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Industry Financials, Insurance Industry, Insurance News

Reinsurance Buyers See More Balanced Market at July 1 Renewals: Gallagher Re

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Reinsurers experienced near-record returns in 2023, and continued to post strong results in the first quarter of 2024, with up to a 12% improvement in combined loss ratios, according to Gallagher Re’s 1st View report.

The report attributes these positive outcomes to several factors, including relatively benign natural catastrophe activity, adjustments in the reinsurance market, improved conditions in primary markets, and higher reinvestment rates. Improved results have created a more favorable market for reinsurance buyers, with sufficient capital available to meet increased demand, Gallagher Re observed.

“This more comfortable market for buyers has been underpinned by an increasing supply of capital to meet increased demand as reinsurers balance sheets have expanded on the back of strong 2023 and Q1 2024 results,” commented Gallagher Re CEO Tom Wakefield.

Non-life insurance-linked securities (ILS) capital reached a record level of $107 billion at the end of 2023 and continued to grow in the first half of 2024, driven by successful catastrophe bonds and increased investor interest.

However, ILS capacity became less abundant by midyear, as the Atlantic hurricane season approached,  Gallagher Re noted.

“ILS capacity became scarce as ILS investors were ‘unnerved’ by forecasts of an active hurricane season,” the report stated.

Property outlook

The property reinsurance market has experienced increased competitiveness and capacity due to reinsurers’ strong performance in recent years, the report noted.

While reinsurers were not significantly impacted by natural catastrophe losses in Q1, there were an estimated $43 billion of economic losses and $20 billion insured losses in Q1 with both numbers being near the 10-year average.

The first quarter is not traditionally a major driver of the annual natural catastrophe loss burden, historically only representing 14% of the full-year total. Losses in Q1 have been dominated by severe convective storm losses (34% of insured losses) and other secondary perils of wildfire, drought and flood making up another 29%.

At July 1 renewals, risk-adjusted catastrophe pricing for Florida property was down 0% to 10% on average, and additional capacity demands of $3 billion to $5 billion in Florida were all met.

“Following three consecutive years of double-digit risk-adjusted rate increases, reinsurers were looking to hold the line from a procing perspective,” the reinsurance intermediary said of the Florida property catastrophe market.

The report also highlighted that buyers of property catastrophe insurance have been able to negotiate better terms and conditions on their reinsurance contracts due to the “risk on” approach taken by reinsurers. Risk-adjusted catastrophe placements in the U.S. generally were down 0% to 12% at July 1, Gallagher Re reported.

Non-catastrophe property pricing in the U.S. was down 0 to 10% for loss free accounts, but up 5% to 15% with losses.

Casualty outlook

“Casualty underwriters appear less confident than property underwriters outlined above, although this warrants its own caveat. The issues driving stakeholder concerns are regionally nuanced as the frequency and severity of casualty losses are driven by local societal, economic, judicial, legislative, and behavioral factors,” the report stated.

In the casualty insurance sector, concerns over rate adequacy in the U.S. have increased, following adverse development reported by liability insurers in the fourth quarter of 2023 and the first quarter of 2024. The lengthening and deteriorating tail of liability claims have exacerbated reinsurers’ concerns, as the market is already dealing with economic and non-economic loss inflation.

At July 1 renewals, risk adjusted excess of loss rates for U.S. general liability business were up 5% to 10% with no losses, and up 5% to 15% with emerging losses.

For U.S. health care liability, increased loss severity was seen across the health care sector. Excess of loss rates were up 0 to 5% for limited-exposed layers, and up 3% to 8% for catastrophe layers, without emerging losses. Rate increases were greater — up 5% to 20% — for layers with emerging losses.

Professional liability lines with no emerging losses saw excess of loss rates decline 0% to 5%, while accounts with losses experienced 0% to 10% increases.

Workers compensation has seen continued pressure for increases, even on loss-free layers, Gallagher Re noted. Excess of loss rates with no loss emergence were up 0 to 5% and with loss emergence, increased 5% to 10% at July 1.

The full report can be downloaded on the Gallagher Re website.

Catastrophes, Homeowners Insurance, Insurance Industry, Legal Environment, Market Conditions

Florida Homeowners Premium Growth Slows
as Reforms Take Hold, Inflation Cools

Historic Florida State Capitol Building Source: Getty Images

Homeowners insurance premium growth in Florida has slowed since the state implemented legal system abuse reforms in 2022, according to a Triple-I analysis.

As shown in the chart below, average annual premiums climbed sharply after 2020. This was due in part to inflation spurred by the COVID-19 pandemic and the war in Ukraine as well as longtime challenges in the state with claim fraud and legal system abuse.

Source: Triple-I analysis of NAIC and OIR data

According to the state’s Office of Insurance Regulation (OIR), Florida accounted for nearly 71% of the nation’s homeowners claim-related litigation, despite representing only 15% of homeowners claims in 2022, the year Category 4 Hurricane Ian struck the state. In that same year, and prior to Ian making landfall in the state as a first major hurricane since 2018’s Hurricane Michael, six insurers declared insolvency. Hurricane Ian became the second largest on record by insured losses, in large part because of the extraordinary litigation costs estimated to result in Florida in the aftermath.  

