oversight to monitor financial stability. The insurance model has been tested over time during high inflationary periods and severe catastrophic events and alternating hard and soft market cycles. However, the last three years are arguably the most challenging from fluctuating inflation and worsening climate risks. Meanwhile, there are emerging and widening gaps that both threaten and are reshaping massive segments such as real estate and homeownership.
Climate Resilience Gap
As made painfully obvious by the recent series of extreme weather catastrophes, government and public agencies’ collective ability to respond to these new and greater risks has proven inadequate while the insurance industry is more vulnerable than ever. Each event seems to outpace the last, taxing FEMA, illuminating dated infrastructure and financially straining insurers. MORE GAPS
Alan Demers and Stephen Applebaum
Los Angeles Wildfires
Progressive estimates $43 million in losses from Los Angeles wildfires
Millions lost in fires, but insurer sees profit surge. Progressive estimates $43 million in losses from Los Angeles wildfires
Progressive Corp. has estimated approximately $43 million in catastrophe losses from the Los Angeles wildfires that occurred in January, according to a company statement.
The insurer reported that personal property accounted for 72% of the total estimated losses. Based on direct premiums written, Progressive Insurance Group held a 0.49% market share of California’s multiperil homeowners insurance sector in 2023, according to data from BestLink.
Industry analysts anticipate total insured losses from the fires to reach tens of billions of dollars. The largest wildfires in the region, the Palisades and Eaton fires, were responsible for extensive destruction.
Other insurers have also reported significant financial impacts. The Farmers Exchanges, which include Farmers Insurance Exchange, Fire Insurance Exchange, and Truck Insurance Exchange, previously announced initial loss estimates of about $600 million from the California wildfires. Additionally, Fairfax Financial Holdings Ltd. has estimated net losses ranging between $500 million and $750 mil
Financial Results
Net underwriting losses drop in 2024: A.M. Best
The U.S. property/casualty insurance industry’s estimated net underwriting loss narrowed to $2.6 billion in 2024 from a $24.6 billion loss in 2023, A.M. Best & Co. Inc. said in a report Thursday.
Best expects further improvement in underwriting and operating results for 2025.
Commercial lines results benefited from positive rate momentum in most lines, and personal lines results showed notable improvement in 2024, Best said.
Results continued to be impacted by the frequency of severe convective storms and an active 2024 Atlantic hurricane season, Best said.
Net income is estimated to increase 61% to $143.5 billion in 2024, while the industry’s net investment income is estimated to grow by around 18% to $85.4 billion. Interest rate hikes boosted net investment income through higher yields on bonds, Best said.
The industry’s combined ratio is estimated at 98.9 in 2024, an improvement from 101.9 in 2023.
AIG’s Zaffino Talks More on Insurer-Reinsurer Balance as $200B Cat Year May Loom
American International Group CEO Peter Zaffino used the insurer’s fourth quarter earnings call to again talk about reinsurance attachments points, throwing in the possibility 2025 could be the year for $200 billion in insured catastrophe losses.
“This could recalibrate the entire industry,” he told analysts on the call.
Zaffino spoke about the topic of reinsurance at the conclusion of the third quarter 2024. He said then that the reinsurance market at Jan. 1 renewals would not reduce attachment points, leading to a continued trend of primary insurers’ absorption of a large majority of natural catastrophe losses.
US P&C industry results improve in 2024 despite $2.6bn underwriting loss: AM Best - Reinsurance News
The US property and casualty (P&C) insurance industry saw a significant improvement in its 2024 results, with momentum expected to continue into 2025, despite an estimated net underwriting loss of $2.6 billion in 2024, according to a recent AM Best report.
AM Best attributes part of this progress to higher interest rates, which have fueled stronger investment yields for insurers, helping offset weather-related losses.
The report noted that in 2023, the US P&C insurance industry recorded an underwriting loss of $24.6 million, offset by net investment income of $72.4 billion.
While underwriting losses eased in 2024, AM Best estimates the industry’s collective net investment income grew to $85.4 billion and is expected to reach $100.8 billion in 2025.
Commercial lines underwriting results benefited from positive rate momentum across most business lines, while personal lines improved due to pricing, claims-handling initiatives, and better risk selection.
In 2024, the personal auto and homeowners lines ended the year with an estimated combined ratio of 101%, an improvement from 2023, when personal lines posted a ratio above 107%.
