AI in Insurance
Experimentation With Gen AI Must Be Far Bolder
Generative AI will likely alter the business models of many industries; insurers should go beyond seeking efficiencies and experiment with deeper changes.
My first book, "Big Blues: The Unmaking of IBM," published in 1993, was an archetype. Despite the years of reporting and the blood, sweat and tears that went into it, the book boiled down to a familiar story: A self-satisfied giant failed to see that its world was changing and lost to a nimbler upstart.
That upstart, Bill Gates, recently published the first volume of his autobiography, "Source Code: My Beginnings," which reminded me of a moment in my book where everything hung in the balance for Microsoft. Gates, just 24 years old at the time, made a shrewd contract demand whose significance the IBMers missed — and without which the world at large might never have heard of Gates or Microsoft.
How could someone that young be so sophisticated? Because he had already negotiated dozens of contracts with big corporations (he started doing professional programming work in eighth grade) and had been living in the nascent PC world for years. His IBM counterparts, raised on mainframes, had had only a few months to get acquainted with the PC business — and, as they would soon learn, its economics bore little resemblance to mainframes.
There is a lesson there, I think, for the insurance industry. The PC revolution, along with more recent seismic technology shifts, shows that an advance as fundamental as gen AI can change the source of revenue and profits. Yet insurance companies are largely focused on gen AI's low-hanging fruit, such as efficiencies.
That work is important, but companies should be thinking much, much bigger if they want to be the winner in the latest tale and not a self-satisfied giant left by the wayside. Insurance companies should already be envisioning where the new revenue and profit pools might be, should be testing to see if those visions might be right and should be experimenting with how to get to those pools first.
I'll offer some thoughts on where at least one major pool could be for insurers, as well as on how to test and experiment. But let's start with the meeting that a young Bill Gates had with a roomful of IBMers in a makeshift office in Boca Raton, Florida, in late September 1980.
Paul Carroll - Insurance Thought Leadership
News
[NEWS UPDATE] California insurance commissioner meets privately with State Farm, hopes to make rate hike decision within two weeks
Ricardo Lara said he will look at information from State Farm on the California home insurance market before revisiting previous decision to nix the company’s emergency rate hike.
Today
Global tech spend to approach $5 trillion this year: Forrester
The U.S. market is expected to exceed $2 trillion for the first time, with financial services and insurance leading the charge, the analyst firm said.
Global tech spend will grow 5.6% this year to $4.9 trillion, driven by investments in cybersecurity, cloud and generative AI technologies, according to Forrester. The analyst firm expects the U.S. market to top $2 trillion for the first time, driven by heavy investing from financial services, insurance, government, media and professional services organizations.
Domestic tech spend accounted for 41% of the $4.7 trillion global market in 2024, Forrester said. The U.S. share of the AI software products and services segment was slightly higher, comprising 46% of the global market.
Generative AI lit a fire beneath the massive global technology market, igniting growth in cloud, software and data center infrastructure, but there were other spending accelerants.
Enterprises saw application costs creep up as vendors increased prices and shadow IT added to software sprawl. Among organizations grappling with higher software costs, over half pointed to growing reliance on SaaS products, according to a mid-year Forrester survey.
Specific vendors have highlighted the trend toward more spend.
Commentary/Opinion
How commercial P&C insurers can find growth amid adversity
Insurance is a hedge against uncertainty, but uncertainty also makes risk more difficult to measure.
In decades to come, commercial property and casualty (P&C) insurers may look back on the past five years as the good old days: premiums increased an average of 8 percent of year, and profits rose.
There are signs, however, that the good times may be fading. Global composite rates were flat in the second quarter of 2024 for the first time in almost seven years.
Another shadow is the risk that the commercial P&C industry is losing relevance. One indicator is the widening protection gap. For natural catastrophes, the difference between global economic losses and insured losses grew from $181 billion in 2022 to $262 billion in 2023. For cyber threats, as much as 99 percent of costs are uncovered. Another indicator is that a significant number of entities are simply not signing up. In Britain, more than half of small businesses have stopped buying at least one insurance product; in the United States, 75 percent of small businesses are underinsured.
