Insurance professionals’ suspicions about fraudulent claims have increased during the pandemic as fraudsters have become more creative, according to a recent survey.
The survey by FRISS, a provider of fraud and risk detection solutions for property/casualty insurers, found that its 420 respondents in 2022 believe 20 percent of claims filed might contain fraud. That’s up from 18 percent in 2020.
“Innovation and digitization are disrupting the insurance industry in good ways, setting a new norm that’s enabling the industry to be even more responsive to customers’ needs,” said Triple-I CEO Sean Kevelighan in an introduction to the report. “Unfortunately, the acceleration of digital processes that began well before the pandemic also provides opportunities for fraud.”
In 2022, the top challenge reported by respondents was “Keeping up with fraudsters’ modus operandi” – a change from both the 2020 and 2018 surveys, in which “Internal data quality” was deemed the biggest challenge.
Insurance fraud costs U.S. consumers at least $80 billion every year, according to the Coalition Against Insurance Fraud. The FBI says the cost of non-health insurance fraud hovers at about $40 billion a year. As a result, the average U.S. family incurs between $400 and $700 per year in losses due to increased premiums.
Respondents to the survey say fraud detection software has proven to be generally effective. This includes improving loss ratio (59 percent), staying ahead of developing fraud schemes (53 percent), and increasing investigator efficiency (52 percent).
The coronavirus pandemic and the financial challenges it presents have fueled growth in captive insurance – a form of self-insurance in which one or more entities establish their own insurance company. They also may insure the risks of organizations other than their major owners.
“Wholly owned” captives are set up by large corporations to finance or administer their risk financing needs. If such a captive insures only the risks of its parent or subsidiaries, it is called a “pure” captive. Multiple companies may also form a “group captive.”
Captive formations nearly doubled in 2020, according to a recent survey by Marsh. The global insurance broker and risk advisor’s survey of more than 1,300 captives also shows that gross written premiums in this area grew from $54 billion in 2019 to nearly $61 billion in 2020.
In January 2022, the National Collegiate Athletic Association (NCAA) board of governors unanimously approved a $175 million fund to create a captive for event cancellation. With insurers unable to cover risks related to the coronavirus pandemic – which falls under the umbrella of communicable diseases policies – because of the potential for unsustainable costs, the captive structure has become a more popular method to protect from losses.
The NCAA formed its captive after the 2020 NCAA basketball tournament was cancelled due to COVID-19, resulting in a $270 million payout – or about 40 percent of what the 1,200 participating schools would have earned for the tournament. In 2021, the NCAA limited the number of fans at the tournament, with the organization’s coverage allowing it to pay the total $613 million to members last year. However, their coverage for 2022 had expired, and communicable disease coverage was now difficult to find.
“When the NCAA looked to renew coverage for the 2022 tournament, a lot of it was going to look similar,” said John Beam, a broker for Willis Towers Watson, “but there is not coverage for communicable disease right now.”
The sports and entertainment industry experienced losses between $6 billion and $10 billion as the coronavirus pandemic raged on, with premiums in event insurance increasing between 25 percent and 50 percent. For many organizations, captive insurance provides a viable alternative for these risks.
Workers’ comp and captives
The coronavirus pandemic has also affected captive owners in the workers’ compensation field. Indeed, the pandemic, alongside the ensuing “Great Resignation,” during which employers have struggled to retain staff, has made many captive owners potentially more willing to pay workers’ comp claims, according to a panel at the recently held Captive Insurance Companies Association international conference.
Amy O’Brien, vice president of third-party administer sales at Gallagher Bassett Services Inc., a claims service provider, said the initial phases of the pandemic saw many insurers denying COVID-19-related claims. Claims asserting exposure at work were difficult to prove, and many captives questioned if the claims were associated with claimants’ work. Additionally, there were possible regulatory changes that these captives were concerned about.
“With medical costs continuing to rise, the most significant dynamic in terms of any company controlling their workers’ compensation costs and claims is ensuring that there are adequate tools in place to help mitigate medical costs for claimants under their workers’ compensation,” said Dustin Partlow, senior vice president at Caitlin Morgan Insurance Services and an expert in captive insurance solutions.
