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Industry Financials, Insurers and the Economy, Market Conditions

P&C Underwriting Profitability Prospects for 2024 Remain Firm

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By William Nibbelin, Senior Research Actuary, Triple-I

The U.S. Property & Casualty insurance market is expected to continue its trajectory of improving underwriting results in 2024 into 2025 and 2026, according to the latest projections by actuaries at Triple-I and Milliman. The latest report – Insurance Economics and Underwriting Projections: A Forward View – was released during Triple-I’s January 16 members-only webinar.

Year-over-year gains in net written premium increases and quarter-over-quarter loss ratios are primarily due to better-than-expected Q3 performance in personal auto.

The 2024 underlying economic growth for P&C ended slightly below U.S. GDP growth at 2.3 percent versus 2.5 percent year over year. A further economic milestone occurred in 2024, with the number of people employed in the U.S. insurance industry surpassing three million.

Michel Léonard, Ph.D., CBE, chief economist and data scientist at Triple-I, noted P&C underlying economic growth is expected to remain above overall GDP growth in 2025 (2.3 percent versus 2.1 percent) and 2026 (2.6 percent versus 2.0 percent) as lower interest rates continue to revive real estate and contribute to higher volume for homeowners’ insurance and commercial property.

“This is an improvement on our 2025 P&C underlying growth expectations from second half of 2024,” Léonard said. “The pace of increase in P&C replacement costs is expected to overtake overall inflation in 2025 (3.3 percent versus 2.5 percent). This aligns with our earlier expectations from the second half of last year.”

Personal vs. commercial lines performance

The 2024 net combined ratio for the P&C industry is projected to be 99.5, a year-over-year improvement of 2.2 points, with a net written premium (NWP) growth rate of 9.5 percent. Combined ratio is a standard measure of underwriting profitability, in which a result below 100 represents a profit and one above 100 represents a loss. Personal lines 2024 net combined ratio estimates improved by nearly 1 point, while the commercial lines 2024 estimates worsened by 1.2 points.

Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, expanded upon the dichotomy of commercial and personal lines results.

“Commercial lines continue to have better underwriting results than personal lines, but the gap is closing,” Porfilio said. “The impact from natural catastrophes such as Hurricane Helene in Q3 2024 and Hurricane Milton in Q4 2024 significantly impacted commercial property. The substantial rate increases necessary to offset inflationary pressures on losses have driven the improved results in personal auto and homeowners.”

Personal auto and homeowners are each projected to have improved 6.1 points over 2023, with a 2024 net combined ratio of 98.8 and 104.8, respectively. NWP growth rate for personal lines is expected to surpass commercial lines by 9 points in 2024, with personal auto leading at 14.0 percent, the second highest in over 15 years.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a premier global consulting and actuarial firm – elaborated on profitability concerns within commercial lines.

“Commercial auto continues to remain unprofitable,” he said. “The 2024 direct incurred loss ratio through Q3 is only marginally improved relative to 2023 and is the second highest in over 15 years.”

Hurricane Milton is projected to be the worst catastrophic event for commercial property since Hurricane Ian in 2022 Q3, driving higher-than-expected losses and subsequently increasing the commercial property projected 2024 net combined ratio up 3.3 points to 91.2, which is also 3.3 points worse than 2023. During the webinar, commercial property forecasts were also shared for the fire and allied and inland marine sub-lines.

Continued worsening in general liability

General liability’s projected 2024 net combined ratio of 103.7 is 3.6 points worse than actual 2023 experience. Kurtz said the line has seen significantly worsening, with each quarterly loss ratio in 2024 worse than 2023 year over year.

“The 2024 direct incurred loss ratio through Q3 is the highest in over 15 years,” Kurtz said. “As a result, we have increased our expectations for 2025 and 2026 net written premium growth, as the industry responds to the worsening 2024 performance.”

Continuing the discussion on general liability, Emma Stewart, FIA, chief actuary at Lloyds added that U.S. general liability has experienced material deterioration in loss ratios and a slowing down of claims development.

“A large driver of this has been the post-underwriting emergence of heightened social inflation, or more specifically, legal system abuse and nuclear verdicts,” Stewart said. “If these trends continue to increase, reserves on this class can be expected to deteriorate further.”

Workers comp loss-cost preview

Ending with workers compensation, Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance, provided a preview of this year’s average loss-cost changes and discussed the long-term financial health of the workers compensation system. 

“The 2025 average loss cost decrease of 6 percent is moderate, which will inevitably have implications on the overall net written premium change,” Glenn said.  She added that the –6 percent average loss cost level change in 2025 is notably different than the -9 percent average seen in 2024, the largest average decrease since before the pandemic.

“Payroll for 2025 will develop throughout the year resulting from both wage and employment levels.  Therefore, overall premium will become clearer as the year progresses,” she said.

Homeowners Insurance, Insurance Industry

New IRC report indicates that Most Homeowners Expect to Experience Severe Weather in Future and Feel Prepared. 

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While the perception of overall severe weather risks varies significantly by region, 65 percent of the participants nationwide believed their home is at risk from thunderstorms, according to the new report, Catastrophic Weather Events and Mitigation: Survey of Homeowners by the Insurance Research Council (IRC), a division of The Institutes. 

