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Personal Lines Underwriting Results Improve, Reducing Gap With Commercial Lines

The U.S. property and casualty insurance industry experienced better-than-expected economic and underwriting results in the first half of 2024, according to the latest forecasting report by Triple-I and Milliman.  The report was released during a members-only webinar on Oct. 10.

The industry’s estimated net combined ratio of 99.4 represented a 2.3-points year-over-year improvement, with commercial lines continuing to outperform personal lines. 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. 

Much of the overall underwriting gain was due to growth in personal lines net premiums written. Commercial lines underwriting profitability remained mostly flat.

“The ongoing performance gap between personal and commercial lines remains, but that gap is closing,” said Triple-I Chief Insurance Officer Dale Porfilio. “The significant rate increases necessary to offset inflationary pressures on losses are driving the improved results in personal auto and homeowners. With that said, the impact of natural catastrophes such as Hurricanes Helene and Milton threaten the improved homeowners results and are a significant source of uncertainty.”

During the webinar Q&A period, Porfilio provided insight on the potential impact of Hurricane Milton on the Triple-I 2024 net combined ratio forecast during the Q&A portion. One key figure regarding potential catastrophe losses is the impact on the 2024 net combined ratio forecast of adding one additional billion dollars of catastrophe losses. Each additional billion dollars of catastrophe losses is an impact of one tenth of a percent on the forecast.

Triple-I has loaded an estimate for catastrophe losses for the second half of 2024 based on historical experience, trends, economic projections, etc. prior to Milton, so there is no expectation of needing to add $30 billion to $40 billion – the recent estimate published by Gallagher Re.

If there was a need to add an additional $30 billion in catastrophe losses, that would be a +3.0-point impact on the forecast.

The net combined ratio for homeowners insurance of 104.9 was a six-point improvement over first-half 2023.  The line is expected to achieve underwriting profitability in 2026, with continued double-digit growth in net written premiums expected in 2025.   

Personal auto’s net combined ratio of 100 is 4.9 points better than 2023. The line’s 2024 net written premium growth rate of 14.5 percent is the highest in over 15 years. 

Jason B. Kurtz – a principal and consulting actuary at Milliman – elaborated on profitability concerns within commercial lines. Commercial lines 2024 net combined ratio remained relatively flat at 97.1 percent. Improvements in commercial property, commercial multi-peril, and workers compensation were offset by continued deterioration in commercial auto and general liability.

“Commercial auto expectations are worsening and continue to remain unprofitable through at least 2026,” he said. “General liability has worsened and is expected to be unprofitable through 2026.”

Michel Léonard, Triple-I’s chief economist and data scientist, said P&C replacement costs are expected to overtake overall inflation in 2025.

“P&C carriers benefited from a ‘grace period’ over a few quarters during which replacement costs were increasing at a slower pace than overall inflation,” Dr. Léonard said. “That won’t be the case in 2025.”  

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Insurers Help Victims
of Domestic Abuse With Financial Resilience

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

When you think about domestic violence, insurance typically isn’t top of mind.  However, financial security and access to resources can make all the difference to victims when deciding to leave an abusive relationship. And insurance is an important component of financial planning that can help survivors move forward.

One frequently hidden form of abuse perpetrated within intimate partner relationships is economic or financial abuse, a common tactic abusers use to gain power and control. The forms of financial abuse may be subtle or explicit, but generally include tactics to conceal information, limit the victim’s access to assets, or reduce accessibility to the family finances. Financial abuse – along with digital, emotional, physical, and sexual abuse – includes behaviors to intentionally manipulate, intimidate, and threaten the victim to entrap that person. In some cases, financial abuse is present throughout the relationship; in others, financial exploitation becomes present when the survivor is attempting to leave or has left.

Research indicates that financial abuse occurs in 99 percent of domestic violence cases. Surveys of survivors reflect concerns over their ability to provide for themselves and their children – one of the top reasons for staying with or returning to an abusive partner. As with all forms of abuse, financial abuse occurs across all socio-economic, educational, and racial and ethnic groups.

Survivors struggling to get back on their feet may also be forced to return to their abuser.  That’s why it’s so important survivors understand how insurance works and what a critical role it can play in gaining financial freedom and economic self-sufficiency.

