Category Archives: Market Conditions

2021 P/C Underwriting Profitability May Be Hampered By CAT Losses, Social Inflation,
Triple-I/Milliman Predict

By Loretta Worters, Vice President, Media Relations, Triple-I

Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.

Sean Kevelighan, Triple-I

The forecast – presented in a members-only webinar, “Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.

The industry ended 2020 profitably, with a combined ratio of 98.7.  Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively. 

Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.

Natural catastrophe losses at a decade high

Dave Moore, Moore Actuarial

“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.

Jason B. Kurtz, Milliman

Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.

“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”

Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.

Michel Léonard, Triple-I

“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022.  What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”

Roy Wright, IBHS

Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.

Runaway litigation

Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).

David Corum, IRC

“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.

Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.

Pat Sullivan, Risk Information

Sullivan noted that COVID-19 wasn’t great for growth:  “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”

COVID-19 and business interruption

The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.

Michael Menapace, Wiggin and Dana

“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”

“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said.  “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”

Looking forward, Menapace said the trend of dismissals in the trial courts should continue.

“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”

Atlantic hurricane season

Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.

Dr. Phil Klotzbach, Colorado State University

Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater).  That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.

Triple-I: Rating-Factor Variety Drives Accuracy of Auto Insurance Pricing

Lower-risk drivers should pay less for auto insurance, and premiums have closely tracked broader U.S. economic trends for decades, Triple-I told the U.S. Treasury Department’s Federal Insurance Office (FIO) this week.

In a letter responding to a federal Request for Information, Triple-I said U.S. auto insurers accurately price their policies by using a wide variety of rating factors.  All these factors must conform to the laws and regulations of the state in which the auto insurance policies are sold.

“There is no credible evidence that insurers charge more than they should, either across the broad market or in specific subsegments, such as neighborhood, race, income, education or occupation,” the Triple-I stated. The letter also said the rating factors U.S. auto insurers use to price their policies not only serve their purpose but are constantly retested to ensure their accuracy and reliability.

“If rating factors do their job well, they make insurance relatively inexpensive for some people and quite expensive for others,” the letter said. “In both cases, the assessment is correct. Drivers who present less risk pay less for coverage.”

The response to FIO’s information request highlighted how the appropriate price for an insurance policy varies greatly from customer to customer and from state to state.  Insurance is regulated by state governments.

“Insurance companies and their actuaries have focused on finding factors that make sure every customer pays the appropriate rate,” the Triple-I said. Rates are based on historical loss experience for similar risks. Premiums constitute the price customers pay for insurance coverage. 

Critics of U.S. auto insurer pricing practices have expressed concerns that certain rating factors, such as credit-based insurance scores and the geographic location of the customer’s residence, discriminate against lower-income drivers and minority groups. Triple-I explained that eliminating any rating factor – for whatever reason – forces those with less risk to overpay for auto insurance and allows those with greater risk to pay less than they should for auto insurance.

Interventions can backfire

“Eliminating factors does not affect the truth that they reveal, and if factors reveal that costs need to be high for a customer, banning them does nothing to change the underlying costs that are the reason the rate is high,” the Triple-I stated.

Regulators occasionally intervene in the rating process to make insurance less expensive for certain groups, citing the need to make insurance “affordable.”

“These interventions, however well-intentioned, can backfire in a spectacular way,” the Triple-I letter says, “raising the overall costs and severely reducing availability, as well as impeding innovations that could address the issue.”

Real problems need real solutions

Real solutions exist to make insurance more affordable, Triple-I says: “These solutions come not from tinkering with how insurers set prices but by addressing the costs that insurance covers.”

Improving the transportation environment and addressing societal issues that often force minorities and low- and moderate-income individuals to live and drive in circumstances where auto insurance costs the most are among the solutions suggested.

Extensive Triple-I research shows that rising claims costs have been the primary factor generating increased auto insurance rates.

Learn More From the Triple-I Blog

Here’s What’s Happening to Your Auto Insurance Costs

Auto Insurance Premiums Face Downward Pressure Due to COVID-19

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

Policyholder Dividends Soar as Auto Insurers Respond to Pandemic

Auto Insurance Rates Decline Across U.S.

