Category Archives: ESG

CSAA: When It Comes
to Fighting Climate Risk, We’re All On the Same Side

By Max Dorfman, Research Writer, Triple-I

CSAA Insurance Group – a AAA insurer – is spurring innovation in the insurance industry through several initiatives tackling the dangers of climate risk.

“We’ve been on a journey to reduce our environmental footprint for a long time,” said Debbie Brackeen, Chief Strategy & Innovation Officer with CSAA, in a recent executive exchange with Triple-I CEO Sean Kevelighan. “We are seeking to reduce our carbon footprint by 50 percent by 2025. We view this work as aligned with our mission: to help our members prepare for and recover from climate risk.”

CSAA has taken several steps to help achieve its goals, including:

  • Leading the first-ever Innovation Challenge on climate resilience with IDEO and Aon, along with several other sponsors;
  • Working on the California Innovation Fund in partnership with Blue Forest, a $50 million fund that CSAA contributed half that capital, focused on forest restoration and reducing fuel in a smart and sustainable way; and
  • Supporting the Wildfire Interdisciplinary Research Center at San Jose State University, which conducts work around predictive modeling, among other endeavors.

While this may seem like a new development, Kevelighan noted that insurers have long worked toward these goals.

“We’ve seen the ESG movement take a hold in the past few years, but it’s been in the DNA of the Triple-I and the insurance industry generally for a long time,” Kevelighan said. “More than half the battle is recognizing that the risk is increasing, while identifying solutions.”

Still, with the increasing consequences associated with climate risk, more work needs to be done.

“There were billion-dollar wildfire losses at CSAA in my first two years in the industry,” Brackeen said. “I wondered if this was normal. It ignited in me that, whatever we do in innovation, it will have to do with wildfire risk. However, what concerns me the most is that risks are becoming uninsurable. This is from the cumulative effects of several different types of losses, including convective storms.”

“We have to seek different types of innovative partnerships to address these issues,” Brackeen concluded. “In this fight for our industry, there are no competitors. We have to be on the same side of the table.”

Triple-I Town Hall Amplified Calls
to Attack Climate Risk

By Jeff Dunsavage, Senior Research Analyst, Triple-I

I’m pleased and proud to have been part of Triple-I’s Town Hall — “Attacking the Risk Crisis” — in Washington, D.C. In an intimate setting at the Mayflower Hotel on November 30, 120-plus attendees got to hear from experts representing insurance, government, academia, nonprofits, and other stakeholder groups on climate risk, what’s being done to address it, and what remains to be done.  

Triple-I’s first-ever Town Hall was designed as a logical step in its multi-disciplinary, action-oriented effort to change behavior to drive resilience. Capping a year in which headlines about “insurance crises” in several states garnered major media attention, Triple-I and its members and partners recognized the need for clarification.

“What we’re seeing is not an ‘insurance crisis’,” Triple-I CEO Sean Kevelighan told the standing-room-only audience. “We’re in the midst of a risk crisis. Rising insurance premium rates and availability difficulties are not the cause but a symptom of this crisis.”

Whisker Labs CEO Bob Marshall discusses innovation with moderator Jennifer Kyung, Vice President and Chief Underwriter at USAA.

While the insurance industry has a critical role to play and is uniquely well equipped to lead the attack, simply transferring risk is not enough. A recurring theme at the Town Hall was the need to shift from a focus on assessing and repairing damage to one of predicting and preventing losses.

Three moderated discussions – examining the nature of climate risk and its costs; highlighting the need of strategic innovation in mitigating those risks and building resilience; and exploring the role and impact of government policy – gave panelists the opportunity to share their insights with a diverse audience focused on collaborative action.

The agenda was:

Climate Risk Is Spiraling: What Can Be Done?

Moderator: David Wessel, Senior Fellow and Director at the Brookings Institution and former Economics Editor for The Wall Street Journal.

Panelists:

Dr. Philip Klotzbach, Colorado State University, researcher and Triple-I non-resident scholar.

Dan Kaniewski, Managing Director, Public Sector at Marsh McLennan, Former FEMA Deputy Administrator.

Jacqueline Higgins, Head, North America & Senior Vice President, Public Sector Solutions, Swiss Re

Jim Boccher, Chief Development Officer, ServiceMaster.

Jeff Huebner, Chief Risk Officer, CSAA.

Innovation, High- and Low-Tech: How Insurers Are Driving Solutions

Moderator: Jennifer Kyung, VP, Chief Underwriter, USAA.

Panelists:

Partha Srinivasa, EVP, CIO, Erie Insurance.

