Three little letters – ESG – can strike business decision makers with anxiety as they strive to incorporate nonfinancial factors into their strategic analysis and planning.
Shorthand for “environmental, social, and governance” these factors, which seek to capture the environmental and social impacts of operations and investment practices, have become more pressing in recent years due to:
Globalization,
Concerns about climate and extreme weather, and
Inequity and injustice becoming more visible in real time, thanks to social media.
This visibility can affect purchasing choices, spur consumer and shareholder activism, and even spark civil unrest, leading to physical injuries, property damage, and business disruptions.
Fortunately, the insurance industry has ESG hardwired into its DNA. While ESG priorities may seem new to many industries, insurers have long been involved in understanding and addressing these and other risk factors as a fundamental part of doing business. As a result, they are well prepared to meet ESG-related demands and are ideal partners for businesses, communities, and nonprofits seeking to navigate this “new” area of risk and opportunity.
And, far from being an impediment to profitable performance, research increasingly demonstrates an ROI advantage for companies that include ESG in their business strategies and operational practices.
Click here to learn more about the role ESG plays in insurance and that insurance plays in ESG.
Currently residing in Chicago, Leong shares her insights on how technology and big data are changing the actuarial career path and insurance landscape. She speaks about her team’s work at Zurich and how data science and analysis have helped to improve claims models. In addition, Leong shares the CAS’s initiatives to actively support diversity, equity and inclusion in the insurance industry.
Triple-I CEO Sean Kevelighan currently serves on the CAS board of directors.
You’ve been able to live around the world: Australia, the UK and now the US. What moves in your career did you make for that to happen? What piqued your interest in actuarial studies and the path that led you to data science lead at Zurich?
I decided to become an actuary very early on in my career. I grew up in Australia, and when I was in high school, I knew I was good at math and I was looking at what professions that would lead to. Actuarial naturally sprung up as it does for a lot of people who are good at math, but it looked like a really rewarding career and a rewarding profession.
A lot of Australians like to take a year off university and do backpacking around the world. I took a year off, went to London and got my first actuarial job, working six months at St. Paul. With that money I backpacked around Europe for a year. Then I went back to Australia, finished my degree, and my first job out of school was in London. I just had the itch to go back, and the actuarial profession is a good one if you enjoy traveling.
Then my boyfriend-now-husband got a job in New York, so that’s why I moved to the States. I never actually thought I would live in America, and it’s been more than a decade.
Would you be able to share a project that you’re currently working on at Zurich?
I have a team of data scientists at Zurich, and we build models for three different groups: For underwriting, to help us with risk selection and pricing; for claims, to work on better claims triage and finding claims fraud; and then lastly for our customers to help them better manage and understand their risks.
We have done a lot of work in claims. For example, we have built a claims model that alerts us if a workers’ comp claim is going to become complex, and if it would benefit from having a nurse to review that case and manage it much more proactively. That has really benefited Zurich in terms of outcomes. It has also benefitted our customers and their employees in terms of getting back to work and regaining their health. It’s been a win-win all around.
What are some challenges you’ve experienced in using data in relation to privacy, regulations or bias?
This is a very big topic for not just the insurance industry, but also more broadly, as big data gets bigger and artificial intelligence continues to advance. Something that we do for all of our models is talk to legal, compliance and privacy. They do a thorough review of the models before we actually put them into production, to make sure that from the data and the algorithm viewpoints, we stay true to our principles within Zurich. A few years ago, Zurich released a data commitment to the general public and to our customers about the kind of data we will and will not use so we take that seriously.
Are there any implications that you’re seeing that the pandemic has had on data analysis?
Yes, definitely. A lot of the analysis that’s done in insurance relies on the history being somewhat predictive of the future, and frankly, all data analysis relies on that because data is by definition, historical. So anytime you try to make a prediction from data it is relying on historical fact, and obviously the pandemic really upended that. How do I look at this data and use it to make predictions of the future? It is less clear, and we’ve had to rely much more on judgment, and we’ve had to really think outside the box about the different types of data we should use now to try to make predictions of the future.
Congratulations on your presidency of the CAS. Why did you join CAS and what led you to being elected as president?
When I initially joined the CAS in 2005/2006, I volunteered for the organization. About a third of our members volunteer in some capacity, which is tremendous for any society – that’s a very high rate. I find that the actuarial community is just a great community.
