Los Angeles Wildfires
Triple-I Blog | Despite Progress, California Insurance Market Faces Headwinds
Even as California moves to address regulatory obstacles to fair, actuarially sound insurance underwriting and pricing, the state’s risk profile continues to evolve in ways that impede progress, according to the most recent Triple-I Issues Brief.
Like many states, California has suffered greatly from climate-related natural catastrophe losses. Like some disaster-prone states, it also has experienced a decline in insurers’ appetite for covering its property/casualty risks.
But much of California’s problem is driven by regulators’ application of Proposition 103 – a decades-old measure that constrains insurers’ ability to profitably write business in the state. As applied, Proposition 103 has:
- Kept insurers from pricing catastrophe risk prospectively using models, requiring them to price based on historical data alone;
- Barred insurers from incorporating reinsurance costs into pricing; and
- Allowed consumer advocacy groups to intervene in the rate-approval process, making it hard for insurers to respond quickly to changing market conditions and driving up administration costs.
As insurers have adjusted their risk appetite to reflect these constraints, more property owners have been pushed into the California FAIR plan – the state’s property insurer of last resort. As of December 2024, the FAIR plan’s exposure was $529 billion – a 15 percent increase since September 2024 (the prior fiscal year end) and a 217 percent increase since fiscal year end 2021. In 2025, that exposure will increase further as FAIR begins offering higher commercial coverage for larger homeowners, condominium associations, homebuilders and other businesses.
State Farm rate hike - California regulator did not calculate impact of proposed move
The California Department of Insurance (CDI) did not calculate the financial impact of a proposed 17% interim emergency rate increase for homeowners’ insurance requested by State Farm General, according to department chief actuary Tina Shaw.
Shaw’s remarks came as an administrative hearing on the rate proposal concluded on April 10, according to a report by Best Wire.
Shaw said the insurer’s financial condition was already under strain when it submitted broader property rate filings in June 2024. Since then, the situation has worsened, particularly following the January wildfires in Los Angeles, she said.
She also stated that raising property rates alone is unlikely to resolve the company's financial issues. State Farm General writes several other lines of business, and Shaw said rate changes across those areas may also be necessary.
Last year, State Farm filed for property/casualty rate increases of 30% to 55%, citing concerns about maintaining solvency. The proposed hikes include a 30% increase for non-tenant homeowners, 55% for condominium coverage, 41.6% for tenant policies, 53.6% for personal liability umbrellas, 38% for rental property damage, and 55% for business owner policies, according to the report.
State Farm Moves One Step Closer To Emergency California Rate Hike
State Farm could soon win final approval to raise premiums for California homeowners and others on an interim basis, a move meant to help prop up the finances of the state’s biggest provider of property insurance, after a public hearing this week.
In early February, State Farm asked California Insurance Commissioner Ricardo Lara to approve emergency interim rate increases, saying the Los Angeles Country fires had worsened its financial situation as it awaited the Insurance Department’s decision on rate requests it submitted last summer. State Farm said it expects to pay more than $7 billion worth of claims from those fires.
Lara’s department and State Farm reached an agreement ahead of this week’s hearing. The outcome of an unusual rate hearing in Oakland over the past three days, overseen by administrative law judge Karl-Fredric Seligman, would make it official.
If the judge approves, starting in June the company’s customers will see average increases of 17% for homeowners — down from the 22% the insurer originally requested after it reached a deal with the California Insurance Department; 15% for renters and condos; and 38% for rental dwellings.
The judge, who gave no clear indication about his decision, is expected to issue one as soon as possible, perhaps within a couple of weeks.
Climate/Resilience/Sustainability
Insurance industry helps develop a new way to predict flooding
The weather forecasting industry has made big leaps in accuracy but has struggled with hyper-local predictions. But the proliferation of AI weather models in recent years means small, commercial firms are now developing the ability to rapidly make specialised predictions, like when and how much it will rain in your neighbourhood or how much wind will blow to spin a turbine.
For decades, public agencies have run global weather models that require supercomputers to crunch complex physics equations to spit out predictions. The need for more granular forecasts is becoming more pressing as climate change increases the odds of extreme weather, and AI is poised to offer a cost-effective way to provide them.
“The application of a previously trained machine-learning weather forecasting model, in terms of computing, costs nothing,” said *Peter Bauer, a scientist at the Max Planck Institute for Meteorology and formerly at the European Centre for Medium-Range Weather Forecasts.
Among the new players seeking to capitalise on commercial opportunities in forecasting is weather tech startup Stellerus, spun out of research conducted by scientists at the Hong Kong University of Science and Technology (HKUST).