Overall, this and other key report findings revolve around the value of proactive measures for effective preparedness and mitigation strategies to address the increasing risks posed by severe weather events and the need for collaboration between homeowners, insurers, and governments to enhance resilience against natural disasters. The report highlights how interactions with contractors, public adjusters, and attorney involvement can significantly impact recovery timelines, claims frequency, and insurance costs. 

The online survey of over 1,500 respondents investigates U.S. public opinions and homeowners’ experiences with severe weather, offering insights on U.S. regional perceptions of future risks, preparedness levels, attitudes toward mitigation strategies, post-storm solicitations by contractors and service providers, and homeowners; opinions on the roles of insurance and government in managing severe weather-related risks.  

Disaster anticipation and preparedness 

Eighty percent of the responding homeowners expressed confidence in their preparedness for severe weather events. Homeowners participating in the survey who experienced severe weather events in the past five years were significantly more likely to believe that a similar event would occur within the next five years.  

Only 30 percent are aware of premium savings for implementing mitigation measures. However, Eighty-three percent of participants said they would consider implementing catastrophe preparedness and mitigation measures if it meant receiving savings on their insurance premiums, but most of those required premium savings large enough to offset the costs of these measures. Seventy percent revealed they would be willing to pay higher premiums for better protection against future severe weather events. Overall, 80 percent agreed that the government should provide emergency assistance.  

Weather Experiences 

Nearly half of the participants reported damage to their homes after a severe weather event. About 34 percent said they filed an insurance claim after experiencing damage to their homes, and 45 percent said they hired a contractor. Sixty-four percent of respondents reported receiving solicitation from contractors after a severe weather event. Also, 68 percent of participants who filed claims said they used Assignment of Benefits (AOB) to authorize the repair company to bill the insurance carrier. Fifty-four percent reported hiring public adjusters to handle repairs and insurance claims.  

For context, each year, there are about 100,000 thunderstorms in the U.S., about 10% of which reach severe levels, according to the National Oceanic and Atmospheric Administration (NOAA). Storms are classified as severe “ when containing one or more of the following: hail one inch or greater, winds gusting more than 50 knots (57.5 mph), or a tornado.” Data analysis from Munich Re indicates that by just the first six months of 2024, severe thunderstorms in the U.S. caused $45 billion in losses, $34 billion of which were insured, making 2024 the fourth-costliest thunderstorm year on record.  

Between 1980 and 2024 (as of November 1), the U.S. experienced 400 weather and climate disasters, with overall damage costs for each reaching or exceeding $1 billion. The cumulative cost for these 400 events exceeds $2.78 trillion. The yearly average for events during this period is 8.5, with the annual average for 2019 –2023 being 20.4. However, the U.S. experienced 28 events in 2023 and 27 events in 2024 costing at least 1 billion dollars each. 

Stakeholder Takeaways 

While climate risk plays a significant role in the number and severity of extreme weather events that cause insurance industry losses, Triple-I has kept an eye on the impact of the unpredictable confluence of attorney fee mechanisms, assignment of benefits (AOB), and other practices that can amplify claim costs. For example, involving third parties has the propensity to introduce the risk of claim inflation and may compound issues for the policyholder.  

When property owners are compelled to share their claim value (typically 30 – 40 percent to attorneys and 10 – 30 percent to public adjusters), this, in turn, may impact the final amount they feel necessary to settle a claim. Previous IRC research suggests that attorney involvement can increase claims costs and the time needed to resolve them (again, even while reducing value for claimants). Additionally, after a severe weather event, some exploitative actors can aggressively leverage assignment of benefits (AOBs) agreements to bill or even sue the insurer without further input from the policyholder. Policyholders lose the ability to work through and settle the claim efficiently. 

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been fairly resolved without judicial intervention. Without measures such as regulatory intervention and increased policyholder awareness, coverage affordability and availability are at risk. Insurers, policyholders, and policymakers can take actionable steps to address the legal system’s impact on the cost of insurance. Triple-I remains committed to advancing the conversation and exploring actionable strategies with all stakeholders.  

To learn more, read this latest IRC report, our most recent brief on Legal System abuse, and follow our blog. 

Cyber Risk, Legal Environment, Technology

Crypto Theft Rulings
Use Simliar Logic
to COVID-Related
Business Interruption

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By Michael Menapace, Esq., Wiggin and Dana LLP

When I first wrote here about insurance coverage related to cryptocurrency theft, I discussed whether these digital assets were securities (as suggested by the SEC) or property (as suggested by the IRS) and how that might impact insurance coverage under a typical homeowners policy. 

I also discussed whether the full policy limits for generic property were available for the theft of the assets or a policy sublimit for money would apply. 

At that time, courts had provided little guidance on the issue, and few situations were analogous.  In recent years, however, guidance has emerged, including from a line of cases that would not appear to have much relevance at first glance. 

Wrestling over “physical” loss

Nearly every appellate court in the country has wrestled with the issue of whether economic losses experienced by businesses as a result of the COVID-19 pandemic were covered by their commercial property insurance policies.  A commercial property policy typically covers the “physical” loss of or damages to property.  Insurers uniformly denied those business interruption claims and thousands of businesses sued.  Courts consistently rejected the businesses’ claims for coverage because the COVID-19 virus does not change the structure of the insured property, and purely economic losses are not “physical” loss or damage. 