Since 2005, The Allstate Foundation has been committed to ending domestic violence through financial empowerment by helping to provide survivors with the education and resources needed to achieve their potential and equip young people with the information and confidence they need to help prevent unhealthy relationships before they start. 

The Allstate Foundation offers a Moving Ahead Curriculum, a five-module program that helps prepare survivors as they move from short-term safety to long-term security. Modules of the curriculum include: Understanding Financial Abuse; Learning Financial Fundamentals; Mastering Credit Basics; Building Financial Foundations and Long-Term Planning.

In support of Domestic Violence Awareness Month, Triple-I offers financial strategies to protect victims before and after leaving an abusive relationship. They include securing financial records, knowing where the victim stands financially, building a financial safety net, making necessary changes to their insurance policies, and maintaining good credit. 

The National Coalition Against Domestic Violence (NCADV) reports that 10 million people are physically abused by an intimate partner each year, and 20,000 calls are placed to domestic violence hotlines each day. In addition, 85 percent of women who leave an abusive relationship return because of their economic dependence on their abusers. Furthermore, the degree of women’s economic dependence on an abuser is associated with the severity of the abuse they suffer.

“Home is frequently a dangerous place for survivors of domestic violence, and remote work exacerbates the circumstances, due to the abusers’ ability to further control,” said Ruth Glenn, author, survivor, and leader in the movement to end domestic violence for over 30 years. “Tactics abusers use include ruining the victim’s credit, as well as financial abuse,” said Glenn, who is president of Survivor Justice Action (SJA) and the former CEO of the NCADV.

Digital abuse is another tactic used by abusers.  It can come in many forms, with partners reading emails, checking texts and locations of social media posts, controlling who you can connect and speak with on social media; and keeping constant tabs on you through social networks, spyware, or tools like location sharing; and stealing your passwords, which can also impact you financially.

“One of the most powerful methods of keeping a survivor trapped in an abusive relationship is not being able to support themselves financially,” Glenn explained. “That’s why insurance and financial education are crucial,” she said.  “Education can save a life.”

Multi-Family Affordable Housing Market Challenged by Surges in Insurance Premiums

urban apartment buildings

With ​​nearly half of all homes in the United States at risk of “severe or extreme” damage from events like flooding, high winds, and wildfire, the perfect storm of climate risk and legal system abuse creates obstacles for homeowners. It also threatens a more financially vulnerable segment of the housing market, as increased premiums and waning coverage for affordable housing providers can put millions of renters at risk of becoming rent-burdened (paying more than 30 percent of gross monthly income in gross monthly rent) or unhoused.

In June of this year, about two dozen real estate, housing, and nonprofit organizations — self-describing as a “broad coalition of housing providers and lenders” —  wrote a letter to Congress and the Biden administration urging them to address the issue of property insurance affordability. Although the coalition declared its intent to represent all stakeholders in the housing market, it called attention to special concerns of affordable housing providers and renters.

The letter referenced an October 2023 survey and report commissioned by the National Leased Housing Association (NLHA) and supported by other affordable housing organizations. The survey involved more than 400 housing providers that operate 2.7 million rental units — 1.7 million of which are federally subsidized. Findings mentioned in the letter and report about the affordable housing market include:

– Rate increases of 25 percent or more in the most recent renewal period for one in every three policies for affordable housing providers.

– Over 93 percent of housing providers said they plan to mitigate cost increases, with three most commonly cited tactics: increasing insurance deductibles (67 percent), decreasing operating expenses (64 percent), and increasing rent (58 percent).

– Respondents cited limited markets and capacity as the cause for most premium increases, followed by claims history/loss and renter population.

According to the U.S. Department of Housing and Urban Development (HUD) guidelines, affordable housing is generally defined as housing for which the occupant is paying no more than 30 percent of gross income for housing costs. These units are often regulated under various regional and nationwide programs, which typically offer some form of government subsidy to the property owners – usually either through tax credits, government-backed financing, or direct payments. Rising insurance premiums for affordable housing properties have come at a particularly challenging time for both renters and affordable housing property owners, a large share of which are non-profit organizations.

