Category Archives: Regulation

Insurance Industry, Insurance News, Market Conditions, Regulation, Specialty Coverage

South Carolina Analysis Shows Liquor Liability Insurance Market in Crisis

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South Carolina’s liquor liability insurance market is in crisis, with insurers losing an average of $1.77 for every $1.00 of premium earned since 2017, while claim frequencies significantly outpace neighboring states, according to a recent study by the state’s Department of Insurance.

The comprehensive analysis, initiated following a 2019 request by the South Carolina Senate Judiciary Committee, reveals a deeply troubled marketplace where insurers are losing money.

“The data seem to confirm the anecdotal assertions, made by both insurance companies and small businesses, of a very troubled and challenged marketplace,” the report stated.

Current Market Landscape

The liquor liability insurance market in South Carolina has maintained a relatively stable number of participants in recent years. Since 2019, the number of insurance groups operating in this sector has held steady at around 48 participants. This consistency in market players suggests a mature, albeit challenging, insurance environment.

Despite the overall stability in participant numbers, the market is characterized by the dominance of three major insurance groups.

Premium Trends

While the number of market participants has remained relatively constant, earned premiums have experienced remarkable growth over a five-year period. From 2017 to 2022, earned premiums in the South Carolina liquor liability insurance market more than doubled to $17.0 million from $7.6 million.

This dramatic surge in premiums can be attributed to various factors, but rising insurance rates play a crucial role, the report noted.

Profitability Crisis in South Carolina

Since 2017, liquor liability insurers have lost about $1.77 for every $1.00 of premium earned over the six years observed. In the best performing of those six years (2018), the industry lost roughly $0.91 per $1.00 of premiums earned, while losing about $2.60 per $1.00 of premiums earned in the worst performing year, 2022.

“Combined ratios for the industry make it clear that this sub-line of insurance is being written at massive underwriting losses,” the report’s authors stated.

Source: South Carolina Department of Insurance

The severity of South Carolina’s liquor liability insurance crisis becomes even more apparent when compared to their neighboring states, where these same insurers have realized a net profit over time, the report noted.

Over the same 2017-2022 period analyzed, for example, North Carolina’s estimated liquor liability combined ratio ranged between 45% and 76%. In 2022, when South Carolina’s estimated combined ratio hit 290%, North Carolina’s stood at 62%.

Claims Severity and Frequency

The liquor liability insurance market in South Carolina also has experienced significant fluctuations in claim severity over recent years. In 2022, the average incurred claim per $1 million of earned premium reached $281,071, a substantial increase from $121,761 the previous year. This figure, however, falls within a broader historical context of volatility. The state witnessed its highest average claim of $338,244 in 2017, followed by a dramatic drop to $121,761 in 2021.

Despite these fluctuations, recent data suggests that South Carolina’s claim severity is aligning more closely with neighboring states in recent years, according to the report.

While severity trends show signs of alignment with regional norms, claim frequency in South Carolina presents a more pressing challenge.

From 2019 to 2022, South Carolina’s claim frequency (number of incurred claims per $1 million of earned premium) has outpaced that observed in the other states considerably. The claims frequency rate was nine in 2022, 13 in 2021, 10 in 2020 and 12 in 2019. During that same period, none of its neighboring states — Florida, Georgia and North Carolina — reported a claims frequency rate higher than five.

View the full South Carolina report here.

Auto Insurance, Homeowners Insurance, Insurance Industry, Regulation, Risk Management

New Triple-I Issue Brief Puts the Spotlight on Georgia’s Insurance Affordability Crisis

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Insurance affordability in Georgia is dwindling as claim frequency and insurer costs soar, according to the latest issue brief from Insurance Information Institute (Triple-I), Trends and Insights: Georgia Insurance Affordability.  

Given the state’s below-average income vs. above-average insurance expenditures, Georgia ranks 42nd on the list of affordable states for homeowners insurance and 47th (plummeting from the 2006 high of 27th) for personal auto affordability, according to reports by the Insurance Research Council. This brief provides an overview of how several factors, including skyrocketing costs from litigation, pose risks to coverage affordability, availability, and other potential economic outcomes for Georgia residents. Tort reform is discussed as a legislative solution to the challenge of legal system abuse – excessive policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims. 

The Georgia insurance market grapples with multiple risk factors 

From 1980–2024, Georgia was impacted by 134 confirmed weather/climate disaster events in which losses exceeded $1 billion each. At least 38 of those events happened in the last five years, with 14 in 2023. Homeowners in Georgia’s most climate-risk-vulnerable counties, such as the coastal and most southern parts of the state, can face double-digit premium hikes or nonrenewals. Also, data indicates the rate of underinsured motorists in Georgia is twice as high as the national average, and the rate of uninsured motorists is 25 percent higher. Injury claim severity in the state is slightly higher than in the rest of the country.   