Sam Krishnamurthy, CTO, Digital Solutions, Crawford.

Bob Marshall, CEO, Whisker Labs.

Stephen DiCenso, Principal,Milliman.

Charlie Sidoti, Executive Director, InnSure.

Outdated Regs to Legal System Abuse: It Will Take Villages to Fix This

Moderator: Zach Warmbrodt, financial services editor, Politico.

Panelists:

Parr Schoolman, SVP and Chief Risk Officer, Allstate.

Tim Judge, SVP, Head Modeler, Chief Climate Officer, Fannie Mae.

Dan Coates, Deputy Director, DRS, Federal Housing Finance Agency.

Fred Karlinsky, Co-Chair of Greenberg Traurig’s Global Insurance Regulatory & Transactions Practice Group.

Panelists and participants alike appreciated the compact, action-focused, conversational nature of the single-afternoon event, as well as the opportunity to discuss areas in which their diverse industry- or sector-specific priorities and efforts overlapped.

If you weren’t able to join us in Washington, don’t worry. In his closing remarks, Kevelighan announced plans to take the program on the road with a local and regional focus, so stay tuned. You can contact us if you’re interested in participating in future Town Halls or other Triple-I events. You also can join the “Attacking the Risk Crisis” LinkedIn Group to be part of the ongoing conversation.

How Liberty Mutual Foundation BringsRisk ManagementInto Communities

By Max Dorfman, Research Writer, Triple-I

Nature-based solutions, green jobs, and resilient infrastructure are at the core of Liberty Mutual Foundation’s approach to helping marginalized communities that are most vulnerable to climate-related perils.

“We believe investing philanthropically in communities to help them mitigate and adapt to the impact of climate change is a natural extension that we do as a property-casualty insurer and an area where we can offer a lot of expertise,” Foundation President Melissa MacDonnell told Triple-I CEO Sean Kevelighan in a recent Triple-I Executive Exchange.

MacDonnell described the foundation’s three-pronged approach to community giving, which consists of:

  • Nature-based solutions, such as increasing access to locally grown food and green space to protect communities from sea-level rise or flooding;
  • Green jobs that provide training and skill development in the green economy for low-income and underrepresented youth and young adults; and
  • Resilient infrastructure for low-income neighborhoods and communities of color.

The foundation also supports existing partners in advancing their climate resiliency goals.

“Any organization in our philanthropic portfolio is eligible for these grants, so they can step back and consider how climate is impacting them,” MacDonnell said. “This includes homelessness shelters and job programs. This is our way of acknowledging that climate affects all of us.”

Kevelighan noted that this holistic approach is particularly important for residents of vulnerable communities.

“We’ve been talking at Triple-I about the role everyone plays in climate,” he said. “It’s encouraging that you’re bringing risk management into communities – particularly those that can’t provide themselves enough resources.”

Kevelighan and MacDonnell discussed how other insurers can become more involved in helping vulnerable communities.

“Insurers should carve out the time to listen to the communities” MacDonnell said. “Partnering with communities and public officials is also important. We are at an incredible moment in time where federal funding is available for climate projects” as a result of measures like the Community Disaster Resilience Zones Act of 2022, which aims to build disaster resilience by identifying disadvantaged communities that are most at risk to natural disasters and providing funding for projects that mitigate those risks.

Matching Price to Peril Helps Keep Insurance Available & Affordable

Setting insurance prices based on the risk being assumed seems a straightforward concept. If insurers had to come up with a single price for coverage without considering specific risk factors – including likelihood of having to submit a claim – insurance would be inordinately expensive for everyone, with the lowest-risk policyholders subsidizing the riskiest.

Risk-based pricing allows insurers to offer the lowest possible premiums to policyholders with the most favorable risk factors, enabling them to underwrite a wider range of coverages, thus improving both availability and affordability of protection.

Complications arise when actuarially sound rating factors intersect with other attributes in ways that can be perceived as unfairly discriminatory. For example, concerns have been raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. Critics say this can lead to “proxy discrimination,” with people of color in urban neighborhoods sometimes charged more than their suburban neighbors for the same coverage. Concerns also have been expressed about using gender as a rating factor.

Triple-I has published a new Issues Brief that concisely explains how risk-based pricing works, the predictive value of rating factors, and their importance in keeping insurance affordable while enabling insurers to maintain the funds needed to keep their promises to policyholders. Integral to fair pricing and reserving are the teams of actuaries and data scientists who insurers hire to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.

