Monthly Archives: May 2022

Cyber Risk, Emerging Risks, Technology

The Battle Against Deepfake Threats

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By Max Dorfman, Research Writer, Triple-I

Some good news on the deepfake front: Computer scientists at the University of California have been able to detect manipulated facial expressions in deepfake videos with higher accuracy than current state-of-the-art methods.

Deepfakes are intricate forgeries of an image, video, or audio recording. They’ve existed for several years, and versions exist in social media apps, like Snapchat, which has face-changing filters. However, cybercriminals have begun to use them to impersonate celebrities and executives that create the potential for more damage from fraudulent claims and other forms of manipulation.

Deepfakes also have the dangerous potential to be used to in phishing attempts to manipulate employees to allow access to sensitive documents or passwords. As we previously reported, deepfakes present a real challenge for businesses, including insurers.

Are we prepared?

A recent study by Attestiv, which uses artificial intelligence and blockchain technology to detect and prevent fraud, surveyed U.S.-based business professionals concerning the risks to their businesses connected to synthetic or manipulated digital media. More than 80 percent of respondents recognized that deepfakes presented a threat to their organization, with the top three concerns being reputational threats, IT threats, and fraud threats.

Another study, conducted by a CyberCube, a cybersecurity and technology which specializes in insurance, found that the melding of domestic and business IT systems created by the pandemic, combined with the increasing use of online platforms, is making social engineering easier for criminals.

“As the availability of personal information increases online, criminals are investing in technology to exploit this trend,” said Darren Thomson, CyberCube’s head of cyber security strategy. “New and emerging social engineering techniques like deepfake video and audio will fundamentally change the cyber threat landscape and are becoming both technically feasible and economically viable for criminal organizations of all sizes.”

What insurers are doing

Deepfakes could facilitate the filing fraudulent claims, creation of counterfeit inspection reports, and possibly faking assets or the condition of assets that are not real. For example, a deepfake could conjure images of damage from a nearby hurricane or tornado or create a non-existent luxury watch that was insured and then lost. For an industry that already suffers from $80 billion in fraudulent claims, the threat looms large.

Insurers could use automated deepfake protection as a potential solution to protect against this novel mechanism for fraud. Yet, questions remain about how it can be applied into existing procedures for filing claims. Self-service driven insurance is particularly vulnerable to manipulated or fake media. Insurers also need to deliberate the possibility of deep fake technology to create large losses if these technologies were used to destabilize political systems or financial markets.

AI and rules-based models to identify deepfakes in all digital media remains a potential solution, as does digital authentication of photos or videos at the time of capture to “tamper-proof” the media at the point of capture, preventing the insured from uploading their own photos. Using a blockchain or unalterable ledger also might help.

As Michael Lewis, CEO at Claim Technology, states, “Running anti-virus on incoming attachments is non-negotiable. Shouldn’t the same apply to running counter-fraud checks on every image and document?”

The research results at UC Riverside may offer the beginnings of a solution, but as one Amit Roy-Chowdhury, one of the co-authors put it: “What makes the deepfake research area more challenging is the competition between the creation and detection and prevention of deepfakes which will become increasingly fierce in the future. With more advances in generative models, deepfakes will be easier to synthesize and harder to distinguish from real.”

Cyber Risk, Industry Financials

Cyber Premiums Nearly Doubled as Losses Fell

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By Max Dorfman, Research Writer, Triple-I

Direct written premiums for cyber policies grew sharply in 2021 from 2020, spurred by claims activity and cyber incidents. According to a recent analysis by S&P Global Market Intelligence, direct written premiums nearly doubled, to approximately $3.15 billion in 2021, from $1.64 billion the previous year. Direct written premiums for packaged cyber insurance rose approximately 48 percent, to $1.68 billion in 2021 from $1.14 billion in 2020. 

The average loss ratio for stand-alone policies decreased to 65.4 percent in 2021, from 72.5 percent in 2020, while they significantly grew premium. Analysts believe this might be a sign that insurers are becoming more disciplined and conservative in their cyber underwriting. Still, Fitch Ratings analysts noted that cyber insurance is the fastest-growing segment for U.S. property and casualty insurers, with prices increasing at “considerably higher” speed than other commercial business lines.