Data indicates that litigation costs have become a pervasive concern for risk management. 

Rising claim frequency and litigation costs put coverage affordability and availability at risk. For example, the IRC findings across personal auto lines show a dual trend in Georgia of increased claims and litigation. Property damage liability claims per 100 insured vehicles are 15 percent higher, and relative body injury claims frequency is 60 percent higher. According to IRC, the rate for private passenger litigation in Georgia is nearly three times that in the median state. 

The Georgia Office of Commissioner of Insurance and Safety Fire (“OCI”) reviewed all lines across personal and commercial auto, personal and commercial umbrella, and commercial general liability (homeowners liability was excluded). The five-year average count for liability claims increased 24.9 percent (2014 – 2018 at 583,756 vs. 2019-2023 at 729,191). A rising percentage of claims with payment are full-limit claims, and the OCI analysis indicates litigation is driving that increase. While costs rose for both litigated and non-litigated claims, the number of claims with legal involvement dominated paid indemnity for most lines of business, and litigated claims comprised a growing portion of the total paid indemnity. 

Attorneys appear to have revved up their mining for lawsuits in Georgia. Law firms spent $160 million on advertising in Georgia, according to preliminary data from the American Tort Reform Association (ATRA). Outdoor ads for lawsuits increased by 119 percent in GA during that time. It might not be a surprise then to see that the Georgia OCI report shows legal (attorney involved) claims dominated Personal Auto claims for Bodily Injury, comprising 62 percent of claims and 86 percent of total indemnity paid for closed claims in Accident Year 2023. A review of losses of $1 million or more by accident year that have closed during the 2014 to 2023 period shows that each accident year cohort surpasses the count from the previous accident years.   

Recently introduced state tort reform legislation may help to stabilize insurance costs. 

Analysts estimate that litigation costs Georgia residents $880 million annually, or an average of $1,415 per resident.  Sean Kevelighan, Triple-I CEO, says “understanding how these trends drive up costs and identifying policy levers for tort reform legislation can ultimately bring positive outcomes for Georgia’s economy and its consumers and business owners.” 

As part of our commitment to educating stakeholders, Triple-I has launched a multi-faceted campaign to raise awareness of the mounting costs of legal system abuse in Georgia and other states. We invite you to view the video statement by our CEO Sean Kevelighan, interviews capturing the opinions of consumers about legal system abuse, and read the full issue brief, Trends and Insights: Georgia Insurance Affordability. 

Disaster Resilience, Regulation, Wildfire

California Insurance Market at a Critical Juncture

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Guest column by Sean Kevelighan, Chief Executive Officer of the Insurance Information Institute, published in the Ventura County Star.

As catastrophic wildfires blaze through Southern California, the human toll is heartbreaking, and the financial aftermath is staggering. For the millions impacted, the first step is safety. But as the flames subside, families will turn to insurers — California’s financial first responders — for recovery and rebuilding. Yet, even as insurers deliver on their promise to customers, the state’s insurance market continues to face headwinds.

The truth is, California’s insurance system has been in crisis for years. Wildfires are burning through not only our forests and communities but also the fragile foundation of an insurance market that has struggled under decades-old regulations.

Recent reforms, including the long-awaited “Sustainable Insurance Strategy,” are a step in the right direction. With implementation beginning in 2025, the new strategy poses a potential to fix the troubles of the past and rebuild with a more robust, sustainable and insurable market after what may be the worst wildfires in California’s history. However, there is some damage done that we need to overcome.

For years, insurers have sounded the alarm. They have warned policymakers about the urgent need to modernize regulations so the system can function in the face of increasing climate risks. But change has been slow, and the consequences are now clear.

Some insurers have made the difficult decision to stop writing policies in California or leave the market entirely. These companies do not want to abandon the state — California is the largest insurance market in the U.S. and one of the largest economies in the world. But without the ability to manage and price risk effectively, their hands are tied.

For decades, California has not allowed insurers to model future catastrophic risks, such as wildfires, for pricing purposes. Additionally, rate increases above 7% have been subjected to an arduous approval process, forcing insurers to submit not actuarially sound rates capped at 6.9%. Meanwhile, the costs of claims have skyrocketed. Between 2019 and 2022, inflation drove homeowners’ replacement costs up by a cumulative 55% nationally. When inflation is paired with worsening wildfire risks year after year, the math simply does not add up.

One of the biggest lessons from California’s risk crisis is the need for collective action. The rising frequency and severity of wildfires demand a united effort to build resilience. While preventative measures like brush clearing and fireproofing homes are helpful, they are not enough when wildfires of this magnitude strike. It is clear we need large-scale solutions, including investments in fire prevention, smarter land-use planning and policies that incentivize sustainable development.

It is disheartening that it often takes a major catastrophe to spur action. But this is California’s opportunity to address the root causes of this crisis. A resilient future requires modernizing our insurance market, adopting climate-conscious policies, and committing to long-term investments in disaster prevention and recovery.

