All posts by Jeff Dunsavage

Technology

Executive Exchange: Insuring AI-Related Risks

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By Lewis Nibbelin, Contributing Writer, Triple-I

Garnering millions of weekly users and over a billion user messages every day, the generative AI chatbot ChatGPT became one of the fastest-growing consumer applications of all time, helping to lead the charge in AI’s transformation of business operations across various industries worldwide. With generative AI’s rise, however, came a host of accuracy, security, and ethical concerns, presenting new risks that many organizations may be ill-equipped to address.

Enter Insure AI, a joint collaboration between Munich Re and Hartford Steam Boiler (HSB) that structured its first insurance product for AI performance errors in 2018. Initially covering only model developers, coverage expanded to include the potential losses from using AI models, as – though organizations might have substantial oversight in place – mistakes are inevitable.

“Even the best AI governance process cannot avoid AI risk,” said Michael Berger, head of Insure AI, in a recent Executive Exchange interview with Triple-I CEO Sean Kevelighan. “Insurance is really needed to cover this residual risk, which…can further the adoption of trustworthy, powerful, and reliable AI models.”

Speaking about his team’s experiences, Berger explained that most claims stem not from “negligence,” but from “data science-related risks, statistical risks, and random fluctuation risks, which led to an AI model making more errors than expected” – particularly in situations where “the AI model sees more difficult transactions compared to what it saw in its training and testing data.”

Such errors can underlie every AI model and are thereby the most fundamental to insure, but Insure AI is currently working with clients to develop coverage for discrimination and copyright infringement risks as well, Berger said.

Berger also discussed the insurance industry’s extensive history of disseminating technological advancements, from helping to usher in the Industrial Revolution with steam-engine insurance to insuring renewable energy projects to facilitate sustainability today. Like other tech innovations, AI is creating risks that insurers are uniquely positioned to assess and mitigate.

“This is an industry that’s been based on using data and modeling data for a very long time,” Kevelighan agreed. “At the same time, this industry is extraordinarily regulated, and the regulatory community may not be as up to speed with how insurers are using AI as they need to be.”

Though they do not currently exist in the United States on a federal level, AI regulations have already been introduced in some states, following a comprehensive AI Act enacted last year in Europe. With more legislation on the horizon, insurers must help guide these conversations to ensure that AI regulations suit the complex needs of insurance – a position Triple-I advocated for in a report with SAS, a global leader in data and AI.

“We need to make sure that we’re cultivating more literacy around [AI] for our companies and our professionals and educating our workers in terms of what benefits AI can bring,” Kevelighan said, noting that more transparent discussion around AI is crucial to “getting the regulatory and the customer communities more comfortable with how we’re using it.”

Learn More:

Insurtech Funding Hits Seven-Year Low, Despite AI Growth

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

Agents Skeptical of AI but Recognize Potential for Efficiency, Survey Finds

Insurers Need to Lead on Ethical Use of AI

Workers Compensation

Workers Comp Premium, Loss, Market Trends Support Its Ongoing Success

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By William Nibbelin, Senior Research Actuary, Triple-I

The workers compensation insurance industry experienced its second-best underwriting result in the past 20 years in 2023, with a net combined ratio of 87, according to Triple-I’s latest Issues Brief. It was the ninth year in a row of net underwriting profit following eight years of net underwriting losses.

Combined ratio – the most common measure of insurer underwriting profitability – is calculated by dividing the sum of claim-related losses and expenses by premium. A combined ratio under 100 indicates a profit. A ratio above 100 indicates a loss. Net combined ratio and net written premium growth rates for Workers Comp are analyzed, forecasted, and reported in Triple-I quarterly members-only webinars. Workers comp has outperformed the combined property and casualty insurance industry in net combined ratio each year since 2015.

Triple-I’s brief provides research results on trends contributing to recent success in workers comp, including employment, wages, claim frequency and severity, and market competition.

Workers comp premiums declined drastically in 2020 as the onset of the COVID-19 pandemic resulted in a reduction of employment across the U.S. The 2020 annual change in employment measured by total non-farm payroll of -5.8 percent was the only negative change since 2010. Despite this decrease, the annual compound increase in total non-farm payroll from 2010 to 2023 has been a steady 1.3 percent.

Using total non-farm payroll as the basis for exposure and reported claims at 12 months from S&P Global Market Intelligence by year, workers comp frequency has been declining steadily from 2014 to 2023 at an annual compound rate of negative 5.1 percent.