Census Data indicates that in total renters comprise around 36 percent, or about 44.2 million of the 122.8 million Census captured households. The number of rent-burdened households nationwide has hit an all-time high. The latest rental housing market figures, taken from a report issued by the Joint Center For Housing Studies Of Harvard University, counts 22.4 million rent burdened households in this category, amplifying the dire need for more affordable units. That report also reveals the proportion of “cost-burdened renters rose to 50 percent, up 3.2 percentage points from 2019.” 

Additionally, homelessness increased 12 percent in 2023. More than 650,000 people were unhoused at some point last year — the highest number recorded since data collection began in 2007. A Wall Street Journal analysis reveals the most recent counts for 2024 are already up 10 percent, putting the total number of unhoused persons on track to exceed last year’s amount.

Meanwhile, the affordable housing stock is aging and the cost of debt to acquire or build multifamily properties has risen, too. As interest rates have been high in recent years, developers must offer investors greater returns than treasury notes. The problem is complex, but the outcomes can be brutally straightforward.

Higher insurance premiums on rented properties increase costs, which, in turn, get passed on to renters. Market-rate landlords can usually raise rents to cover the increasing costs of capital and insurance premiums. However, affordable housing providers are locked into rents set by the government. These amounts are tied to regional incomes, which can be depressed by wage stagnation. Thus, renters who rely on affordable housing can experience the impact of rising premiums in the form of decreased services and lapsed maintenance (as housing providers dip into other parts of the operating budget to make up the shortfall) or a decrease in the number of units on the market as housing providers extract units or leave the market.

In July of this year, HUD convened a meeting with various stakeholders to discuss policies and opportunities to address this and related challenges while managing potential risks to the long-term viability of affordable housing. HUD has modified its insurance requirements for apartment buildings with government-backed mortgages, now allowing owners to set their deductible for wind and storm events as high as $475,000, up from $250,000. This tactic may reduce premiums but can also raise out-of-pocket costs after a storm or severe climate event. Another approach in progress is the revision of HUD’s methodology for calculating the Operating Cost Adjustment Factors (OCAF), parameters for annual percentile increases in rent, for eligible multifamily properties to better account for increasing insurance costs.

Triple-I is committed to advancing conversations with business leaders, government regulators, and other stakeholders to attack the risk crisis and chart a path forward. To join the discussion, register for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Predict & Prevent Podcast Honored By Inclusion Among ‘Insurance Luminaries’

The Institutes’ Predict & Prevent® podcast has been named to PropertyCasualty360’s Insurance Luminaries Class of 2024 in the category of Risk Management Innovation. This annual recognition celebrates people and initiatives driving meaningful progress within the insurance sector, highlighting key advancements and forward-thinking approaches.

The podcast explores new ways to respond to some of the biggest risk challenges facing society today by working to better predict and prevent losses before they occur. This proactive approach is crucial in a rapidly changing world in which traditional risk-management methods – which focus on risk financing and responding after a loss – are becoming less sufficient.

By exploring new technologies and resilience strategies, the podcast addresses the urgency of mitigating current risk landscapes and paves the way for future advancements in risk prevention.

The Institutes is a nonprofit organization made up of diverse affiliates – including Triple-I – that educate, elevate, and connect people in the essential disciplines of risk management and insurance.

As the podcast rounds out its second year, its focus remains to empower the risk-management and insurance community with actionable insights and forward-thinking strategies. Those interested in exploring innovative technology and resilience solutions can listen to podcast episodes, access articles, and subscribe to the Predict & Prevent newsletter here.

CSU: Post-Helene, 2 More “Above Normal” Weeks Of Storm Activity Expected

(Photo by Joe Raedle/Getty Images)

As work continues to address the harm inflicted by Hurricane Helene, researchers at Colorado State University (CSU) warn that the next two weeks “will be characterized by [tropical storm] activity at above normal levels.” 

The CSU researchers define “above normal” by accumulated cyclone energy (ACE) of more than 10. This level of hurricane intensity has been reached in less than one-third of two-week periods in early October since records have been kept.

Hurricane Kirk, they wrote, is “extremely likely” to generate more than 10 ACE during its lifetime in the eastern/central Atlantic. Tropical Depression 13 has just formed and is likely to generate considerable ACE in its lifetime across the Atlantic. The National Hurricane Center is monitoring an additional area for formation in the Gulf of Mexico that should be monitored for potential U.S. impacts.