Auto Damage Claims Growing Twice as Fast as Inflation: IRC Study

Litigation Funding
and Social Inflation: What’s the Connection?

Second post in a series on social inflation and litigation funding

Litigation funding – in which third parties assume all or part of the cost of a lawsuit exchange for an agreed-upon percentage of the settlement – is often cited as contributing to social inflation. But, like so much else associated with social inflation, it’s unclear how widespread the practice is.

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With historical roots in Australia and the United Kingdom, funding of lawsuits by investors has taken hold in the United States in recent years. On the positive side, it can let plaintiffs employ experts to develop effective strategies – options once only available to large corporate defendants.

But it also can contribute to cases making it to court based more on investor expectations than on plaintiffs’ best interests.

Erosion of common-law prohibitions

Litigation finance was once widely prohibited. The relevant legal doctrine – called “champerty” or “maintenance” – originated in France and arrived in the United States by way of British common law. The original purpose of champerty prohibitions – according to an analysis by Steptoe, an international law firm – was to prevent financial speculation in lawsuits, and it was rooted in a general mistrust of litigation and money lending.

There’s an irony here, in that a major societal force driving social inflation today – distrust of corporations and litigation – once motivated the prohibition of a practice now widely associated with the phenomenon.

These bans have been eroded in recent decades, leading to increases in litigation funding.

“If you are trying to understand how we got here, I would say start in the 1990s,” says Victoria Shannon Sahani, a professor of law at the Arizona State University Sandra Day O’Connor College of Law. “The United States isn’t really a big player on the scene yet, but you’ve got Australia and the United Kingdom independently making moves in their legislatures that paved the way for litigation funding to become more prevalent.” 

Between 1992 and 2006, Sahani says, “It was sort of the Wild West of Australian law in the sense that if you engaged in litigation funding, you always ran the risk that your agreement might be challenged.”

In 2006, the High Court of Australia provided clarity, saying litigation funding was permitted in jurisdictions that had abolished maintenance and champerty as crimes and torts. It was even acceptable for a funder to influence key case decisions.

The practice took time to gain traction in the United States because champerty prohibitions are left to states.  Some have abandoned their anti-champerty laws over the past two decades. Some, like New York, have adopted “safe harbors” that exempt transactions above a certain dollar amount from the reach of the champerty laws.

“Given the stakes involve in many cases, it will be interesting to see whether litigation funders refrain from direct involvement.”

– David Corum, vice president, Insurance Research Council

Uncertainty as to market size

There is no consensus as to how much investors spend on U.S. lawsuits each year, according to Bloomberg law, “but it is not $85 billion, a number recently put forward as the ‘addressable market’ for litigation finance by a publicly traded litigation financier.”

That’s because the industry spent only about 2.7% of $85 billion during a 12-month span that started in mid-2018, according to a Westfleet Advisors survey.

“Does that low penetration rate portend explosive growth ahead?” Bloomberg Law asks. “Or is it an indication that litigation finance is a niche product most plaintiffs and lawyers find unnecessary?”

A key determinant of growth may be the willingness of funders to remain uninvolved in managing cases, said  David Corum, vice president with the Insurance Research Council: “Given the stakes involve in many cases, it will be interesting to see whether litigation funders refrain from direct involvement.”

Benefit, bane, or both?

While funders tout the “David versus Goliath” aspect of helping small plaintiffs against corporations, opponents worry about introducing profit into a process that is supposed to aim at a just outcome. A settlement may be rejected because of pressure exerted by profit-seeking funders, and a plaintiff may walk away with nothing if the trial goes against them, opponents say. 

Laura Lazarczyk, executive vice president and chief legal officer for Zurich North America, called litigation funding “abusive” and said harm “will be largely borne by insurers in defense costs and indemnity payments and by policyholders in uncovered losses and higher premiums.”

Critics also decry a lack of transparency. While the U.S. District Court for New Jersey held that third-party funding must be disclosed, attempts to pass federal disclosure legislation have been unsuccessful.