Similar to the commercial property insurance policies at issue in the COVID-19 claims, a typical homeowners policy covers the direct physical loss of covered personal property.

In 2021, Ali Sedaghatpour had approximately $170,000 of his cryptocurrency stolen and made a claim under his homeowners insurance policy.  The insurer paid him the $500 limit for the theft of electronic funds, but denied coverage for the remainder of the loss.  The homeowner sued and the federal district court for the East District of Virginia ruled in favor of the insurer.  Recently, the United States Court of Appeals for the Fourth Circuit affirmed the decision in favor of the insurer.  The case was titled Sedaghatpour v. Lemonade Insurance Co. (Case No. 23-1237). 

The court ruled that the digital theft of the homeowners’ currency did not amount to direct “physical” loss and the insurer owed the homeowner nothing more than the $500 it had already paid.  The appellate court did not disturb other findings by the trial court – including the lower court’s citation to dictionary definitions of cryptocurrency, which state that cryptocurrency exists “wholly virtually”

Looking ahead

In the Sedaghatpour case, the courts were applying Virginia law; however, given the uniform development of “physical loss” throughout the country in the COVID-19 context, I expect other courts around the country will come to the same conclusion when the issue of how to treat digital assets comes before them.  I likewise observe that some insurers have revised their policy language to state expressly that the loss of “electronic currency” is not covered. 

These recent court cases confirm that individuals owning cryptocurrency should take extra care to protect their digital assets and should not rely on standard language in homeowners insurance policies to hedge against theft.

Michael Menapace is a Triple-I Non-Resident Scholar, Co-chair of the Insurance Practice Group at Wiggin and Dana LLP, a professor of Insurance Law at the Quinnipiac University School of Law, and a Fellow of the American College of Coverage Counsel.

Catastrophes, Disaster Resilience, Floods, Risk Management, Technology, Wildfire

Data Fuels the Assault
on Climate-Related Risk

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By Lewis Nibbelin, Contributing Writer, Triple-I

Identifying opportunities to mitigate climate risk was on the minds of “Risk Take” presenters at Triple-I’s 2024 Joint Industry Forum (JIF). Risk Takes – a new addition at JIF – are 10-minute problem/solution-oriented presentations by high-impact experts who are deeply engaged in addressing specific perils. 

Inserted between panel discussions of broader issues and trends, these compact talks were tightly focused on how current challenges are being met.

Munich Re US, for example, is diving deep into understanding how consumers and insurers perceive climate-related risks. According to RiskScan 2024, a recently published survey by Munich Re US and Triple-I, more than one-third of respondents ranked climate change as a top concern, identifying it as “a key driver of insurance costs,” said Kerri Hamm, EVP and head of cyber underwriting, client solutions, and business development at Munich Re US.

However, when it comes to flood risk, the survey highlighted a substantial disconnect between concern about the peril and understanding of related insurance coverage. Despite understanding the rising severity of climate risks and their direct influence on insurance costs, many consumers erroneously believe their homeowners policy includes flood coverage or that they do not reside in an area at risk of flooding, contributing to a significant flood protection gap.

High-risk areas are only expanding, Hamm pointed out, as upsurges in flash flooding implicate more and more noncoastal properties. Increased private-sector interest in flood risk has led to new forms of flood coverage, such as a private Inland Flood Endorsement offered at Munich Re, to support these properties. Take-up rates for these insurance products remain low – underscoring the importance of consumer education and improved training for agents and brokers to encourage flood insurance sales.

“We can do better as an industry to make options available, attractive, and better known to vulnerable homeowners,” Hamm said. Education is vital, as is “developing innovative solutions that benefit our society by closing the insurance gap.”

Combining geoscience with data science is one solution, said Helge Jørgensen, CEO and co-founder of the Norway-based 7Analytics. Jørgensen discussed how, by leveraging geological and hydrological information with machine learning technology, his company develops granular data that can map out property flood risk “neighbor by neighbor,” enabling highly representative flood policies.

Beyond incentivizing private insurers to write flood coverage, this data is further “crucial for communities,” Jørgensen stressed, “because, if you have a lot of information on which areas and buildings are more exposed to flooding, then you can build resilience.”

Urban growth, particularly rising populations in higher-risk areas, render community-level resilience initiatives even more important, he noted.

Guidewire’s Christina Hupy reinforced Jørgensen’s emphasis on utilizing granular data while discussing HazardHub, a property risk data platform owned by Guidewire.

“Historically, risk data was provided only at the Census block or even ZIP code level,” Hupy said, whereas HazardHub provides comprehensive and updated geospatial data across various perils to pinpoint individual property risk levels.

In collaboration with Triple-I, HazardHub will release a report in early 2025 focusing on wildfire risk within three high-risk California counties, aiming to demonstrate how using detailed geographic data can help sustain or improve underwriting profitability within such areas.

“We’re going to need to look at mitigation in these high-risk areas as the next frontier,” Hupy said, “to spark that interest from California government and carriers” and enhance resilience “both from a customer and a business perspective” in the state.

California’s Department of Insurance helped launch this frontier last month by announcing new regulations allowing insurers to use catastrophe risk modeling to set rates, rather than limiting insurers to only historic risk data, as was the rule for decades. Insurers must also expand their coverage in riskier areas and account for resilience efforts when setting rates, which was also not previously possible.

