Category Archives: Risk Management

Auto Insurance, Insurance Industry, Risk Management

IRC report reveals that one in three drivers were either uninsured or underinsured in 2023. 

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In 2023, despite nearly universal legal requirements to have auto insurance, more than one in seven drivers (15.4 percent) nationally were uninsured, and more than one in six drivers (18.0 percent) were underinsured, according to the new report, Uninsured and Underinsured Motorists: 2017–2023, by the Insurance Research Council (IRC), affiliated with The Institutes. Across the fifty states and the District of Columbia, one in three drivers (33.4 percent) were either uninsured or underinsured in 2023, a 10 percentage point increase in the combined rate since 2017.  

Using data submitted by 17 insurers — representing approximately 55 percent of the private passenger auto insurance market countrywide — this latest report estimated the prevalence of uninsured (UM) and underinsured (UIM) by comparing the frequency of UM claims and UIM claims, respectively, to the frequency of bodily injury (BI) claims. Findings included an analysis of trends and contributing factors to variations in UM and UIM rates across states. 

The IRC analyzed UM, UIM, and BI liability exposure and claim count data from participating companies for 2017 through 2023. Because of the disruption of the pandemic shutdowns, the changes over time were split into three periods (details outlined in the report).  

Key IRC findings include:  

  • UM rates varied substantially across the nation (50 states and the District of Columbia) 
  • Nearly every state saw a rise in the UM rate in 2020 with the onset of the pandemic, but the experience from 2020 to 2023 was mixed.  
  • Every state, except for New York and the District of Columbia, experienced a rise in UIM rate between 2017 and 2023.  
  • Many states with high UM rates often also have high UIM rates. However, some jurisdictions, such as Nevada and Louisiana, combine below-average UM rates with high UIM rates, while others, such as the District of Columbia, have high UM rates but low UIM rates.  
  • Several factors, including economic factors, insurance costs, and state insurance laws and regulations, are associated with variations in UM and UIM rates across states. 

After the initial shock of the pandemic, the UM rate increased steadily. 

Before the disruption of the COVID-19 pandemic, UM rates were falling in most states. From 2017 to 2019, only 11 jurisdictions saw an increase. UM claim frequency fell slightly in 2020 to 0.11 claims per 100 insured vehicles, but the decline was much smaller than the drop in BI claim frequency. UM claim frequency recovered quickly and, in the years since 2020, has grown faster than BI claim frequency (39 percent compared with 29 percent).   

As a result, the UM rate has increased steadily, reaching 15.4 percent in 2023. The range of the UM rates spanned from a low of 5.7 percent in Maine to a high of 28.2 percent in Mississippi. Outliers include eight states with UM rates above 20 percent and 11 states with rates lower than 10 percent.  

States with above-average BI claim frequency and UM claim frequency tended to have higher UM rates. Yet, some states with low UM claim frequency rates have a relatively high UM rate. In Michigan, for example, strict no-fault rules limit the number of BI claims, so the ratio of UM-to-BI claim frequencies is high. Lower UM rates tended to occur in states with higher income, lower unemployment rates, lower insurance expenditures, low minimum limits, and a lack of stacking provisions.  

UM rates were higher in states that don’t require UIM coverage. In 2023, the UM rate was 14.9 percent in states that do not require UIM insurance, compared with 11.6 percent in states that require it. Where UIM coverage isn’t required by law, UM rates were significantly higher in the years captured in this study, with the rate in 2023 at 18.9 percent in states that don’t require UIM insurance, compared with 13.3 percent in states that require it.   

Nearly one in five accidents with injuries involved losses more than the at-fault driver’s coverage limits. 

Over the study period, nearly every jurisdiction experienced an increase in its UIM rate. The only exceptions were a small decline (0.9%) in the District of Columbia and a 6.6 percent decline in New York. The largest increase occurred in Colorado, where the UIM rate rose 24.4 percentage points. Other states with above-average increases included Michigan, Kentucky, and Georgia.  

UIM claim frequency showed a small increase between 2017 and 2019 before dropping slightly in 2020. In the years since the onset of the pandemic, with the severity of auto injury claims on the rise, UIM claim frequency has increased markedly, reaching 0.17 claims per 100 insured vehicles in 2023. Since 2020, the growth in UIM claim frequency was double the growth in BI frequency. As a result, the UIM rate has increased significantly, rising to 18.0 percent in 2023.  

IRC analysis showed that characteristics associated with lower UIM rates included higher income, lower unemployment rates, lower insurance expenditures, high or medium minimum limits, lack of stacking provisions, and use of a limits trigger for UIM coverage rather than a damages trigger. States with high UM rates often also have high UIM rates. Florida, Colorado, and Michigan all rank relatively high for both measures, while Maine, Massachusetts, and Nebraska all rank relatively low.  