“Hurricane Kirk is forecast to track northwestward across the open Atlantic over the next few days, likely becoming a powerful major hurricane in the process,” said CSU research scientist and Triple-I Non-resident Scholar Phil Klotzbach. “The system looks to generate approximately an additional 20 ACE before dissipation, effectively guaranteeing the above-normal category for the two-week period.”

With more than 160 people confirmed dead in Florida, Georgia, South Carolina, North Carolina, Virginia, and Tennessee,  Helene is now the second-deadliest hurricane to strike the mainland United States in the past 55 years, topped only by Hurricane Katrina in 2005.

Reinsurance broker Gallagher Re predicts that private insurance market losses from Helene will rise to the mid-to-high single-digit billion dollar level, higher than its pre-landfall forecast of $3 billion to $6 billion, according to Chief Science Officer and Meteorologist Steve Bowen.

As always – and with particular urgency in the wake of Helene’s devastation – Triple-I urges everyone in hurricane-prone areas to stay informed, be prepared, and follow the instructions of local authorities. We also ask that people be mindful of the potential for flood danger far inland, as reflected in the experiences of many non-coastal communities during Hurricane Ida and Helene.

Learn More:

How to Prepare for Hurricane Season

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

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

Strike’s Duration Will Determine Impact on P/C Insurance Industry

 

By Michel Léonard, Ph.D., CBE, Chief Economist and Data Scientist, Triple-I 

The International Longshoremen’s Association (ILA) went on strike on Tuesday, Oct 1. The strike is expected to affect more than 20 ports along the Eastern Seaboard and Gulf Coast, including the ports of New York and New Jersey, Baltimore and Houston.  

Focusing specifically on the strike’s impact on the property/casualty industry – and given the specific goods transiting through those ports – the impact will be most direct for homeowners, personal and commercial auto, and commercial property. More specifically, the strike may lead to increased replacement costs and delays in the supply and replacement of homeowners’ content, such as garments and furniture; of European-made vehicles and vehicle replacement parts; and of concrete, especially for commercial construction.  

However, the strike’s impact will be significantly mitigated by current inventories for each of the impacted insurable goods and the tightness of related just-in-time supply chains. At minimum, Triple-I estimates, the strike would have to last one to two weeks to trigger further sustained increases in P/C replacement costs or accelerate a current slowdown in P/C underlying growth.   

 Another way the insurance industry would be affected is from losses from coverage protecting against adverse business costs of events, such as strikes. These coverages include, but are not limited to, business interruption, political risk, credit, supply-chain insurance, and some marine and cargo. However, most such policies have waiting periods ranging from five to 10 days, and then deductibles, before payment is triggered. As a result, losses for those lines are likely to be limited if the strike lasts less than one to two weeks.  

 Using a one to two-week timeline is helpful: The last major longshoremen’s strike in the United States – at the port of Long Beach, Calif., in 2021 – lasted one week.   

Prodigious growth continues for the excess and surplus market, but how long will it last?

The Excess and Surplus (E&S) market has grown for five consecutive years by double-digit percentage rates. While expansion appears to have slowed, ample growth likely to continue if major trends persist, according to Triple-I’s latest issue brief, Excess and Surplus: State of the Risk.

As reported by S&P Global Intelligence, total premiums for 2023 reached $86.47 billion, up from $75.51 billion in 2022. The growth rate for direct premiums in 2023 climbed to 14.5 percent, down from the peak year-over-year (YoY) increase of 32.3 percent in 2021 and 20.1 percent in 2022. The share of U.S. total direct premiums written (DPW) for P/C in 2023 grew to 9.2 percent, up from 5.2 percent in 2013.

The brief summarizes how these outcomes are driven by the niche segment’s capacity to take advantage of coverage gaps in the admitted market and quickly pivot to new product development in the face of emerging or novel risks. Analysis and takeaways, based on data from US-based carriers, highlight dynamics that may support continued market expansion:

  • The rising frequency of climate disasters and catastrophes that overwhelm the admitted market
  • The increasing number and amount of outsized verdicts (awards over $10 million)
  • The sustainability of amenable regulatory frameworks
  • Outlook for the reinsurance segment

These factors can also converge to enhance or aggravate conditions.