Alongside emerging forms of insurance coverage and innovative granular data tools, such regulations empower the insurance industry to incentivize climate risk mitigation and achieve considerable progress towards eliminating the protection gap.

Learn More:

RiskScan 2024 Reveals Risk Priorities Across the Insurance Marketplace

JIF 2024: What’s In a Name? When It Comes to Legal System Abuse, A Lot

JIF 2024: Collective, Data-Driven Approaches Needed to Address Climate-Related Perils

JIF 2024: What Resilience Success Looks Like

JIF 2024: Panel Highlights Human-Centered Use of Advanced Technology

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Catastrophes, Disaster Preparedness, Disaster Resilience, Insurers and the Economy, Regulation, Technology, Wildfire

California Finalizes Updated Modeling Rules, Clarifies Applicability Beyond Wildfire

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California’s Department of Insurance last week posted long-awaited rules that remove obstacles to profitably underwriting coverage in the wildfire-prone state. Among other things, the new rules eliminate outdated restrictions on use of catastrophe models in setting premium rates.

The measure also extends language related to catastrophe modeling to “nature-based flood risk reduction.” In the original text, “the only examples provided of the kinds of risk mitigation measures that would have to be considered in this context involved wildfire. However, because the proposed regulations also permit catastrophe modeling with respect to flood lines, it was appropriate to add language to this subdivision relating to flood mitigation.”

The relevant language applies “generally to catastrophe modeling used for purposes of projecting annual loss,” according to documents provided by the state Department of Insurance.

Benefits for policyholders

As a result, the department said in a press release, “Homeowners and businesses will see greater availability, market stability, and recognition for wildfire safety through use of catastrophe modeling.”

For the past 30 years, California regulations – specifically, Proposition 103 – have required insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. In a dynamically changing risk environment, historical data alone is not sufficient for determining fair, accurate insurance premiums. According to Cal Fire, five of the largest wildfires in the state’s history have occurred since 2017. 

The state’s evolving risk profile, combined with the underwriting and pricing constraints imposed by Proposition 103, has led to rising premium rates and, in some cases, insurers deciding to limit or reduce their business in the state.

With fewer private insurance options available, more Californians have been resorting to the state’s FAIR Plan, which offers less coverage for a higher premium. This isn’t a tenable situation.

“Put simply, increasing the number of policyholders in the FAIR Plan threatens the solvency of insurance companies in the voluntary market,”  California Insurance Commissioner Ricardo Lara explained to the State Assembly Committee on Insurance. “If the FAIR Plan experiences a massive loss and cannot pay its claims, by law, insurance companies are on the hook for the unpaid FAIR Plan losses…. This uncertainty is driving insurance companies to further limit coverage to at-risk Californians.”

“Including the use of catastrophe modeling in the rate making process will help stabilize the California insurance market,” said Janet Ruiz, Triple-I’s California-based director of strategic communication. “Homeowners in California will be able to better understand their individual risk and take steps to strengthen their homes.”

The new measure also requires major insurers to increase the writing of comprehensive policies in wildfire-distressed areas equivalent to no less than 85 percent of their statewide market share. Smaller and regional insurance companies must also increase their writing.

Requirements for insurers

It also requires catastrophe models used by insurers to account for mitigation efforts by homeowners, businesses, and communities – something not currently possible under existing outdated regulations today.

Moves like this by state governments – combined with increased availability of more comprehensive and granular data tools to inform underwriting and mitigation investment – will go a long way toward improving resilience and reducing losses.

Learn More:

Triple-I “Trends and Insights” Issues Brief: California’s Risk Crisis

Triple-I “Trends and Insights” Issues Brief: Proposition 103 and California’s Risk Crisis

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Flood

Business Risk, Insurance Industry, Market Conditions, Risk Management

Triple-I Brief: Commercial Property Insurance Shows Signs of Improvement, Stable Growth

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While rising premiums have been the primary driver for commercial property insurance growth for years, a 25-quarter rate increase streak broke in early 2024. Strong risk-adjusted capitalization and adequate liquidity may sustain the stable outlook, notwithstanding formidable risks, according to Triple-I’s latest insurance brief Commercial Property: Trends and Insights.

The brief focuses on several core trends shaping opportunities and threats to the commercial property insurance segment:

  • Mounting climate and natural catastrophe risks
  • Increasing capacity in the reinsurance market
  • Lurking undervaluation risk
  • Rise of AI and technology in risk mitigation

According to a recent McKinsey report, data involving global figures for 25 primary commercial lines carriers indicate a combined ratio of 91 percent for 2023, down from a high of 102 in 2020 but holding steady from the prior year. Commercial property comprised $254 billion (or 26 percent) of premiums across these carriers.

Before 2024, the overall U.S. P&C commercial market experienced hard market conditions going back to 2018, according to NAIC data and analysis. Double-digit rate increases were the norm, particularly for properties in high-risk regions or with poor loss histories. A Marsh McLennan report shows that in Q4 2023, rate increases averaged 11 percent for more considerable commercial property risks and even higher for accounts with loss history challenges or catastrophic exposure.  Carriers have delivered steady quarterly increases since 2017 “to offset pressures from catastrophes and economic and social inflation.” Capacity constraints, driven by increased reinsurance costs, compounded this hardening, creating challenges for insurers and policyholders.