“The increase in UIM rates points to higher UIM premiums in the future, worsening affordability and potentially increasing the likelihood of more uninsured drivers. This demonstrates the complex interconnectedness of these two coverages as insurers protect consumers from insufficient coverage by at-fault drivers,” said Dale Porfilio, president of the IRC and chief insurance officer at the Insurance Information Institute (Triple-I). 

While state laws regarding mandatory requirements for uninsured and underinsured motorists vary, nearly all states have a legislation framework that requires all drivers to have some auto liability insurance to drive a motor vehicle. Drivers in most states are also required to purchase additional protection to provide coverage if the at-fault driver cannot afford to pay for the damage they caused. However, legislators in several states have enacted “no pay, no play” laws, which ban uninsured drivers from suing for noneconomic damages such as pain and suffering. A handful of states have programs to assist lower-income drivers, and drivers can check with their state’s insurance division to see if they are eligible.  

To learn more about UM/UIM trends, read the IRC report, Uninsured and Underinsured Motorists: 2017–2023, and check out the Triple-I Backgrounder on Compulsory Auto/Uninsured Motorists. 

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. 

Catastrophes, Coastal Property, Disaster Resilience, Floods, Risk Management

Parametric Insurance Gains Traction Across U.S.

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By Lewis Nibbelin, Contributing Writer, Triple-I

Heading into 2025, countless communities are still grappling with the $27 billion natural disasters that impacted the United States last year – a total driven by costly storms and severe inland flooding. Many affected residents lacked flood coverage and will rely almost exclusively on federal relief funding to recover, underscoring a widespread protection gap.

Aiming to expedite disaster recovery for riverine communities in the Mississippi River Basin, the Mississippi River Cities and Towns Initiative (MRCTI) recently announced a flood insurance pilot currently in development with Munich Re that will use parametric insurance.

Unlike traditional indemnity insurance, parametric structures cover risks without sending adjusters to evaluate post-catastrophe damages. Rather than paying for specific damages incurred, parametric policies issue agreed-upon payouts if certain conditions are met – for example, if wind speeds or rainfall measurements meet an established threshold. Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders, especially as weather and climate risks become more severe and unpredictable.

Several insurers demonstrated this efficiency in the wake of last year’s hurricanes – among them climate risk-management firm Arbol, which paid out $20 million in parametric reinsurance claims within 30 days after Milton made landfall.

Coast-to-coast trends

Though the MRCTI pilot presents a novel approach to inland flooding, similar pilots are already underway along the coast. New York City developed its own parametric flood program following Superstorm Sandy to bolster the resilience of low- and moderate-income neighborhoods struggling to recover. The program received enough funding last year not only for renewal but expansion, bringing needed protection to even more vulnerable communities.

For flood-prone Isleton, Calif. – a small Sacramento County town that lacks the resources to support a police department – risk mitigation has long taken a backseat to more immediate concerns. But the city’s location in a floodplain made it the perfect candidate for California’s parametric flood pilot, backed by a two-year, $200,000 grant going into effect this year.

The emergence of these community flood solutions reflects a growing interest in parametric insurance throughout the U.S., which propelled the $18 billion value of the global parametric insurance market in 2023. From Lloyd’s first dedicated parametric syndicate to Amwins’ parametric program for golf courses, more parametric coverage options are available than ever before, particularly after numerous private carriers – emboldened by improved data analytics and modeling – expanded their parametric flood insurance business in the U.S. last year.

Take FloodFlash, a leading parametric flood insurance provider based in London. Initially limited to five states, FloodFlash became known for offering coverage beyond the National Flood Insurance Program’s (NFIP) limits and in areas traditionally unsupported by private markets. Increased broker demand motivated the company, in partnership with Munich Re, to gradually roll out coverage to all mainland states last year, ahead of active hurricane season forecasts.

New insurance startups like Ric are also lowering the cost of entry into innovative parametric-based resilience. A winner of the RISE Flood Insurance of the Future Challenge, Ric will launch later this year on the coasts with micro-policies ranging from $14 to $50 per month. The company plans to collaborate with employers to extend their policies as employee benefits, which could help raise awareness of and reduce coverage gaps.

Regulatory momentum

As parametric risk transfer continues to gain traction, regulatory uncertainty in the absence of corresponding insurance laws persists. Given that many jurisdictions have structured their legal insurance framework around traditional indemnity principles, it’s unclear how restrained insurers in some areas are to issuing payouts only for actual losses.

Determining appropriate thresholds for coverage poses another challenge. For example, following extensive devastation from Hurricane Beryl last year, a $150 million parametric catastrophe bond did not yield a payout because air pressure levels narrowly missed the predefined minimum. The ensuing backlash included an intergovernmental “examination” into insurance-linked securities broadly and sparked industry-wide debate surrounding the equity of parametric structures.