Insurers want to serve Californians, and they want to be in California. But without systemic changes, the cycle of crisis will only continue. This is not just about insurance — it is about protecting our homes, our communities and the state from the growing risks of a changing climate. The time to act is now, before the next disaster strikes.

Catastrophes, Disaster Preparedness, Disaster Resilience, Insurers and the Economy, Regulation, Technology, Wildfire

California Finalizes Updated Modeling Rules, Clarifies Applicability Beyond Wildfire

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California’s Department of Insurance last week posted long-awaited rules that remove obstacles to profitably underwriting coverage in the wildfire-prone state. Among other things, the new rules eliminate outdated restrictions on use of catastrophe models in setting premium rates.

The measure also extends language related to catastrophe modeling to “nature-based flood risk reduction.” In the original text, “the only examples provided of the kinds of risk mitigation measures that would have to be considered in this context involved wildfire. However, because the proposed regulations also permit catastrophe modeling with respect to flood lines, it was appropriate to add language to this subdivision relating to flood mitigation.”

The relevant language applies “generally to catastrophe modeling used for purposes of projecting annual loss,” according to documents provided by the state Department of Insurance.

Benefits for policyholders

As a result, the department said in a press release, “Homeowners and businesses will see greater availability, market stability, and recognition for wildfire safety through use of catastrophe modeling.”

For the past 30 years, California regulations – specifically, Proposition 103 – have required insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. In a dynamically changing risk environment, historical data alone is not sufficient for determining fair, accurate insurance premiums. According to Cal Fire, five of the largest wildfires in the state’s history have occurred since 2017. 

The state’s evolving risk profile, combined with the underwriting and pricing constraints imposed by Proposition 103, has led to rising premium rates and, in some cases, insurers deciding to limit or reduce their business in the state.

With fewer private insurance options available, more Californians have been resorting to the state’s FAIR Plan, which offers less coverage for a higher premium. This isn’t a tenable situation.

“Put simply, increasing the number of policyholders in the FAIR Plan threatens the solvency of insurance companies in the voluntary market,”  California Insurance Commissioner Ricardo Lara explained to the State Assembly Committee on Insurance. “If the FAIR Plan experiences a massive loss and cannot pay its claims, by law, insurance companies are on the hook for the unpaid FAIR Plan losses…. This uncertainty is driving insurance companies to further limit coverage to at-risk Californians.”

“Including the use of catastrophe modeling in the rate making process will help stabilize the California insurance market,” said Janet Ruiz, Triple-I’s California-based director of strategic communication. “Homeowners in California will be able to better understand their individual risk and take steps to strengthen their homes.”

The new measure also requires major insurers to increase the writing of comprehensive policies in wildfire-distressed areas equivalent to no less than 85 percent of their statewide market share. Smaller and regional insurance companies must also increase their writing.

Requirements for insurers

It also requires catastrophe models used by insurers to account for mitigation efforts by homeowners, businesses, and communities – something not currently possible under existing outdated regulations today.

Moves like this by state governments – combined with increased availability of more comprehensive and granular data tools to inform underwriting and mitigation investment – will go a long way toward improving resilience and reducing losses.

Learn More:

Triple-I “Trends and Insights” Issues Brief: California’s Risk Crisis

Triple-I “Trends and Insights” Issues Brief: Proposition 103 and California’s Risk Crisis

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Flood

Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Insurers and the Economy, Market Conditions, Regulation, Risk Management

JIF 2024: What Resilience Success Looks Like

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By Lewis Nibbelin, Contributing Writer, Triple-I

The efficacy of collaboration and investment by “co-beneficiaries” in resilience initiatives was a dominant theme throughout Triple-I’s 2024 Joint Industry Forum – particularly in the final panel, which celebrated leaders behind recent real-world impacts of such investments.

Moderated by Dan Kaniewski, Marsh McLennan (MMC) managing director for public sector, the panelists discussed how their multi-industry backgrounds inform their innovative mindsets, as well as their knowledge on the profound ripple effects of targeted resilience planning.

The panel included:

  • Jonathan Gonzalez, co-founder and CEO of Raincoat;
  • Bob Marshall, co-founder and CEO of Whisker Labs;
  • Dawn Miller, chief commercial officer of Lloyd’s and CEO of Lloyd’s Americas; and
  • Lars Powell, director of the Alabama Center for Insurance Information and Research (ACIIR) at the University of Alabama and a Triple-I Non-Resident Scholar.

Productive partnership

Kaniewski – who spent most of his career in emergency management, previously serving as the second-ranking official at the Federal Emergency Management Agency (FEMA) and the agency’s first deputy administrator for resilience – kicked off the panel by raising the question “how do we define success?”

He characterized success as “putting theory into practice” and “having elected officials taking steps to reduce risk and transfer some of this risk from federal, state, or local taxpayers.”