Cybercrime is increasing

According to the FBI’s Internet Crime Complaint Center (IC3) 2021 Internet Crime Report, the department had 3,729 ransomware complaints, with over $49.2 million of adjusted losses. In total, there was $6.9 billion in losses coinciding with more than 2,300 average complaints daily. The most common complaint was phishing scams, demonstrating a trend that has continued for some time.

Indeed, several data points demonstrate the increasingly dire situations organizations face when it comes to cyberattacks, and the need for businesses to become more vigilant. These include:

Challenges await

According to one analysis by Fortune Business Insights, the compound annual growth rate of cyber insurance could increase by 25.3 percent from 2021 to 2028, with the market growing to $36.85 billion.

However, Tom Johansmeyer, a cyber insurance expert, told Harvard Business Review in March 2022, “Cyber insurance is harder for companies to find than it was a year ago – and it’s likely going to get harder. While cyber insurance is becoming more of a must-have for businesses, the explosion of ransomware and cyberattacks means it’s also becoming a less enticing business for insurers.”

Organizations should combine these policies with a strong cyber security plan to fully safeguard against the possibility and consequences of a breach.

Learn More:

Triple-I “State of the Risk” Issues Brief on Cyber

Cyberattacks Growing in Frequency, Severity, and Complexity

As Cybercriminals Act More Like Businesses, Insurers Need to Think More Like Criminals

Business Risk, Insurers and the Economy

Maritime Day: Honoring An “Invisible” Industry

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

Maritime Day is a time-honored tradition that recognizes one of the United States’ most important industries. It is observed on May 22, the date in 1819 that the American steamship Savannah set sail from Savannah, Ga., on the first ever transoceanic voyage under steam power.

“National Maritime Day was created by an Act of Congress in 1933 to celebrate our nation’s mariners – the Merchant Marine,” John A. Miklus, president of the American Institute of Marine Underwriters (AIMU), the trade association representing the U.S. ocean marine insurance industry. “Today, it has expanded to include the entire maritime industry and domestic water-borne commerce, of which marine insurance is a very important part.”

John Miklus, president, American Institute of Marine Underwriters

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the destination. Cargo insurance is the sub-branch of marine insurance, though marine insurance also includes onshore and offshore exposed property, (container terminals, ports, oil platforms, pipelines), hull, marine casualty, and marine liability.

 “The U.S. ocean marine insurance industry covers every imaginable kind of vessel and cargo, whether it’s a small pleasure craft or yacht, on up to the largest cruise ship or container ship calling on a major port here in the United States,” said Miklus, a former marine insurance underwriter with extensive marine insurance and reinsurance experience. 

“Marine insurance and marine commerce are often thought of as an invisible industry,” he said.  “People see an Amazon truck arrive but have no idea how that package found its way to their front doorstep.”

Insurance is designed to manage risks in the event of unfortunate incidents like cargo losses, damage to expensive ships, environmental disasters due to oil pollution, piracy and recently supply chain issues.

Miklus is passionate about the marine insurance business and is proud of the work of AIMU and the industry it serves. 

“Today, in modern commerce, 90 percent of the goods found in our homes probably arrived on a container ship,” Miklus said. “As vital parts of commerce, these goods all need to be insured, and our member companies of AIMU insure those goods.”

Careers and Employment

Women in Maritime and Marine Insurance

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

When Isabelle Therrien started in the marine insurance industry 25 years ago, it was almost exclusively a male-dominated industry. 

Isabelle Therrien
SVP-Canada, Falvey Cargo Underwriting

“The progress we’ve made is a testament to the women that have been part of this industry and that have empowered other women to get into this business and created opportunities for them,” said Therrien — now senior vice president – Canada at Falvey Cargo Underwriting. Therrien has held various senior marine underwriting positions in Montreal, Toronto, and New York. In addition to Falvey, she spent more than 10 years with Chubb. 

“There are jobs in the maritime industry, whether it’s the maritime industry at large or marine insurance,” said Therrien, who is also chair of the International Union of Marine Insurance (IUMI) cargo committee.  “We look for people that have studied business or logistics, or who have been at sea and now want to have a job outside of being at sea, people who have an interest in global trade.”