“It’s a multibillion industry with no regulation and no requirements for transparency,” said Page C. Faulk, senior vice president of legal reform initiatives at the U.S. Chamber of Commerce. “It is essentially turning our U.S. courtrooms into casinos, which is why the chamber is calling for disclosure.” 

Such concerns led the American Bar Association last year to approve best practices for firms engaging in litigation funding. The resolution is silent on disclosure, but it urges lawyers to be prepared for scrutiny. It also cautions them against giving funders advice about a case’s merits, warning that this could raise concerns about the waiver of attorney-client privilege and expose lawyers to claims that they have an obligation to update this guidance as the litigation develops. 

Previous in the series

Social inflation: Eating the elephant in the room

More from the Triple-I Blog

What is social inflation? What can insurers do about it? 

Litigation funding rises as common-law bans are eroded by courts 

Lawyers’ group approves best practices to guide litigation funding 

Social inflation and COVID-19 

IRC study: Social inflation is real, and it hurts consumers, businesses

Florida dropped from 2020 “Judicial Hellholes” list

Florida’s AOB crisis: A social-inflation microcosm 

Swiss Re: “Zombies”
Could Kill Recovery

Global pandemic.

Supply-chain disruptions.

Increasingly costly cyber-attacks.

Extreme weather and other climate-related hazards.

And now, zombies.

Swiss Re’s chief economist this week said failures of hundreds of “zombie companies” over the next few years are among the concerns prompting insurers to reduce risk and charge higher premiums – a trend that is likely to continue as corporate failures increase.

Zombies – companies that lack the cash flow to cover the cost of their debt – are “a ticking time bomb” whose effects will be felt as governments and central banks withdraw measures that have helped keep these companies alive during the pandemic, Jerome Haegeli told Reuters.

The sobering prediction comes as stock prices hit records and the U.S. economy appears headed for 6.5 percent growth this year. Haegeli said these strengths are illusory because they’re based on temporary fiscal and monetary support.

Insurers are being cautious: reining in underwriting risk, being more prudent about investment allocations, and even taking precautions on insuring operations and supply-chain risk.

“They are not getting fooled by the short-term picture,” Haegeli said. “If you look at the market today, everything looks great. However, it’s illusionary to think that this environment can last” as “life support” is withdrawn in coming months. And that, he said, will bring an increase in long-overdue bankruptcies.

It’s tempting to presume that, as the pandemic-driven aspects of the economic crisis are brought under control, recovery will proceed apace. After all, the economy was doing fine before the pandemic hit, right?

But in September the Bank for International Settlements (BIS) pointed to a “pre-pandemic increase in the number of persistently unprofitable firms, so-called ‘zombies’, which are particularly vulnerable to economic downturns.”

Before the pandemic, the BIS said, about 20 percent of listed firms in the United States and United Kingdom were zombies and 30 percent in Australia and Canada. By comparison, zombies constituted about 15 percent of listed companies in 14 advanced economies in 2017 and 4 percent before the 2008 financial crisis.

Absent any reason to believe these companies’ situations substantially improved during the pandemic or that the contagion didn’t spawn more zombies, the expectation of more corporate collapses seems reasonable.

Add to this rising losses due to hurricanes, severe convective storms, and wildfires; the threat of sea level rise; and the growing reality business and government disruption from cybercrime, and the likelihood of increasing premiums and reduced coverage limits seems strong.

Auto damage claims growing twice as fast as inflation: IRC Study

The average payment for auto physical damage insurance claims increased at more than double the rate of inflation from 2010 through 2018, according to a new study from the Insurance Research Council (IRC).

The study, Patterns in Auto Physical Damage Insurance Claims, found that average payments increased 3.7 percent annualized during the study period, while the overall Consumer Price Index (CPI), as well as the CPI for motor vehicle maintenance and repair, grew 1.8 percent annualized.