But, as participants in earlier panels and this one made clear, government efforts can only go so far without private-sector collaboration. 

“It doesn’t matter who makes that investment, whether it’s the homeowner, the business owner, or the government,” Kaniewski explained. “The reality is we all benefit from that one investment. If we can acknowledge that we benefit from those investments, we should do our best to incentivize them.”

Kaniewski and Raincoat’s Gonzalez were both integral in the development of community-based catastrophe insurance (CBCI), developed in the wake of Superstorm Sandy in 2012.

“A lot of the neighborhoods that experienced flooding due to Sandy didn’t have access to insurance prior to the flooding – and then, post flooding, the government really had to step up to figure out how to keep those families in those houses,” Gonzalez said.

In collaboration with the city, a nonprofit called the Center for NYC Neighborhoods developed the concept of buying parametric insurance on behalf of these communities, with any payouts going toward helping families stay in their homes after disasters. Unlike traditional indemnity insurance, a parametric policy pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area – regardless of damage.  Parametric insurance eliminates the need for time-consuming claim adjustment. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders.

In this case, Kaniewski said, success was reflected in the fact that the pilot program received sufficient funding not only for renewal but expansion, bringing needed protection to even more vulnerable communities.

Powell reinforced this sentiment in explaining ACIIR’s research on the FORTIFIED method, a set of voluntary construction standards created by the Insurance Institute for Business and Home Safety (IBHS) for durability against severe weather. The insurance industry-funded Strengthen Alabama Homes program issues grants and substantial insurance premium discounts to homeowners to retrofit their houses along these guidelines, prompting multiple states to replicate the program.

Such homes in Alabama sustained 54 to 76 percent reduced loss frequency from Hurricane Sally compared to standard homes, Powell reported, and an estimated 65 to 73 percent could have been saved in claims if standard homes were FORTIFIED.

Incentivizing contractors to learn FORTIFIED standards was especially critical, Powell explained, because they further advertised these skills and expanded the presence of FORTIFIED homes beyond the grant program.

“A lot of companies have said for several years, ‘we don’t know if we’re comfortable writing these…we haven’t seen it on the ground,’” Powell said. “Well, now we’ve seen it on the ground. We need to have houses that don’t burn down or blow over. We know how to do it, it’s not that expensive.”

Addressing concerns to drive adoption

Miller described how Lloyd’s Lab works to ease that discomfort by creating a space for businesses to nurture and integrate novel insights and products without fear. With mentor support, companies are encouraged to test new ideas while free from the usual degree of financial and/or intellectual property risks attached to innovation investments.

“It’s about having an avenue out to try,” Miller said. “Having that courage, as we continue to work together, to try to understand what’s working, what’s not, and being brave to say, ‘this isn’t working, but we can course correct.’”

Whisker Labs’ Marshall noted that numerous insurance carriers have taken a chance on his company’s front-line disaster mitigation devices, Ting, by paying for and distributing them to their customers.

Ting plug-in sensors detect conditions that could lead to electrical fires through continuous monitoring of a home’s electrical system. Statistically preventing more than 80 percent of electrical fires, communities benefit – not only by preventing individual home fires but also by providing data about the electrical grid and potentially heading off grid-initiated wildfires.

“There are so many applications for the data,” Marshall said, but “to have a true impact on society…we have to prove that we’re preventing more losses than the cost, and we have to do that in partnership with insurance carriers.”

Everyone wins if everyone plays

Cultivating innovative solutions is pivotal to enhancing resilience, the panelists agreed – but driving them forward requires more than just the insurance industry’s support.

He pointed to a project last year – funded by Fannie Mae and developed by the National Institute of Building Science (NIBS) – that culminated in a roadmap for resilience investment incentives, focusing on urban flooding. 

The co-authors of the project, including Triple-I subject-matter experts, represented a cross-section of “co-beneficiary” groups, such as the insurance, finance, and real estate industries and all levels of government, Kaniewski said.

Implementation of the roadmap requires participation from communities and multiple co-beneficiaries. Triple-I and NIBS are exploring such collaborations with potential co-beneficiaries in several areas of the United States.

Learn More:

Outdated Building Codes Exacerbate Climate Risk

Rising Interest Seen in Parametric Insurance

Community Catastrophe Insurance: Four Models to Boost Resilience

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Mitigation Matters – and Hurricane Sally Proved It

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions, Regulation

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

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By Lewis Nibbelin, Contributing Writer, Triple-I

From “social inflation” to “tort reform” to, simply, “fraud,” settling upon uniform terminology to describe  litigation trends that drive up costs – including insurance premiums – for all Americans is a primary challenge to addressing them, according to participants at Triple-I’s 2024 Joint Industry Forum.