With nearly half of the current workforce being eligible for retirement in the next 10 years, there’s never been a better time for women to enter the maritime industry and change the demographic.

“I did not know when I started that I would last this long in marine insurance,” said Therrien, “but if you tried to take it away from me right now, I’d say absolutely not. I love it and I really think it’s a great opportunity for people to learn more about globalization, insurance and how we support global trade.” 

Honoring Women in Maritime

In December 2021, the International Maritime Organization (IMO) Assembly adopted a resolution proclaiming the first-ever International Day for Women in Maritime, to be observed annually on May 18. 

The observance will celebrate women in the industry and is intended to promote the recruitment, retention, and sustained employment of women in the maritime sector; raise the profile of women in maritime; strengthen IMO’s commitment to the UN sustainable development of gender equality; and support work to address the current gender imbalance in maritime.

History of Women in Maritime Industry

Women in the maritime industry have a rich history that’s rarely given the recognition it deserves, according to the Maritime Institute of Technology (MITAGS). Women have been making a name for themselves on the water for hundreds of years – such as when emergencies called them to wartime duty, to support their families, to find a better life, or even just to find adventure and new surroundings.

Turning the tide

While women still only comprise two percent of the 1.2 million seafarers worldwide, it’s no longer virtually impossible for them to enter the industry. The most significant barriers that hinder women from entering non-traditional industries and apprenticeships include:

  • Lack of awareness: Perhaps the biggest reason there aren’t more women in the maritime sector is simply a lack of knowledge that it’s an available career path. If women don’t have family members already in the industry or know of someone who works at sea, it could easily be an option that passes under the radar. Many people also don’t even consider the maritime industry because it doesn’t result from the traditional four-year college route.
  • Traditional gender roles: The lasting stigma that the maritime industry is for men only likely continues to deter women from joining the field.

Gender inequities in maritime and marine insurance mirror those of the overall insurance industry.  While over 60 percent of the insurance workforce (1.6 million) are women, leadership is where inequity exists, according to an ACORD 2018 study. Women occupy only 19 percent of board seats, 11 percent of named inside officer positions, and 12 percent of top officer positions. Only 8 percent of insurers have formal programs to develop strong careers for women. Further, women in insurance still earn less than men – 62 cents on the dollar. This is even worse than the pay gap in 1951.

There has also been a large discrepancy in promotions. In the maritime industry, most women leave or change jobs because they are kept at a level for so long, which is not the case with their male counterparts having the same qualifications and experience.

About 90 percent of the world’s products are carried by sea. It is one of the largest international industries, with a vast need for technical, legal, and administrative talent. With the maritime industry growing and the number of capable candidates not keeping up, marine companies are turning to underrepresented worker categories, especially women.

There are career opportunities covering the design and building of ships, maritime environment/resources management and protection, training, marine insurance, maritime law, ports and harbor management, and administration and managing of internal water resources.

Falvey Insurance Group and the American Institute of Marine Underwriters (AIMU) have partnered for the International Day for Women In Maritime to host a panel discussion amongst women in the maritime industry.

“We are very honored to be a part of this important partnership,” said John Miklus, president of the AIMU, a not-for-profit trade association representing and promoting the interests of the U.S. ocean marine insurance industry and serving as an educator and resource center for the marine insurance community.  “These women are role models for our industry and are extremely accomplished.”

Captain Alexandra Hagerty

The event is part of Falvey’s larger speaker series to highlight professional women — “Women at the Helm” – and will include a panel discussion with Captain Alexandra Hagerty, Ship Captain, Executive Leader, Master on Hospital Ship Africa Mercy; Meredith Neizer, Chief Logistics Officer at ARMADA; Tiina Ruhlandt, President & CEO at EIMC; and Karen L. Griswold, SVP Ocean Marine, Property & Specialty at Chubb.

Technology

Data Visualization:An Important Toolfor Insurance,Risk Management

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By Max Dorfman, Research Writer, Triple-I

Data visualization has become an increasingly important tool for understanding and communicating complex risks and informing plans to address them.

Simply put, data visualization is the depiction of data through static or interactive charts, maps, infographics, and animations. Such displays help clarify multifaceted data relationships and convey data-driven insights.