However, commercial insurers benefited from underwriting margins that outperformed the long-term average despite slowing year-over-year growth in direct premiums written, according to the 2024 S&P Global Market Intelligence U.S. Property and Casualty Industry Performance Rankings report. The top 50 of the 100 evaluated carriers was dominated by commercial line providers, with insurers focusing primarily on commercial property lines capturing three of the top 10 spots. In comparison, only two personal lines carriers ranked in the top 50.

AM Best, which maintains that insured losses in recent years have been driven primarily by secondary perils such as severe convective storms, issued its “Market Segment Outlook: US Commercial Lines” report. The analysts predict a stable market segment outlook for the U.S. commercial lines insurance sector in 2025. The company expects the commercial lines segment “will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges.” However, relatively high claims costs, the multi-year impact of social inflation, and geopolitical risks may pose threats. The latest AM Best report focused solely on the commercial property segment (dated March 2024) advises that the Excess and Surplus (E&S) market has absorbed some of the higher risks. Still, overall secondary perils continue to be a significant “offsetting factor” for commercial property.

The damage of weather events and natural catastrophes tend to make big headlines (and rightly so), but the overall risk for commercial property isn’t limited to the destruction wrought by each disaster. It also extends to the interactions between the event outcomes and human systems. Specifically, these events can strain regional economic systems, such as decreasing the availability of rebuilding materials and labor while simultaneously amplifying demand for these same inputs. In turn, property replacement costs can soar.

Reinsurance

In 2023, major changes in reinsurance policy structures and price increases compelled insurers to decrease limits and absorb higher retentions. The policy restructurings also meant primary insurers had to retain more losses from increased secondary perils, such as floods, wildfires, and severe convective storms, that they could not cede to the reinsurance market. The insurers’ retention of loss may have allowed the incubation of increased capacity in the reinsurance market, improving late in 2023 and into early 2024.

By mid-year 2024 renewals, reinsurance appetite had grown with easing in some loss-free areas and, as applicable, underwriting scrutiny held firm in others areas. Analysts observed “flat to down mid-to high-single digits” reinsurance risk-adjusted rates for global property catastrophes. A Marsh McLennan report noted modest growth in investment and capital due to increased market capacity and underwriting interest from carriers. Late 2024 catastrophic events and any similar activities in the coming year will likely remain a primary drivers for reinsurance costs, along with the increasing cost of capital, financial market volatility, and economic inflation.

To learn more about Triple-I’s take on these and other commercial property insurance trends, read the issue brief and follow our blog.

Risk Management, Technology

JIF 2024: Panel Highlights Human-Centered Use
of Advanced Technology

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By Lewis Nibbelin, Contributing Writer, Triple-I

Technological innovations — particularly generative AI — are revolutionizing insurance operations and risk management more quickly than the industry can fully accommodate them, necessitating more proactive involvement in their implementation, according to participants in Triple-I’s 2024 Joint Industry Forum.

Such involvement can ensure that the ethical implications of AI remain integral to its continued evolution.

Benefits of AI

Increasingly sophisticated AI models have expedited data processing across the insurance value chain, reshaping underwriting, pricing, claims, and customer service. Some models automate these processes entirely, with one automated claims review system – co-developed by Paul O’Connor, vice president of operational excellence at ServiceMaster – streamlining claims processing through to payment, thereby “removing the friction from the process of disputes,” said O’Connor. 

“We’re at an inflection point of seeing losses dramatically reduced,” said Kenneth Tolson, global president for digital solutions at Crawford & Co., as AI promises to “dramatically mitigate or even eliminate loss” by enabling insurers to resolve problems more efficiently.

Novel insurance products also cover more risk, said Majesco’s chief strategy officer Denise Garth, who pointed to usage-based insurance (UBI) as more appealing to younger buyers. UBI emerged from telematics, which can leverage AI to track actual driving behavior and has been found to encourage significant safety-related changes.

Alongside lower operational costs resulting from AI efficiency gains, such policies suggest a possibility for reduced premiums and, consequently, a diminished protection gap, Garth said.

Utilizing AI presents “the first time in decades that we have the opportunity to truly optimize our operations,” she added.

Industry hurdles

For Patrick Davis, senior vice president and general manager of Data & Analytics at Majesco, developing effective AI strategies hinges not on massive budgets or teams of data scientists, but on the internal organization of existing data.

AI models fail when base datasets are inaccessible or ill-defined, he explained. This is especially true of generative AI, which encourages decision-making by producing new data via conversational prompting.

 “Extremely well-described data” is essential to receiving meaningful, accurate responses, Davis said. Otherwise, “it’s garbage in, garbage out.”

Outdated technology and business practices, however, impede successful AI integration throughout the insurance industry, Davis and Garth agreed.

“We have, as an industry, a lot of legacy,” Garth said. “If we don’t rethink how we’re going about our products and processes, the technology we apply to them will keep doing the same things, and we won’t be able to innovate.”

Beyond frustrating innovation, cultural resistance to change within organizations can delay them in preemptively balancing their unique risks and goals with the likely inevitable influence of AI, leaving themselves and insureds at a disadvantage.