The Florida Legislature responded to the growing crisis by passing several pieces of insurance reform, primarily tackling problems with assignment of benefits (AOB), bad-faith claims, and excessive fees.  For example, the new laws eliminated one-way attorney fees in property insurance litigation, forbid using appraisal awards to file a bad-faith lawsuit, and prohibited third parties from taking AOBs for any property claims. The legislation also ensures transparency and efficiency in the claims process and encourages more efficient, less costly alternatives to litigation.  

A surge in litigation

Litigation spiked when backlogged courts reopened following the pandemic, then again when the reforms were passed in 2022 and 2023, as plaintiffs’ attorneys raced to file suits ahead of implementation of the legislation.

This increase in litigation, combined with persistently strong inflation, contributed to increased loss costs and premium increases. In 2022, average homeowners premium rates rose more than 17 percent, to $3,040. Premiums continued to rise in 2023, although at a decreasing rate, as inflation has moderated and legal reforms have kicked in.

There are early signs that the reforms are beginning to bear fruit. In 2023, Florida’s defense and cost-containment expense (DCCE) ratio – a key measure of the impact of litigation – fell to 3.1, from 8.4 in 2022, according to S&P Global. In dollar terms, 2023 saw $739 million in direct incurred legal defense expenses – a major decline from 2022’s $1.6 billion. For perspective, incurred defense costs in the two largest U.S. insurance markets in 2023 were $401.6 million in California, followed by $284.7 million in Texas. As the chart below shows, Florida’s DCCE ratio – even during its best years – regularly exceeds the nation’s.

As insurers have failed or left the state, Citizens Property Insurance Corp. – the state-run insurer of last resort and currently Florida’s largest residential insurance writer – has swelled with new business and lawsuits. Citizens’ depopulation efforts to move policyholders to private insurers contributed to policy counts falling to 1.23 million by the end of 2023.

It’s important to remember that all premium estimates are based on the best information available at the time and actual results may differ due to changes in market conditions. For example, earlier Triple-I projections that average annual homeowners premiums in Florida would exceed $4,300 in 2022 and $6,000 in 2023 assumed significant rate increases would be needed to restore profitability to the state’s homeowners market. These projections did not assume legislative reform or that Citizens would become the state’s largest homeowners insurance company, with many risks priced below the admitted and excess and surplus markets. Our projections also assumed inflation would continue to grow at rates similar to those prevailing at the time.

In light of the reforms and moderating inflation, we are now reporting lower average annual premiums of $3,040 (2022) and $3,340 (2023). The Florida OIR has reported average premium rate filings are running below 2.0 percent in 2024 year-to-date in the private market. Further, OIR indicated eight domestic carriers have filed for rate decreases and 10 have filed for no increase this year. Additionally, eight property insurers have been approved to enter the Florida market, with more expected this year.

Triple-I will continue to monitor and report on the evolving property insurance market in Florida.

Insurance Industry, Legal Environment

Operating from the shadows, TPLF can create problems for judges and courts.

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Hand with black sleeve holding a gavel, piles of documents

A recently published article, The Fifth Dimension: TPLF and Its Effect on the Judiciary, highlights the ways the rising specter of third-party litigation funding (TPLF) can create unnecessary challenges for the judiciary. 

Triple-I has published a great deal regarding the potential impact of TPLF on costs for insurers and policyholders. Bellino’s gaze focused on potential risks for the judiciary:

  • Increased judicial workload
  • More fraudulent claims
  • Longer litigation and slower settlements
  • Creation of potential appellate issues

And, like many insurance industry stakeholders, Lisa M. Bellino (VP Claims Judicial & Legislative Affairs for Zurich North America in Philadelphia) is fundamentally concerned about the lack of transparency surrounding TPLF’s involvement in a lawsuit.

TPLF is a growing and costly aspect of legal system abuse, a problem that Triple-I and other industry thought leaders define as policyholder or plaintiff attorney actions that unnecessarily increase the costs and time to settle insurance claims. Qualifying actions can arise, for example, when clients or attorneys draw out litigation in hopes of a larger settlement simply because TPLF investors take such a giant piece of the payout. As there is little transparency around the use of TPLF, insurers and the courts have virtually no leeway in mitigating any of this risk.

TPLF can lead to undue judicial burden and waste.

When judges are unaware of the funding arrangement, they would likely also be in the dark about potential conflicts of interest or improper claims and, therefore, be unable to mitigate these risks. However, Bellino argues that the de facto practice of secrecy can cause judicial waste even in the limited number of jurisdictions and courts that require disclosure. Judges may feel compelled to spend a significant amount of time ascertaining attorney compliance. As funding often involves parties not directly related to the case, the judiciary may need to hold additional hearings and reviews to uncover the real parties in interest. Bellino cites a case in which the real parties were not the named plaintiffs.

TPLF can be a driving factor behind lawsuit generation.

When law firms pursue class action litigation, they may engage “lead generators,” companies that help find plaintiffs for a specific tort. Advertising tactics can include traditional and social media. When prospective claimants respond to these ads, they are directed to a law firm or a call center that distributes the recruited claimants to law firms. This service comes at a steep price – in dollars and justice. As funding may often come from TPLF, Bellino describes how the profit model behind lead generation companies working with law firms can increase the risk of fraudulent claims.