“As we’re trying to raise awareness of this problem with consumers, ‘social inflation’ doesn’t work,” said discussion moderator and Triple-I’s Chief Insurance Officer Dale Porfilio. Though Triple-I previously favored “social inflation,” consumer testing was done that suggested a better name was needed. “That’s when we landed on ‘legal system abuse.’”

“The name absolutely matters,” said Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual. “When you talk to a legislator, whether that’s in Kansas or in Washington, D.C., and you say the words, ‘social inflation,’ they don’t know what you’re talking about. But when you say the words ‘legal system abuse,’ you see the lightbulb go off.”

Louisiana Insurance Commissioner Tim Temple – a self-described “unicorn” among insurance regulators, given his decades-long background in the industry as an agent, broker, and company president – even renamed programs to address “legal system abuse” when he assumed office in January. This shift exemplifies Temple’s commitment to using his experience to shape a regulatory and statutory environment that enhances the attractiveness of Louisiana’s insurance market.

“We’re getting more buy-in now, people understand it,” Temple said. “That’s part of transparency – talking about what it truly is.”

Clear communication is key

Opaque, ill-defined language empowers predatory “billboard attorneys” to define these terms themselves, contributing to pervasive policyholder distrust, said Jeff Sauls, Farmers Insurance head of legislative affairs.

“There’s this perception of the insurance industry amongst the public – and plaintiffs’ attorneys help portray this – as a high-margin business,” he said, when, in reality, “we compete with grocery stores for who can make less money in an average year.”

Attorney advertising – estimated to total over $2.4 billion across the U.S. last year – has commandeered the messaging once associated with insurers, noted Temple, who encouraged the industry to “take back that high ground” of providing “dependability and stability during the worst days of people’s lives” without overuse of brand mascots or jingles.

“We have to remind the public why we exist,” Rangaswami added. “We want to pay claims as expeditiously as possible…. We’re on the side of the consumer, whereas the plaintiffs’ attorney is often on their own side or the investor’s side.”

Third-party litigation funding

With her reference to “investors,” Rangaswami took aim at a little-known, rapidly growing practice called third-party litigation funding (TPLF), in which investors with no stake beyond potential profit step in to fund lawsuits against corporate entities perceived as having deep pockets. As of last year, such investors retained an estimated $15.2 billion in assets for U.S. litigation alone.

Only a handful of states require mandatory disclosure of TPLF, which enables hedge funds and other foreign funders to compound and profit from protracted and even fraudulent U.S. court cases. Secrecy surrounding TPLF prevents insurers and regulators from identifying, let alone mitigating, the risks of increased costs and time to resolve claims disputes.

Preventing adversaries to the U.S. from exploiting TPLF to influence settlement outcomes and access sensitive defense information is another concern.

“We’re looking at TPLF as potentially exacerbating national security risk,” said Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute. “Most people don’t know what TPLF is and the way it can insidiously impact the economy, our businesses, our jobs.”

Everyone is affected

Legal system abuse costs the highly litigious states Louisiana and Georgia over 175,000 jobs combined and thousand-dollar “tort taxes” for each resident per year, earning both states recurring spots on the American Tort Reform Foundation’s list of “Judicial Hellholes.” They also rank among the least affordable places for auto and homeowners’ insurance by the Insurance Research Council – an affiliate of The Institutes, like Triple-I.

Louisiana recently enacted a law enforcing some oversight over TPLF, Temple noted, as well as repealed a unique “three-year rule” that impeded actuarially-sound underwriting. But as the state’s bodily injury claims climb well over the national average, more reform is needed to return insurance profitability to the state.

“One thing I would look to is importing some of the good things Florida has done,” Theodorou suggested, explaining that reform curtailing contingency and one-way attorneys’ fees “have brought down the number of lawsuits against insurance companies by 24 percent” for the second consecutive three-quarter period. “Notice of intention to sue is also down by double digits. It’s working, so let’s learn from that.”

Considering the fact that the former “poster child” for legal system abuse generated over 70 percent of all homeowners insurance litigation nationally in 2022 – despite accounting for only about 15 percent of total homeowners claims – Florida’s reduced premium growth and nine new property insurers this year reveal the likely efficacy of such reforms in other states.

Education and coalition building

But such reform requires advocacy, which requires consumer education and coalition building across diverse stakeholder groups, Rangaswami pointed out.

Fixing “an economy-wide problem,” she explained, requires an “economy-wide coalition.”

The end goal is not a “tilted playing field,” Sauls emphasized. “We’re trying to get to a place where we are all on level footing, without being exploited by plaintiffs’ attorneys.”

Legal system abuse “is going to be a pressure point for the industry moving forward,” stressed Fred Karlinsky, shareholder and global chair of Greenberg Traurig, LLP. “No state is immune from what we’ve seen in Florida.”

Karlinsky emphasized that spreading normalization of “nuclear” (over $10 million) and an emergent class of “thermonuclear” (over $100 million) verdicts will stall reform in newly targeted states.