“But with omicron and the Great Resignation, we’re seeing a change where employers are saying, ‘What can I do to get this person back to work sooner?’” Gallagher’s O’Brien said.
Approximately 90,000 claims were processed by Gallagher Bassett that covered a COVID-19 issue, with over 60 percent of cases closed without payment, frequently due to the fact that there were no related medical expenses, O’Brien said. But the 40 percent that did result in a payment averaged $4,000 per case.
“The employee is more valuable now – so they are being treated right. The employer is saying: ‘What can I do to keep this person?’,” O’Brien added.
By Tasha Williams, Senior Research Writer and Max Dorfman, Research Writer
Women contribute more earnings to their households and feel more confident about personal finance than prior generations. However, they still face hurdles to taking charge of planning for their financial future and legacy.
Findings from a new report, Lack of Knowledge and Confidence Deter Women from Purchasing Life Insurance, produced by insurance nonprofits LIMRA and Life Happens, indicate a substantial disparity in life insurance purchasing between women and men and perceptions surrounding these products.
Society historically shut women out of their financial affairs.
Women did not have the right to open a bank account in their name before the 1960s. Before the Equal Opportunity Credit Act of 1974, banks refused women credit simply for being unmarried. In cases where women were married, banks required the co-signature of the husband. Until the SCOTUS Kirchberg vs. Feenstra decision in 1981, state laws gave men unfettered control over their wives’ assets–even if these were obtained without combined marital resources.
Women remain underserved by the life insurance industry.
Over the past five years, the life insurance ownership rate for U.S. women declined 10 points to 47 percent, despite women voicing a greater concern regarding the “financial, physical and mental impact of COVID-19 on them and their families,” according to the report. Indeed, 31 percent of women said they would obtain life insurance coverage in 2021, with 42 percent of men saying they would do the same.
Some women in the survey said they had anxiety about being dealt with differently by insurance companies and financial professionals and were uneasy about sharing personal information with an agent or company.
Women still face hurdles to financial planning on equal terms.
The LIMRA study posits that only 22 percent of women “feel very knowledgeable about life insurance,” compared to 39 percent of men, with 80 percent of women misjudging the cost of life insurance. Researchers found this “undermines women’s confidence in shopping for and purchasing coverage and leads to fear of being taken advantage of, creating a barrier to entry.”
Data can play a crucial role in understanding how people make decisions, but it needs context. Other research, for example, indicates that societal norms and biases can affect women’s confidence and their propensity to engage in subjects from which they have been historically excluded. Vestiges of the past continue to sustain inequalities:
Biases about who is and who isn’t entitled to be confident about financial matters;
Gender pay gaps, with even larger disparities for women of color; and
When combined with the status of being an equal or primary earner for their household, these hurdles can be amplified as women may consequently have less time to devote to increasing their knowledge and use of financial planning tools, such as insurance.
Barriers are falling, but there’s opportunity in doing more.
Throughout history, women have played a significant role in the economy at large and within their families, regardless of whether their contributions were compensated or recognized. Today, lifestyle choices, a divorce, or the death of a partner may position nine out ten women as the sole financial decision-maker in their households. The 2021 Insurance Barometer Study, also conducted by Life Happens and LIMRA, found that 43 percent of women say they need or will need more coverage – a total of 56 million individuals.
Market opportunity lies in engaging women where they are. Increasing consumer education and accommodating gender-diverse life cycle needs and the associated risks can make this happen. Women represent nearly 60 percent of insurance professionals, but only one in 10 hold leadership positions, roles that drive industry transformation. Pushing ahead with diversity and inclusion goals can lay the groundwork for more innovation and equality.
By Michel Leonard, PhD, CBE, vice president, senior economist and data scientist, head of Triple-I’s Economics and Analytics Department
Ukraine is one of the largest insured risks countries for political risk insurance (PRI) and Trade Credit Insurance (TCI). This predates the current situation in Ukraine and started immediately after the country’s accession to sovereignty.