Using net ultimate loss and defense and cost containment at 12 months divided by reported claims, workers comp severity has been increasing at an annual compound rate of 4.4 percent from 2014 to 2023. However, using nominal GDP as the basis of severity similar to frequency, severity has been decreasing at the opposite rate of negative 4.4 percent. This is indicative of a severity pattern influenced more by increasing inflation than underlying historical cost trends.

Catastrophes, Coastal Property, Disaster Resilience, Floods, Risk Management

Parametric Insurance Gains Traction Across U.S.

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By Lewis Nibbelin, Contributing Writer, Triple-I

Heading into 2025, countless communities are still grappling with the $27 billion natural disasters that impacted the United States last year – a total driven by costly storms and severe inland flooding. Many affected residents lacked flood coverage and will rely almost exclusively on federal relief funding to recover, underscoring a widespread protection gap.

Aiming to expedite disaster recovery for riverine communities in the Mississippi River Basin, the Mississippi River Cities and Towns Initiative (MRCTI) recently announced a flood insurance pilot currently in development with Munich Re that will use parametric insurance.

Unlike traditional indemnity insurance, parametric structures cover risks without sending adjusters to evaluate post-catastrophe damages. Rather than paying for specific damages incurred, parametric policies issue agreed-upon payouts if certain conditions are met – for example, if wind speeds or rainfall measurements meet an established threshold. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders, especially as weather and climate risks become more severe and unpredictable.

Several insurers demonstrated this efficiency in the wake of last year’s hurricanes – among them climate risk-management firm Arbol, which paid out $20 million in parametric reinsurance claims within 30 days after Milton made landfall.

Coast-to-coast trends

Though the MRCTI pilot presents a novel approach to inland flooding, similar pilots are already underway along the coast. New York City developed its own parametric flood program following Superstorm Sandy to bolster the resilience of low- and moderate-income neighborhoods struggling to recover. The program received enough funding last year not only for renewal but expansion, bringing needed protection to even more vulnerable communities.

For flood-prone Isleton, Calif. – a small Sacramento County town that lacks the resources to support a police department – risk mitigation has long taken a backseat to more immediate concerns. But the city’s location in a floodplain made it the perfect candidate for California’s parametric flood pilot, backed by a two-year, $200,000 grant going into effect this year.

The emergence of these community flood solutions reflects a growing interest in parametric insurance throughout the U.S., which propelled the $18 billion value of the global parametric insurance market in 2023. From Lloyd’s first dedicated parametric syndicate to Amwins’ parametric program for golf courses, more parametric coverage options are available than ever before, particularly after numerous private carriers – emboldened by improved data analytics and modeling – expanded their parametric flood insurance business in the U.S. last year.

Take FloodFlash, a leading parametric flood insurance provider based in London. Initially limited to five states, FloodFlash became known for offering coverage beyond the National Flood Insurance Program’s (NFIP) limits and in areas traditionally unsupported by private markets. Increased broker demand motivated the company, in partnership with Munich Re, to gradually roll out coverage to all mainland states last year, ahead of active hurricane season forecasts.

New insurance startups like Ric are also lowering the cost of entry into innovative parametric-based resilience. A winner of the RISE Flood Insurance of the Future Challenge, Ric will launch later this year on the coasts with micro-policies ranging from $14 to $50 per month. The company plans to collaborate with employers to extend their policies as employee benefits, which could help raise awareness of and reduce coverage gaps.

Regulatory momentum

As parametric risk transfer continues to gain traction, regulatory uncertainty in the absence of corresponding insurance laws persists. Given that many jurisdictions have structured their legal insurance framework around traditional indemnity principles, it’s unclear how restrained insurers in some areas are to issuing payouts only for actual losses.

Determining appropriate thresholds for coverage poses another challenge. For example, following extensive devastation from Hurricane Beryl last year, a $150 million parametric catastrophe bond did not yield a payout because air pressure levels narrowly missed the predefined minimum. The ensuing backlash included an intergovernmental “examination” into insurance-linked securities broadly and sparked industry-wide debate surrounding the equity of parametric structures.

To date, only a handful of states have enacted parametric insurance legislation, though substantial movement last year suggests more regulations are on the horizon. Notably, Vermont updated its previous 2022 law permitting captive insurance companies to enter parametric contracts. Based on evidence of their utility as insurance contracts, parametric contracts are now less restricted.

New York also unanimously passed its first parametric insurance law, recognizing parametric coverage as an authorized form of personal line insurance within the state. The law further stipulates mandatory disclosures on all parametric applications that distinguish parametric insurance as less comprehensive, and therefore not a substitute for, traditional property and flood insurance.