McKinsey analysis found no clear correlation between growth and profitability.
The implication is that insurers can no longer rely on continually rising premiums to prosper. In fact, the McKinsey analysis found no clear correlation between growth and profitability. Simply being in the right place is no guarantee, either. When McKinsey analyzed the performance of global commercial P&C insurers over the past decade, it found that 40 percent of performance is accounted for by the lines of business those carriers participate in.
How well companies operate determines the other 60% of performance.
Financial Results
Insurtech Root Finishes 2024 With First Yearly Profit
Root Inc. followed up its first ever quarterly net profit in the third quarter with another in the last quarter of 2024, and finished with the first profitable year in the company’s history.
The Columbus, Ohio-based parent company of Root Insurance founded in 2015 posted a fourth quarter net income of $22.1 million compared to a loss of $24 million during the same period the year prior. The company turned a profit of $30.9 million for the full year 2024. A year ago it booked a net loss of more than $147 million.
Telematics, Driving & Insurance
Geotab and Vitality Establish Data-Driven Behavioral Science Joint Venture to Optimize Commercial Fleet Performance
Innovative All-In-One Solution Rewards Safe Driving
GEOTAB CONNECT - Geotab Inc. and its affiliates ("Geotab"), a global leader in connected transportation solutions, and global behavior change experts, Vitality, have formed a joint venture to tackle their shared mission to improve driver safety and well-being, reduce risk and support better road safety, bringing together telematics data with behavioral science, in a first-of-its-kind solution.
Through the joint venture, Geotab and Vitality will redefine commercial fleet management leveraging a behavior change solution that rewards safer driving.
Vitality, whose own Vitality Drive insurance program, has seen their members have 55% fewer claims and significantly lower road fatalities compared to national averages, will come together with Geotab's expansive telematics network of over 4.7M vehicles and AI-powered predictive collision analytics, to inspire positive driving habits.
The initial joint offering will provide fleets with access to an all-in-one behaviour change platform which uses Vitality's science-backed toolkit to incentivize and reward driver excellence. The program aims to have lasting improvements in driver performance, reduce accident-related expenses and drive down fleet risks, creating safer, more efficient operations.
Recent data from the National Highway Traffic Safety Administration (NHTSA) underscores this challenge, revealing that motor vehicle crashes cost American society alone $340 billion. Human behavior emerges as the leading factor in collision risk and its associated costs, with distracted driving, reduced vehicle safety, and loss of vehicle control accounting for 60% of collisions.
How telematics is reshaping car insurance
Tech reshaping how people manage their insurance. How telematics is reshaping car insurance.
The rise of telematics-based car insurance policies is reshaping the industry, driven by customer demand for digital management, cost savings, and transparency. A recent GlobalData poll conducted on Verdict Media sites in Q4 2024 and Q1 2025 found that 36.4% of respondents were convinced to adopt a telematics policy due to the ability to manage their policy online or through an app, closely followed by 36.2% who cited cheaper premiums as the primary motivator.
Additional key factors influencing consumer adoption included the ability to track journeys online (35.2%), transparency in policies (34.7%), assistance in tracking stolen vehicles (33.8%), and more efficient driving habits leading to fuel savings (32.1%). Notably, 31.1% of policyholders were drawn to telematics for its potential to improve driving behavior.
Digitalization driving market shifts
The increasing integration of technology in insurance products is also evident in the rapidly expanding cyber insurance sector. According to GlobalData, the cyber insurance market in the UK is expected to experience double-digit growth until 2028, with an estimated 44.7% growth in 2024 and a projected compound annual growth rate (CAGR) of 27.7% from 2023 to 2028.
Climate/Resilience/Sustainability
Insurers will struggle to dodge climate-change tab | Reuters
Natural disasters are becoming more frequent, deadly and damaging. At the same time, insurers are pulling coverage from areas most vulnerable to wildfires, floods, droughts and hurricanes. Their efforts to dodge the costs will be in vain, however. Governments won’t tolerate permanent insurance dead zones and can’t afford to pay up themselves.