To date, only a handful of states have enacted parametric insurance legislation, though substantial movement last year suggests more regulations are on the horizon. Notably, Vermont updated its previous 2022 law permitting captive insurance companies to enter parametric contracts. Based on evidence of their utility as insurance contracts, parametric contracts are now less restricted.

New York also unanimously passed its first parametric insurance law, recognizing parametric coverage as an authorized form of personal line insurance within the state. The law further stipulates mandatory disclosures on all parametric applications that distinguish parametric insurance as less comprehensive, and therefore not a substitute for, traditional property and flood insurance.

Such regulations are a promising step forward towards refining parametric coverage and facilitating its adoption across the country, but tensions between parametric and indemnity risk structures remain largely unresolved. Navigating how parametric insurance functions alone or as part of a package including indemnity coverage will require more collective input from all industry stakeholders.

One thing is for certain: traditional risk-transfer mechanisms are no longer sufficient to address the risk crisis presented by our evolving climate. Tools like parametric insurance – paired with hazard mitigation and community resilience planning – are guiding the way forward.

Learn More:

Rising Interest Seen in Parametric Insurance

Hurricane Delta Triggered Coral Reef Parametric Insurance

Mangrove Insurance: Parametric + Indemnity May Aid Coastal Resilience

Catastrophes, Disaster Resilience, Floods, Risk Management, Technology, Wildfire

Data Fuels the Assault
on Climate-Related Risk

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By Lewis Nibbelin, Contributing Writer, Triple-I

Identifying opportunities to mitigate climate risk was on the minds of “Risk Take” presenters at Triple-I’s 2024 Joint Industry Forum (JIF). Risk Takes – a new addition at JIF – are 10-minute problem/solution-oriented presentations by high-impact experts who are deeply engaged in addressing specific perils. 

Inserted between panel discussions of broader issues and trends, these compact talks were tightly focused on how current challenges are being met.

Munich Re US, for example, is diving deep into understanding how consumers and insurers perceive climate-related risks. According to RiskScan 2024, a recently published survey by Munich Re US and Triple-I, more than one-third of respondents ranked climate change as a top concern, identifying it as “a key driver of insurance costs,” said Kerri Hamm, EVP and head of cyber underwriting, client solutions, and business development at Munich Re US.

However, when it comes to flood risk, the survey highlighted a substantial disconnect between concern about the peril and understanding of related insurance coverage. Despite understanding the rising severity of climate risks and their direct influence on insurance costs, many consumers erroneously believe their homeowners policy includes flood coverage or that they do not reside in an area at risk of flooding, contributing to a significant flood protection gap.

High-risk areas are only expanding, Hamm pointed out, as upsurges in flash flooding implicate more and more noncoastal properties. Increased private-sector interest in flood risk has led to new forms of flood coverage, such as a private Inland Flood Endorsement offered at Munich Re, to support these properties. Take-up rates for these insurance products remain low – underscoring the importance of consumer education and improved training for agents and brokers to encourage flood insurance sales.

“We can do better as an industry to make options available, attractive, and better known to vulnerable homeowners,” Hamm said. Education is vital, as is “developing innovative solutions that benefit our society by closing the insurance gap.”

Combining geoscience with data science is one solution, said Helge Jørgensen, CEO and co-founder of the Norway-based 7Analytics. Jørgensen discussed how, by leveraging geological and hydrological information with machine learning technology, his company develops granular data that can map out property flood risk “neighbor by neighbor,” enabling highly representative flood policies.

Beyond incentivizing private insurers to write flood coverage, this data is further “crucial for communities,” Jørgensen stressed, “because, if you have a lot of information on which areas and buildings are more exposed to flooding, then you can build resilience.”

Urban growth, particularly rising populations in higher-risk areas, render community-level resilience initiatives even more important, he noted.

Guidewire’s Christina Hupy reinforced Jørgensen’s emphasis on utilizing granular data while discussing HazardHub, a property risk data platform owned by Guidewire.

“Historically, risk data was provided only at the Census block or even ZIP code level,” Hupy said, whereas HazardHub provides comprehensive and updated geospatial data across various perils to pinpoint individual property risk levels.

In collaboration with Triple-I, HazardHub will release a report in early 2025 focusing on wildfire risk within three high-risk California counties, aiming to demonstrate how using detailed geographic data can help sustain or improve underwriting profitability within such areas.

“We’re going to need to look at mitigation in these high-risk areas as the next frontier,” Hupy said, “to spark that interest from California government and carriers” and enhance resilience “both from a customer and a business perspective” in the state.