Such regulations are a promising step forward towards refining parametric coverage and facilitating its adoption across the country, but tensions between parametric and indemnity risk structures remain largely unresolved. Navigating how parametric insurance functions alone or as part of a package including indemnity coverage will require more collective input from all industry stakeholders.

One thing is for certain: traditional risk-transfer mechanisms are no longer sufficient to address the risk crisis presented by our evolving climate. Tools like parametric insurance – paired with hazard mitigation and community resilience planning – are guiding the way forward.

Learn More:

Rising Interest Seen in Parametric Insurance

Hurricane Delta Triggered Coral Reef Parametric Insurance

Mangrove Insurance: Parametric + Indemnity May Aid Coastal Resilience

Auto Insurance, Highway Safety

Executive Exchange: Importing European Safety to U.S. Roads

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Road safety efforts in Europe offer numerous examples and success stories from which U.S. jurisdictions are learning. In the latest Triple-I Executive Exchange, MAPFRE USA President and CEO Jaime Tamayo sat down with Triple-I CEO Sean Kevelighan to discuss these learnings from an insurance perspective.

“In Europe, road-related fatalities are significantly lower than in the U.S., and we wanted to get a better understanding as to why,” Tamayo said. “We brought together leading experts and policymakers from Europe and the U.S. in transportation, urban planning, public health, and technology to discuss ways in which we can improve policies, innovation, enforcement, and education around safe driving.”

Through its charitable foundation, Fundación MAPFRE, the Spain-based reinsurer is dedicated to “Vision Zero” – a movement begun in Sweden in 1997 with a goal of eliminating traffic fatalities and injury-sustaining crashes. In connection with exporting this effort to the United States, Mapfre for more than 20 years has sponsored a program for the Massachusetts Department of Transportation that consists of a fleet of vehicles that patrol main highways and thoroughfares in the state, helping stranded motorists get back on the road.

“The program has been a great success,” Tamayo said, “covering over 30 million miles of road since its inception.”

 In addition to Massachusetts, Vision Zero has been taking hold in communities across the United States, including metropolitan areas such as New York City, Los Angeles, and Portland, Ore.

In Portland, several data points are helping government officials better understand how to reduce traffic fatalities and injuries, including a high percentage of pedestrian crashes occurring because of long distances between marked crossings. Portland has taken the initiative, building “a system to protect pedestrians includes frequent safe crossings, street lighting, a cultural acceptance of slower speeds and people educated about how to interact safely on the streets.”

In Vision Zero city Hoboken, N.J., seven years have passed without a traffic fatality, even as traffic deaths have reached a 40-year high across the nation.

Learn More:

Triple-I “Trends and Insights”: Personal Auto Insurance Rates (Members only)

Triple-I “Trends and Insights” Commercial Auto (Members only)

IRC Report: Personal Auto Insurance State Regulation Systems

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

Georgia Is Among the Least Affordable States for Auto Insurance

Report: No-Fault Reforms Improved Michigan’s Personal Auto Insurance Affordability

Insurers and the Economy

P/C Replacement Costs
Seen Outpacing CPI in 2025

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Triple-I expects the pace of increase in average property/casualty insurance replacement costs to exceed increases in the consumer price index in 2025 and beyond as auto replacement costs rise for the first time since 2022 and CPI continues to decline.

Triple-I’s replacement cost index for personal and commercial auto tracks changes in the price of vehicles, parts, and equipment that make up the replacement costs facing insurance carriers providing collision insurance for both personal and commercial motor vehicles. These costs – which have increased by as much as 30 percent over the past five years – are expected to increase by 2.8 percent in 2025.

The index combines replacement costs data for motor vehicles by age and for parts and equipment from the CPI for All Urban Consumers. These cost drivers were chosen from a wider selection of U.S. government sources, including the Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve, Census Bureau, and the Departments of Labor, Transportation, and Energy.

“While we expect the economic drivers of P/C insurance performance to continue improving 2025, performance will be constrained by replacement cost increases, rising natural catastrophe losses, and geopolitical uncertainty,” said Triple-I Chief Economist Dr. Michel Léonard.

Business Risk, Catastrophes, Cyber Risk, Disaster Resilience, Floods, Life Insurance

Executive Exchange: RiskScan Survey Taps Cross-Market Viewpoints

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For insurers, “customer” is one word that encompasses individual policyholders, business owners, risk managers, agents and brokers, and others, all with different (often divergent) priorities. For reinsurers – whose primary customers are insurers themselves – “understanding the customer” is particularly challenging.