One of the benefits of volunteering for the CAS is having the chance to grow your leadership skills. Before long, I was chair of one of the seminar-organizing committees. That was a really good experience in terms of leadership for me, early in my career.
I was given the suggestion by my boss, about seven/eight years ago now, that I should be on the board of the CAS. It had never crossed my mind, honestly, that I would be even eligible for a job like that. The CAS has a nominating committee, who called me and asked me to run. Then I got a call, maybe two/three years later, asking if I would consider running for president. I’m so honored to have this role.
There’s a three-year plan to create unicorns. Are you seeing any impact so far? Is this resonating a lot within CAS and the industry?
Last November at our annual meeting, we released a new Envisioned Future and a three-year plan. Our new Envisioned Future says “CAS members are sought after globally for their insights and ability to apply analytics to solve insurance and risk management problems.”
Now that might not sound like much, but if you think about what it used to say, something like “the CAS advances the practice and application of actuarial science,” we made the change to be more evergreen and more actionable. We will do whatever analytics needs to be done, and we will do it to solve business problems in insurance, and this will evolve over time.
What this means is that the actuary of the future needs to have three key skill sets. First, they need to be great at analytics, the kind of analytics you need to solve the important insurance problems of today. Second, they need to be great at problem-solving. Actuaries are good at solving the core problems in insurance, pricing, reserving, capital modeling. But more and more with big data, there are new problems you can solve. The example I gave before – is this claim going to become complex, would it benefit from having a nurse? Those are new problems you can now solve with data and analytics that you probably couldn’t have done before. The third area is the domain knowledge in terms of P&C insurance.
That is the unicorn. That is the actuary of the future, having all three key skill sets.
How are you attracting a more diverse body of students to pursue actuarial or related studies? How are you trying to attract different types of people and different ways of thinking to the CAS and to the insurance industry in general?
One of the pillars in our strategy that we released with our Envisioned Future is to diversify our pipeline. We have various initiatives to look to do that. One thing is we are pushing forward in terms of diversity, equity and inclusion, and we recently put out some metrics on our website. Right now, for example, 23% of our members are Asian, under 2% are Black and under 2% are Hispanic. The diversity from the Black and Hispanic point of view is not where we want it to be, and we have a goal of increasing that to about 5% to 8% of our new members in the next five to 10 years. We put a stake in the sand in terms of how we want our racial diversity to improve.
A few years ago, we engaged a consulting firm to figure out what is holding us back in terms of having more diversity. One of the things they identified is just finding out about the profession early in your life is going to be key, because a lot of people in various racial and ethnic groups are not really finding out about the actuarial profession when they need to. So we’ve been doing actuarial high school days, visiting diverse high schools to talk to them about the actuarial profession.
We also have a scholarship program for these underrepresented groups, where we will pay for exams given a few qualifying criteria, because we know that the cost of the exams can also be a hindrance, especially when you’re still in school and you’re not earning any money. To get an internship, you need to have three exams under your belt, but they cost money. It can be tough, so we’re seeing what we can do to help.
What challenges have you had to overcome, as a woman and a person of color in the insurance industry?
I’m very big on self-improvement, and I have tried to develop myself in a way to be successful in this environment.
If I think about my upbringing, it was different as an Asian person growing up in Australia. When I was in high school, I was on the track team and I had wanted to be in the relay. There were only four people in the relay, and I wasn’t picked as one of the four, even though I was probably the third fastest person in the school. I thought that this was just unfair and favoritism. I told my mom, “This is really unfair; you’ve got to do something about this,” and she told me, “Don’t complain; just do what you’re told. Don’t stick out.”
That really jarred with me then and still now, thinking back on it. That highlighted the difference in culture. As I’ve been navigating my way through predominantly Western work culture, I have worked pretty deliberately to think differently and to acquire skills that would help me in this kind of work environment.
By Marielle Rodriguez, Social Media and Brand Design Coordinator
Janthana Kaenprakhamroy
Triple-I’s “Insurance Careers Corner” series was created to highlight trailblazers in insurance and to spread awareness of the career opportunities within the industry.