In Ukraine, PRI and TCI tend to be primarily purchased by foreign companies with cross-border trade or investments in the extraction and manufacturing sectors. New PRI losses in Ukraine due to Russia’s invasion will likely be material but well within the ability of private carriers to perform on their obligations. Indeed, several factors, including carriers’ reserves against future losses in Ukraine and the large role of government and multi-lateral agencies in providing PRI and TCI coverage, have contributed to significantly reducing private carriers’ outstanding exposures to Ukraine and Russian risks. .
Losses due to Russia’s invasion of Ukraine would fall under comprehensive Political Violence and, more specifically, under War and Civil War and Strikes, Riots, and Civil Commotion. PRI coverage protects primarily against loss of assets or profits while TCI’s credit default coverage protects primarily against loss of profits due to force majeure. Depending on terms of coverage, PRI and TCI cover against loss of profits due to sanctions.
The majority of private carriers providing PRI insurance are based in the United States, at Lloyd’s, and in Bermuda.
The main risk associated with Russia’s attack of Ukraine for business in the U.S. and is Russian cyber attacks regardless of whether or not they have operations, investments, or do business in Ukraine. A PRI policy is not necessary to cover Russian cyber attacks against U.S. businesses in the United States.
At Triple-I’s 2021 Joint Industry Forum (JIF) on Thursday, December 2, CEO Sean Kevelighan challenged attendees to ponder a question: “What do we know about the new normal?”
In his opening presentation and a sit-down with NBC correspondent Contessa Brewer, Kevelighan shared insights on how the emerging post-pandemic reality is transforming how the world manages risk. Panel discussions highlighted critical issues facing the industry, including cyber risk, runaway litigation, and cultivating resilience in a world that will continue to face unprecedented natural and economic threats.
Kevelighan and other experts from across academia, media, and industry described how the pandemic fallout, along with other evolving threats to communities and businesses, demanded innovation at breakneck speed.
“Insurance is at the center” of this change, said Kevelighan. The industry has the opportunity to continue its role as the “leading voice in terms of creating more resilience.”
Peter Miller, president and CEO of The Institutes, took the stage later to speak about how the insurance world can optimally position itself for the benefits and hurdles of the coming year.
Technology, he said, can be a valuable tool to “provide a much clearer picture of risk.” He opened the door for cooperation with a call to action: “If you have an issue collaboration idea, give me a shout.”
Technology and collaboration as critical ingredients for success in the new paradigm was a recurrent theme throughout the forum.
Dale Porfilio, Triple-I’s chief insurance officer, moderated a panel on cyber risk. This peril continues to grow, driving profits – but also premiums – upward. Panelists estimated $28 billion in cyber premiums by 2026.
Chris Beck, managing director at Milliman Inc., Catherine Mulligan, global head of cyber for Aon, and Paul Miskovich, global business leader for Pango Group, shared their thoughts on how the market could be stabilized, with the government playing a pivotal role as legislative enforcer and data aggregator.
Dr. Michel Léonard, Triple-I vice president and senior economist, shared insights on the economic challenges and opportunities that lie ahead for insurance and risk managers. In 2021, industry growth lagged U.S. growth, with 1.10 percent for insurance versus 5.8 percent for overall U.S. growth.
Leonard believes that recovery, albeit uneven, will continue and growth will be strong – just not enough to make up for the contraction. He said he doesn’t expect overall pre-pandemic levels to return until 2024.
Re-imagining risk management in the new normal also requires finding effective ways to address two elephants in the room: the talent gap and “runaway litigation”.
Frank Tomasello, executive director of the Institutes Griffith Foundation, moderated a panel that explored the impact of litigation trends on claims expenses and, ultimately, policyholder premiums.
A panel featuring representatives from State Farm, Swiss Re, and The Hartford discussed the challenges of recruiting and retaining talent amid the Great Resignation. The rising generations – millennials and Gen Z – have different career goals and expectations for their employers, such as more diverse workplaces.
As Deepi Soni, executive vice president and CIO at The Hartford, put it: “We said oil is gold. We said data is gold. Talent is diamond.”
Insurance industry decision makers and thought leaders gathered yesterday for the Triple-I Joint Industry Forum (JIF) in New York City to share insights on managing risk in the post-pandemic world.