Its novel method takes rainfall forecasts, then applies a machine learning algorithm to rapidly simulate and predict potential flooding for every Hong Kong street in under three minutes. Because the forecasts can be run so quickly, flood predictions can be produced hours ahead and then updated for near-real-time warnings
How Climate Change and Supply Chain Chaos Are Driving the Need for Better Business Interruption Coverage
The market for business interruption (BI) insurance had been hardening since the heavy hurricane season of 2017 — Harvey, Irma and Maria — but may have peaked, with rates starting to moderate. Underwriters and brokers agree that the coverage has become standardized and is mostly bought rather than sold. The notable exception is the small-business segment, which ironically is a class that needs the coverage. Artificial intelligence is starting to play a role, with a few tools in service and more being developed.
According to the 2024 Munich Re Risk Scan report, “cyber, changes in climate, and business interruption comprised the top risk concerns of the overall marketplace. Climate [concern] is primarily driven by consumers, while business and insurance professionals identify business interruption as a top-of-mind issue.”
Contingent BI coverage is a different animal. “CBI has always been a very emotional discussion point,” said David Reasons, a managing director within the property practice at Marsh. “Identifying and quantifying a comprehensive view of a company’s supply chain through tier-one, -two, even –three suppliers means the matrix gets elaborate. It is a balance between operational issues [that a company a company may best address internally] and where insurance can provide risk transfer.”
Even as a fixture, BI has seen some evolution. For example, the worksheet that many companies use to estimate their BI exposure has not changed much in 30 years, noted Steve Penwright, technical director for large property at Zurich. “For this and other reasons, some discipline was lost over the years in updating the data regularly. That led to under-reported BI values, which grew into a significant insurance-to-value gap, especially during a period of high inflation.”
AI in Insurance
BCG: Insurers Must Focus AI Efforts to Gain Edge
Insurance companies are failing to extract maximum value from artificial intelligence despite significant investment in the technology, according to new research released today by Boston Consulting Group (BCG).
The report by the global management consultancy urges insurers to avoid spreading resources across multiple functions and instead focus AI deployment on specific high-value areas to drive near-term profit and loss impact.
“Insurers should approach AI in all its forms with three things in mind,” the BCG report states. “Don't overstrategise the technology. Rather, use AI to narrow your bets and boost your competitive edge.”
The research indicates that companies need to prioritise transforming a few high-value functions and avoid subscale setups, while ensuring business leadership and investment in people and processes rather than allowing AI initiatives to become isolated in technology departments. Strategic focus yields greater returns
BCG's 2024 global Build for the Future survey shows that companies taking a focused approach to AI investment expect to extract twice as much value as those spreading resources more thinly. Companies achieving measurable financial impact are concentrating efforts in core areas such as underwriting, customer service, claims processing, or sales before expanding to other functions.
How 'data augmentation' might speed up AI adoption in P&C insurance
While advances in artificial intelligence have been slow to reach commercial P&C insurance, new trends in data augmentation could help pick up the pace, according to experts on a recent Insurtech Insights panel.
“We do see that machine learning models are coming to the CI space. It’s just at a much lower pace. However, where we do see quite a significant advancement is that we are no longer relying just on the available historical data. Instead, we are trying to augment the data as much as possible,” Ilya Kolmogorov, group chief pricing actuary, Zurich, said.
The key for American P&C insurers, panelists said, lies in balancing AI implementation with risk considerations and keeping an eye on compliance and regulation.
Christy Kaufman, VP, P&C risk, and chief compliance officer, P&C, USAA, added that “a lot of compliance professionals like myself tend to live in the negative, in the downside and all the things that can go wrong.”
“But I truly believe the biggest risk that all of us face is not taking enough risk and not moving fast enough and getting outpaced by the competition if we’re too reluctant to embrace these new solutions. We have to go forth and go forward, but we also have to know where are the pitfalls and then how are we going to guard against them,” she said.
AI and its impact on insurance services
Digitalization has revolutionized multiple sectors, and insurance is no exception. Artificial intelligence (AI) has proven to be a key factor in process optimization, improved efficiency, automation of mechanical tasks, and, in short, the user experience. However, this undeniable technological progress also presents its challenges, especially in terms of governance, cybersecurity, and data protection.
According to the latest EIOPA report, the implementation of AI-based solutions has had a considerable impact on various areas of the insurance industry. Although the advantages are already known, the report highlights the importance of supervision and regulation to mitigate potential risks associated with decision-making based on an algorithm, especially considering the use of sensitive data.
The use of AI in insurance has allowed progress in different areas, such as claims optimization, pricing, and underwriting risks. Insurance companies have managed to improve the speed of claims resolution, personalize prices based on more precise risk patterns, and streamline the management of contracts and policies.
Benefits of AI in insurance companies
One of the greatest benefits of AI in the insurance industry is process automation, which enables, among other improvements, optimizing customer experience and resource management.
Chatbots and virtual assistants have significantly improved customer service by offering immediate responses and personalized solutions, reducing the workload of agents in favor of actions with greater added value for them and users, and increasing the satisfaction of policyholders. Likewise, AI has facilitated fraud detection by analyzing behavior patterns and detecting real-time irregularities
MIT study finds that AI doesn't, in fact, have values | TechCrunch
A study went viral several months ago for implying that, as AI becomes increasingly sophisticated, it develops “value systems” — systems that lead it to, for example, prioritize its own well-being over humans. A more recent paper out of MIT pours cold water on that hyperbolic notion, drawing the conclusion that AI doesn’t, in fact, hold any coherent values to speak of.