May is Asian American and Pacific Islander Heritage Month, and this month we interviewed Janthana Kaenprakhamroy, CEO of London-based insurtech, Tapoly. Although Janthana lives in the UK, we believe that Asian heritage should be celebrated no matter where you live.
Founded in 2016, and backed by Lloyd’s of London, Tapoly is Europe’s first and fastest growing insurtech, providing on-demand flexible commercial insurance products for SMEs, freelancers, the self-employed and the gig economy. Recognized as Insurance Provider of the Year at the British Small Business Awards in 2018, Tapoly’s mission is to make insurance simple, accessible, and flexible.
We spoke with Kaenprakhamroy to discuss the role of AI and technology in her business, the boom of the sharing economy, and what the traditional insurance industry can learn from insurtech.
Tell us about your background and your interest in building a business. What led you to your current position and what inspired you to found your company, Tapoly?
I was born in and come from a small part of Thailand, grew up in Sweden, and have lived in London for the last 20 years. I have roots in different parts of the world, which has shaped my international way of thinking. I feel like I don’t fit a specific stereotype and can blend into different cultures.
I’m an accountant by trade and have worked in investment banking for almost my entire career. In late 2016, I decided to quit my job and build Tapoly. We provide technology solutions and insurance products locally in the UK as well as in Asia.
I was never sure what I wanted to do until I came across a problem in 2016 when I was trying to buy insurance for my short letting over the summer, which you can only do for about 90 days a year. In 2016, no insurance companies were serving the types of products for the short letting space. Ever since then, we’ve been developing technology solutions and products to cover this massively underserved market within the micro, SME, and freelancing space.
What is your organization’s mission? What role does tech and AI play in your platform?
Our mission is very simple – we want to able to provide an insurance solution online that is quick and easy for people, in the most convenient way, which is one thing in the commercial lines space that’s not very well-developed. Most companies are buying insurance through their brokers, rather than online directly. We wanted to make commercial lines products easier and less time-consuming for customers to access, without making them answer several questions that they may or may not know how to answer.
If you offer insurance online directly, then the underwriting decision must be prompt and that can only be achieved when you have data on your customers. There is data that traditional insurance companies aren’t using, for example, social media data, which can be cross-referenced with [the customer’s] profile. It’s all about augmenting data to amplify or make customers profiles more prominent for underwriting decisions – it’s something insurtech is doing well. Insurtech would allow data to flow from the point of the customer buying insurance to the point of the underwriter making the decision – this makes the process more seamless and transparent.
A lot of what we do at Tapoly is data analytics. It’s not only for risk selection and underwriting alone – it’s also for customer acquisition and marketing. Customer segmentation is very important, and you can only do it with a certain level of good-quality data on your customers.
What do you see as the biggest pain points for customers within traditional insurance that insurtech can better solve?
Customers in the market segment that we serve, which is microbusinesses and freelancers, have three main pain points. One is the price, especially for customers who do ad-hoc jobs which are not part of their core competency or core activity. Second is the convenience – the ability to fill in a simple questionnaire and get insurance quickly. Third is the availability – some products are not available for some freelancers. For example, a group of freelancers doing construction work in a certain environment are less likely to get certain insurance products due to their high risk profile.
Within the gig economy, there are job titles that are outside the norm and that don’t fall inside traditional insurance categories. We need to revamp the list of professions. In insurtech, we see gaps in coverage [in certain industries]. For example, marketplaces where the underlying risks may be different depending on what level of services and products the platform is providing. Another example may be the evolution of some professions, e.g. “virtual assistants”, where they may in some cases provide basic accounting services, which would previously be performed by certified professionals, because accounting is also moving online. There’s a lot of mismatch between the way insurers categorize their customers and the profession that customers recognize themselves as, and the ability to buy insurance automatically in the most convenient way.
Do you see innovation and transformation happening in the traditional insurance space?
I think the insurance industry is well-aware of the need for innovation and many companies are at the beginning of innovating, but innovation takes time. While we recognize the need, it will take time to implement. As a startup, we don’t have a hierarchical structure or have as many constraints. We can build anything we want without waiting for the approval of senior management. What insurtech can bring is the speed to market, the ability to adapt, and to implement changes and help insurers prove the concept in the most cost-effective way.
In what ways has COVID-19 impacted the sharing economy and your business? What are your predictions for the growth and trajectory of the sharing economy?