For example, some states, such as Florida and California, are dealing with significant obstacles to P/C affordability and availability in the admitted market posed by catastrophe and climate risk while also experiencing large respective shares of outsized verdict activity. Also, 13 of the 15 largest U.S. E&S underwriters for commercial auto liability experienced a YoY increase in 2023 direct premiums written. In contrast, eight of the largest 15 underwriters of commercial auto physical damage coverage experienced a decline. Given 2023 research from the Insurance Information Institute showing how inflationary factors from legal costs amplify claim payouts for commercial auto liability, it appears that E&S is flourishing off the struggles of the admitted market.              

At the state level, the top three states based on E&S property premiums as portion of the total property market were Louisiana (22.7 percent), Florida (21.1 percent), and South Carolina (19.4  percent) in 2023. The states experiencing the highest growth rates in E&S share of property premiums were South Carolina (9.0 percent), California (8.8 percent), and Louisiana (8.3 percent).

Since the publication of Triple-I’s brief, AM Best released its 2024 Market Segment Report on U.S. Surplus Lines. One of the key updates: after factoring in numbers from regulated alien insurers and Lloyd’s syndicates, the E&S market exceeded the $100 billion premium ceiling for the first time, climbing past $115 billion. The share size in the P/C market has more than tripled, from 3.6 percent total P/C DPW in 2000 to 11.9 percent in 2023. Findings also indicate that DPW is concentrated heavily within the top 25 E&S carriers (ranked by DPW), with about 68% of the total E&S market DPW coming from this group.

The E&S market typically provides coverage across three areas:

  • Nonstandard risks: potential liabilities that have unconventional underwriting characteristics
  • Unique risks: admitted carriers don’t offer a filed policy form or rate, or there is limited loss history information available
  • Capacity risks: the customer to be insured seeks a higher level of coverage than most insurers are willing to provide

Thus, E&S carriers offer coverage for hard-to-place risks, stepping in where admitted carriers are unwilling or unable to tread. It makes sense that the policies typically come with higher premiums, which can boost DPW.

However, the value proposition for E&S policyholders hinges on the lack of coverage in the admitted market and the insurer’s financial stability – especially since state guaranty funds don’t cover E&S policies. Therefore, minimum capitalization requirements tend to higher for E&S than for admitted carriers. Ratings from A&M Best over the past several years indicate that most surplus insurers stand secure. Robust underwriting and strong reinsurance capital positions will play a role in the market’s capacity for continued expansion.

To learn more, read our issue brief and follow our blog for the latest insights.


Actuarial Studies Advance Discussion
on Bias, Modeling, and A.I.

The Casualty Actuarial Society (CAS) has added to its growing body of research to help actuaries detect and address potential bias in property/casualty insurance pricing with four new reports. The latest reports explore different aspects of unintentional bias and offer forward-looking solutions.

The first  –A Practical Guide to Navigating Fairness in Insurance Pricing” – addresses regulatory concerns about how the industry’s increased use of models, machine learning, and artificial intelligence (AI) may contribute to or amplify unfair discrimination. It provides actuaries with information and tools to proactively consider fairness in their modeling process and navigate this new regulatory landscape.

The second new paper — Regulatory Perspectives on Algorithmic Bias and Unfair Discrimination” – presents the findings of a survey of state insurance commissioners that was designed to better understand their concerns about discrimination. The survey found that, of the 10 insurance departments that responded, most are concerned about the issue but few are actively investigating it. Most said they believe the burden should be on the insurers to detect and test their models for potential algorithmic bias.

The third paper –Balancing Risk Assessment and Social Fairness: An Auto Telematics Case Study” – explores the possibility of using telematics and usage-based insurance technologies to reduce dependence on sensitive information when pricing insurance. Actuaries commonly rely on demographic factors, such as age and gender, when deciding insurance premiums. However, some people regard that approach as an unfair use of personal information. The CAS analysis found that telematics variables –such as miles driven, hard braking, hard acceleration, and days of the week driven – significantly reduce the need to include age, sex, and marital status in the claim frequency and severity models.