“Damage to vehicles accounts for a growing share of the costs of paying auto insurance claims,” said David Corum, CPCU, vice president of the IRC. “As vehicle technology continues to evolve, an understanding of the cost drivers behind auto physical damage claims will be important in addressing issues in auto insurance availability and affordability.”

Other findings from the study:

  • Total losses have become more common and more expensive.
  • Catastrophe claims accounted for about one in five dollars paid for comprehensive claims.
  • Deductibles and policy limits have not kept pace with the growth in payments.
  • Physical damage claims have become less likely to have associated injury claims.
  • The rate of attorney involvement is lower in physical damage claims than in auto injury claims.
  • For most aspects of physical damage claims, there are significant differences among states.

According to National Association of Insurance Commissioners (NAIC) data, vehicle damage claims accounted for 60 percent of incurred personal auto losses in 2016, even as the injury cost index – a measure of injury costs relative to physical damage liability claims – declined. Enhanced passenger protections have contributed to a drop in the frequency of injury claims relative to the number of accidents, underscoring an important reality: auto safety improvements are effective but add to the cost of claims, as they lead to more expensive repairs when accidents happen.

With auto claims costs greatly outpacing inflation, it’s worth noting that – as Triple-I previously reported – auto insurance premium growth has trailed CPI growth, particularly since the COVID-19 pandemic and its subsequent economic downturn has led to insurers giving back $14 billion to policyholders in the form of refunds, premium reductions, and dividends.

The study presents findings from a collection of more than 220,000 claims closed with payment under the three principal private passenger auto physical damage coverages in claim years 2010, 2014, and 2018.

For more information on the study’s methodology and findings, contact David Corum at (484) 831-9046 or by email at IRC@TheInstitutes.org.

CORONAVIRUS WRAP-UP: Data and Visualizations (4/20/2020)

The coronavirus crisis continues to generate data that can be valuable for understanding and decision making. Below are just a few resources that may be of interest to insurers and the people and businesses they serve.

COVID-19 Mortality Projections for U.S. States
Graphs from the University of Texas COVID-19 Modeling Consortium show reported and projected deaths per day across the United States and for individual states.
The Verisk COVID-19 Projection Tool
The Verisk COVID-19 Projection Tool has been made available to enhanceunderstanding of the potential number of worldwide COVID-19 infections and deaths. It provides an interactive dashboard that leverages the AIR Pandemic Model.
How State Insurance Departments Are Responding to COVID-19
This interactive map from PC360 highlights bulletins and procedures released by state insurance departments as of April 15, 2020.
Tracking U.S. Small and Medium Business Sentiment During COVID-19
Small and medium-size businesses account for roughly 44% of the U.S. economy and provide employment to about 59 million people. McKinsey is tracking their sentiment to gauge how their views on economic activity, employment, and financial behavior—as well as their expectations about financial institutions and public authorities—change as a result of ongoing public and private interventions.

CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/16/2020)

Legislation and regulation
Democrats Plan Legislation to Force Insurance Companies to Pay Out for Pandemic Losses
Thompson Introduces the Business Interruption Insurance Coverage Act
Lawmakers Advocate Stimulus Aid to Insurers on Business Interruption
SC Proposes Bill Over Coronavirus-related Business Interruption Claims
NJ offers grace period for insurance premium expenses
Coronavirus Regulations: A State-By-State Week In Review
Litigation
COVID-19, business interruption and bad faith litigation
P/C Industry Impact
No Evidence COVID-19 Industry Loss Will Match Large Catastrophe Years: Flandro
How Insurance Claims Pros Are Adjusting to Pandemic Complications
COVID-19 Response ‘Could Bankrupt the Insurance Industry’: Insurance Defense Lawyer
Coronavirus response: Short- and long-term actions for P&C insurers
Auto Insurance
Analysts: Auto Insurance Coronavirus Rebates a Solid Move in Short Term
Will Fewer Drivers on the Road Mean Lower Auto Losses? It Depends
Auto Insurers Offer Rebates as Traffic Abates During Pandemic
Business Interruption
Neglecting Idle Facilities Amid COVID-19 Will Cost Companies, Warns FM Global
Cyber
Working From Home? Don’t Let Cyber Criminals Break In
Hospital Hackers Seize Upon Coronavirus Pandemic
Workers Compensation
COVID-19 Comp Expansions Could Have Significant Impact on Industry