A 2015 PWC report showed that revenue from the sharing economy was $15 billion in 2013 and would reach $335 billion in 2025. That’s a phenomenal increase in the market within 12 years. I think the COVID-19 pandemic really accelerated the sharing economy. There are so many businesses that did fantastically well during the pandemic, including businesses in logistics and delivery, and the insurtechs that are operating in that space. From the product delivery, customer-facing side, we didn’t have a problem because we were already set up to operate online. However, it did impact our customers and some of them didn’t renew their insurance or either postponed or changed their policy.
In terms of opportunities, there are many insurance companies or intermediaries that have started to think about innovation. COVID-19 has really accelerated that thinking because tech has become a big hurdle. There are a lot of operational challenges among larger insurance companies that are not set up to sell insurance digitally. That is something insurtech can take advantage of because we are already set up to do this.
Let’s talk about diversity in VC funding and entrepreneurship. A2019 Diversity VC report showed that ethnic minorities are under-represented in venture capital and women are under-represented in senior roles. Another2020 Extend Ventures report shows that female entrepreneurs receive just a fraction of available funding that male founders do. Were there any initial challenges in founding your company and attaining funding, and how did you overcome these obstacles? Are there any present challenges of being an Asian- and woman-owned business and founder?
In the beginning, not raising enough funding can cause a slowdown in your growth. Even with the best ideas, it’s hard to scale your business without capital. I certainly think that the confidence in a woman in running a business could be improved in the VC space. There are a lot of stereotypes and unconscious biases that people apply to their decisions. The VC space needs to work on being self-aware and educate themselves around these issues especially when judging a first-time entrepreneur. There is also uncertainty and a lack of data on startups that make it difficult for VCs to validate and invest in, on top of gender stereotypes.
My biggest daily challenge is finding enough capital to be able to grow my business. The difficulty for early-stage founders is balancing your own interests with the investor’s interests and figuring out how much you want to raise versus how much you can raise. To overcome this problem, we usually find strategic investors that can add a lot of value.
What are your goals for 2021 and beyond? Where do you see the traditional industry heading in the next few years given the pandemic?
We’re preparing for hockey stick growth in 2021 and want to exponentially grow our company in 2022. My aim is to raise enough money to be a larger team and to have the capacity to manage that level of volume and growth.
I think the traditional insurance industry will evolve slowly in the next couple of years. A lot of insurers have been badly hit due to COVID-19 because of claim costs and loss of investments. It would take a couple of years before we recover fully, and hopefully insurtech will still be relevant within this space. At least if anything, insurance companies will be spending more on innovation to reduce their claims and operating costs.
Triple-I’s “Insurance Careers Corner” series was created to highlight trailblazers in insurance and to spread awareness of the career opportunities within the industry. This month, we interviewed, Annette Martinez, senior vice president, State Farm, who discusses her 33-year career in insurance, growing diversity and inclusion at her company, and the significance of Jake from State Farm.
Annette Martinez
Tell us about your role at State Farm and the work that you do. What attracted you to work in the insurance industry?
I’m currently a senior vice president at State Farm and that includes oversight of what I call the “people areas” – human resources, learning and development, public affairs, and the executive succession and development team. I’ve been with State Farm for over 33 years.
My degree is in Biology and Chemistry, and I was working for an R&D facility early in my career. My husband started with State Farm as an auto underwriter, and he encouraged me to come over because of the opportunities.
I began my insurance career in health underwriting. Every two to three years, I was able to recreate myself into new roles. I spent five years in life/health operations before moving to human resources. Within human resources, I was able to work in early succession efforts and then move into leadership in human resources. In 2002, I started the diversity and inclusion initiative and the trajectory of being able to move the organization forward. Like many in the insurance industry, I came in thinking I’d get great experience for a couple of years and now here we are 33 years later, and it’s been an amazing journey.
You launched the first office of diversity and inclusion at State Farm, initiated its diversity council, and started its affinity group program. You’ve also been recognized and awarded on numerous occasions for your work in diversity and inclusion. What inspired you to become a champion of diversity and inclusion?
From the time that I was young, fairness was always important to me, which may be in part because I was raised in an environment where I didn’t see people like me. However, for a long time I have and still believe that everyone should be treated with respect and dignity and have the same opportunities. Opportunity should be open to anyone who has the desire and the capability.