Finally, the fourth paper – “Comparison of Regulatory Framework for Non-Discriminatory AI Usage in Insurance” – provides an overview of the evolving regulatory landscape for the use of AI in the insurance industry across the United States, the European Union, China, and Canada. The paper compares regulatory approaches in those jurisdictions, emphasizing the importance of transparency, traceability, governance, risk management, testing, documentation, and accountability to ensure non-discriminatory AI use. It underscores the necessity for actuaries to stay informed about these regulatory trends to comply with regulations and manage risks effectively in their professional practice.

There is no place for unfair discrimination in today’s insurance marketplace. In addition to being fundamentally unfair, to discriminate on the basis of race, religion, ethnicity, sexual orientation – or any factor that doesn’t directly affect the risk being insured – would simply be bad business in today’s diverse society.  Algorithms and AI hold great promise for ensuring equitable risk-based pricing, and insurers and actuaries are uniquely positioned to lead the public conversation to help ensure these tools don’t introduce or amplify biases.

Learn More:

Insurers Need to Lead on Ethical Use of AI

Bringing Clarity to Concerns About Race in Insurance Pricing

Actuaries Tackle Race in Insurance Pricing

Calif. Risk/Regulatory Environment Highlights Role of Risk-Based Pricing

Illinois Bill Highlights Need for Education on Risk-Based Pricing of Insurance Coverage

New Illinois Bills Would Harm — Not Help — Auto Policyholders

FBI: Elder Fraud Up; Bolsters Case for Personal Cyber Insurance

By Neil Rekhi, Personal Cyber Product Lead, HSB

Targeting of the demographic with the most to lose increases.

In 2023, total losses reported to the FBI’s Internet Crime Complaint Center (IC3) by people over the age of 60 topped $3.4 billion, an almost 11 percent increase in reported losses from 2022. The number of complaints, the highest attributed to a single age group, increased by 14 percent. The average dollar loss per complaint was $33,915, with nearly 6,000 people losing over $100,000 per claim.

The IC3 report outlined several common cyber fraud activities that impact individuals over 60, including:

  • Call Center/Tech Support Scam
  • Confidence/Romance Scams
  • Cryptocurrency Scams
  • Investment Scams

The IC3 notes the actual figures around these and other cyber crimes targeting the elderly may be higher since only about half of the more than 880,000 total complaints it received (with total losses exceeding $12.5 billion) included age data.

A major reason for the proliferation of elder fraud may simply be that members of this age group are plentiful while also having comparatively the most to steal. Adults 65 and up are expected to make up 22 percent of the US population by 2024. Federal Reserve data indicates that their asset accumulation outpaces that of other age groups, with median and average net worth figures for adults 65-74 at $409,900 and $1.8 million, respectively, and for adults 75 and over, $335,600 and $1.6 million respectively. 

Increasing digital lives and advancing technology create new threats.

The transition to the smart mobile and app economy, along with the rise of big data and predictive analytics/AI, and (due to the pandemic) remote working, have transformed the way we engage with the world on a social, professional, and financial level. The Internet of Things (IoT) and each person’s expanding network of personal devices — smart TVs, video game consoles, appliances, home climate control systems, etc. — have propelled the digitization of our existence. All these advancements can make life easier but also increase points of cybersecurity vulnerability for people of all ages.

However, data indicates that different age groups can be susceptible to different methods of targeting by cyber scammers. For example, phishing, which relies on the human tendency to repay what another person has provided, can be more effective for targeting older vs younger adults. Also, today’s consumer under age 25 may never have the need to write a paper check, but many over 65 today have spent a significant portion of their lives handling their financial affairs that way. Thus, the trust placed in tech support people and other personnel whom they are supposed to rely on for assistance is understandable.

Unfortunately, according to the IC3, people over 60 lost more to call center and tech support scams than all other age groups combined, with this group reporting 40% of these incidents and 58% of the related financial losses (about $770 million). Common schemes involved using phone calls, texts, emails, or pop-up windows (or a combination of these) to connect with victims, manipulating them to download malicious software, reveal private account information, or transfer assets. The fallout included remortgaged homes, emptied retirement accounts, and, in some cases, suicide.

New tools and methods increase cyber security threats.