Rangaswami pointed out that not all the news has been bad.

“We had some great wins in 2024,” she said, citing Florida’s improved insurance market and legislation introduced at both the federal and state levels as movement in a promising direction. “But we have to keep this momentum up.”

Learn More:

Triple-I Issues Brief: Legal System Abuse

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

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

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

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

How Georgia Might Learn From Florida Reforms

U.S. Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs: New IRC Report

Inflation Continues to Drive Up Consumers’ Insurance CostsTriple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

Legal Environment, Market Conditions, Regulation

How Georgia Might Learn From Florida Reforms

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By Lewis Nibbelin, Contributing Writer, Triple-I

Georgia – frequently featured on the American Tort Reform Foundation’s list of “Judicial Hellholes” – may want to consider imitating its neighbor Florida in pursuing legal system abuse reforms, Triple-I CEO Sean Kevelighan suggested in a recent  interview for WBS News/Talk Radio. 

In 2022 – the year Category 4 Hurricane Ian tore through the southeast United States – over 70 percent of all homeowners insurance litigation nationally was generated in Florida, when the state accounted for only about 9 percent of total homeowners claims.

“We actually saw six insurers go insolvent even before Ian hit,” Kevelighan said. 

An exodus of insurance carriers, paired with an estimated $10 billion loss in post-Ian litigated claims, prompted Florida policymakers to enact laws targeting excessive one-way attorney fees and prohibiting assignment of benefits (AOB) to curtail gratuitous or fraudulent litigation.

Legal system abuse drives up costs for everyone

Such litigation increases the costs and time to settle insurance claims, which insurers must account for when predicting loss trends and setting rates. 

“The price of insurance is the price of the risk,” Kevelighan explained. “If you have a high-litigation area, that’s risky, and it’s going to be more expensive.” 

Costly, protracted claims disputes – especially ones involving unnecessary judicial intervention – can outprice consumers and insurers, leading many to cease offering coverage in the state or to declare insolvency.

Insurance costs in Florida have stabilized since legislators passed legal system abuse reforms in 2022 and 2023, reducing premium growth and attracting nine new property insurers to the market this year, Kevelighan said.

Under these reforms, “the risk level is getting lower and that allows the cost of insurance to go down,” he said. Underwriting losses in 2023 reflected this trend, as Florida’s property insurance market recorded a much smaller loss than in recent years. Most Florida carriers have filed for no rate increases – or even decreases – this year, Kevelighan said.

Though Hurricanes Helene and Milton will likely constrain Florida’s 2024 underwriting profitability, insurers are well-equipped to settle claims more quickly, with some industry experts suggesting the market could sufficiently cover another hurricane later this season.

Lessons for Georgia

Plaintiffs’ attorneys who profited from claim fraud in Florida have transferred their exploitative practices and billboard marketing to states with fewer and/or antiquated regulations – especially Georgia, recently ranked one of the least affordable states for auto insurance by the Insurance Research Council (IRC), a division of The Institutes.

“The litigation is just creeping across the border into Georgia,” he said. “It’s estimated that the GDP of legal system abuse impacts the economy about $13 billion annually in Georgia alone.”

In Georgia, Kevelighan said, unfettered anchoring tactics – which “anchor” juries to extraordinary non-economic damage awards as a baseline – propel Georgia’s abnormally high rate of excessive verdicts.

Profuse and inflated litigation impedes coverage affordability and availability and creates undue “tort taxes” that cost individual Georgians $1,372 per year, even as trial attorneys in the state invested hundreds of millions into advertising in 2023.

A new IRC survey supports a positive correlation between consumers who consult attorneys and those who are exposed to attorney advertising. Though most consumers believe this advertising increases the cost of auto insurance, most also remain impartial. Greater public outreach and tort reform are needed to stop and prevent legal system abuse.

While amending a court system hostile to defendants requires extensive coordinated efforts, Florida’s recent legislative reforms have already improved the state’s insurance landscape, demonstrating the efficacy of passing similar laws in other areas. To advocate for tort reform in Georgia, the Triple-I recently launched a multi-faceted campaign that includes highway and digital bus shelter billboards promoting an educational consumer website.

“We want to inform consumers that litigation doesn’t need to be a first step in claim disputes, but should be more of a last resort,” Kevelighan said. “We’re trying to help raise awareness so that reform does pass, and that we can reduce the risk level, so that we can reduce the price levels.”

Georgia Gov. Brian Kemp’s interest in addressing tort reform during the 2025 Georgia General Assembly promises “more movement,” Kevelighan added.

It’s not too late to register for Triple-I’s “Joint Industry Forum” in Miami November 19th and 20th, where legal system abuse will be a major topic of conversation.