This was part of the motivation behind RiskScan 2024 – a collaborative survey carried out by Munich Re US and Triple-I. The survey provides a cross-market overview of top risk concerns among individuals across five key market segments: P&C insurance carriers, P&C agents and brokers, middle-market business decision makers, small business owners, and consumers. It explores not only P&C risks, but also how economic, political, and legal pressures shape risk perceptions. 

“I get very excited when we have a chance to be in our customers’ shoes,” said Kerri Hamm, EVP and head of cyber underwriting, client solutions, and business development at Munich Re US, in a recent Executive Exhange interview with Triple-I CEO Sean Kevelighan. “To really understand how they feel about a broad range of issues from what are their most important risks to how they feel about the cost of insurance and the economic environment.”

 Hamm discussed how more than one-third of respondents ranked economic inflation, cyber risk, and climate change as top concerns, identifying them as “increasing or resulting in rises of the cost of insurance.”

“When we really understand what our customers want, we can design a better product and think about whether the coverages we’re providing are meaningful to them,” Hamm said. “That can help us match pricing better to their expectations.”

One result that Hamm found “surprising” was that “legal system abuse” didn’t appear to be as widely accepted by respondents – apart from the insurance professionals – as driving up insurance costs. Kevelighan cited other research – including by Triple-I’s sister organization, the Insurance Research Council – that has found consumers to be aware of the growing influence of “billboard attorneys”.

Unfortunately, he said, “They don’t seem to be making the connection with how that’s affecting them. What we’re trying to do at Triple-I is to help them make that connection.”

Kevelighan talked about Triple-I’s education campaign around “the billboard effect” in Georgia. That campaign includes an actual billboard (“Trying to fight fire with fire,” he said), as well as a microsite called Stop Legal System Abuse. The campaign focuses on Georgia because the state tops the most recent list of places that the American Tort Reform Foundation calls “judicial hellholes”. 

“We’re trying to help citizens in Georgia see that this is costing you,” Kevelighan said, adding that Triple-I has seen high engagement through the program with people in the state.

Learn More:

Triple-I “State of the Risk” Issues Brief: Legal System Abuse (Members only)

Triple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

Louisiana Reforms: Progress, But More Is Needed to Stem Legal System Abuse

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

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Agents Play Critical Role in Navigating Impacts of Legal System Abuse on Customers

Legal System Abuse/Social Inflation Adds Costs and Challenges for US Casualty Insurance: AM Best

Who’s Financing Legal System Abuse? Louisianans Need to Know

Auto Insurance, Homeowners Insurance, Legal Environment, Market Conditions

Louisiana Reforms: Progress, But More
Is Needed to Stem
Legal System Abuse

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Reforms put in place in 2024 are a positive move toward repairing Louisiana’s insurance market, which has long suffered from excessive claims litigation and attorney involvement that drive up costs and, ultimately, premium rates.

But more work is needed, Triple-I says in its latest Issues Brief.

Research by the Insurance Research Council (IRC) – like Triple-I, an affiliate of The Institutes – shows Louisiana to be among the least affordable states for both personal auto and homeowners insurance.

In 2022, the average annual personal auto premium expenditure per vehicle in Louisiana was $1,588, which is nearly 40 percent above the national average and nearly double that of the lowest-cost Southern state of North Carolina ($840), IRC said. Louisianans also pay significantly more for homeowners coverage than the rest of the nation, with an average annual expenditure of $2,178, representing 3.81 percent of the median household income in the state – 54 percent above the national average.

Louisiana’s low average personal income relative to the rest of the nation contributes to its personal auto insurance affordability challenges, which are exacerbated by its litigation environment.

Louisiana Insurance Commissioner Tim Temple has championed a series of legislative changes that he has said will encourage insurers to return to Louisiana, especially in hurricane-prone areas.

“There are fewer companies willing to write property insurance in Louisiana, and that’s a lot of what our legislation is designed to do,” Temple said. “To help promote Louisiana and change the marketplace so that companies feel like they are going to be treated fairly.”

In June 2024, Gov. Landry signed into law S.B. 355, which puts limitations on third-party litigation funding – a practice in which investors, with no stake in claims apart from potentially lucrative settlements, fund lawsuits aimed at entities perceived as having deep pockets. Third-party litigation funding drives up claims costs and delays settlements, which end up being passed along to consumers in the form of higher premiums.