The risk of bogus claims and claimants can surge with TPLF.

Funders of class action litigation have a financial incentive to drive up the number of plaintiffs. As neither the defense nor the judge is typically aware of the third party’s potential conflict of interests, judicial resources can be wasted, and justice can be delayed for legitimate claimants. Bellino cites, among other examples, a New York case to illustrate how litigation funders and attorneys may even collaborate in multi-million dollar fraud schemes.

TPLF funders may encourage drawn-out litigation and hinder settlements

Bellino cites a case highlighting how funders might control litigation and delay resolutions to maximize their returns. A publicly traded TPLF giant allegedly blocked a settlement agreement between a plaintiff and the defendants, resulting in prolonged litigation across multiple jurisdictions. The interference may have led to additional motions, hearings, and opinions, diverting judicial resources from resolving the dispute between the named parties. As a result, costs for the plaintiff, defendant, and the courts likely would’ve soared. 

Undisclosed TPLF involvement can spark appellate concerns.

Undisclosed funding agreements can also prevent parties from adequately preparing their cases and preserving appellate issues. For example, a TPLF investor may fund medical testing that leads to recruiting plaintiffs for a class action against a drug manufacturer.  If this fact wasn’t disclosed to the defendants or court, at the very least, the defendant wouldn’t have access to information needed for defense or subsequent appeals. Also, the judiciary wouldn’t be able to perform its duty to monitor red flags for potential bias or fraud. It is also possible that the interests of the plaintiff will be affected by other appellate concerns, too.

Increases in litigation and claim costs have threatened the affordability and availability of many areas of insurance coverage. TPLF involvement, like other channels for potential legal system abuse, is nearly impossible to forecast and mitigate. And despite its original intended purpose–to help plaintiffs seek justice– it can extract a disproportionate amount of value from settlements, weakening the primary purpose of a financial payout.

Overall, the shroud of secrecy around TPLF can undermine the legal system, posing threats to unbiased and fair legal outcomes. Bellino strongly advocates for mandatory disclosure of TPLF agreements at the beginning of litigation. A system-wide requirement for early transparency would allow courts and involved parties to address potential conflicts, biases, and fraud early in the process. In her words, “Disclosure may restore reality and close the door on the TPLF Twilight Zone.”

To learn more about how TPLF can impact costs for insurers and policyholders, take a look at our primer, What is third-party litigation funding and how does it affect insurance pricing and affordability? Our issue brief, Legal System Abuse: State of the Risk, can also provide more context on how TPLF fits into social inflation.  

Insurance Industry, Insurers and the Economy

New Triple-I Podcast Focuses on Intersection of Economics & Insurance

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By Marina Madsen, Research Analyst, Triple-I

Triple- I is pleased to present “All Eyes on Economics”, its new podcast series.

Hosted by Triple-I Chief Economist and Data Scientist Dr. Michel Léonard, PhD, CBE, the series equips listeners with insights to manage economic uncertainty at the intersection of economics and insurance. It features interviews with insurance practitioners, technologists, academics, educators, analysts, and economists from various industries who discuss their perspectives and how they integrate economic trends and developments into their day-to-day responsibilities.

Early episodes include discussions with:

  • Jennifer Kyung, Chief Underwriting Officer at USAA,
  • Ken Simonson, Chief Economist of the Associated General Contractors of America,
  • Dale Porfilio, Triple-I Chief Insurance Officer,
  • Sean Kevelighan, Triple-I CEO, and
  • Pete Miller, President and CEO at The Institutes.

Dr. Léonard brings more than 20 years’ expertise in senior and leadership positions as Chief Economist for Trade Credit and Political Risk at Aon; Chief Economist at JLT; Chief Economist and Data Scientist at Alliant; and Chief Data Scientist at MaKro. He also is adjunct faculty in New York University’s Economics Department.

Insurance Industry

Dynamic trends in TPLF and securities class actions increase risks for insurers

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An annual report on securities class actions from Cornerstone Research indicates the median settlement amount increased 11%, and the proportion of settlements of at least $100 million climbed to nearly two-thirds of the total settlement dollars in 2023.  

Research from Westfleet Advisors focused on third-party litigation funding (TPLF) for US commercial litigation suggests the David versus Goliath narrative surrounding the early years of the market is growing tenuous. The overall percentage of commitments allocated to Big Law continues to increase, from 28% in 2022 to 35% in 2023.  

These and other persistent upward trends in litigation, settlement, and other legal costs continue to have implications for insurers, the policyholders they serve, and, ultimately, consumer prices. 

Mega settlements and institutional investors as lead plaintiffs are increasing. 

Cornerstone reports that despite a more than 20% decline in the number of settlements, total settlement dollars remained approximately the same, standing at little over half of the 2016 peak.  

There were 83 securities class action settlements in 2023, with an approximate total value of $3.9 billion, versus 105 settlements in 2022, totaling $4.0 billion. Other highlights in the 2023 data: 

  • The median settlement amount of $15 million is the highest since 2010.    
  • The nine “mega” settlements in 2023–the highest annual frequency since 2016–ranged from $102.5 million to $1 billion. 
  • All of the mega settlements included an institutional investor as the lead plaintiff.  
  • Only 6% of cases settled for less than $2 million, the lowest percentage since 2013.  