“There is no place in today’s insurance market for unfair discrimination,” the brief says. “In addition to being illegal, discrimination based on any factor that doesn’t directly affect the insured risk would be bad business in today’s diverse society.”

Learn More:

Bringing Clarity to Concerns About Race in Insurance Pricing

Delaware Legislature Adjourns Without Action on Banning Gender as Auto Insurance Factor

Triple-I: Rating-Factor Variety Drives Accuracy of Auto Insurance Ratings

Auto Insurance Rating Factors Explained

Triple-I Responds to SEC’s Proposed Climate-Risk Disclosure Requirements

Creating a new layer of federal oversight would neither enhance nor standardize the climate-related disclosures U.S. insurers make to investors, Triple-I said in a letter to the U.S. Securities and Exchange Commission (SEC).

Triple-I’s letter responded to the SEC’s request for public comment on its proposed rulemaking, “The Enhancement and Standardization of Climate-Related Disclosures for Investors.”

“The U.S. property and casualty industry supports and can play a constructive role in advancing transparency around weather- and climate-related risks,” Triple-I CEO Sean Kevelighan and Chief Insurance Officer Dale Porfilio wrote. “Indeed, as financial first responders, insurers have a strong ethical and financial interest in facilitating the transition to a lower-carbon economy and in promoting resilience during that transition.”

But adding a new layer of federal oversight to the existing regulatory structure would complicate insurer operations “while providing little to no benefit toward reducing greenhouse gas emissions and adapting to near-term conditions and perils,” the letter said.

The U.S. insurance industry is regulated in more than 50 jurisdictions, receiving more governance and regulatory oversight than any other type of financial service. More than 80 percent of insurers’ investments are in fixed-income – mostly municipal – securities.

“The SEC’s effort overlaps significantly with those of other entities,” Kevelighan and Porfilio wrote, mentioning the National Association of Insurance Commissioners (NAIC) and the states that regulate insurance, as well as the Treasury Department’s Federal Insurance Office (FIO). “Assessing Scope 3 emissions would be particularly onerous for insurers due to the fact that they cover diverse personal and commercial assets and activities, over which they have no control – further, there is currently no accepted methodology for insurers to measure their underwriting-related Scope 3 emissions, which makes the SEC’s proposed requirement premature for our industry.”

Scope 3 emissions are the result of activities from assets neither owned nor controlled by the reporting organization, according to the U.S. Environmental Protection Agency (EPA).

Triple-I recommended that the NAIC climate risk disclosure survey serve as the primary reporting regime for all insurers, allowing for consistent enforcement across ownership structures (public, private, and mutual) while avoiding unnecessary complexity and expenses.

“Property and casualty insurers are no strangers to climate and extreme-weather risk. We may not always have talked about the issue in those terms, but our industry has long had a financial stake in the issue. Consider the fact that insured losses caused by natural disasters have grown by nearly 700 percent since the 1980s and that four of the five costliest natural disasters in U.S. history occurred over the past decade.The industry is committed to disclosure of climate-related exposures, as such information will be integral to insurers’ ability to accurately and reliably underwrite such risks and make better-informed investment decisions,” Kevelighan and Porfilio wrote.

Learn More:

Report: Policyholders See Climate as a ‘Primary Concern’

Climate Risk Is Not a New Priority for Insurers

A Push for Better Building Codes as Catastrophe Losses Mount

Widening and Deepening the Conversation on Climate Risk and Resilience

Report: Policyholders See Climate as a ‘Primary Concern’

By Max Dorfman, Research Writer, Triple-I (06/08/2022)

Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.

Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”

The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.

The report recommended three policies that could assist in creating climate resiliency among insurers:

  • Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
  • Closing the gap between long-term and short-term goals across a company’s value chain; and
  • Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”

A global problem

Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

Data is key

The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”

The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”

Bringing Clarityto Concerns AboutRace in Insurance Pricing

There is no place for 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.

Concerns have been raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. Critics say using such data can lead to “proxy discrimination,” with people of color sometimes being charged more than their neighbors for the same coverage. Insurers reply that these tools reliably predict claims and help them match premiums with risks – preventing lower-risk policyholders from subsidizing higher-risk ones.

Public confusion around insurance rating is understandable. The models used to determine insurance rates are complex, and actuaries have to distinguish causal relationships from superficial correlations to appropriately align insurers’ prices with the risks they’re covering. If they get it wrong, the insurers’ ability to keep their promises to pay policyholder claims could be compromised.

And they have to do this while complying with regulations and statutes in 50-plus U.S. jurisdictions. As one of the most heavily regulated industries in the world, insurers have strong incentives to comply with anti-discrimination rules.