The in-person, daylong program was conducted in accordance with New York City’s COVID-19 protocols. Topics ranged from climate and cyber risk and the impact of “runaway litigation” on insurer losses and policyholder premiums to the challenges and opportunities presented by “the Great Resignation” for acquiring and nurturing talent in the industry.
The panels featured speakers from across the insurance world, academia, and media. Watch this space next week for panel wrap-ups.
From financial economists’ exuberant growth forecasts early in the year to central bankers’ coining of the term “transitory” inflation to pushback against Federal Reserve “tapering”,credible economists have never diverged so widely in their economic outlooks as they have in 2021, says Dr. Michel Léonard, head of Triple-I’s Economics & Analytics department.
Michel Léonard, V.P., Sr. Economist, Data Scientist, Head of Economics and Analytics
Léonard is author of Triple-I’s fourth-quarter insurance economic outlook report,Soft Landing, Headwinds and Rebound. The quarterly report is available to Triple-I members only at economics.iii.org and is a companion publication to Triple-I’s Insurance Economics Dashboard. Non-members interested in learning about membership can contact Deena Snell.
Triple-I’s analysis translates broad economic growth drivers into business line-specific terms. So, while the insurance industry is expected to show a 3.4 percent growth rate in 2021, Léonard says, it will underperform overall U.S. GDP growth of 5.8 percent because it is “constrained by its ties to industries with growth rates significantly below and inflation rates significantly above the U.S. rates overall.”
According to the report, concerns about “runaway inflation” subsided in the second half of 2021 as prices for most goods in the consumer supply index (CPI) trended lower and overall inflation peaked at 4 percent. However, for a basket of goods whose prices tend to affect insurance claims and losses – think automobiles and replacement parts, among others – inflation remained above 10 percent. This is due primarily to supply-chain and labor-force disruptions.
As a result, the Triple-I report sees the insurance industry’s combined ratio increasing (underwriting profitability falling) due to low underlying growth and high line-specific inflation. It also sees the industry’s 2021 investment returns outpacing 2020’s, despite headwinds.
So, what better time than now (before it’s too late!) to bust the cliché that insurance is a boring industry.
The cliché might be rooted in the idea that insurance is all about remaining cozily in some imaginary “safety zone”. Or maybe in the fact that the industry’s visual surface tends to be one of dull-looking paperwork full of fine print.
But think about it: the entire industry is rooted in risk!
Automobile accidents and other forms of property damage are only the start of it. There’s liability risk – the risk of being sued: product liability, professional liability, employment practices, directors and officers, errors and omissions, medical malpractice – the list goes on, and insurance professionals have to understand these areas of risk intimately to price policies, set aside appropriate reserves, and pay claims in a timely fashion.
Is climate-related risk keeping you up at night? You’re not alone. Insurers have been working on that one for decades, empowered by sophisticated modeling and analytics capabilities. They aren’t just worrying about extreme weather and climate – they’re partnering with other industries, communities, and governments to do something about it.
And, speaking of sophisticated technology – what about cyber risk? The average cost of a data breach rose year over year in 2021 from $3.86 million to $4.24 million, according to a recent report by IBM and the Ponemon Institute — the highest in the 17 years that this report has been published. These kinds of numbers add up quickly. Unlike flood and fire – perils for which insurers have decades of data to help them accurately measure and price policies – cyber threats are comparatively new and constantly evolving. The presence of malicious intent results in their having more in common with terrorism than with natural catastrophes.
These are just a few of the risks types insurance professionals look in the eye daily, working with a wide range of experts across industries and disciplines to meet them. From the individual and family level to businesses large and small to the global economy, insurers play a critical role as both risk-management partners and financial first responders.
Keep these things in mind next time you catch yourself stifling a yawn at the mention of insurance!
“Insurance is one of the industries I cover for CNBC, so I look forward to discussing the top issues of the day at one of its premier events,” Brewer said. “Given 2021’s extreme weather, high-profile cyberattacks, and economic volatility, insurance has been in the news constantly, so there are plenty of things to talk about.”
The 2021 JIF is being held at the New York Hilton Midtown. The in-person, daylong program, bringing together the most accomplished thinkers and leaders in insurance, will be conducted in accordance with New York City’s Covid-19 protocols.
