Monthly Archives: June 2023

Insurance Industry

Embedded Insurance Has Been Slow to Bear Fruit for Most Lines of Business

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By Mary Sams, Senior Research Analyst, Triple-I

“Embedded insurance” – often described as “B2B2C insurance” – has long been touted as a path toward innovation and growth in the traditional insurance market. However, it has been slow to mature.

The term refers to the integration of insurance products and services into retail transactions. The objective is to offer insurance solutions at the point of sale or as part of a package of products or services. This requires that the products and processes be simplified so that the consumer can make an informed purchase. Complex commercial insurance products are not likely to succeed using the embedded insurance model.

Six years ago, according to a report published by global investment management firm Conning, embedded insurance was frequently cited as a use case for distributed ledger technology or blockchain. Blockchain is a complex, ledger-centric technology that has a multitude of benefits, such as enhanced data security, immutability, and optimized data sharing.

More often than not, these benefits are overshadowed by cryptocurrency’s somewhat lackluster reputation. This complexity – and the more recent travails of crypto — may have contributed to the slow adoption of this technology for embedded insurance.

 “We’re overwhelmed by the insurance industry’s curiosity in network-based technologies, such as blockchain,” says Brendan Picha, head of outreach for the RiskStream Collaborative. “We have several initiatives, some global in scope, that are reaching a welcomed point of maturity within the enterprise. This is happening at an interesting intersection with developments of other emerging technologies. The industry is now looking carefully at how these technologies could work together and RiskStream is well positioned to support and usher in this exploration.”

RiskStream – like Triple-I, an affiliate of The Institutes – is a member-led non-profit that aims to create an ecosystem using blockchain to streamline data flow and verification, reduce operating and vendor costs, drive efficiency, and enhance customer experience.

Many applications for embedded insurance have used open APIs and microprocesses to scale applications with retail partners. These technologies have helped support the growth of embedded insurance in travel insurance, personal auto, homeowners, and extended warranty products.

However, for most traditional insurance products, embedded insurance poses a challenge. These products are “sold, not bought,” and moving the purchase to a simplified platform and linking it to the retailer offers customers choices they may not be prone to make without a sales pitch.

Private equity investment companies have been attracted to companies seeking to expand into embedded insurance, attracting $3.5 billion since 2015, according to Conning. Gartner, a large research and consulting firm, has positioned embedded insurance at the heart of what it predicts will become the dominant insurance business model.

Growth in online sales since 2020 has increased the opportunities presented by embedded insurance as consumers have become more engaged in all types of online transactions. Financial services companies have grown and expanded tremendously during this time. Consumers have engaged in buying and selling automobiles online and have expanded the OEM relationship.

However, online sales of insurance have not seen similar growth. In 2017, Tesla launched a full-stack insurance business direct to consumers. While this technically is not embedded insurance, it illustrates the benefits of sharing telematics data from vehicles in underwriting the insurance program.

Expectations for embedded insurance are varied. Personal lines insurance with $400 billion in premium and small business with $100 billion in premium continue to be the greatest targets, according to Conning. Simplifying the insurance application, growing premium, lowering expense ratios, and narrowing protection gaps are all opportunities. The realization of these benefits and successes will depend on their being embraced by the carrier-retail partners.

Legal Environment, Regulation

Louisiana Litigation Funding Reform Vetoed; AOB Ban, Insurer Incentive Boost Make It Into Law

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By Max Dorfman, Research Writer, Triple-I

Louisiana lawmakers passed several bills to reinforce the state’s weakened property insurance market during the recently completed 2023 legislative session. These included one that would have required parties to a lawsuit to disclose third-party litigation funding agreements within 60 days of a filing. However, that legislation was vetoed by Gov. John Bel Edwards, and lawmakers do not plan to override it.

Also included was a broad ban on assignment of benefits (AOB), the practice by which policyholders sign over to a third party – a contractor, attorney, or public adjuster – their right to bill an insurance company directly for repairs or other services. While this is a common practice across the country, in some states – notably, Florida and Louisiana – it has been a source of extensive claim fraud.  

The Louisiana property insurance market has been significantly weakened since the state was hit by record hurricane activity during the 2020/2021 seasons. Indeed, 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023. Additionally, 12 insurers withdrew from the state and 50 companies stopped writing new business in hurricane-prone parishes, creating a capacity crisis.

A persistent problem

Legal system abuse has been a persistent issue in Louisiana for some time. The state’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).

These problems were highlighted in February 2023, when Insurance Commissioner Jim Donelon issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state. According to Donelon, the firm filed more than 1,500 Hurricane Laura claim lawsuits in Louisiana over the span of three months in 2022, prior to the deadline to file suits over the Category 4 major hurricane that struck the state in 2020.