To help clarify this complexity, Triple-I has published an Issues Brief on the subject, and the Casualty Actuarial Society has published a series of four research papers, drilling down deep into the topic:

Defining Discrimination in Insurance

Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance

Understanding Potential Influences of Racial Bias on P&C Insurance: Four Rating Factors Explored

Approaches to Address Racial Bias in Financial Services: Lessons for the Insurance Industry

“Insurance pricing is a high-wire act,” CAS says.  “As regulation and society’s understanding of discrimination evolve, however, it is necessary for us to keep abreast of changes in the manner in which discrimination is defined and adjudicated.”

Insurers are well aware of the history of unfair discrimination in financial services. While it would be disingenuous to suggest that all traces of bias have been wrung out of the system, the insurance industry has been responsive over the decades to concerns about fairness and equity. Insurers and actuaries are uniquely positioned to continue helping policymakers, corporate decisionmakers, and the public understand these inequities and to play a constructive role in the policy discussion.

Actuaries Tackle Race in Insurance Pricing

The Casualty Actuarial Society (CAS) has developed a series of papers examining the issue of race and insurance pricing and seeking to contribute constructively to the policy discussion around it.

“Insurance pricing is a high-wire act,” CAS says.  Actuaries have to quantify and differentiate among a massive variety of risk variables while avoiding unfair discrimination. “As regulation and society’s understanding of discrimination evolve, however, it is necessary for us to keep abreast of changes in the manner in which discrimination is defined and adjudicated.”

The CAS research has generated four papers – two published this week, two more to be published on March 31 – that define, quantify, and propose methods for addressing unfair discrimination where it is found to exist.

Confusion around insurance rating is understandable, given the complex predictive models being used today, which can lead to inappropriate comparisons and inaccurate conclusions. Algorithms and machine learning hold great promise for helping to ensure equitable pricing. However, research has shown these tools also can amplify biases that manage to creep into their programming.

Recent Colorado legislation requires insurers to show that their use of external data and complex algorithms don’t discriminate against protected classes, as well as other state and federal efforts to address perceived bias in pricing.

The actuarial discipline and the insurance industry are well positioned to continue helping policymakers and corporate decisionmakers understand and address these inequities.

The CAS papers published this week are:

Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance

Approaches to Address Racial Bias in Financial Services: Lessons for the Insurance Industry

JIF C-Suite Panel: Finding Opportunity Amid Evolving Risks

Credit for all photos in this post: Don Pollard

Insurers – beyond their traditional role as financial first responders – are helping policyholders mitigate the risks posed by natural disasters and cyber threats, panelists at a Joint Industry Forum (JIF) panel said.

The JIF’s C-Suite on Resilience panel was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR). It included Richard Creedon, CEO, Utica Mutual Insurance Company; Paul Horgan, Head of U.S. National Accounts, Zurich North America; John Smith, CEO, Pennsylvania Lumbermens Mutual Insurance Company; and Rohit Verma, CEO, Crawford & Co.

“2021 has been a year of risk that has certainly challenged us,” ABIR’s Huff said. “Eighteen events in the U.S. alone, with over a billion dollars an event. Just a few years ago, those types of numbers would be unheard of, not to mention the 538 deaths and significant economic losses.”

Hurricane Ida, a Category 4 storm that made landfall in Louisiana in August, and the Dixie Fire, which burned 1 million acres in California over four months, were two of the most devastating national disasters this year.

“One recurring theme that we can talk about, especially with hurricanes and wildfires, is that we have growth in population in areas that are significantly impacted by these threats,” said Phil Klotzbach, PhD, a research scientist at Colorado State University’s Department of Atmospheric Science, and a Triple-I non-resident scholar, in introductory remarks.

Huff started the discussion by noting that the notion of resilience seems to have evolved from preparedness to meet and rebound from large, single events like hurricane, earthquake, or wildfire.

“It seems we may have entered a new period for leadership to think of resilience more broadly,” he said. “I’m thinking of the interconnectedness of businesses, individuals, and communities through technology and global commerce; the supply-chain and labor-force disruptions we’ve experienced due to the pandemic; cyber risks, which is such a growing market for our industry but also a growing risk for our global economy. Have risk and resilience fundamentally changed in recent years? Or are we just having to adjust to viewing them through a new lens?”

“There’s certainly a lot more to think about,” said Utica Mutual’s Creedon. “The opportunity moment for us is that there’s market need and expertise we have to expand beyond the traditional risk-transfer product.”