This progress was undermined when Landry vetoed H.B. 423, which would have reformed the state’s “collateral source doctrine” that allows civil juries to have access to the “sticker price” of medical bills and the amount actually paid by the insurance company.

“In addition to creating more transparency and helping lower insurance rates, this bill would have brought more fairness and balance to our civil justice system,” said Lana Venable, director of Louisiana Lawsuit Abuse Watch in a statement regarding the veto. “Lawsuit abuse does not discriminate – everyone pays the price when the resulting costs are passed down to all of us.”

Continued reforms in 2025 will be necessary to help prevent legal system abuse and promote a more competitive insurance market that leads to greater affordability for consumers, Triple-I says in its brief.

Learn More:

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

Who’s Financing Legal System Abuse? Louisianans Need to Know

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

Louisiana’s Insurance Woes Worsen as Florida Works to Fix Its Problems

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Auto Insurance, Homeowners Insurance, Technology

Human Needs Drive Insurance and Should Drive Tech Solutions

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By Lewis Nibbelin, Contributing Writer, Triple-I

Maintaining human centricity in an increasingly digitized world was a focus of discussion for many participants at Triple-I’s 2024 Joint Industry Forum (JIF) – particularly during the “Fireside Chat,” featuring Katherine Horowitz, executive vice president and head of business units for The Institutes, and Casey Kempton, president of personal lines at Nationwide.

As generative AI and other technological innovations help streamline the insurance value chain, such processes must continue to align with the human needs intrinsic to insurance, Kempton stressed.

“Insurance is a human business,” Kempton said. “The moment of a claim – of whatever tragedy or inconvenience that has happened – is a human moment. Theres’s emotion involved in that. I don’t expect any robot or machine to take on that experience end-to-end and be able to deliver what folks need in that moment, which is comfort and assurance.”

Rather, new technology presents opportunities to facilitate more proactive and individualized risk management than ever before, while also enabling employees to do what this industry does best: engaging with other people.

Role of telematics

Usage-based insurance, for instance, allows insurers to tailor auto rates based on the policyholder’s driving behavior, tracked by telematics. By providing feedback to encourage safer driving habits, telematics has been found to lower risk and reduce auto premiums, empowering consumers to recognize their direct influence on their insurance rates, Kempton said.

Similarly, advanced smart devices – such as those developed by Whisker Labs (Ting) and Ondo InsurTech (LeakBot) – continuously detect conditions that could lead to damage within a home and notify homeowners before losses occur. The success of these devices has spurred numerous insurance carriers, including Nationwide, to pay for and distribute them to customers.

“Supporting the delivery of these technologies to our customers is critical,” Kempton explained, as is “making the cost of entry accessible.”

Words matter

Kempton noted that mitigative insurance solutions further serve to alleviate widespread public distrust in the industry, which has become “sullied” under misconceptions of insurance as merely a commodity.

Industry language fixated on costs, rather than consumer needs, is partly to blame.

“In insurance, we talk about ‘mitigating loss,’” Kempton said. “That’s how it feels from our perspective – we see claims as losses – but let’s turn that into, ‘how can [insurers] better engender peace of mind and protection for consumers?’”

Louisiana Insurance Commissioner Tim Temple later echoed this sentiment during a panel on legal system abuse, discussing how “billboard attorney” advertising has appropriated the consumer confidence once placed in insurance carriers.

“I remember when insurance companies advertised dependability and stability,” Temple explained. “Now it’s lizards, birds, and jingles… And then you see the attorneys, and they talk about how you’re going to be safe and secure with their service. That’s [the insurance company’s] job.”

Fueled by such advertising, excessive claims-related litigation has cost residents of Louisiana and other states across the country  thousands of dollars in “tort taxes” every year, contributing to rising premium rates as insurers struggle to predict and mitigate protracted claims disputes. Lack of transparency around third-party litigation funding (TPLF), in which investors fund lawsuits in exchange for a percentage of any settlement, exacerbates this financial strain.

“If we can avoid these additional expenses and the severity attached to nuclear verdicts, it benefits all consumers,” Kempton said. Recent reforms in Florida – once the poster child for legal system abuse – indicate as much.

But reform necessarily hinges on collaboration between all stakeholders, which is unattainable without resolving “the consumer mindset we’ve inadvertently created around what the value of insurance is,” Kempton said. Updated legal regulations are equally important to ending legal system abuse as reasserting the key values of insurers – to protect and care for policyholders.

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.

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.