Analysis indicates that settlements were also higher in cases involving certain factors: “accounting allegations, a corresponding SEC action, criminal charges, an accompanying derivative action, an institutional investor lead plaintiff, or securities.” Further, an increasing number of cases that settle at later stages involved an institutional lead plaintiff, continuing the trend from 2022.  

Results also suggest that drawing out cases can amplify other factors, such as total assets and median “simplified tiered damages,” a Cornerstone term that refers to the model used to estimate settlement amounts. For both of these categories in 2023, median amounts for cases after class certification rulings were twice that of cases that settled before these rulings were made. However, in the five-year period from 2019 through 2023, over 90% of cases were settled before filing a motion for summary judgment.  

Accompanying derivative actions are down. 

Whereas a securities class action is filed on behalf of shareholders, a shareholder derivative action is typically brought by a shareholder on behalf of and (arguably) for the benefit of the company (usually against the company’s directors and/or officers). Derivative actions typically only happen in parallel with class action lawsuits, and the majority don’t result in monetary settlements (except for attorney fees). Instead, the plaintiff wins tend to center around measures for reforming corporate governance or operational controls.  

Other research from Cornerstone shows the probability of a monetary settlement for these lawsuits increases when the associated class action settlement is rather large. Also, historically, securities actions with accompanying derivative litigation tend to settle for higher amounts than those that don’t carry parallel derivative claims. Thus, Cornerstone also tracks the percentage of cases involving accompanying derivative actions. In 2023, the portion was 40%, the lowest since 2011.  

New capital commitments decreased for commercial litigation TPLF, but claim monetization increased. 

With a reported 39 active funders, 353 new deals, and $15.2 billion AUM, commercial litigation (versus consumer litigation) receives the majority of third-party litigation funding (TPLF). Investors target intellectual property, arbitration, business torts, contract breaches, and, of course, class action suits. These TPLF deals, also referred to as transactions or commitments, are arranged between funders and corporate litigants or law firms. Westfleet Advisors’ most recent market report on TPLF is the fifth edition, and it covers transactions from July 1, 2022, to June 30, 2023. Some noted exceptions and data adjustments are described in the report. 

The report reveals that despite some funders leaving the market and a 14% decrease in new capital commitments, key data points remained close to amounts tracked for last year. For example, attorneys still make the majority of these deals with a 64% share of the agreements, in contrast to only 36% for clients. Patent litigation is still reaping the largest amount of funds for a single legal area, about 19% of new commitments. Figures for type of deal and average deal size also remain fairly stable.  

However, some annual numbers have increased, highlighting an ongoing strategic shift in TPLF use. For the third year in a row, the report noted a rise in capital allocated for the monetization of claims, with 21% (versus 14% in 2022) going to new commitments. The biggest law firms (ranked in the AmLaw 200 according to gross revenue) have increased their use of TPLF, snagging 35% of the new deals. Arguably, both trends weaken the “David vs Goliath” narrative, and commercial TPLF may evolve to be less about helping scrappy firms and plaintiffs and more about extracting profits from litigation.  

Drawn out litigation and more outsized settlements may have implications for insurance coverage. 

Triple-I and other industry thought leaders define Legal System Abuse as policyholder or plaintiff attorney actions that unnecessarily increase the costs and time to settle insurance claims. Qualifying actions can arise from attorneys or clients drawing out litigation to reap a larger settlement simply because TPLF investors take such a giant piece of the settlement pie. As there is little transparency around the use of TPLF, insurers and courts have virtually no leeway in mitigating any of this risk. 

Thus, as with other channels for potential legal system abuse, TPLF use is nearly impossible to forecast and mitigate. Increases in litigation and claim costs have threatened the affordability and availability of many other areas of insurance coverage. TPLF can impact product lines such as Directors and Officers (D&O) in commercial litigation via securities class actions. TPLF can produce a financially counterproductive effect for plaintiffs by extracting a disproportionate amount of value from settlements, weakening the primary purpose of a financial payout: to enable the claimant to restore losses.  

Nonetheless, insurers seek to carefully manage these risks through underwriting practices, policy exclusions, and setting appropriate reserves to mitigate the financial impact. Meanwhile, Triple-I and various other stakeholders have called for a regulatory rein-in on TPLF to increase transparency.  To keep abreast of the conversation, follow our blog and check out our regularly updated knowledge hub for Legal System Abuse. 

Careers and Employment, ESG, Insurance Industry, Webinars

The Institutes Releases New Webinar, Intersectionality in Research: Navigating Diversity

Industry stakeholders looking to keep pace with market challenges may find diversity in research the key to long-term success and resilience. A multitude of different perspectives, ideas, and solutions can enhance innovation and strategic outcomes. Join The Institutes for a webinar panel discussion of strategies for creating inclusive research spaces, addressing biases, and fostering a diverse and equitable research community, specifically in insurance.