The origins of data visualization could be considered to go back to the 16th century, during the evolution of cartography. However, modern data visualization is considered to have emerged in the 1960s, when researcher John W. Tukey published his paper The Future of Data Analysis, which advocated for the acknowledgement of data analysis as a branch of statistics separate from mathematical statistics. Tukey helped invent graphic displays, including stem-leaf plots, boxplots, hanging rootograms, and two-way table displays, several of have become part of the statistical vocabulary and software implementation.

Since Tukey’s advancements, data visualization has progressed in extraordinary ways. Matrices, histograms, and scatter plots (both 2D and 3D) can illustrate complex relationships among different pieces of data. And, in an age of big data, machine learning, and artificial intelligence, the possible applications of data science and data analytics has only expanded, helping curate information into easier to understand formats, giving insight into trends and outliers. Indeed, a good visualization possesses a narrative, eliminating the extraneous aspects of the data and emphasizing the valuable information. 

Whether for tracking long-term rainfall trends, monitoring active wildfires, or getting out in front of cyber threats, data visualization has proved itself tremendously beneficial for understanding and managing risk.

The Triple-I uses data visualization in its Resilience Accelerator to better illustrate the risks many communities face with natural disasters, particularly hurricanes, floods, and resilience ratings. Spearheaded by Dr. Michel Leonard, Chief Economist and Data Scientist, Head of the Economics and Analytics Department at the Triple-I, these data visualizations provide an ever-needed way to more effectively communicate these hazards, expanding the knowledge base of insurers, consumers, and policymakers.

To further understand data visualization, we sat down with Dr. Leonard.

Why is data visualization so essential in preparing for and responding to catastrophes? What immediately comes to mind is maps. We can make spreadsheets of policies and claims, but how do you express the relationships between each row in these spreadsheets? We can use data visualization to show how houses closest to a river are most at risk during a flood or show the likely paths of wildfires through a landscape. Before a catastrophe, these tools help us identify at-risk zones to bolster resilience. After a catastrophe, they help us identify areas that need the most to rebuild.

How can data visualization help change the way insurers confront the challenges of catastrophes? The most crucial aspect of data visualization for insurers is the potential to explore “what-if” scenarios with interactive tools. Understanding risk means understanding what range of outcomes are possible and what it most likely to happen. Once we start accounting for joint outcomes and conditional probabilities, spreadsheets turn into mazes. Thus, it’s important to illustrate the relationship between inputs and outputs in a way that is reasonably easy to understand.

With the increasing threat of climate risk, how much more significant do you anticipate data visualization will become? I’m reminded of the writings from the philosopher Timothy Morton, who described climate change as a “hyper-object”: a multifaceted network of interacting forces so complex, and with so many manifestations that it is almost impossible to fully conceptualize it in your head at once.

Climate change is complicated and communicating about the risks it creates is a unique problem. Very few people have time to read through a long technical report on climate risk and how it might affect them. Thus, the question becomes: How do we communicate to people the information they need in a way that is not only easy to understand but also engaging?

Images or infographics have always been compelling tools; however, we prefer interactive data visualization tools for their ability to capture attention and curiosity and make an impression.

How does the Resilience Accelerator fit into the sphere of data visualization? With the Resilience Accelerator, we wanted to explore the interplay between insurance, economics and climate risk, and present our findings in an engaging, insightful way. It was our goal from the beginning to produce a tool that would help policymakers, insurers, and community members could find their counties, see their ratings, compare their ratings with those of neighboring counties, and see what steps they should take to improve their ratings.

What motivated this venture into data visualization – and how can it help change the ways communities, policymakers, and insurers prepare for natural disasters? It’s our job to help our members understand climate-related risks to their business and to their policyholders. Hurricanes and floods are only the first entry in a climate risk series we are working on. We want our data to drive discussion about climate and resilience. We hope the fruits of those discussions are communities that are better protected from the dangers of climate change.

Where do you see data visualization going in the next five to 10 years?
I’m interested in seeing what comes from the recent addition of GPU acceleration to web browsers and the shift of internet infrastructure to fiber optics. GPU acceleration is the practice of using a graphics processing unit (GPU) in addition to a central processing unit (CPU) to speed up processing-intensive operations. Both of these technologies are necessary for creating a 3-D visualization environment with streaming real-time data.