Learn More:

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

Georgia Is Among the Least Affordable States for Auto Insurance

U.S. Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs: New IRC Report

Auto Insurance, ESG, Homeowners Insurance, Regulation, Technology

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

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The Casualty Actuarial Society (CAS) has added to its growing body of research to help actuaries detect and address potential bias in property/casualty insurance pricing with four new reports. The latest reports explore different aspects of unintentional bias and offer forward-looking solutions.

The first  – “A Practical Guide to Navigating Fairness in Insurance Pricing” – addresses regulatory concerns about how the industry’s increased use of models, machine learning, and artificial intelligence (AI) may contribute to or amplify unfair discrimination. It provides actuaries with information and tools to proactively consider fairness in their modeling process and navigate this new regulatory landscape.

The second new paper — “Regulatory Perspectives on Algorithmic Bias and Unfair Discrimination” – presents the findings of a survey of state insurance commissioners that was designed to better understand their concerns about discrimination. The survey found that, of the 10 insurance departments that responded, most are concerned about the issue but few are actively investigating it. Most said they believe the burden should be on the insurers to detect and test their models for potential algorithmic bias.

The third paper – “Balancing Risk Assessment and Social Fairness: An Auto Telematics Case Study” – explores the possibility of using telematics and usage-based insurance technologies to reduce dependence on sensitive information when pricing insurance. Actuaries commonly rely on demographic factors, such as age and gender, when deciding insurance premiums. However, some people regard that approach as an unfair use of personal information. The CAS analysis found that telematics variables –such as miles driven, hard braking, hard acceleration, and days of the week driven – significantly reduce the need to include age, sex, and marital status in the claim frequency and severity models.

Finally, the fourth paper – “Comparison of Regulatory Framework for Non-Discriminatory AI Usage in Insurance” – provides an overview of the evolving regulatory landscape for the use of AI in the insurance industry across the United States, the European Union, China, and Canada. The paper compares regulatory approaches in those jurisdictions, emphasizing the importance of transparency, traceability, governance, risk management, testing, documentation, and accountability to ensure non-discriminatory AI use. It underscores the necessity for actuaries to stay informed about these regulatory trends to comply with regulations and manage risks effectively in their professional practice.

There is no place for unfair discrimination in today’s insurance marketplace. In addition to being fundamentally unfair, to discriminate on the basis of race, religion, ethnicity, sexual orientation – or any factor that doesn’t directly affect the risk being insured – would simply be bad business in today’s diverse society.  Algorithms and AI hold great promise for ensuring equitable risk-based pricing, and insurers and actuaries are uniquely positioned to lead the public conversation to help ensure these tools don’t introduce or amplify biases.

Learn More:

Insurers Need to Lead on Ethical Use of AI

Bringing Clarity to Concerns About Race in Insurance Pricing

Actuaries Tackle Race in Insurance Pricing

Calif. Risk/Regulatory Environment Highlights Role of Risk-Based Pricing

Illinois Bill Highlights Need for Education on Risk-Based Pricing of Insurance Coverage

New Illinois Bills Would Harm — Not Help — Auto Policyholders

Corporate Social Responsibility, Legal Environment, Regulation, Technology, Webinars

Insurers Need to Lead
on Ethical Use of AI

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Every major technological advancement prompts new ethical concerns or shines a fresh light on existing ones. Artificial intelligence is no different in that regard. As the property/casualty insurance industry taps the speed and efficiency generative AI offers and navigates the practical complexities of the AI toolset, ethical considerations must remain in the foreground.  

Traditional AI systems recognize patterns in data to make predictions. Generative AI goes beyond predicting – it generates new data as its primary output.  As a result, it can support strategy and decision making through conversational, back-and-forth “prompting” using natural language, rather than complicated, time-consuming coding.

A recently published report by Triple-I and SAS, a global leader in data and AI, discusses how insurers are uniquely positioned to advance the conversation for ethical AI – “not just for their own businesses, but for all businesses; not just in a single country, but worldwide.” 

AI inevitably will influence the insurance sector, whether through the types of perils covered or by influencing how insurance functions like underwriting, pricing, policy administration, and claims processing and payment are carried out. By shaping an ethical approach to implementing AI tools, insurers can better balance risk with innovation for their own businesses, as well as for their customers.

Conversely, failure to help guide AI’s evolution could leave insurers — and their clients — at a disadvantage. Without proactive engagement, insurers will likely find themselves adapting to practices that might not fully consider the specific needs of their industry or their clients. Further, if AI is regulated without insurers’ input, those regulations could fail to account for the complexity of insurance – leading to guidelines that are less effective or equitable.

“When it comes to artificial intelligence, insurers must work alongside regulators to build trust,” said Matthew McHatten, president and CEO of MMG Insurance, in a webinar introducing the report. “Carriers can add valuable context that guides the regulatory conversation while emphasizing the value AI can bring to our policyholders.” 