The co-authors of the MIT study say their work suggests that “aligning” AI systems — that is, ensuring models behave in desirable, dependable ways — could be more challenging than is often assumed. AI as we know it today hallucinates and imitates, the co-authors stress, making it in many aspects unpredictable.
“One thing that we can be certain about is that models don’t obey [lots of] stability, extrapolability, and steerability assumptions,” Stephen Casper, a doctoral student at MIT and a co-author of the study, told TechCrunch. “It’s perfectly legitimate to point out that a model under certain conditions expresses preferences consistent with a certain set of principles. The problems mostly arise when we try to make claims about the models, opinions, or preferences in general based on narrow experiments.”
Casper and his fellow co-authors probed several recent models from Meta, Google, Mistral, OpenAI, and Anthropic to see to what degree the models exhibited strong “views” and values (e.g., individualist versus collectivist). They also investigated whether these views could be “steered” — that is, modified — and how stubbornly the models stuck to these opinions across a range of scenarios.
According to the co-authors, none of the models was consistent in its preferences. Depending on how prompts were worded and framed, they adopted wildly different viewpoints.
Casper thinks this is compelling evidence that models are highly “inconsistent and unstable” and perhaps even fundamentally incapable of internalizing human-like preferences.
Claims
How aerial imagery tech is helping insurers deal with nat cats
Aerial imagery technology, driven by artificial intelligence (AI), is one way the insurance industry is responding to the increasing severity of fire and flood events. Insurers, loss adjusters and tech firms are using this data to help quicken response times to nat cats and speed up claims processes. The latest tech in this area is one focus of the upcoming Claims Leaders Summit.
“Aerial imaging technology is especially helpful in assessing complex losses, such as large fire or water damage claims,” said Matt Donnelly, head of specialty for Crawford & Company (Australia).
Donnelly described a range of ways it can help at all stages of a claims process.
“It facilitates precise evaluations of buildings, contents and insured stock and assets, as well as identifying storm or hail damage to roofs and maintenance-related damage,” he said.
The way aerial imagery can compare historical roofing damage to any current damage can determine claims that are “potentially ineligible,” said Donnelly.
“It also helps us to determine whether access to a specific property or building is feasible during a flood event,” he said.
CLARA Analytics and Guidewire integration delivers millions in claims savings for insurers - Reinsurance News
CLARA Analytics, a provider of artificial intelligence (AI) solutions for claims optimisation, has announced that its integration with Guidewire ClaimCenter has delivered measurable success, significantly enhancing claims workflows and financial outcomes for insurers.
One long standing CLARA customer has already seen remarkable benefits from the combined solution.
With CLARA’s AI-driven insights now embedded directly into adjusters’ day-to-day workflows within ClaimCenter, adoption has surged—resulting in smarter, more proactive claims decisions.
This shift has generated substantial return on investment, with the customer saving millions of dollars in claims-related costs. The integration delivers CLARA alerts and recommendations within Guidewire ClaimCenter.
With a single click, adjusters can explore deeper insights into a claim, supported by augmented intelligence. Key features include real-time Triage and Treatment alerts, highlighting reserve accuracy issues, mismatches between reserve estimates and predicted claim complexity, and the likelihood of litigation.
Diminished Value and Auto Appraisal Experts, Auto Value Professionals, Launches New Nationwide Vehicle Appraisal Website
Auto Value Professionals has launched a new, user-friendly website offering certified vehicle appraisal services nationwide, including diminished value claims, total loss appraisals, and classic car valuations. The platform empowers drivers, attorneys, and collectors across all 50 states to secure fair compensation with expert, region-specific appraisals.
Auto Value Professionals, the nation's leading provider of vehicle appraisal services, is proud to announce the launch of its newly designed website: https://autovalueprofessionals.com. The new site offers a user-friendly, informative platform for drivers, attorneys, repair shops, and classic car collectors to access trusted vehicle appraisal services nationwide.
Auto Value Professionals specializes in diminished value claims, total loss appraisals, classic and luxury car valuations, and post-accident inspections. With deep expertise in state-specific insurance regulations, the company helps clients recover fair compensation, protect high-value investments, and challenge unfair insurance settlements with confidence.
The redesigned website features streamlined navigation, improved service breakdowns, and state-by-state appraisal resources. It's built to empower users with knowledge, clarity, and a direct path to accurate, independent vehicle valuations.
"We built this platform with one goal in mind—making expert appraisals accessible to anyone, anywhere in the U.S.," said Oliver Custer, Founder of Auto Value Professionals. "Whether you've been in an accident or you're protecting a classic car, our team is here to help you get what you're rightfully owed."