 The panel includes:

  • Julia Brinson, Vice President, Insurance Research, Conning
  • Dale Porfilio, Chief Insurance Officer for the Insurance Information Institute (Triple-I) and President of the Insurance Research Council (IRC).
  • Roosevelt Mosley, Jr. Principal & Consulting Actuary, Pinnacle Actuarial Resources, Inc.

Amy Cole-Smith, currently the Director for Diversity at The Institutes, moderated the discussion for this on-demand event.

Intersectionality hinges on two core fundamentals: all oppression is linked, and people can be impacted by multiple sources of interlocking oppression that converge to create a new and multi-layered struggle.

For example, intersectionality recognizes that a Black woman experiences racial and gender discrimination in ways that might be entirely different from the ways Black men face racism or White women face sexism. These differences stem from the principle that for Black women, the identities of “woman” and “Black” do not exist independently.

Intersectional research explores how gender, race, ethnicity, and other identity markers impact the data and analysis to drive valuable insights. But success requires discovering effective ways to generate those insights for the benefit of all in the customer base, not just some. Without the inclusion of intersectionality in research, disparities may continue, and market needs–along with accompanying opportunities–can go unmet.

According to Julia Brinson, applying intersectional research begins with better recruiting diverse talent. Building on her response, Roosevelt Mosley, Jr added, “Once that talent gets into our industry, we need to focus on developing and growing that talent into all areas of an organization.” 

In a demonstration of how inclusion can play out around the research table, the panelists shared how their experiences influence how they approach research. Brinson, who holds a Master of Law in Insurance Law (among many other credentials), spoke about how she views insurance research problems with an eye for diversity using a “legal lens to understand the claims aspect” and how premiums may be affected.

The panelists also recommended how other researchers can effectively incorporate intersectionality into their work.

Dale Porfilio commented on how “diversity in thought and experience” can help address the industry’s challenges in this area, including “making sure products are affordable…and available to cover a broad range of risk…and integrating that with the social construct of fairness.”

However, Moseley warned that a one-size-fits-all approach to any particular category, such as race, gender, etc., won’t be sufficient to meet the requirements of intersectionality in research.

“There is a collective experience of groups, but within that collective experience, there is also significant diversity,” he said.

The common sentiment revolved around the need for “courageous conversations” and there was plenty of advice on how institutions foster an environment that promotes communication and collaboration among researchers of diverse backgrounds.

The entire webinar is available now on demand. Register here: Intersectionality in Research: Navigating Diversity (on24.com)

Business Insurance, Business Risk, Cyber Risk, Insurance Industry

The latest reports from FBI and ITRC reveal that cyber incidents in 2023 broke records for financial loss and frequency.

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Cyber incidents reported to the FBI’s Internet Crime Complaint Center (IC3) in 2023 totaled 880,418. These attacks caused a five-year high of $12.5 billion in losses, with investment scams making up $4.57 billion, the most for any cybercrime tracked. Phishing, with 298,878 incidents tracked (down from its five-year high in 2021 of 323,972), continues to reign as the top reported method of cybercrime.

The 2023 Data Breach Report from Identity Theft Resource Center (ITRC) reveals that last year delivered a bumper crop of cybersecurity failures – 3,205 publicly reported data compromises, impacting an estimated 353,027,892 individuals. Meanwhile, supply-chain attacks increased, and weak notification frameworks further increased cyber risk for all stakeholders.

Email compromise, cryptocurrency fraud, and ransomware increase

In addition to record-high financial losses from cybercrimes overall in 2023, the report revealed trends across crime methodology and targets. Investment fraud was the costliest of all incidents tracked. Within this category, cryptocurrency involvement rose 53 percent, from $2.57 billion in 2022 to $3.94 billion. Victims 30 to 49 years old were the most likely group to report losses.

Ransomware rose 18%, and about 42 percent of 2,825 reported ransomware attacks targeted 14 of 16 critical infrastructure sectors. The top five targeted sectors made up nearly three-quarters of the critical infrastructure complaints: healthcare and public health (249), critical manufacturing (218), government facilities (156), information technology (137), and financial services (122).

Adjusted losses for 21,489 business email compromise (BEC) incidents climbed to over 2.9 billion. The IC3 noted a shift from dominant methods in the past (i.e., fraudulent requests for W-2 information, large gift cards, etc.). Now scammers are “increasingly using custodial accounts held at financial institutions for cryptocurrency exchanges or third-party payment processors, or having targeted individuals send funds directly to these platforms where funds are quickly dispersed.”

The report disclosed a $50,000,000 loss from a BEC incident In March of 2023, targeting “a critical infrastructure construction project entity located in the New York, New York area.”

The IC3 says it receives about 2,412 complaints daily, but many more cybercrimes likely go unreported for various reasons. Complaints tracked over the past five years have impacted at least 8 million people. The FBI’s recommendations for solutions to minimize risk and impact include:

  • Ramping up cybersecurity protocols such as two-factor authentication.
  • More robust payment verification practices.
  • Avoiding engagement with unsolicited texts and emails.

The scale of 2023 data compromises is “overwhelming.”

According to the ITRC, the surge in breaches during 2023 is 72 percent over the previous record set in 2021 and 78 percent over 2022. To add more perspective, the ITRC notes that “the increase from the past record high to 2023’s number is larger than the annual number of events from 2005 until 2020, except for 2017.”

