Nuclear Verdict Fears Sustaining a Healthy Amount of Caution  April 27th 2023

Nuclear verdict fears lead to caution as excess casualty rate rises taper

Rate increases have tapered in the excess casualty space but carriers are not aggressively expanding capacity deployment, as concerns over social inflation are sustaining a “healthy amount of caution” among underwriters, according to sources canvassed by Inside P&C...

Moving forward, one focal debate in the community is whether that sentiment will develop further into the year to result in re-acceleration of rates, especially in the lead excess layers as carriers brace themselves for the influx of nuclear verdicts that were dormant during US court backlogs.

In lead excess casualty layers, broking and carrier sources indicated rate increases of 10% and above – with 7% cited as the minimum threshold to keep ahead of the basic CPI inflation.

“In the first $25mn layers, the competition is far less than that in excess space,” said Ania Caruso, Gallagher’s southeast regional casualty practice leader.

On the contrary, higher excess layers that experienced an influx of new capacity and entrants in the past two years are seeing rate increases come down to the low single digit range. Some sources have suggested flat or declining rates in certain layers, although they are still relatively rare.

Opinions on current rate adequacy are mixed. Market insiders generally felt that pricing had reached rate adequacy by year end of 2022, sources say, apart from certain lines of business, most notably auto liability.

However, that positivity does not hold solid for 2023 outlooks, as underwriters are watching for how incurred-but-not-reported claims from 2020 and 2021 match up to severity expectations following the re-opening of the courts.

One source said the industry is in a “messy middle” as they wait for more information to come on a nine to 12-month lag

Claims technology: Toddler or teenager?

One way to characterize how technology is impacting insurance claims is to track claims handling today versus the way claims were managed five or 10 years ago.

“A smart claim,” Sean Burgess, Lemonade’s chief claims officer, said during a recent claims-technology themed webcast, “is one that knows its own status.”

That status check would include acknowledging the complexity of the claim, the regulatory and legal issues at play, and the “customer sentiment.” All of this can largely be handled by automation now compared to in the past, when an adjuster was required to manage every aspect of that claim.

Indeed, automation continues to change the way claims are handled. But such technologies may not currently be as impactful in insurance as they are in other business sectors, especially when it comes to advanced machine-learning tools.

“From an AI standpoint, we’re just getting our hands around how to use it,” said Derek Zahn, chief claims officer for PURE Insurance. However, “I do think [P&C insurance has] come a long way, at least over the last five years, in terms of a willingness to try out new things.”

These are just two perspectives on the impact that automation, AI and other technologies have had on claims. Both of these insurance leaders agreed that there’s still a great deal of unchartered territory when it comes to fully maximizing the benefits of technology to modernize and humanize the claims process.

Distracted Driving: A Fatal Problem with Seemingly Simple Solutions

In 2021, distracted driving killed 3,522 people.

April is Distracted Driving Awareness Month, and statistics show that distracted driving has become an increasingly common and fatal hazard.

According to the National Highway Traffic Safety Administration (NHTSA), in 2020, 8% of fatal crashes, 14% of injury crashes, and 13% of all police-reported motor vehicle traffic crashes were reported as distraction-affected crashes. That year, distracted driving also killed 587 nonoccupants, including pedestrians, pedal cyclists and others.

The 2023 Travelers Risk Index on distracted driving found that 70% of survey respondents said that distracted driving is a bigger problem now than it was a few years ago. About 34% of drivers say they’ve had a near-miss crash because of their distracted driving.

The Traveler’s Risk Index also cites NHTSA’s 2019 figures showing the total economic impact of distracted driving far exceeds the cost of speeding and alcohol-impaired driving.

SELECTIVE INSURANCE FINDS THE WESTERN U.S. IS MORE LIKELY TO BE DISTRACTED BY DOGS WHILE DRIVING

A recent poll commissioned by Selective Insurance, a leading business, home, and auto insurance carrier, found that all drivers experience distractions when they bring their dogs along for the ride. However, drivers residing in the West are more likely than residents of other parts of the country to engage in reckless driving behaviors when their four-legged companions are in the car.

The study, conducted online by The Harris Poll, found that more than 2 in 5 (45%) of licensed drivers residing in the West – 4% more than the next closest region – who've ever driven with their dogs engaged in various forms of reckless driving as a direct result of their dogs being in the vehicle. The data is particularly concerning because 94% of licensed dog owners in the West have driven with their dogs over the past 12 months. More than two-thirds (71%) do so at least once a week.

Allstate reports $1.17 billion loss in March alone

Allstate announced “catastrophe losses” of more than $1 billion during the month of March and said Q1 losses total $1.69 billion.

The insurer attributed its bleeding bottom line to 10 events, and said it recouped some of its finances by “favorable reserve estimates for prior events.”

Allstate said in a press release that it responded to its financial troubles by implementing 7.6% auto rate increases throughout 10 locations, resulting in a 0.5% brand premium impact.

Chubb ups use of artificial intelligence, posts lower profit

Chubb Ltd.’s use of artificial intelligence technology is growing, and it will start rolling out AI tools at scale, the insurer’s top executive said Wednesday while discussing the company’s first-quarter results.

“We have a variety of use cases that have proven themselves out and we continue to iterate with it,” Evan G. Greenberg, Chubb’s chairman and CEO, said Wednesday morning on an earnings call with analysts.

Chubb has been experimenting with deep-learning and math-based AI tools for five years across different business areas, including underwriting, claims, analytics, marketing and customer service, Mr. Greenberg said.

“It’s not going to replace our highest-skilled knowledge workers. It won’t do that for quite a while, but it certainly enhances their capabilities. We’re in the dawn of a period where we use these tools at scale,” he said.

Chubb reported Tuesday after markets closed first-quarter net income of $1.89 billion, down 3.2% from $1.95 billion in the year-earlier period, as premium growth was offset by higher catastrophe losses.

First-quarter pre-tax catastrophe losses totaled $458 million, compared with $333 million in the year-earlier period.

Winter storms and other severe weather events in the U.S. accounted for 76% of catastrophe losses, with storms in New Zealand and Australia accounting for much of the remainder, the insurer’s top executives said during the earnings call.

Reforms bearing fruit for Michigan’s troubled auto insurance market

Insurers are paying out less in claims and policyholders have seen premiums drop following 2020 changes to the state’s no-fault system.

From 2019-2022, the average auto insurance premium for all coverages in Michigan declined 18.3%, while liability coverages saw premiums drop 23% and personal injury protection (PIP) coverages decreased 43.3%.

Reforms to Michigan’s no-fault auto insurance system and other regulatory revisions enacted in 2020 are showing indications of successfully lowering auto insurance premiums and reducing claims costs for insurers, according to a paper co-authored by Patricia Born, Ph.D. of Florida State University and Robert Klein, Ph.D. of Temple University.

Among its range of changes, the package of reforms allows policyholders to opt for less than unlimited personal injury protection (PIP) coverage medical benefits. Previously, the state allowed for unlimited PIP medical benefits, which was the main driver of premium increases in the state, according to the paper.