When I began the diversity initiative, I was already conducting diversity training in the organization. State Farm is a fantastic company and has been progressive in programming over the years. We started one of the first minority summer intern programs, but I knew there was more that we could do. My focus was on improving opportunity and bringing people into the organization who had a different pattern of thinking and could positively impact the company. That’s what diversity does. It’s not only a social imperative – we all get to benefit from that – it’s a business imperative about how we treat and gain new customers and how we move forward.
You mentioned that not a lot of people looked like you throughout your career. As a Latinx woman, what obstacles have you faced and overcome?
That’s correct, early on in my career, very few people looked like me. It was isolating. I had to understand that my voice mattered and that I had the opportunity to speak on behalf of many others. There was a lot of pressure with that.
I’ve had some amazing mentors over the years of all genders and races. There was a retired senior vice president, Dave Gonzales, who was the first Hispanic executive that took me under his wing. Dave told me it was going to be a difficult road, but he was and has always been a great support system for me.
We’ve always had mentorship programs at State Farm, but several years ago we started a more formal matching program for people who want to mentor or be mentored. It’s blossomed into a way of life and become part of the culture. I’m active as a mentor and a mentee. I’ve had senior leaders throughout my career who have coached me on to the next level. I’ve also had people [early in their careers] who have guided me into what’s happening at all levels. As a senior leader, it gives me insight into how our actions impact every employee.
How can we foster an honest and open culture at the workplace that welcomes and encourages employees to have conversations around race, discrimination, and equity?
In 2019, we decided to get bold in our conversations. State Farm started working with CEO Act!on For Diversity & Inclusion and implemented a program called “Conversations Worth Having.” In February 2020, we had our first session on racism. We knew that it was going to be a difficult and honest conversation. We had a panel that shared their stories about their lives, their children, and what they experienced.
We had no idea that COVID-19 would happen a month later. The social unrest throughout 2020 was foundational for what we needed to address last year and will continue to address this year. These open conversation forums have continued and are important in allowing people to express their frustration and allowing us to be part of the solution.
We learn every session. Setting ground rules is also important – trust that people’s intentions are honest, listen before you react – some basics in conversations that we talk about each session. If someone responds negatively to a session, we take the time to speak with them one on one to have conversations on a personal level as well.
How has State Farm addressed the current social and racial climate of this past year? Are there any actions or initiatives that State Farm has taken to support Black and Asian American Pacific Islander (AAPI) communities inside and outside the workplace?
State Farm named a Chief Diversity Officer in 2020, which was an important step for us. We also realized that we needed to be quicker with our communications and the acknowledgment that we stand against racism. In the past, we may have addressed it internally at a more moderate level, but we took the stand that State Farm is against racism and the hatred that leads to racism. This is who we are. We respect people – everyone should be treated with respect and dignity, and there is no place for racism in our organization.
There is more work to go into this. It’s an ever-evolving journey, and I think we’re learning as we communicate. We are the Good Neighbor organization. We care about all our neighbors, and we aren’t exclusive to anyone.
Our CEO, Chief Administrative Officer, and Chief Diversity Officer have also been involved in listening sessions to allow employees the opportunity to talk about an experience that they have had, even at State Farm, to better understand the work ahead of us. We want to be an organization that’s part of the healing process.
Jake from State Farm was recently recast as an African American man, actor Kevin Miles. How do you think this change has made an impact on diversity and representation in insurance and has it helped State Farm reach out to more people of color?
The first Jake from State Farm was an actual employee. We pivoted away to some other campaigns for a while, but then we did some research and realized that Jake from State Farm was still very relevant. We knew the needs in a marketing and advertising world today would require more than what we could ask of an employee, so State Farm began an external talent search. We are typically very intentional about diversity in our marketing and advertisements, but ultimately what we did was pick the right actor for the right role.
The actor [Kevin Miles] is from Chicago. One of my favorite stories involves an event early on in his role as Jake from State Farm. We invited him to do a meet and greet at headquarters. It was a big deal, and he brought his parents to the event. The atrium was packed with employees waiting to meet him. He was humbled, kind, and genuine, he spent hours talking to and taking pictures with employees. His success is not only impressive externally – it’s impressive internally as well. The traits you can see and feel from Jake from State Farm are also traits Kevin embodies. And because of that, we intentionally let a lot of Kevin come through in his role as Jake from State Farm.