“The size and scope of McClenny, Moseley & Associates’ (MM&A) illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”

According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based law firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of criminal behavior and mounting sanctions.  MM&A has since shut down its operations in Louisiana.

Litigation funding reform vetoed

Third-party litigation funding occurs when investors finance lawsuits against large companies in return for a share in the settlement. Funding of lawsuits by international hedge funds and other financial third parties – with no stake in the outcome other than a share of the settlement – has become a $17 billion global industry, according to Swiss Re. Law firm Brown Rudnick sees the industry as even larger, at $39 billion global industry in 2019, according to Bloomberg.

Some states have considered mandating greater transparency around the practice, and Montana in May  approved legislation requiring certain disclosures in litigation financing. Louisiana’s Senate Bill 196 would have required parties to a lawsuit to disclose such arrangements within 60 days of filing a suit.

Insurer incentive grants boosted

The Louisiana Legislature also agreed to allocate an extra $10 million for the previously approved insurer incentive program, bringing to $55 million the amount available to insurers that agree to enter the state’s home insurance market to offer new coverage.

Also included in the bills is $30 million for a long-term grant program to help homeowners fortify their homes against hurricanes – a 50 percent increase over the amount Donelon discussed when planning for the legislative session.

Disaster Preparedness, Disaster Resilience, Flood Insurance, Homeowners Insurance, Risk Management

Weather Risk Isn’t “Someone Else’s Problem,” Triple-I Executive Tells Weather Channel Viewers

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Of the findings in Triple-I’s recent report on consumer perceptions of weather risk, the Weather Channel’s experts were most struck by the fact that 60 percent of homeowners said they’d taken no steps to prepare – so, they asked Triple-I Chief Insurance Officer Dale Porfilio for his perspective.

Ultimately, Porfilio said, it comes down to perceptions.

“Two thirds of the people surveyed said they don’t expect to be affected by weather risk in the next five years,” Porfilio told the Weather Channel. “If you don’t think you’re going to be impacted, why would you prepare with a home evacuation plan or a home inventory?”

Of course, anyone who is exposed to weather is exposed to weather-related risk, and it’s essential for homeowners to understand and address the most relevant risks in order to protect their investments and their families.

Porfilio also addressed a question regarding availability of flood insurance, explaining that coverage is generally available through the Federal Emergency Management Agency’s National Flood Insurance Program, as well as a growing number of private insurers, but “might be perceived as too expensive.”

It is possible, however, that some insurers might not be willing to offer coverage in areas that have been hit repeatedly by flood.

Awareness and preparation are key. The Triple-I survey, published in coordination with global reinsurer Munich Re, found that, among the 22 percent of respondents who reported understanding their level of flood risk, 78 percent said they had purchased flood insurance. The report, Homeowners Perception of Weather Risks, provides insights into trends, behavior and how experiencing a weather event impacts consumer perceptions of future events. 

Learn More:

Survey Suggests Few Homeowners Prepare for Weather-Related Risks

Climate Risk Isn’t All About Climate: Population, Land Use, Incentives Need to Be Addressed

Stemming a Rising Tide: How Insurers Can Close the Flood Protection Gap

Homeowners Insurance

Lightning: Quantifying a Complex, Costly Perilto Support Resilience

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

Fire historically has been the main risk associated with the peril of lightning strikes. But as urban density increases and society’s dependence on electrical and electronic devices rises, lightning damage can be far more significant than the average home or business owners realizes.

According to a Triple-I analysis of State Farm data compiled to coincide with Lightning Safety Awareness Week (June 18-24), $952 million in lightning-caused U.S. homeowners insurance claims were paid out in 2022 to more than 62,000 policyholders. There was good news in the data, including:

  • The total value of lightning-caused U.S. homeowners insurance claims fell more than 27 percent in 2022 ($952 million) from 2021 ($1.3 billion).
  • The number of lightning-caused U.S. homeowners insurance claims only slightly increased, by 2.2 percent between 2021 and 2022 from 60,851 to 62,189, with numbers from the top 10 claims states contributing to about half of the total.
  • The average cost per lightning-caused claim decreased 29 percent, from $21,578 in 2021 to $15,280 in 2022.

“Insurers are moving toward predicting and preventing losses by advocating for resilience in coordination with the real-time application of technology,” said Triple-I CEO Sean Kevelighan. “Lightning Safety Awareness Week highlights the dangers lightning poses to life and property and how insurers and policyholders are reducing these risks.”

Homes aren’t the only structures at risk from lighting damage. In a recent interview with Kevelighan,  Tim Harger – executive director of the Lightning Protection Institute – said an East Coast furniture manufacturer was subjected to “just over a million dollars in damage” when it was struck.