Greg Williams, Managing Director at AM Best, said, “On a net basis, both the homeowners multiperil and private passenger auto businesses generated more favorable loss ratios through year end, reflecting the aggressive push for rate adequacy among primary personal lines insurers since early 2022.”
Protection Gaps
One in Three US Drivers Are Either Uninsured or Underinsured, Exposing Themselves and Other Drivers to Significant Financial Risk, New IRC Study Shows
One in three U.S. drivers (33.4%) were either uninsured or underinsured in 2023, a 10-percentage point increase in the combined rate since 2017, according to a new report, Uninsured and Underinsured Motorists: 2017–2023, produced by the Insurance Research Council (IRC), affiliated with The Institutes.
Forty-nine states and the District of Columbia legally require drivers to purchase liability insurance coverage. In New Hampshire, the only state without compulsory insurance laws, drivers are required to demonstrate proof of financial responsibility. Despite this near-universal requirement, a significant number of individuals choose to drive without liability insurance.
Auto insurers offer two types of coverage to protect policyholders when at-fault drivers have insufficient coverage. Uninsured motorists (UM) coverage compensates accident victims for injuries or damage caused by a driver without liability insurance or from a hit-and-run driver. Underinsured motorists (UIM) coverage compensates the injured party for costs associated with injuries or property damage that exceed the at-fault driver’s coverage.
“With the abrupt changes in the economy and impacts on household income, UM rates rose in nearly every state from 2019 to 2020,” said Dale Porfilio, FCAS, MAAA, president of IRC. “We have been watching for UM rates to improve with lower unemployment and household income increases, but the IRC’s latest research shows UM rates continue to tick upward in most states. We presume deteriorating insurance affordability is more than offsetting economic improvements.”
Porfilio, who is also chief insurance officer at the Insurance Information Institute (Triple-I), noted that the rise in UIM rates since 2020 has been more dramatic than the gradual rise in UM rates.
InsurTech/M&A/Finance💰/Collaboration
Sedgwick acquires legal spend management business from Bottomline
Sedgwick a leading global provider of claims management, loss adjusting and technology-enabled business solutions and Bottomline, a global leader in business payments and cash management, have signed an agreement whereby Sedgwick will acquire Bottomline's industry-leading legal spend management (LSM) division.
The LSM business services the property and casualty (P&C) insurance industry, providing carriers, third party administrators (TPAs), self-insured entities and corporate legal departments with cloud-based software applications and complementary legal bill review solutions.
Sedgwick will leverage Bottomline's modern and highly scalable LSM technology infrastructure, including its Legal-X and Legal eXchange web platforms, in helping clients control the cost of litigation. Pending the closing of the transaction, which is subject to customary conditions and regulatory approvals, Sedgwick plans to operate the LSM business as a separate division.
"Bottomline's LSM business is a strong fit for Sedgwick, and bringing these solutions in-house will enable us to better assist clients in making data driven decisions regarding their litigation management," said Jim Ryan, Chief Operating Officer at Sedgwick. "This transaction sets a new standard of excellence for Sedgwick, positioning us as the unmatched claims partner for organizations worldwide. By integrating industry-leading LSM expertise in third party legal bill review into our existing capabilities, we will elevate the value we bring in meeting the evolving needs of our clients and their customers."
The addition of end-to-end legal bill review solutions to Sedgwick's menu of services will especially benefit the company's casualty clients, who will enjoy streamlined e-billing, case management, reporting, analytics and vendor management services.
AI in Insurance
Gen AI: The Game Changer Insurance Has Been Waiting for | Insurance Thought Leadership
The way consumers experience insurance is on the brink of change, as digital innovations revolutionize the user experience. Yet while many insurers are keen to embrace artificial intelligence (AI), few are using it to drive profound impact.
KPMG observed that the primary driver for digital adoption was to simplify existing processes. This tunnel-vision approach is all too common and misses the powerful potential of generative AI (Gen AI) to transform business models and the way modern insurers operate.
The insurance sector is ripe for reinvention, and the case for Gen AI adoption is compelling, so why does research by Boston Consulting Group indicate that just 10% of companies are applying Gen AI at scale?
Many will agree that the insurance industry is risk-averse, and this "digital reluctance" is likely to be a major stumbling block. Standing still in an ever-changing world is not an option.
Thankfully, a small, growing number of forward-thinking insurers are carrying the torch of innovation. They truly understand that Gen AI is key to transforming the entire value chain, redefining customer interactions, improving operational efficiencies and, ultimately, setting a new bar for industry standards in the digital age. Most importantly, they recognize that Gen AI cannot simply be an afterthought but requires a commitment to companywide integration and a desire to evolve continually.