He noted that the industry has historically thought about risk and resilience “in balance-sheet terms, we’re building up large reservoirs of capital and surplus for that large capital- and surplus-draining event that’s going to happen. But nowadays capital is fairly cheap and abundant – it’s almost a renewable resource – and that kind of makes the risk-transfer product more commoditized and sort of a race to the bottom on pricing and product.”

The opportunity lies in insurers’ ability to augment their traditional capabilities with risk management, loss control, and other services to have an impact for consumers, he noted.

“It’s not, in my mind, a fundamental shift in what we define as risk,” said Pennsylvania Lumbermens’ Smith. “It’s that there are so many coming at us. As I think about risk, I do a lot of listening.  That’s why I’m here today, why I’m part of [Triple-I] I want to hear different perspectives.”

Zurich’s Horgan drew a contrast between U.S. insurers and their European counterparts, which, he said, “have been focused on climate change for a much longer time. Zurich has been monitoring its environmental footprint since 2007, has been net neutral since 2014, has signed on to U.N. agreements. These are things that have been hotly debated in the U.S., but they’re buying in.”

 “Our customers are craving for insights,” Horgan continued. “These are evolving risks. Some of them are insurable, some of them are not.  [Our customers] are looking to us for data. They know where they’ve got to be, and they know they have this journey to get there.”

 “I think about resilience as being able to recover from adversity, able to recover from a loss, or prevent that loss from having any impact on you,” Crawford’s Verma said.  “It’s impressive to see what the industry has done. Where there’s a gap is, if the industry was a playing field, everyone is playing like a quarterback, and if everyone is playing like a quarterback you can’t win.”

 Verma said his concern is whether the industry is coming together as a team to “rethink the ecosystem of insurance – the brokers, the claims providers, the carriers” to have a meaningful impact on resilience.

Insuretech Connect: Showcasing Innovation

Sean Kevelighan leads Climate Risk and Resilience panel. (Photo/videos by Scott Holeman,
Media Relations Director, Triple-I)

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

Insuretech Connect – the world’s largest gathering of insurance leaders and innovators – last week brought together insurance technology stakeholders to network, share insights, and learn about leading-edge technology across all insurance lines.

Conference participants included Pete Miller, president and CEO of The Institutes, who discussed risk mitigation through new technology. 

“Capturing data about the things we do and then allowing us to mitigate risk before we even get to the insurance function, that’s really where I think this industry is going,” he said.

One panel, Climate Risk and Resilience, focused on the importance of Insurtech and innovation to the success and sustainability of the industry. Moderated by Triple-I CEO Sean Kevelighan, the panel included Sean Ringsted, chief digital officer at Chubb; Christie McNeill, associate partner with McKinsey & Company and leader of ESG and Climate Change for the Insurance Practice in North America; Alisa Valderrama, CEO and co-founder of FutureProof Technologies, a venture-backed financial analytics software company specializing in climate risk; and Susan Holliday, Triple-I nonresident scholar and senior advisor to the International Finance Corporation (IFC) and the World Bank, where she focuses on insurance and Insuretech.

“Insurers are no stranger to climate and extreme weather,” Kevelighan said. “They have had a financial stake in it for decades.”

He noted that insured losses caused by natural disasters have grown by nearly 700 percent since the 1980s and four of the five costliest natural disasters in U.S. history have occurred over the past decade.

U.S. insurers paid out $67 billion in 2020 due to natural disasters. The insured losses emerged in part as the result of 13 hurricanes, five of the six largest wildfires in California’s history, and a derecho that caused significant damage in Iowa. 

This year’s Hurricane Ida is expected to cost insurers at least $31 billion and to push Hurricane Andrew out of the top five damaging storms. 2021 has been another record year for wildfires. January 1 to September 19, 2021 there were 45,118 wildfires, compared with 43,556 in the same period in 2020. 

The panelists talked about how insurers have long been aware of climate risk and – to the extent that existing data-gathering and modeling technologies allowed – considered it in risk pricing and reserving. As information storage and processing have vastly improved, the industry has not only gotten better at underwriting and reserving for these risks – it has identified opportunities in areas it once could only view as problems.

Improved modeling, for example, has increased insurers’ comfort with and appetite for writing flood coverage and spurred the development of new products. 

“Insurers are and always will be financial first responders, but there’s a growing realization that risk transfer alone isn’t enough,” Kevelighan said.  “Insurance is one important step toward resilience.  It’s well documented that better-insured communities recover faster from disasters.  But more is required to address increasingly complex global risks.”