Meanwhile, as the report highlights, two other outsized trends converged: increasing complexity and risk. The number of organizations and victims impacted by supply-chain attacks skyrocketed. The notification framework conspicuously weakened, too. Since some laws assign liability for notification to organizations owning the leaked data, the notification chain would stop there, leaving downstream stakeholders unaware. For example, a software company servicing nonprofits might duly notify its direct B2B customers but not the individuals served by the nonprofit organization.

The ITRC has been reviewing publicly reported data breaches since 2005, and it now has a database of more than “18.8K tracked data compromises, impacting over 12B victims and exposing 19.8B records.” This ninth report forecasts a bleak outlook for the coming year. Specifically, “an unprecedented number of data breaches in 2023 by financially motivated and Nation/State threat actors will drive new levels of identity crimes in 2024, especially impersonation and synthetic identity fraud.”

The faster a breach is identified and reported, the faster all potentially affected parties can take measures to minimize impact. However, reporting regulations can vary across jurisdictions and businesses, and their supply chain partners may hesitate to disclose breaches for fear of impacting revenue and brand reputation. ITRC outlines its forthcoming uniform breach notification service designed to enable due diligence, emphasizing swift action and coordination with business and regulatory authorities. The service will be offered for a fee to companies looking to better handle cyber risk in their supply chains and regulatory requirements. Other recommendations include the increased use of digital credentials, facial identification/comparison technology, and enhancing vendor due diligence. 

The increased risk and rising financial losses from cyber risk likely drive growth for the cyber insurance market, which tripled in volume in the last five years. Gross direct written premiums climbed to USD 13 billion in 2022. For a quick rundown of how cyber insurance coverage supports risk management for organizations of all sizes, take a look at our cyber risk knowledge hub. To learn more about the fastest-growing segment of property/casualty, look at our recent Issues Brief.

Careers and Employment, Insurance Industry

Women are fueling industry prosperity but left out of the C-Suite

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The insurance industry is on track for continued growth, with women playing a huge part, but gender equity at the top remains a long way off.  Bureau of Labor Statistics (BLS) data shows the talent pipeline isn’t an issue, as women account for 59.4 percent of the insurance workforce. They comprise 80.1 percent of workers serving as claims and policy processing clerks, 54.9 percent in sales roles, and 56.9 percent of underwriters. Yet, only about 22 percent (less than 1 in 4) of workers in the C-Suite are women.

Despite the setbacks of the early pandemic years, in which women shouldered the brunt of related workforce losses, women have made up roughly 60 percent of the insurance workforce each year since 2012, exceeding their share of total employment in the U.S. (46.9 percent).

Private sector research adds more details to this stark picture. A Marsh study conducted in 2022 revealed that “25 out of 27 (92.5 percent) of the largest insurance companies were led by men.” Similarly, a McKinsey study showed, “white women make up 45 percent of entry-level roles yet…fewer than one in five direct reports to the CEO are women.” Gender disparities also appear to increase across race and ethnicity.

A recent study from Liberty Mutual and Safeco Insurance shows that the number of women owners or principals in insurance agencies decreased from 31 percent to 26 percent between 2022 and 2023. In contrast, women comprise 75 percent of customer-facing staff in those organizations.

S&P Global Research analysis findings suggest “women could reach parity in senior leadership positions between 2030 and 2037, among companies in the Russell 3000.” Whether that might play out sooner or later for insurance isn’t clear. The August 2023 report also reveals that the “majority of progress towards gender parity is coming from women taking seats on company boards.” Still, C-suite leadership across all industries may not show full gender parity until the 2050s, and “the highest levels in CEO and CFO positions could take even longer.”

Gender parity can offer solutions for a healthy financial future

Meanwhile, the industry expects to face massive attrition as thousands of workers (along with their leadership skills and knowledge) eventually exit the workforce in the coming years. Automation and artificial intelligence/machine learning (AI/ML) may eliminate the need for some roles. Still, insurers will undoubtedly need to maintain an ecosystem of efficiency and innovation to remain profitable. Increased implementation of data-driven processes and decision-making brings new ethical implications and regulatory responsibilities.

Organizational diversity is commonly defined as people from a variety of backgrounds and perspectives working together to solve business problems. Strategic long-term success requires identifying, developing, and promoting diverse talent at all levels. However, a lack of diversity at the C-suite level can undermine the most valiant recruitment efforts in other parts of the organization. Today’s driven and career-focused candidates are wary of glass ceilings and may want evidence that inclusion and equity come from the top.

Research has indicated women in leadership can positively impact the organizations they run. After a series of four studies over several years, findings from McKinsey indicate that “leadership diversity is also convincingly associated with holistic growth ambitions, greater social impact, and more satisfied workforces.” Further, the most recent study also notes the “business case for gender diversity on executive teams has more than doubled over the past decade.” Other research indicates that, among U.S. property-casualty insurance companies, female CEOs are associated with “lower insurer insolvency propensity, higher z-score, and lower standard deviation of return on assets.”