Embedding Gen AI Across the Value Chain
When fully integrated into an organization, at the heart of corporate strategy, Gen AI can achieve new heights in insurance distribution, operations and customer excellence.
Gen AI can enhance agent recruitment and retention strategies, streamlining the hiring process by efficiently sifting through vast amounts of applicant data to identify top-quality candidates. These tools increase the number of high-caliber recruits and ensure a better fit for the organization's specific needs. Furthermore, Gen AI can identify high-potential agents early in their careers, facilitating their growth through targeted and personalized coaching, upskilling and reskilling and development programs, ultimately improving retention.MORE
Biswa Misra is group chief technology and life operations officer at AIA Group
Announcements
LexisNexis Risk Solutions aims to shut door on AI threats with deal
LexisNexis Risk Solutions, which supplies data insights to the insurance industry, has completed its acquisition of IDVerse, a provider of AI-powered document authentication and fraud detection solutions – a timely move as the sector increasingly turns towards artificial intelligence.
The use of AI is ramping up across the industry, with a Rackspace survey in 2023 revealing that 62% of insurers had cut staff due to AI. Yet while AI might boast a host of positives in the forms of efficiencies, it does not come without its own risks.
Deepfake schemes, for example, are becoming increasingly common for businesses. A recent Medus survey found that the majority (53%) of finance professionals had been directly targeted by deepfake scams. Perhaps of greater concern is that an eye-catching 43% admitted they had ultimately fallen victim to the attack.
How will the LexisNexis-IDVerse deal address AI risks?
IDVerse, founded in Australia and commercially launched in 2018, uses AI to detect fraud and deepfakes. Its proprietary technology verifies identity documents and, with consumer consent, matches a consumer’s face to the photo on a document using biometric algorithms. This process enables identity verification and liveness detection to help identify fraudulent submissions.
Research
Plugged-In: EV Collision Insights 2024 Year in Review | Mitchell
Claims frequency for collision-damaged, repairable battery electric vehicles (BEVs) rose to 2.71% in the U.S. and 3.84% in Canada in 2024, a year-over-year increase of 38% and 34% respectively.
CNBC reported that BEVs and hybrids represented 20% of all new U.S. vehicle sales in 2024, and Cox Automotive is predicting that number to climb to 25% in 2025 despite U.S. policy changes that could hinder BEV adoption. According to Argonne National Laboratory and Electric Autonomy, there are over 100 different BEV models sold in the U.S. and 75 in Canada with dozens more expected by the end of this year.
COMPLETE PRESS RELEASE AND REPORT LINK
Ryan Mandell, Director of Claims Performance, Auto Physical Damage, Mitchell, An Enlyte Company
Insurity Survey Reveals Declining Consumer Confidence in AI for P&C Insurance, Signaling a Need for Action from Insurers | Business Wire
Insurity, a leading provider of cloud-based solutions for insurance carriers, brokers, and MGAs, today released more findings from its 2025 AI in Insurance Report, highlighting a significant shift in consumer trust and sentiment toward the use of artificial intelligence (AI) in P&C insurance compared to the insights shared in last year’s report.
The findings reveal declining confidence in AI across key areas, emphasizing the critical need for insurers to address these concerns through transparency, education, and tangible benefits.
The report shows that support for AI usage among consumers has dropped, with only 20% of Americans saying it’s a good idea for P&C insurers to leverage AI, down from 29% in 2024. At the same time, skepticism about AI-driven processes has grown, with 44% of consumers less likely to purchase a policy from an insurer that publicly uses AI, compared to 42% last year. Positive experiences with AI have also sharply declined, dropping from 63% of consumers reporting positive interactions in 2024 to just 47% in 2025.
However, the report also shows that consumers are more comfortable with AI when they clearly understand its purpose, such as its use in real-time severe weather monitoring and alerts.
When examining the generational data, the report highlights that positive sentiment toward AI has dropped across most generations, except Gen Z, which held steady at 25%. Millennials saw the most notable decline, with positive sentiment falling from 41% in 2024 to 26% in 2025. Similarly, Gen X dropped from 34% to 20%, and Baby Boomers from 13% to 10%. These generational shifts reflect wider concerns regarding AI’s transparency, reliability, and perceived value, all of which need to be addressed for insurers to regain confidence and trust.