A financial services professional at a Hong Kong-based firm sent US$25 million to fraudsters after she believed she was instructed to do so by her chief financial officer on a video call that also included other colleagues. Deepfakes, one of 2024’s increasingly common cyber risks for businesses and organizations, is on track to become a major threat to personal cyber liability. A technology known as “deep” learning (hence the name) can generate images, videos, texts, or sound files specifically designed to be highly convincing despite being entirely made up.

This content can turn up anywhere on social media, the internet, or even in emails and phone calls, fooling unsuspecting humans, and, all too often, even detection software. Deepfakes aren’t always produced for malicious activities; some are used widely for entertainment. However, the growing sophistication of deepfakes and the availability of the technology needed to make it may have serious implications for cyber risk.

Cyber criminals can leverage this technology to trick victims into divulging sensitive information, transferring money, or performing other activities. Reputations can be damaged by fabricated images of victims engaged in illegal or controversial acts. This type of deep fake can also enable blackmail in exchange for not releasing the material. In addition to impersonating individuals, cyber criminals can use deep fakes to bypass biometric verification or create false advertising.

The options for managing personal cyber risk can differ in crucial ways.

Personally identifiable information (PII) is the primary driver of identity theft and most other cyber fraud. Major data breaches are becoming common place, such as the incident that happened in 2023 (but wasn’t reported until August 2024) that credit exposed 2.7 billion records. Bad actors exploit this kind of information to directly engage in fraudulent transactions or create trust with their targets in more complex schemes.

Thanks to heavy marketing and wide availability from banks and card issuers, consumers tend to be familiar with Identity Theft Protection (ITP). As the name implies, such plans revolve around the risk of stolen identity and can alleviate some of the work and costs related to monitoring and mitigating the fallout from identity theft.

In contrast, Personal Cyber Insurance (PCI) offers coverage for a broader range of losses. Covered risks, in addition to ITP, can include cyber extortion, online fraud and deceptive transfers, data breaches, cyberbullying, and more. An important aspect of PCI is that it can help provide financial reimbursment from covered “cyber scams” or related social engineering risk not directly tied to identity theft, cyber crimes which are on the rise. It also offers assistance and financial reimbursment for compromised devices. For example, if a policyholder is hacked, personal cyber insurance may help cover the costs of hiring a professional to reformat the hard drive, reinstall the operating system, and restore data from the backup.

“Social engineering and other cyber-related threats against consumers continue to grow and evolve, and insurance carriers are offering affordable personal cyber coverage that can be easily added to a homeowners or renters insurance policy,” says James Hajjar, Chief Product Officer at Hartford Steam Boiler (HSB).

HSB, which has been offering personal cyber insurance since 2015, has evolved its coverage multiple times over the years to stay ahead of cyber risk trends and the dynamic threat landscape. Given the increasing complexity of cyber risks and the rise of sophisticated scams — such as phishing and ransomware — that kind of protection shouldn’t be limited to identity theft. Robust PCI coverage safeguards against a range of other cyber-related issues and provides critical support to ensure policyholders aren’t left to deal with the financial aftermath of a cyber incident alone.

“It’s crucial that cyber insurance is specifically designed to help individuals protect themselves against these evolving threats and provides financial security and additional programs and services if someone is hacked,” Hajjar says.

Historically, ITP has been widely offered through banks, credit unions, credit card issuers, and credit reporting agencies. Either product type may be purchased as either standalone or optional add-on coverage for homeowners, rental, or condo insurance policies.

The IC3 says it receives about 2,412 complaints daily, but many more cybercrimes likely go unreported for various reasons. Complaints tracked over the past five years have impacted at least 8 million people. The 2023 Data Breach Report, which details the larger dataset of cyber crime complaints to the FBI’s Identity Theft Resource Center (ITRC), reveals that last year delivered a bumper crop of cybersecurity failures – 3,205 publicly reported data compromises, impacting an estimated 353,027,892 individuals.

A new conversation about personal cyber insurance begins.

Triple-I and HSB are teaming up to uncover ways to enhance support and resources for insurance agents while improving personal cyber insurance options for policyholders. If you are an agent, please take three minutes to help by participating in our survey. Your contribution will be invaluable in shaping the future of personal cyber insurance.