In the era of the nation’s first female vice-president, ultimately, corporate boards might find that reflecting the market demographics the savviest and most compelling of all reasons to diversify senior leadership. Together, U.S. millennials and the oldest Gen Zers (already taking on adult responsibilities) command nearly $3 trillion in spending power each year. Both generations have duly prepared themselves to advance in the workforce, becoming more educated than previous generations. And they will no doubt grab an opportunity where they can find it.

Insurance Industry

Will the D&O market conditions remain favorable? Allianz report says 2024 will bring its share of challenges.

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Several global challenges pose a significant threat to maintaining soft market conditions for Directors and Officers (D&O) liability coverage, according to the most recent report on the sector by Allianz.

A list of salient risks and trends to monitor during 2024 spans various areas, including:

  • Macroeconomics,
  • Geopolitical,
  • Generative AI (GenAI),
  • Environmental, Social, and Governance (ESG), and
  • Class action filings and third-party litigation funding.

According to the latest edition of Directors and Officers Insurance Insights, any of these factors could change the outlook for a competitive market this year.

The D&O market may have mostly avoided the bumps and scrapes faced by other lines of coverage in 2023. With double-digit decreases in insurance pricing worldwide, new market entrants, favorable loss ratios, and a reduction in the Initial Public Offerings (IPOs), the environment contrasts sharply with the early pandemic years of 2020 and 2021. Over 90 percent of D&O underwriters (in a separate study) expected pricing to decrease or stay the same for mature public companies in 2024.

However, Allianz (in conjunction with Munich Re) predicted business insolvencies may rise by 10 percent in 2024. In today’s dynamic environment, organizations — from startups to multi-national behemoths — may rely on D&O policies to manage liabilities arising from executive leadership decisions. Having coverage in place signifies attention to the bottom line and removes a barrier to recruiting the best leadership talent.

The 2023 economy delivered many hurdles, particularly in rising costs and interest rates, rendering the effective management of capital expenditure[DJ1]   and debt a cryptic challenge for organizations and their executives. Add to that mix insolvency activity that is starting to look similar to what followed the 2009 global financial crisis. The “likelihood of a recession in the US and UK continues to rise in 2024,” the report says.

Citing Fitch’s analysis, the report warns of threats to future profitability from “weaker pricing and the potential claims volatility from a myriad of sources.” Still, Allianz suggests that reserves from most recent years may safeguard “near-term underwriting results.”

The early 2023 banking crisis is expected to leave a mark on the D&O segment as each of the bank failures and near failures – widely attributed to substandard banking practices – resulted in a securities fraud claim. The forecasted multi-billion dollar losses in market cap and final disclosure pose an enormous threat to insurance towers, the layers of coverage spreading risk across multiple insurers and coverage levels to diversify overall risk exposure. Consequently, the report advises closely monitoring banks with large commercial property portfolios and how the Treasury plans to rebuild its cash balance from the lowest level in seven years.

The report discusses how technology advancements offer a mixed bag for the D&O segment, creating advantages for organizational efficiency and productivity but also new risks surrounding cybersecurity, regulatory requirements, transparency and governance, litigation, and investor expectations. Cybersecurity, in general, has been on the radar for several years now. However Generative AI (GenAI), a relatively new technology in the risk management spotlight, could enable more threats for cyber risk management.

Separately, Gen AI has already sparked intellectual property and privacy claims. Future claims could emerge in securities, breach of fiduciary, shareholder, and derivative lawsuits. The report states that managing risks posed by Gen AI requires the cultivation of expertise-driven best practices and protocols.

Another 21st-century issue, Environmental, Social, and Governance (ESG), appears to have permanently taken root as a factor in the D&O risk landscape. Despite the ongoing debate over its value, definition, and measurement, the ESG framework encompasses a growing list of conundrums faced by directors and officers. Organizations don’t operate in a vacuum but in communities where human rights, climate risk, and other ESG concerns can infiltrate business-as-usual operations. Tactics that avoid or incur costly regulatory sanctions can also spark lawsuits from private stakeholders.

“In a world that is becoming increasingly polarized politically and socially, the very need for directors to evaluate and address the impact of various ESG factors on corporate value creates that claims will be made…on either or both sides of any given issue,” the report states.

The specter of increased litigation costs persists as federal securities class actions climbed to 201 by early December in 2023 (up from 197 in 2022) and total settlement dollars outpaced historical levels. Figures for only the first half of 2023 exceeded the total for 2022, climbing to a ten-year record high.

The D&O segment has always been dynamic, and claims can arise from various sources, including shareholders, employees, regulatory agencies, competitors, and customers. Therefore, the product continues to play a vital role in mitigating the risks associated with corporate governance and protecting the interests of directors, officers, and the companies they serve. Overall, the market’s future will remain competitive as established insurers move to address underwriting challenges, but it’s not likely that the 2024 environment will be hospitable to new insurers lacking a substantial portfolio.

Careers and Employment, Insurance Industry

Advancing diversity requires insurers and prospects to adopt a proactive mindset

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Tiara Wallace recently accepted her role as the Director of Risk for Invesco US and can’t seem to hide her contagious excitement for her profession. After announcing in a recent interview with Triple-I that she is a new “dog mom,” she proudly revealed that she is a parent to a 20-year-old “who is in college and recently switched his major to risk management.”