Coronavirus Wrap-up: Property and Casualty (4/9/2020)

Estate of Illinois Worker Who Died From COVID-19 Sues Walmart
Pricing Impact of COVID-19 Likely ‘Dramatic’: MarketScout
Federal and State OSHAs Overrun With COVID-19 Complaints
Insurance Companies Offering Relief During Pandemic
Options for Those Struggling to Pay Their Auto Insurance Premiums During Pandemic
Addressing Challenges of COVID-19: From Underwriting to Claims
Rise in Searches for ‘How to Set Fire’: A Sign Insurance Fraud Beckons as Economy Crashes?
Zoom Sued for Not Disclosing Privacy, Security Flaws
Sailors Cleaning Coronavirus-Stricken Carrier Lack Protective Gear
Colorado’s Marijuana Businesses Can Remain Open During Pandemic but Say They’re Still Struggling
Practical Business and Insurance Considerations for Hotels, Restaurants During COVID-19 Crisis
Is It Safe To Travel Anywhere? Your Coronavirus Questions Answered
SBA Overwhelmed with Demand. Is it Up to the Task of Responding to Coronavirus?
Driving Less During Coronavirus Outbreak? You Could Get an Auto Insurance Discount
Progressive, Travelers, USAA Latest to Offer Discounts, Other Accommodations
Insurance Industry Charitable Foundation COVID-19 Crisis: IICF Children’s Relief Fund
Museums Hope Thieves Stay Home Too
A.M. Best: Event Cancellation Insurers May Exclude Future Pandemics
U.S., Britain Warn That Hackers Increasingly Use Coronavirus Bait

The Treasury yield curve inverted. What does it mean for insurance?

The Treasury yield curve inverted last weekend and many are concerned: Sustained inverted yield curves are often harbingers of recession. Insurers could also feel the impact, since the yield curve can influence an insurer’s rates, profits, and portfolio structure.

Source: Wall Street Journal

What’s next?

An inverted yield curve may be cause for concern. According to the Federal Reserve Bank of San Francisco, an inverted yield curve preceded all nine U.S. recessions since 1955. The Fed estimates that typically a recession occurs within two years of the inverted yield curve.

An inverted yield curve is not a perfect predictor of future recessions. There has been one false positive, in late 1966, in which an inverted yield curve was followed by an economic slowdown, not a recession. There have also been several “flattenings” of the curve, which did not lead to recession.

But what makes last week’s shift in the 1- year Treasury curve worrisome is the convergence of other negative signals over the last year – including expected macroeconomic considerations such as the waning of the 2017 tax reform.

How might insurance be impacted by a sustained inverted yield curve?

An inverted yield curve has multiple implications for insurance, some of which depend on the nature of an insurance company’s liabilities and investment profile.

Lower long-term rates hurt insurers whose claims take a long time to settle, like workers compensation. The money set aside to settle those claims gets invested in long-term securities. When those rates fall, insurers enjoy less investment income, which lowers profits. This puts pressure on insurers to raise rates to make up for the lost investment income.

The inverted yield curve also has implications for insurer investments. Given investments in fixed income and real estate, an inverted yield curve will require adjustments to avoid mismatch in obligations and revenues. Remedial actions could include selling assets to realize capital gains because the asset value of the bonds that had been bought at higher rates would now be more valuable.

The yield curve: a brief primer

The “yield curve” is a relationship between 10-year Treasury bond yields and three-month bond yields. Usually, the 10-year bonds have higher yields than three-month bonds, to compensate investors for longer-term risks.

Source: Investopedia

But when there is recession risk and fears of falling interest rates, investors will invest in longer-term bonds to “lock in” at yields that are currently higher than they think will exist in the future. This increased demand for longer-term bonds will, paradoxically, lower yields since bond prices and interest rates are inversely related. At the same time, short-term bond demand goes down (since everyone is running to the long-term bonds), which increases yield.