Can you speak about any upcoming or future diversity and inclusion initiatives for State Farm that you’re excited about? What are your goals for 2021 and beyond?
We’re proud of the intentionality that we put behind diversity and inclusion. State Farm just kicked off a governance council in January, which is a group of senior leaders in the organization who will drive the future strategy of diversity and inclusion.
One focus area that we are looking at is more transparency. How do we tell our story internally so that our associates feel comfortable? How do we tell the story greater from an external perspective? We’re working on deliberate performance goals for all associates around diversity and inclusion, which will be part of their performance assessment and how they actively engage in that work. We are continuing to define our metrics and tangible ways to measure the progress that we are making as an organization. The “Conversations Worth Having” sessions are scheduled throughout the year as well as the listening sessions with our executive leadership. We’re excited about the continuation of programming and leaning into the opportunities ahead of us.
As we celebrate Earth Day, it’s important to remember that every day is Earth Day in the re/insurance industry. Our industry plays a critical role in developing innovative adaptation solutions, in measuring and pricing climate risks to inform risk management, and in providing economic support to people and communities when disasters strike.
Climate risk is a priority for member companies of the Association of Bermuda Insurers & Reinsurers (ABIR). They bring their expertise, innovation, commitment and claims paying capacity to secure a more resilient world.
With partners from government, our internationally recognized consolidated regulator the Bermuda Monetary Authority (BMA), and the re/insurance industry with its historic legacy of leadership in responding to global natural catastrophes, Bermuda has the foundational elements to become a leader in climate risk finance.
The recently announced BMA climate sandbox will give Bermuda’s financial services ecosystem the requisite regulatory and supervisory guidance, support and parameters to pursue innovative solutions to climate change risk. When Bermuda innovation and entrepreneurship prevails, consumers around the world benefit.
Over the past 20 years. Bermuda’s re/insurers have paid more than quarter of a trillion dollars in claims from natural and man-made disasters in the United States and European Union alone. All told, Bermuda represents over one-third of the global property & casualty reinsurance market and has a history of taking risks in some of the world’s most disaster-prone regions. At the heart of this commitment is talent. The people who work for our ABIR member companies are second to none when it comes to modeling, analytics and underwriting risk.
Underpinning this risk assessment is scientific research. Because of its location, Bermuda is a ready-made climate lab, surrounded by an ocean that serves as a real-life classroom for studying the forces behind our changing climate. The Bermuda Institute of Ocean Sciences, or BIOS, observes and analyzes oceanographic and atmospheric conditions from a research vessel in the Sargasso Sea, which is one of the world’s most diverse open-ocean ecosystems.
The Bermuda market joins insurers and reinsurers across the world committed to activating the global sustainable agenda by fostering new mitigation technologies through their assumption of risk and by investing in sustainable assets.
Armed and informed with the latest research and data, Bermuda is working diligently to close the world’s protection gap of $113 billion in 2020 – the difference between natural catastrophe and man-made economic losses and insured losses.
Most of that gap exists in emerging economies, so ABIR member companies join with the Insurance Development Forum (IDF) in committing $5 billion of re/insurance capacity to developing nations by 2025. In addition, IDF and its affiliates are developing an accessible, open modeling platform – with Bermuda leadership – that will greatly improve predictive capabilities in some of the world’s most disaster-prone regions.
ABIR is proud to join its industry partners from around the world in these efforts. Championed by the Global Federation of Insurance Associations (GFIA), which represents nearly 90% of the global insurance market, we are contributing to the effort to build a sustainable planet. Leveraging their tools, talent and capital, all stakeholders will work together toward resilient and sustainable recovery. As an industry, we are strongly committed to this critical joint effort to #RestoreOurEarth.
On behalf of ABIR and its member companies, Happy Earth Day.
John M. Huff is President and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR) and a former president of the U.S. National Association of Insurance Commissioners (NAIC).
To maintain a competitive private-passenger auto insurance market, state lawmakers must allow insurers to use rating factors aimed at having lower-risk drivers pay less for coverage, according to the Insurance Information Institute’s (Triple-I) Chief Actuary.