“CNBC is a recognized world leader in business news and reaches millions of Americans across all of its platforms,” Kevelighan said, adding that he looks forward to “a robust discussion” with Brewer. The agenda also includes panels on insurance economics, insurer talent and recruitment initiatives, and the societal costs of runaway litigation.
By Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global & Corporate Specialty
When an Amazon package arrives at our door, we scarcely give any thought to what it took to get here. It’s likely that your school supplies or article of clothing has traveled a great distance across the ocean by vessel.
International shipping accounts for 90 percent of world trade, and the old saying “there’s many a slip ‘twixt the cup and the lip” is appropriate. Much can go wrong between the point of origin and destination — and lately Marine insurers are keeping a close eye on developments in our climate, the economy, and public health that could influence the odds of a successful delivery.
The annual Safety and Shipping Review produced by Allianz details trends and developments in shipping losses and safety and is a valuable resource for Marine insurers. Here are some of the major highlights.
Losses at sea
First, let’s look at losses of vessels at sea, where the trend is stable. There were 49 total losses of 100 gross tons or more in 2020, compared to 48 a year earlier. Credit better safety measures, regulation, improved ship design and technology, and advances in risk management. Behind the numbers, however, are a host of volatile factors, such as extreme weather, machinery breakdown, fires, and even piracy. Ship operators can improve fire detection and firefighting on large vessels and ensure that machinery has been inspected and is in good working order. Also, weather impacts can be mitigated by improving forecasting and vessel routing.
Another big concern of insurers is shipping containers lost at sea. Last year, more than 1,000 fell overboard in the first few months due to rough weather and heavier loads. A surge in demand for consumer goods is another factor; in response, containers are being stacked aboard at unprecedented heights, leading to concerns that they aren’t being properly secured. In all, more than 3,000 containers were lost at sea in 2020, compared with a longer-term average of 1,382 per year.
Pandemic impact
Next is the global pandemic, which has had little effect on Marine insurance claims to date. It’s quite possible that claims could increase as more vessels are put back in service and we see the effects of delayed maintenance. Another big concern is crews confined to their ships in ports due to public health mandates, which delays crew changes and medical treatment. Crew fatigue leads to human error – a major cause of many losses.
These are factors that warrant immediate action by all stakeholders in the supply chain, including cargo owners. One solution is to designate merchant seaman as vital workers so they can receive vaccines and move about freely.
Bigger ships, bigger problems
Size does matter in global shipping. Remember the ship stuck in the Suez Canal for over three months? The Ever Given incident was a vivid illustration how hard it is to free large vessels. When it takes more equipment and more manpower, someone must pay. Not to mention the societal and economic cost of supply-chain disruption. There’s a real possibility we will see bare shelves and lots of “items unavailable” this holiday shopping season.
So if bigger vessels cause bigger problems, why are there so many of them? It’s all about economies of scale and fuel efficiency, and shipping companies really can’t be blamed for trying to comply with increased environmental regulations and attempting to reduce their operating costs. However, large vessels pose problems for the supply chain, often overwhelming ports when so many containers are dropped off at once.
Vessel size also has a direct correlation to the potential size of loss, and this is an issue that keeps Marine insurers up at night. Too often, cargo is misdeclared or improperly declared, which can result in fires. For example, if self-igniting charcoal, chemicals or batteries are not properly stowed, the risk of ignition escalates dramatically. And if the item is improperly declared in the first place the crew doesn’t know what it’s dealing with in an emergency.
Compounding the problem is inadequate fire detection and firefighting capabilities on large vessels; for this reason, the International Union of Marine Insurers (IUMI) is rallying stakeholders to establish more stringent standards.
At first glance, it appears the risks associated with global shipping are a moving target. But more careful scrutiny reveals patterns and trends that, when carefully analyzed, can lead to improved loss mitigation, thus reducing the “slips” that can occur in transit.
Captain Andrew Kinsey is Senior Marine Risk Consultant at Allianz Global & Corporate Specialty and chairs the technical services committee of the American Institute of Marine Underwriters, which is a Triple-I Associate Member.