“We’re not going to stop change,” said Reggie Townsend, vice president and head of the data ethics practice at SAS, “but we have to figure out how to adapt to the pace of change in a way that allows us to govern our risk in acceptable ways.”

Ethical implications

Responsible innovation, Townsend said, entails “making sure, when we have changes, that they have a material benefit to human beings” – benefits which an organization clearly defines while being considerate of potential downsides.

Improperly managed data facilitates such downsides from using AI models, contributing to pervasive bias and privacy concerns.

Augmenting base datasets with demographic trend information, for example, may be “tempting,” O’Connor explained, “but where does this data go, once it gets outside our boundaries and augmented elsewhere? Vigilance is absolutely required.”

Organizational oversight committees are crucial to ensuring any major technological advancements remain intentional and ethical, as they encourage innovators to “overcommunicate the ‘why,’” said discussion moderator Peter Miller, president and CEO of The Institutes.

Tolson reaffirmed this point in discussing how his organization’s AI counsel holds him accountable by fostering “diligence and openness” around an “articulated vision,” further fueling collaborative sharing of data cross-organizationally. Collaboration and transparency around AI are key, he stressed, “so that we don’t have to learn the same lesson twice, the hard way twice.”

Looking ahead

Though they do not currently exist in the U.S. on a federal level, AI regulations have already been introduced in some states, following a comprehensive AI Act enacted earlier this year in Europe. With more legislation on the horizon, insurers must help lead these conversations to ensure that AI regulations suit the complex needs of insurance, without hindering the industry’s commitments to equity and security.

A recent report by Triple-I and SAS, a global leader in data and AI, centers the insurance industry’s role in guiding conversations around ethical AI implementation on a global, multi-sector scale. Defending this position, Townsend explained how the industry “has put a lot of rigor in place already” to eradicate bias and preserve data integrity “because [its] been so highly regulated for a long time,” creating an opportunity to educate less experienced businesses.

Immeasurable mountains of data produced from rapid technological advancement indicate more and more underinformed industries will turn to AI to assess them, making assuming an educational responsibility even more imperative.

Learn More:

Insurers Need to Lead on Ethical Use of AI

JIF 2024: What Resilience Success Looks Like

Changing Risks, Rising Costs Drive Insurance Transformation for 2025: Majesco

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Insurers and the Economy, Market Conditions, Regulation, Risk Management

JIF 2024: What Resilience Success Looks Like

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By Lewis Nibbelin, Contributing Writer, Triple-I

The efficacy of collaboration and investment by “co-beneficiaries” in resilience initiatives was a dominant theme throughout Triple-I’s 2024 Joint Industry Forum – particularly in the final panel, which celebrated leaders behind recent real-world impacts of such investments.

Moderated by Dan Kaniewski, Marsh McLennan (MMC) managing director for public sector, the panelists discussed how their multi-industry backgrounds inform their innovative mindsets, as well as their knowledge on the profound ripple effects of targeted resilience planning.

The panel included:

  • Jonathan Gonzalez, co-founder and CEO of Raincoat;
  • Bob Marshall, co-founder and CEO of Whisker Labs;
  • Dawn Miller, chief commercial officer of Lloyd’s and CEO of Lloyd’s Americas; and
  • Lars Powell, director of the Alabama Center for Insurance Information and Research (ACIIR) at the University of Alabama and a Triple-I Non-Resident Scholar.

Productive partnership

Kaniewski – who spent most of his career in emergency management, previously serving as the second-ranking official at the Federal Emergency Management Agency (FEMA) and the agency’s first deputy administrator for resilience – kicked off the panel by raising the question “how do we define success?”

He characterized success as “putting theory into practice” and “having elected officials taking steps to reduce risk and transfer some of this risk from federal, state, or local taxpayers.”

But, as participants in earlier panels and this one made clear, government efforts can only go so far without private-sector collaboration. 

“It doesn’t matter who makes that investment, whether it’s the homeowner, the business owner, or the government,” Kaniewski explained. “The reality is we all benefit from that one investment. If we can acknowledge that we benefit from those investments, we should do our best to incentivize them.”

Kaniewski and Raincoat’s Gonzalez were both integral in the development of community-based catastrophe insurance (CBCI), developed in the wake of Superstorm Sandy in 2012.

“A lot of the neighborhoods that experienced flooding due to Sandy didn’t have access to insurance prior to the flooding – and then, post flooding, the government really had to step up to figure out how to keep those families in those houses,” Gonzalez said.

In collaboration with the city, a nonprofit called the Center for NYC Neighborhoods developed the concept of buying parametric insurance on behalf of these communities, with any payouts going toward helping families stay in their homes after disasters. Unlike traditional indemnity insurance, a parametric policy pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area – regardless of damage.  Parametric insurance eliminates the need for time-consuming claim adjustment. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders.

In this case, Kaniewski said, success was reflected in the fact that the pilot program received sufficient funding not only for renewal but expansion, bringing needed protection to even more vulnerable communities.

Powell reinforced this sentiment in explaining ACIIR’s research on the FORTIFIED method, a set of voluntary construction standards created by the Insurance Institute for Business and Home Safety (IBHS) for durability against severe weather. The insurance industry-funded Strengthen Alabama Homes program issues grants and substantial insurance premium discounts to homeowners to retrofit their houses along these guidelines, prompting multiple states to replicate the program.