Insurers Need to Lead
on Ethical Use of AI

 

Every major technological advancement prompts new ethical concerns or shines a fresh light on existing ones. Artificial intelligence is no different in that regard. As the property/casualty insurance industry taps the speed and efficiency generative AI offers and navigates the practical complexities of the AI toolset, ethical considerations must remain in the foreground.  

Traditional AI systems recognize patterns in data to make predictions. Generative AI goes beyond predicting – it generates new data as its primary output.  As a result, it can support strategy and decision making through conversational, back-and-forth “prompting” using natural language, rather than complicated, time-consuming coding.

A recently published report by Triple-I and SAS, a global leader in data and AI, discusses how insurers are uniquely positioned to advance the conversation for ethical AI – “not just for their own businesses, but for all businesses; not just in a single country, but worldwide.” 

AI inevitably will influence the insurance sector, whether through the types of perils covered or by influencing how insurance functions like underwriting, pricing, policy administration, and claims processing and payment are carried out. By shaping an ethical approach to implementing AI tools, insurers can better balance risk with innovation for their own businesses, as well as for their customers.

Conversely, failure to help guide AI’s evolution could leave insurers — and their clients — at a disadvantage. Without proactive engagement, insurers will likely find themselves adapting to practices that might not fully consider the specific needs of their industry or their clients. Further, if AI is regulated without insurers’ input, those regulations could fail to account for the complexity of insurance – leading to guidelines that are less effective or equitable.

“When it comes to artificial intelligence, insurers must work alongside regulators to build trust,” said Matthew McHatten, president and CEO of MMG Insurance, in a webinar introducing the report. “Carriers can add valuable context that guides the regulatory conversation while emphasizing the value AI can bring to our policyholders.” 

During the webinar, Peter L. Miller, CPCU, president and CEO of The Institutes, noted that generative AI already is helping insurers “move from repairing and replacing after a loss occurs to predicting and preventing losses from ever happening in the first place,” as well as enabling efficiencies across the risk-management and insurance value chain.

Jennifer Kyung, chief underwriting officer for USAA, discussed several use cases involving AI, including analyzing aerial images to identify exposures for her company’s members. If a potential condition concern is identified, she said, “We can trigger an inspection or we can reach out to those members and have a conversation around mitigation.”

USAA also uses AI to transcribe customer calls and “identify themes that help us improve the quality of our service.”  Future use cases Kyung discussed include using AI to analyze claim files and other large swaths of unstructured data to improve cost efficiency and customer experience.

Mike Fitzgerald, advisory industry consultant for SAS, compared the risks associated with generative AI to the insurance industry’s early experience with predictive models in the early 2000s. Predictive models and insurance credit scores are two innovations that have benefited policyholders but have not always been well understood by consumers and regulators.  Such misunderstandings have led to pushback against these underwriting and pricing tools that more accurately match risk with price.

Fitzgerald advised insurers to “look back at the implementation of predictive models and how we could have done that differently.”

When it comes to AI-specific perils, Iris Devriese, underwriting and AI liability lead for Munich Re, said, “AI insurance and underwriting of AI risk is at the point in the market where cyber insurance was 25 years ago. At first, cyber policies were tailored to very specific loss scenarios… You could really see cyber insurance picking up once there was a spike of losses from cyber incidents. Once that happened, cyber was addressed in a more systematic way.”

Devriese said lawsuits related to AI are currently “in the infancy stage. We’ve all heard of IP-related lawsuits popping up and there’ve been a few regulatory agencies – especially here in the U.S. – who’ve spoken out very loudly about bias and discrimination in the use of AI models.”

She noted that AI regulations have recently been introduced in Europe.

“This will very much spur the market to form guidelines and adopt responsible AI initiatives,” Devriese said.

The Triple-I/SAS report recommends that insurers lead by example by developing their own detailed plans to deliver ethical AI in their own operations. This will position them as trusted experts to help lead the wider business and regulatory community in the implementation of ethical AI. The report includes a framework for implementing an ethical AI approach.

LEARN MORE AT JOINT INDUSTRY FORUM

Three key contributors to the project – Peter L. Miller, Matthew McHatten, and Jennifer Kyung — will share their insights on AI, climate resilience, and more at Triple-I’s Joint Industry Forum in Miami on Nov. 19-20. 

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