Industry Financials, Insurers and the Economy, Market Conditions

Triple-I/Milliman SeeP&C Loss Pressures Continuing

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Triple-I/Milliman See Loss Pressures in P&C Industry Continuing

By Max Dorfman, Research Writer, Triple-I

The latest insurance underwriting projections for property/casualty lines by actuaries at the Triple-I and Milliman – an independent risk-management, benefits, and technology firm – reveal that the industry saw the 2021 combined ratio worsen by 0.8 points from 2020, driven by deterioration in the personal auto and workers compensation lines. The report, Insurance Information Institute (Triple-I) /Milliman Insurance Economics and Underwriting Projections: A Forward View, presented at a members-only event on May 12, also found that homeowners, commercial auto, commercial multi-peril, and general liability all experienced significant improvement year-over-year.

Michel Léonard, PhD, CBE, Chief Economist and Data Scientist, and head of Triple-I’s Economics and Analytics Department, discussed key macroeconomic trends impacting the property/casualty industry results. He noted that the U.S. P&C insurance industry’s performance continues to be constrained by historically high inflation, which affects replacement costs.

“The insurance industry’s performance continues to be severely constrained by macroeconomic fundamentals,” he said “The average replacement costs for P&C lines is 16.3 percent, nearly twice the U.S. average CPI of 8.5 percent.”

Léonard noted that while the Federal Reserve forecasts U.S. inflation slowing to 4.3 percent by yearend, “Triple-I expects the transition to take longer.”

Dale Porfilio, FCAS, MAAA, Chief Insurance Officer at Triple-I, noted that 2021 had the worst full-year catastrophe losses since 2017, though Q4 actuals were materially lower than prior expectation. Kentucky tornadoes and Colorado wildfires in December were part of these losses, with homeowners suffering over 60 percent of the insured losses. Hurricane Ida was the worst single event, although multiple other billion-dollar events also contributed to the 2021 insured catastrophe losses.

“Healthy premium growth observed in 2021 is likely to continue through 2024 due to the hard market,” Porfilio said, adding, “Net expense ratio at 27.0 points was the lowest in more than a decade due to premiums growing at a faster rate than expenses.”

For the P&C industry as a whole, he said to expect loss pressures to continue due to inflation and supply chain disruption.

On the commercial side, Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, said  the commercial multi-peril 2021 combined ratio improved 3.6 points from 2020, primarily due to strong net earned premium growth, which stood at 6.3 percent year over year, from the economic recovery and a hard market.

“Despite the improvement relative to 2020, the CMP line still experienced an underwriting loss in 2021, and we expect underwriting results in 2022-2024 will continue to be adversely impacted by inflation and CAT loss pressures,” he said.

Workers compensation had another very profitable year, Kurtz said, with the 2021 combined ratio coming in at 91.8 percent, although margins shrank in 2021 and are expected to continue to shrink through 2024.

“The workers comp line has experienced seven straight years of underwriting profitability, a remarkable turn-around after eight straight years of underwriting losses,” Kurtz said.  “Not surprisingly, rate increases have been hard to come by. Coupled with low unemployment, these forces will constrain premium growth for the foreseeable future.”   

For commercial auto, the 2021 combined ratio improved by 3.0 points from 2020 due to lower adverse development and a two point reduction in expense ratio, according to Dave Moore, FCAS, MAAA of Moore Actuarial Consulting.

“The 2021 combined ratio dipped below 100 percent for the first time since 2010 and we’ve had the lowest expense ratio in more than a decade,” he said. “Watch for social inflation loss pressure and prior year adverse loss development in 2022-2024.”

According to projections, both personal auto and homeowners lines produced underwriting losses in 2021. Prices need to reflect the underlying risk, particularly because the economic risk is quickly escalating.

Porfilio said the 2021 combined ratio for personal auto jumped up to 101.4, the worst since 2017 and 8.9 points worse than 2020.

“While miles driven are largely back to 2019 levels, riskier driving behaviors have led to increased insured losses and fatality rates,” he said.

Overall, the loss pressures from inflation, supply-chain disruption, risky driving behavior, and increasing catastrophe losses are leading to the need for rate increases to restore both homeowners and personal auto lines to an underwriting profit, which is projected to take at least two more calendar years.