She had explained to her son how some activities in his current (but unrelated) campus job, such as “reviewing contracts and determining if the appeal process is working,” could be a good foundation for a future role in the field.

Wallace’s advocacy for careers in risk management doesn’t stop with her family. Having spent some time as an adjunct professor at the University of Oklahoma, she delights in frequently sharing with young people the benefits and opportunities they might find in her profession. She tells them that “insurance and risk management is such a great and lucrative career,” welcoming people from various backgrounds.

“Some folks have college, some people just have experience in the industry. But you’re able to make it into whatever you need for your life. And there’s so many routes you can go down.”

She launched her journey by working in claims adjustment for ten years. Then she decided it was time for a change. “Do I pivot now and make the change into something else?” she asked herself. 

A friend remarked on her talent for educating people and understanding what drives claims. “Have you ever thought about safety or risk management?” her friend asked.

Wallace says a risk management major wasn’t available to her as an undergraduate. “So I did what any typical millennial does and I got on the Internet and started to look up jobs.”

She was surprised to discover she was already familiar with the foundations. She thought, “This is what we all do day-to-day, right – managing our decisions and determining where our risk appetite is?

She gives ample credit to her mentor, who has since become a family friend, for giving her a transformational opportunity. “He was the VP of Risk for a privately held bank in Oklahoma,” she says. He hired her as the risk manager for a family group of 20 ultra-high-net-worth individuals.

The job suited her well. “It was never mundane…and that really spoke to me and really started the journey into risk management for me.”

Years later, Wallace eventually relocated to Dallas and is now in her role working with commercial real estate and private equity at Invesco. The knowledge and skills she acquired working with the private firm are helping her excel in a publicly traded company, where she continues to grow.

“I’m learning a ton, and there’s a lot coming at me, but I enjoy the challenge.”

When asked what changes she’s witnessed in her field over the years regarding diversity, Wallace is candid, pragmatic, and hopeful.

“Going from a call center and claims where you see all types of people to these areas where it’s on the commercial side, and I’m going to different conferences. Sometimes, you can see the same type of person that fills the role.”

Wallace describes her firsthand account of an issue that is widely documented by various organizations – from the Bureau of Labor Statistics (BLS) to key players in the risk management field, such as  Marsh.

For example, BLS data on Black and African American representation in the insurance industry shows that representation is increasing, with 14.6% employees in the field, up from 9.9% in 2014. Black professionals held 19.2% of insurance claims and processing clerk roles. However, as of 2020, only 1.8% (just three out of 168) of executive employees in the industry are Black, according to data sourced by Reuters

 “In the last three or four years, I think what I’ve began to see, just from the different generations entering in, is there is a more of a push for that diversity,” Wallace says. She notes that the diversity sought is not only in race, ethnicity, gender, and other identities but also in neurodiversity and professional backgrounds.

“I think that we still have a long way to go. But we’re starting to see more where the realization is, hey, we need a diverse candidate pool because here in the next what, 5 to 10 years, we’re gonna have an exodus in this market.”

Wallace admits that, as a long-standing industry, insurance can take some time to catch up while technology, demographics, and other structural factors are rapidly changing the game for the entire economy.

“We have not traditionally, and we’re still currently, not always quick to jump on thinking proactively or moving forward.” Nonetheless, Wallace says she is taking an active role in creating the future she wants to see.

“And so I think the thing that I started to realize is… I’m gonna be part of this change. So let me get involved in organizations.” Her educational experience likely played a role in this outlook.

She recalls how her college business fraternity leader asked her to “Go find three people that look like you. And three people that do not look or come from where you come from and recruit them.”

Wallace took up the challenge, of course. “That was one of the most phenomenal years because I got to learn so much. So I brought that mindset into this industry,” she says.

When Wallace was studying for her master’s degree years ago, a professor encouraged the class to be “agents of social change, like go in and be a disruptor.”

Now, when she advises people on connecting with diverse prospects, she asks whether they are searching beyond their personal networks and traditional spaces. “Are you going to HBCUs (Historically Black Colleges and Universities)? Are you going to different candidate pools? Are you going to rural cities and towns where maybe people have not historically gone into? Are you also talking to veterans?”

Wallace also recognizes that the work environment will be as critical to diversity success as recruiting tactics. For example, she asks, “Are our spaces friendly and inviting to those that maybe have disabilities?”

She encourages aspiring professionals to think beyond the cliche of an insurance job to see where they may fit.  “Are you good at marketing? Because these insurance companies need marketing departments. Are you handy on the Internet? Oh, well, great. There’s a place in cyber or also IT (Information Technology) infrastructure.” The goal, she says, is “just having these conversations to get different people into this space…in the industry.”

“Some of you are gonna be strategic, too, you know, to implant yourselves in areas that traditionally have not allowed you to enter.”

Wallace says she would tell her younger self that being bolder and assertive in asking for what she needs will be crucial.

“As a woman, you better be able to sell yourself and brag on yourself and not and not take a step back and just assume that’s what everyone is doing. Make the ask because you can get paid for what it is. But you have to be bold enough — whether that’s a sale, whether that’s a salary, whether that’s you need staffing in your department, or you need help. Make the ask because you are the one that is in there working it day to day.”