Such homes in Alabama sustained 54 to 76 percent reduced loss frequency from Hurricane Sally compared to standard homes, Powell reported, and an estimated 65 to 73 percent could have been saved in claims if standard homes were FORTIFIED.

Incentivizing contractors to learn FORTIFIED standards was especially critical, Powell explained, because they further advertised these skills and expanded the presence of FORTIFIED homes beyond the grant program.

“A lot of companies have said for several years, ‘we don’t know if we’re comfortable writing these…we haven’t seen it on the ground,’” Powell said. “Well, now we’ve seen it on the ground. We need to have houses that don’t burn down or blow over. We know how to do it, it’s not that expensive.”

Addressing concerns to drive adoption

Miller described how Lloyd’s Lab works to ease that discomfort by creating a space for businesses to nurture and integrate novel insights and products without fear. With mentor support, companies are encouraged to test new ideas while free from the usual degree of financial and/or intellectual property risks attached to innovation investments.

“It’s about having an avenue out to try,” Miller said. “Having that courage, as we continue to work together, to try to understand what’s working, what’s not, and being brave to say, ‘this isn’t working, but we can course correct.’”

Whisker Labs’ Marshall noted that numerous insurance carriers have taken a chance on his company’s front-line disaster mitigation devices, Ting, by paying for and distributing them to their customers.

Ting plug-in sensors detect conditions that could lead to electrical fires through continuous monitoring of a home’s electrical system. Statistically preventing more than 80 percent of electrical fires, communities benefit – not only by preventing individual home fires but also by providing data about the electrical grid and potentially heading off grid-initiated wildfires.

“There are so many applications for the data,” Marshall said, but “to have a true impact on society…we have to prove that we’re preventing more losses than the cost, and we have to do that in partnership with insurance carriers.”

Everyone wins if everyone plays

Cultivating innovative solutions is pivotal to enhancing resilience, the panelists agreed – but driving them forward requires more than just the insurance industry’s support.

He pointed to a project last year – funded by Fannie Mae and developed by the National Institute of Building Science (NIBS) – that culminated in a roadmap for resilience investment incentives, focusing on urban flooding. 

The co-authors of the project, including Triple-I subject-matter experts, represented a cross-section of “co-beneficiary” groups, such as the insurance, finance, and real estate industries and all levels of government, Kaniewski said.

Implementation of the roadmap requires participation from communities and multiple co-beneficiaries. Triple-I and NIBS are exploring such collaborations with potential co-beneficiaries in several areas of the United States.

Learn More:

Outdated Building Codes Exacerbate Climate Risk

Rising Interest Seen in Parametric Insurance

Community Catastrophe Insurance: Four Models to Boost Resilience

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Mitigation Matters – and Hurricane Sally Proved It

Catastrophes, Disaster Resilience, Floods, Risk Management, Technology, Webinars

2024’s Nat Cats:
A Scholarly View

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By Lewis Nibbelin, Contributing Writer, Triple-I

Triple-I recently kicked off a new webinar series featuring its Non-Resident Scholars. The first episode focused on the rising severity of natural catastrophes and innovative data initiatives these scholars are engaged in to help mitigate the impact of these perils. 

Moderated by Triple-I’s Chief Economist and Data Scientist Michel Léonard, the panel included:

  • Phil Klotzbach, Senior Research Scientist in the Department of Atmospheric Science at Colorado State University;
  • Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research;
  • Seth Rachlin, social scientist, business leader, and entrepreneur currently active as a researcher and teaching professor; and
  • Colby Fisher, Managing Partner and Director of Research and Development at Hydronos Labs.

“Wild and crazy”

Klotzbach discussed “the wild and crazy 2024 Atlantic hurricane season,” which he called “the strangest above-normal season on record.”

Abnormally fluctuating periods of activity this year created “a story of three hurricane seasons,” reflecting a broader trend of decreasing storm frequency and increasing storm severity, Klotzbach said.

While Klotzbach and his forecasting team’s “very aggressive prediction for a very busy season” was validated by Hurricane Beryl’s landfall as the earliest Category-5 hurricane on record — followed by Debbie and Ernesto — “we went through this period from August 20 to September 23 where we had almost nothing. It was extremely quiet.”

After extensive media coverage claiming the forecasts were a “massive bust,” along came Hurricane Helene, which developed into the “strongest hurricane to make landfall in the Big Bend of Florida since 1851.” Helene drove powerful, destructive flooding inland – most notably in Asheville, NC, and surrounding communities. Then came Hurricane Milton which was noteworthy for spawning numerous fatal tornadoes.

“Most tornadoes that happen with hurricanes are relatively weak – EF0, EF1, perhaps EF2,” Gensini – the panel’s expert on severe convective storms (SCS) – added. “Milton had perhaps a dozen EF3 tornadoes.”

Costly and underpublicized

Severe convective storms – which include tornadoes, hail, thunderstorms with lightning, and straight-line winds – accounted for 70 percent of insured losses globally the first half of 2024. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year.

Hailstorms are especially destructive, behind as much as 80 percent of SCS claims in any one year. Yet their relative brevity and limited scope compared to large-scale disasters earns them far less public and industry attention.