During the webinar, Peter L. Miller, CPCU, president and CEO of The Institutes, noted that generative AI already is helping insurers “move from repairing and replacing after a loss occurs to predicting and preventing losses from ever happening in the first place,” as well as enabling efficiencies across the risk-management and insurance value chain.

Jennifer Kyung, chief underwriting officer for USAA, discussed several use cases involving AI, including analyzing aerial images to identify exposures for her company’s members. If a potential condition concern is identified, she said, “We can trigger an inspection or we can reach out to those members and have a conversation around mitigation.”

USAA also uses AI to transcribe customer calls and “identify themes that help us improve the quality of our service.”  Future use cases Kyung discussed include using AI to analyze claim files and other large swaths of unstructured data to improve cost efficiency and customer experience.

Mike Fitzgerald, advisory industry consultant for SAS, compared the risks associated with generative AI to the insurance industry’s early experience with predictive models in the early 2000s. Predictive models and insurance credit scores are two innovations that have benefited policyholders but have not always been well understood by consumers and regulators.  Such misunderstandings have led to pushback against these underwriting and pricing tools that more accurately match risk with price.

Fitzgerald advised insurers to “look back at the implementation of predictive models and how we could have done that differently.”

When it comes to AI-specific perils, Iris Devriese, underwriting and AI liability lead for Munich Re, said, “AI insurance and underwriting of AI risk is at the point in the market where cyber insurance was 25 years ago. At first, cyber policies were tailored to very specific loss scenarios… You could really see cyber insurance picking up once there was a spike of losses from cyber incidents. Once that happened, cyber was addressed in a more systematic way.”

Devriese said lawsuits related to AI are currently “in the infancy stage. We’ve all heard of IP-related lawsuits popping up and there’ve been a few regulatory agencies – especially here in the U.S. – who’ve spoken out very loudly about bias and discrimination in the use of AI models.”

She noted that AI regulations have recently been introduced in Europe.

“This will very much spur the market to form guidelines and adopt responsible AI initiatives,” Devriese said.

The Triple-I/SAS report recommends that insurers lead by example by developing their own detailed plans to deliver ethical AI in their own operations. This will position them as trusted experts to help lead the wider business and regulatory community in the implementation of ethical AI. The report includes a framework for implementing an ethical AI approach.

LEARN MORE AT JOINT INDUSTRY FORUM

Three key contributors to the project – Peter L. Miller, Matthew McHatten, and Jennifer Kyung — will share their insights on AI, climate resilience, and more at Triple-I’s Joint Industry Forum in Miami on Nov. 19-20. 

Insurers and the Economy, Legal Environment, Market Conditions, Regulation

Economic Climate Makes Understanding Insurance Increasingly Important

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By Lewis Nibbelin, Guest Blogger for Triple-I

Insurance coverage has long been “a grudge purchase – a once-or-twice-a-year transaction that many consumers didn’t want to think about,” Triple-I CEO Sean Kevelighan said in a recent episode of the “All Eyes on Economics” podcast.

But in today’s dynamic economic environment – marked by inflation the likes of which most insurance purchasers have never experienced – it has become more important than ever for consumers and policymakers to understand how insurance is underwritten and priced.

One of Triple-I’s chief objectives is “helping people understand what insurance can do for you, but also what you can do to change the situation,” Kevelighan told podcast host and Triple-I Chief Economist and Data Scientist Michel Léonard. “The narrative seems, at least from my standpoint, to be less about, ‘Why is my insurance so high?’ It’s more about, ‘What can we do to get it lower?’”

Rising insurance premium rates are the effect of risk levels, loss costs, and economic considerations like inflation. Too often, though, they’re discussed as if they were the cause.

High property/casualty premium rates are the result of numerous coalescing factors: Increased litigation, inflation, antiquated state regulations, losses from natural catastrophes, and pervasive post-pandemic high-risk behaviors, to name a few.

Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, according to a recent joint report from Allstate and the U.S. Chamber of Commerce. As areas vulnerable to climate disasters become increasingly populated, it’s important for policyholders to develop resilience measures against the wildfire, hurricane, severe convective storm, and flood risks their property faces.

Consumer education and community involvement in mitigation and resilience offer a path toward greater control over claims.

However, regulatory barriers to fair, accurate underwriting also contribute to higher insurance costs. Despite tort reforms, rampant litigation has kept upward pressure on rates in Florida and Louisiana. California’s outdated Proposition 103 – by barring insurers from using modeling to price risk prospectively and from taking reinsurance costs into account when setting rates – has   impeded insurers from using actuarially sound insurance pricing.

Confusion around industry practices and effective mitigation is understandable, and during periods of economic instability and unforeseen disasters, blaming the insurance industry may seem the most direct way to regain control.

But rising rates are “not just an insurance problem,” Kevelighan said. “It’s a risk problem, and we all play a role in addressing that risk.”

The full interview is available now on Spotify, Audible, and Apple.