“It seems clear that all parties sincerely want a more equitable society,” stated James Lynch, the Triple-I’s Chief Actuary, in testimony today to the National Council of Insurance Legislators’ (NCOIL) Special Committee on Race in Insurance Underwriting. “Working cooperatively, we can find solutions that address the issue of systemic racism while preserving the competitive environment that allows the insurance industry to keep its promises and protect its customers. At the same time, it is important that the discussion be based on thorough, fact-based research.”
In his prepared remarks to NCOIL’s 2021 Spring Meeting, Lynch underscored the importance of fact-based research when pricing accurately a private-passenger auto insurance policy. The Triple-I’s Chief Actuary emphasized how actuarial evidence supports the effectiveness of auto insurance rating factors (e.g., a driver’s age and driving record). These factors, combined with dozens of others, such as credit-based insurance scores, effectively gauge the likelihood a driver will file a claim, multiple studies have found. In addition, Lynch noted rating factors are approved by state-based insurance regulators and insurers cannot use information about either a driver’s race or income when pricing their policies.
While addressing NCOIL’s Committee members, Lynch pointed out flaws and errors associated with a 2017 study conducted by ProPublica, in conjunction with Consumer Reports. It alleged insurers systematically overcharged drivers in minority communities in four states: California, Illinois, Missouri, and Texas.
“Once elemental errors in this report are corrected, findings show the exact opposite of what ProPublica asserted: auto insurers charge prices that properly reflect the actual risk in majority white and majority nonwhite neighborhoods,” Lynch stated.
Lynch shared in his testimony findings from Pinnacle Actuarial Solutions, a highly respected actuarial firm retained by the Triple-I, that found “multiple concerns with the analysis and resulting conclusions” in the ProPublica study. Moreover, Lynch also cited state regulators who disputed the key assertion made in ProPublica’s 2017 study.
A comprehensive analysis by the state of Missouri in 2018 determined, “no evidence was found that would indicate that higher-rated territories are charged more relative to risk than lower-rated territories.” Private-passenger auto insurers generally charge drivers more in higher-rated territories.
“The growing awareness of historical injustices make these unprecedented times,” Lynch added. “As the insurance industry, along with the rest of America’s business and governmental institutions, examines past injustices and appropriate remedies, it makes sense to incorporate high-quality, relevant research.”
Triple-I welcomes the Association of Bermuda Insurers & Reinsurers (ABIR) as an Associate Member.
ABIR CEO John Huff writes about the influx of investment that solidifies Bermuda’s role in the global re/insurance industry.
Much is made of the word “finish.” Finish strong, they say, in sports. A fight to the finish yields the strongest competitor. But there’s also a lot to be said for the word “start.” People often yearn for a “fresh start” or talk of “the start of something big.”
Bermuda’s startup insurers are proud of the moniker, but don’t be fooled by the name. Yes, they bring fresh capital and innovation, but they are led by industry veterans and backed by sophisticated investors eager to balance their portfolios with uncorrelated risks like natural catastrophes and social inflation.
Still, every startup is like a seed that needs the proper environment to thrive. It’s no accident that they choose Bermuda. It’s a place where these firms can grow, with an abundance of talent and an uncommon agility fostered by a regulatory system that has earned unparalleled recognition around the world.
Recently, the Association of Bermuda Insurers & Reinsurers, or ABIR, welcomed three of these international startup companies as new members: Canopius Reinsurance, Conduit Reinsurance and Mosaic Insurance. Canopius Re Bermuda CEO Charles Craigs, Conduit Re CEO Trevor Carvey and Mosaic CEO Mitch Blaser have been named to the ABIR board of directors. The three new companies bring ABIR’s total membership to the largest in its 28-year history and they join well established ABIR members, who collectively do business in 150 countries – offering global, well-regulated re/insurance products, protection and peace of mind to consumers and businesses.
These startups, along with Bermuda’s legacy companies, are changing the face of insurance, providing the diversification and spread of risk that today’s world demands. Climate change and cyberrisk in particular pose new and evolving challenges, which these re/insurers are eminently qualified to tackle – with their superior analytics, underwriting and capital deployment strategies.