“We haven’t had a field campaign dedicated to studying hail in the United States since the 1970s,” Gensini explained, “so it’s been a long time since we’ve had our models updated and validated.”

Data-driven solutions

To rectify this knowledge gap, the In-situ Collaborative Experiment for the Collection of Hail in the Plains (or ICECHIP) will send Gensini and some 100 other scientists into the Great Plains to chase and collect granular data from hailstorms next year. Beyond developing hail science, their goal is to improve hail forecasting, thereby reducing hail damage.

Gensini pointed to another project, the Center for Interdisciplinary Research on Convective Storms (or CIRCS), which is a prospective academic industry consortium to develop multidisciplinary research on SCS. Informed by diverse partnerships, such research could foster resilience and recovery strategies that “move forward the entire insurance and reinsurance industry,” he said.

Rachlin and Fisher echoed this emphasis on enhancing the insurance industry’s facilitation of risk mitigation in their presentation on Hydronos Labs, an environmental software development and consulting firm that utilizes open-source intelligence (OSINT).

The costs and variability of climate and weather information have created “a data arms race” among insurance carriers, and aggregating and analyzing publicly available information is an untapped solution to that imbalance, they explained.

The company’s end goal, Rachlin added, is to promote an insurance landscape centered around “spending less money on [collecting] data and more money using data.”

All panelists stressed the ongoing need for more reliable, comprehensive data to steer industry strategies for effective mitigation. Investments in this data now are less than the costs of post-disaster recovery that will continue to plague more and more communities in our rapidly evolving climate.

Register here to listen to the entire webinar on demand.

Learn More:

Triple-I “State of the Risk” Issues Brief: Hurricanes

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “State of the Risk” Issues Brief: Severe Convective Storms

Outdated Building Codes Exacerbate Climate Risk

JIF 2024: Collective, Data-Driven Approaches Needed to Address Climate-Related Perils

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Triple-I Experts Speak on Climate Risk, Resilience

NAIC, FIO to Collaborate on Data Collection Around Climate Risk

Disaster Preparedness, Disaster Resilience, Homeowners Insurance, Insurers and the Economy

Outdated Building Codes Exacerbate Climate Risk

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By Lewis Nibbelin, Contributing Writer, Triple-I

Natural catastrophe perils’ rising frequency and severity may be impossible to fully abate, but Nationwide Property & Casualty Insurance Co. President and CEO Mark Berven believes modern building codes could dramatically reduce their costly destructiveness.

In a recent article for PropertyCasualty360, Berven wrote that inconsistent building codes create alarming safety disparities from state to state and that improved codes are essential to reducing risk and post-disaster recovery costs.

“Extreme weather events like heat waves, large storms, landslides and more are becoming more frequent and intense,” Berven writes. “The U.S. has already experienced at least 24 confirmed weather disaster events through October with losses exceeding $1 billion each.”

 “Building Codes Save” — a landmark report by the Federal Emergency Management Agency (FEMA) –found that universal enforcement of modern building codes could prevent more than $600 billion in disaster losses by 2060. In states where stricter codes have been implemented, the report says, billion-dollar savings already have been realized.

Virginia and Florida, for example, have long-modeled robust building code systems, leading both to consistently top code adoption rankings – especially after the latter saved an estimated $1 billion to $3 billion in averted damages during Hurricane Ian through its modern Florida Building Code.

By contrast, fewer than one-third of hazard-prone jurisdictions have adopted modernized building codes, and some states – such as Delaware and Alabama – lack mandatory statewide building code systems entirely.

Perceived cost an obstacle

Barriers to adoption include the perceived expenses of enforcement. Conforming existing structures to the same standards as new buildings can be costly, as can rebuilding communities in non-hazardous areas. Navigating these concerns in tandem with an ongoing affordable housing shortage will require a coordinated effort on local, state, and federal levels.

But as the annual average of billion-dollar disasters in the U.S. trends upward, improving building codes must take precedence for policymakers at every level of government, Berven explained, adding that the research organization Insurance Institute for Business & Home Safety (IBHS) has already provided a versatile and relatively affordable outline for safer construction standards.

Known collectively as the FORTIFIED method, such standards reinforce the durability of homes against severe weather, involving, for example, anchoring roofs to wall framing using stronger nails. The FORTIFIED method is, at present, completely voluntary, though the insurance industry-funded Strengthen Alabama Homes incentivizes homeowners to retrofit their houses along these guidelines via thousand-dollar grants. Completed retrofits reduce post-disaster claims and qualify grantees for substantial insurance premium discounts, prompting flood-prone Louisiana to replicate the program.

Given the programs’ demonstrated success, “updating our building codes to align with proven frameworks like IBHS’s FORTIFIED standards is not just an option — it’s a necessity,” Berven wrote. “The time for action is now, and the cost of inaction is far too high.”

Many consumers are unaware of the current absence and potential benefits of building code regulations, he continued, emphasizing an industry need for greater public outreach. Building codes play an indispensable role in enhancing resilience against evolving climate and weather risks, but any “revolution” in their regulation cannot advance without the collaboration of all relevant stakeholders.

Learn More:

IBHS Ranks Building Codes as Above-Average Hurricane Season Approaches

Modern Building Codes Would Prevent Billions In Catastrophe Losses

California Earthquakes: How Modern Building Codes Are Making Safer, More Resilient Communities

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