“Yes, there was the typical fire that caused structural damage, but what was impacted on the ‘inside’ was even more costly,” he said. “They had damaged inventory, production downtime, and loss of revenue during the repairs.”

Investment in a lightning protection system could have saved this business owner – and his insurer – the million dollars lost and prevented the business interruption.

“When it comes to protecting homes, businesses or critical facilities in communities, we know that a properly installed lighting protection system is scientifically proven to mitigate the damage from a lightning strike,” Harger said.

While cities have lightning issues, so do parts of the country where lightning-ignited wildfires are significant.  According to the Congressional Research Service, most wildfires are human-caused (89 percent of the average number of wildfires from 2018 to 2022). However, wildfires caused by lightning tend to be slightly larger and to burn more acreage (53 percent of the average acreage burned from 2018 to 2022) than human-caused fires.

Florida, Georgia, Texas and California Lead Lightning Losses

Not surprisingly, Florida – the state with the most thunderstorms — remained the top state for number of lightning claims in 2022, with 5,504, followed by Georgia, with 4,474. However, California had the highest average cost per claim, at $36,319, followed by Texas, with $25,286.

Damage caused by lightning, such as fire, is covered by standard homeowners insurance policies.  Some homeowners policies provide coverage for power surges that are the direct result of a lightning strike. 

Careers and Employment, Catastrophes, Emerging Risks, Risk Management

Church Mutual President: Getting, Keeping Talent Is “Number One Challenge”

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Of all the challenges facing property casualty insurers today – from growing catastrophe losses to social inflation – Church Mutual president Alan Ogilvie sees the “war for talent” as one of the most pressing.

“For us, the old adage is very true. Our best assets walk in the door in the morning, at the end of the day they leave, and you just hope and pray they come back,” Ogilvie said in a recent Executive Exchange conversation with Triple-I CEO Sean Kevelighan.

Ogilvie called talent acquisition and retention “our number one challenge.”

“We like to think we bring something a little bit unique to our employees, and that’s a sense of mission,” he said.

He pointed to Church Mutual’s status as 126-year-old mutual company – the largest writer of insurance for religious institutions, which has expanded to include coverage for health, educational, and nonprofit organizations – and said, “It’s pretty easy to get up in the morning when you’re protecting organizations that you know are doing tremendous things in our communities.”  

Ogilvie is committed to busting the myth that insurance is a boring business. Among the features of insurance he emphasizes to people early in their careers is the focus on technology and addressing the challenges of climate risk. Catastrophe management – viewed through the lens of artificial intelligence and predictive analytics – has become a cutting-edge discipline. 

This, combined with the fact that many insurance professionals are expected to be retiring over the next decade, “creates an incredible amount of opportunity,” Ogilvie said.

Homeowners Insurance, Risk Management

Survey SuggestsFew Homeowners Prepare for Weather-Related Risks

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By Mary Sams, Senior Research Analyst, Triple-I

The 2023 Atlantic hurricane season officially started June 1 and is forecast to be a busy one, which is why homeowners need to prepare. Yet many lack even the most basic preventative measures, unaware of the risks they face, according to a new survey by Triple-I, in coordination with Munich Re.

The new report, Homeowners Perception of Weather Risks,provides insights into trends, behavior and how experiencing a weather event impacts consumer perceptions of future events. 

In the first half of 2023, Triple-I, in coordination with Munich Re, asked homeowners across the United States about their experiences with weather-related risks.  Among the key findings:

  • Twenty-five percent of respondents don’t expect to be impacted by weather risks in the future.
  • Thirty-two percent report that they have been impacted by weather in the last five years.
  • Two primary ways to prepare for weather risk includes creating a home inventory and an evacuation plan in case of emergency.  Yet only 47 percent of respondents have a home inventory and slightly more (52 percent) have an evacuation plan.
  • Thunderstorms are reported as the chief weather concern, at 54 percent nationally.  This includes flooding and tornados and varies by geographic region.  The Midwest leads the area of highest reported thunderstorm risk, at 75 percent, and the West region reports the lowest proportion of concern, at 33 percent.

The survey suggests awareness and education around flood risk are the greatest opportunity for getting homeowners to take the necessary steps to protect their property.  For example, among the 22 percent of respondents who reported understanding their flood risk, 78 percent said they had purchased flood insurance. 

Learn More:

State of the Risk: Flood (Triple-I Issues Brief)

State of the Risk: Hurricanes (Triple-I Issues Brief)

State of the Risk: Convective (Triple-I Issues Brief)

Stemming a Rising Tide How Insurers Can Close the Flood Protection Gap (Triple-I/Capgemini)

Severe Convective Storms: Evolving Risks Call for Innovation to Reduce Costs, Drive Resilience (Triple-I Research Paper)

Flood: Beyond Risk Transfer (Triple-I Research Paper)