If this happens, the three-month bonds will have lower yields than the 10-year bonds. And voila: the “normal” yield curve inverts.

Source: Investopedia

The longer the inversion lasts, the higher the odds of a recession in the following quarter. For example, according to the Federal Reserve Bank of Cleveland, the yield curve inverted in August 2006 prior to the onset of the Great Recession in December 2007.

Highlights from the 2018 Society of Insurance Research Annual Conference

I recently spent two days (10/22-10/23) at the Society of Insurance Research (SIR) Annual Conference in New Orleans where a line-up of insurance executives and intelligence analysts talked about ways the insurance industry can leverage research, analytics, competitive intelligence and analysis techniques to get past the hype and develop effective strategies to move forward.

Here are just a few of the many interesting insights gathered at the extraordinarily intensive conference.

Digital Transformation

Implementing digital transformation will require an integrated approach across departments as well as a companywide culture shift. It will not work if executives are on-board but middle managers are not, said Robert Mozeika, Munich Re’s innovation executive.

Competitive intelligence

Competitive intelligence is not just about understanding what your competition is doing, but having a deep understanding ever changing market conditions, said Dr. Ben Gilad of the Academy of Competitive Intelligence. He suggested companies test strategic moves through role playing, with participants taking the parts of high-impact players.

Gilad had some advice for us information professionals as well – unless you can turn your insightful intelligence-gathering reports into action, they are useless. That’s why we need to become the trusted “sense maker” to our company’s top decision makers.

Innovation by insurance companies – customer experience

This year, SIR conducted a consumer survey on innovation by insurance companies. It found that auto and homeowners insurers were considered “pretty innovative” by 40 percent of respondents when compared with banks which were considered “pretty innovative” by 46 percent. This is a “pretty interesting” finding! When was the last time you heard about a new and exciting bank product?

Interestingly, there was a whopping 365 percent increase in the percentage of people reporting an increase in communication from P/C insurers regarding simplicity and ease of use of their products. It looks like people don’t equate improvements in ease of use and simplicity with innovation.

When asked which three things insurance customers would change through new technology or innovation, the top three were: privacy, ease and personalization in that order.

Artificial Intelligence (AI)

Reliance on AI is expected to increase in the next 20 years. How will AI change the world of insurance? According to Peter Grimm, CEO of Cipher Systems, it will involve:

  • The explosion of data from connected devices leading to new product categories, more personalized pricing and increasingly real-time service delivery.
  • Increased prevalence of physical robots (drones, self-driving cars, autonomous farming equipment) will lead to shifting risk pools, changing customer expectations and new products and channels.
  • Standardized data frameworks and formats will lead to highly connected data ecosystems between multiple private and public entities across many industries.
  • Advances in cognitive technologies (machines that mimic human learning) will enable products that re-evaluate risk in real time based on consumer behavior.

Chatbots and roboadvisors are already making roadways into the insurance industry and according to a survey by AXA; 34 percent of millennials want to interact with their insurer online only which shows that the market is prime for robo-advisor interaction.

Reading List

Here are a couple of books recommended by speakers that I can’t wait to dive into.

Geeta Wilson, vice president, consumer experience at Humana, recommends Competing Against Luck: The Story of Innovation and Customer Choice by Clayton M. Christensen. The author, a Harvard Business School professor who coined the term “disruptive innovation”, introduces the concept of “jobs to be done” theory in this book.

According to the theory, instead of asking customers what they want, companies would do better to get a deep understanding of what their customers do at the point when they require their product. Then the company needs to invent ways to help them do it easier, better and faster. Companies need to become obsessed with solving their customers’ problems or as Geeta put it, they need to “fall in love with the problem.”

Another book I look forward to reading is Professor Al Naqui’s The Beaver Bot of Yellowstone: Pure-Play Leadership for the Artificial Intelligence Revolution.  This book, targeted towards business leaders, promises to be an accessible guide through the mysterious and complicated cognitive transformation that firms are in for if they want to stay alive in the dawning age of AI.