That means property and casualty firms like AIG (AIG.N), AXA (AXAF.PA), and Chubb (CB.BN),will have to end up footing much of the bill one way or another.
Every main continent has endured an extreme weather event in recent years. January’s California wildfires may have caused up to $150 billion worth of damage, according to AccuWeather, opens new tab estimates. In 2019 and 2020, opens new tab, bush fires ripped through Australia. In 2019, Cyclone Idai became one of the most damaging, opens new tab disasters on record in the southern hemisphere, killing more than 1,000 people in Mozambique, Zimbabwe and Malawi. Flooding in Germany in 2021, opens new tab, meanwhile, caused $40 billion worth of damage according to Munich Re, making it the most expensive natural catastrophe to hit the country.
InsurTech/M&A/Finance💰/Collaboration
Continued Success for Houlihan Lokey’s Financial Services Group | 2024 Year in Review
Houlihan Lokey’s Financial Services Group is now the leading investment banking advisor to clients in the insurance and wealth management sectors.
Houlihan Lokey’s Financial Services Group is pleased to showcase these 2024 accomplishments, illustrating the dynamic efforts and global scope of its team as it looks forward to continued strong momentum in the new year.
In December 2024, we were delighted to welcome our new colleagues following the acquisitions of Waller Helms and Park Sutton.
Proof Secures Strategic Investment from State Farm Ventures
The investment will accelerate its mission to combat identity fraud while enhancing efficiency and improving the customer experience in the traditionally paper-heavy insurance sector.
Proof (Boston), an identity authorization network, has announced a strategic investment from State Farm Ventures, the corporate venture arm of State Farm (Bloomington, Ill.), the largest provider of auto and home insurance in the United States. Proof says the investment will accelerate its mission to combat identity fraud while enhancing efficiency and improving the customer experience in the traditionally paper-heavy insurance sector. The companies declined to mention the amount of the investment.
Proof reports that it surpassed $150 billion in authorized transactions in 2024, illustrating its rapid adoption in combating identity fraud and automating critical business processes. Despite real estate sales hitting their lowest levels since 1995, Proof experienced a 44 percent growth in the real estate sector, underscoring the increasing demand for secure identity verification solutions even in challenging market conditions. The firm says the strategic investment it has received from State Farm Ventures highlights the growing importance of identity security in the insurance industry, where fraud prevention and secure digital interactions are crucial.
“State Farm Ventures is committed to investing in innovative technologies that make digital transactions safer for our customers,” comments Mike Remmes, VP, State Farm Ventures. “Proof’s advanced identity verification platform aligns with our mission to support the kind of innovation we want to bring to the insurance industry—one that improves both security and customer experience.”
Proof boasts that its identity authorization network is trusted by industry-leading companies including 16 of the Fortune 100. The Proof network introduces what the company calls a groundbreaking method for linking verified real-world identities to any kind of digital interaction, providing scalable infrastructure to prevent fraud and enhance trust across all customer and employee interactions. The Proof platform saves as many as 21 days and $45 per transaction, allowing businesses to automate their critical processes and consumers to complete life’s most important transactions instantly, online, and on their own terms, according to a Proof statement.
Recommended Events
Insurtech Israel to Host Global Insurtech Day in Tel Aviv - March 23 - Insurtech Israel News
Insurtech Israel will host the Global Insurtech Day on Sunday, March 23, from 10:30 AM to 2:30 PM at Microsoft Reactor, Tel Aviv. The event will focus on Insurtech and Artificial Intelligence, examining their impact on the insurance industry.
The conference will feature keynote lectures, panel discussions—including the participation of the Israeli Insurance Commissioner—and an award ceremony recognizing the most promising startup of the year.
Webinars/Podcasts/Interviews
Technology's impact on auto insurance | Digital Insurance
Friday, March 21, 2025 | 2:00 p.m. ET / 11:00 a.m. PT
There are many benefits to the increased use of auto technology such as early warning systems for drivers, better visibility, semi-autonomous driving and parking features, and even providing roadside assistance in the event of an accident. However, the rising cost of replacement parts because of this technology is changing how carriers manage and cover these risks. We'll look at how technology affects claims, pricing and even how we drive our cars.