If you’re looking for proof that there’s something special happening here, just heed the saying, “Follow the money.” Private equity is redoubling its investment in Bermuda, pouring an estimated $19 billion to the island in the past year. Our industry is very strong and it is attracting international attention from investors who won’t shy away from, but in fact relish, the hardening, complex market and everything it brings.
On behalf of the Bermuda financial community, I want to extend a warm welcome to these companies. The hard market will be a marathon, and with their addition we’re off to a good start.
John M. Huff is President and CEO of the Association of Bermuda Insurers and Reinsurers (ABIR) and a former president of the National Association of Insurance Commissioners (NAIC).
Colorado State University (CSU) hurricane researchers predict an above-average Atlantic hurricane season in 2021, citing the likely absence of El Niño as a primary factor. El Niño tends to increase upper-level westerly winds across the Caribbean into the tropical Atlantic, tearing apart hurricanes as they try to form.
The CSU Tropical Meteorology Project team, led by Triple-I non-resident scholar Dr. Phil Klotzbach, predicts 17 named storms during the 2021 Atlantic hurricane season.
Of those, the researchers expect eight to become hurricanes and four to reach major hurricane strength (Saffir/Simpson category 3-4-5) with sustained winds of 111 miles per hour or greater.
An average season has 12 named storms, six hurricanes and three major hurricanes.
The 2021 hurricane season, which runs from June 1 to November 30, follows a record-breaking 2020 season. The team expects the 2021 hurricane activity to be about 140 percent of the average season. By comparison, 2020’s hurricane activity was about 170 percent of the average season. The 2020 hurricane season had six landfalling continental US hurricanes, including Category 4 Hurricane Laura, which battered southwestern Louisiana.
So far, the 2021 hurricane season is exhibiting characteristics similar to 1996, 2001, 2008, 2011 and 2017. “All of our analog seasons had above-average Atlantic hurricane activity, with 1996 and 2017 being extremely active seasons,” said Klotzbach.
The report also includes the probability of major hurricanes making landfall:
• 69 percent for the entire U.S. coastline (average for the last century is 52 percent) • 45 percent for the U.S. East Coast including the Florida peninsula (average for the last century is 31 percent) • 44 percent for the Gulf Coast from the Florida panhandle westward to Brownsville (average for the last century is 30 percent) • 58 percent for the Caribbean (average for the last century is 42 percent)
As always, Dr. Klotzbach caution coastal residents to take proper precautions as “it only takes one storm near you to make it an active season.”
A captive insurance company is a type of risk-management arrangement that essentially works like self-insurance. While “single-parent” captives are financially possible only for large, well-capitalized companies, associations or groups of companies may band together to form a captive to provide insurance coverage. Professionals such as doctors, lawyers and accountants have formed many captives.
A new paper, written by Dr. Patricia Born, Midyette Eminent Scholar of Insurance at Florida State University and Triple-I Non-Resident Scholar, discusses the considerations for these companies from a financial cost and benefit perspective.
The paper, A Comprehensive Evaluation of the Member-Owned Group Captive Option,explains how mid-sized companies seeking to lower their insurance costs and control other aspects of their insurance program might consider the costs and benefits of group captive insurance arrangements.
The paper outlines the numerous benefits of group captive membership, including greater control over risk management concerns and lower costs of insurance. It includes information on the types of companies that use member-owned group captives; the various types of captive arrangements; how they are currently used; where they are located; and legal and regulatory compliance concerns. It also offers several case studies.
“While captives can allow companies a means for managing risks that cannot be placed with commercial insurers, the risks that are reasonably retained by companies in captives have some distinctive characteristics,” the paper notes. For example, the frequency and severity of losses for risks transferred to the captive should be well understood by the company. Also, a company should have adequate experience with the risk to fully appreciate the actuarially estimated expected losses associated with the exposure. The expected losses should also not be catastrophic in nature. Since these losses are infrequent, they can be more effectively pooled by an insurer who has more capacity and more opportunities to diversify its risks.
“Group captives have become an attractive risk management option for a growing number and type of companies,” the paper concludes. “The current hardening in the traditional insurance market makes captives even more enticing and suggests the captive industry will see more growth in the form of new captive formations and increasing group captive membership.” A hard market, known in the insurance industry as a seller’s market, describes situations when insurance is expensive and in short supply.