California’s Department of Insurance helped launch this frontier last month by announcing new regulations allowing insurers to use catastrophe risk modeling to set rates, rather than limiting insurers to only historic risk data, as was the rule for decades. Insurers must also expand their coverage in riskier areas and account for resilience efforts when setting rates, which was also not previously possible.

Alongside emerging forms of insurance coverage and innovative granular data tools, such regulations empower the insurance industry to incentivize climate risk mitigation and achieve considerable progress towards eliminating the protection gap.

Learn More:

RiskScan 2024 Reveals Risk Priorities Across the Insurance Marketplace

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

JIF 2024: Collective, Data-Driven Approaches Needed to Address Climate-Related Perils

JIF 2024: What Resilience Success Looks Like

JIF 2024: Panel Highlights Human-Centered Use of Advanced Technology

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Business Risk, Insurance Industry, Market Conditions, Risk Management

Triple-I Brief: Commercial Property Insurance Shows Signs of Improvement, Stable Growth

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While rising premiums have been the primary driver for commercial property insurance growth for years, a 25-quarter rate increase streak broke in early 2024. Strong risk-adjusted capitalization and adequate liquidity may sustain the stable outlook, notwithstanding formidable risks, according to Triple-I’s latest insurance brief Commercial Property: Trends and Insights.

The brief focuses on several core trends shaping opportunities and threats to the commercial property insurance segment:

  • Mounting climate and natural catastrophe risks
  • Increasing capacity in the reinsurance market
  • Lurking undervaluation risk
  • Rise of AI and technology in risk mitigation

According to a recent McKinsey report, data involving global figures for 25 primary commercial lines carriers indicate a combined ratio of 91 percent for 2023, down from a high of 102 in 2020 but holding steady from the prior year. Commercial property comprised $254 billion (or 26 percent) of premiums across these carriers.

Before 2024, the overall U.S. P&C commercial market experienced hard market conditions going back to 2018, according to NAIC data and analysis. Double-digit rate increases were the norm, particularly for properties in high-risk regions or with poor loss histories. A Marsh McLennan report shows that in Q4 2023, rate increases averaged 11 percent for more considerable commercial property risks and even higher for accounts with loss history challenges or catastrophic exposure.  Carriers have delivered steady quarterly increases since 2017 “to offset pressures from catastrophes and economic and social inflation.” Capacity constraints, driven by increased reinsurance costs, compounded this hardening, creating challenges for insurers and policyholders.

However, commercial insurers benefited from underwriting margins that outperformed the long-term average despite slowing year-over-year growth in direct premiums written, according to the 2024 S&P Global Market Intelligence U.S. Property and Casualty Industry Performance Rankings report. The top 50 of the 100 evaluated carriers was dominated by commercial line providers, with insurers focusing primarily on commercial property lines capturing three of the top 10 spots. In comparison, only two personal lines carriers ranked in the top 50.

AM Best, which maintains that insured losses in recent years have been driven primarily by secondary perils such as severe convective storms, issued its “Market Segment Outlook: US Commercial Lines” report. The analysts predict a stable market segment outlook for the U.S. commercial lines insurance sector in 2025. The company expects the commercial lines segment “will remain profitable in the aggregate and will be resilient in the face of near- and longer-term challenges.” However, relatively high claims costs, the multi-year impact of social inflation, and geopolitical risks may pose threats. The latest AM Best report focused solely on the commercial property segment (dated March 2024) advises that the Excess and Surplus (E&S) market has absorbed some of the higher risks. Still, overall secondary perils continue to be a significant “offsetting factor” for commercial property.

The damage of weather events and natural catastrophes tend to make big headlines (and rightly so), but the overall risk for commercial property isn’t limited to the destruction wrought by each disaster. It also extends to the interactions between the event outcomes and human systems. Specifically, these events can strain regional economic systems, such as decreasing the availability of rebuilding materials and labor while simultaneously amplifying demand for these same inputs. In turn, property replacement costs can soar.

Reinsurance

In 2023, major changes in reinsurance policy structures and price increases compelled insurers to decrease limits and absorb higher retentions. The policy restructurings also meant primary insurers had to retain more losses from increased secondary perils, such as floods, wildfires, and severe convective storms, that they could not cede to the reinsurance market. The insurers’ retention of loss may have allowed the incubation of increased capacity in the reinsurance market, improving late in 2023 and into early 2024.

By mid-year 2024 renewals, reinsurance appetite had grown with easing in some loss-free areas and, as applicable, underwriting scrutiny held firm in others areas. Analysts observed “flat to down mid-to high-single digits” reinsurance risk-adjusted rates for global property catastrophes. A Marsh McLennan report noted modest growth in investment and capital due to increased market capacity and underwriting interest from carriers. Late 2024 catastrophic events and any similar activities in the coming year will likely remain a primary drivers for reinsurance costs, along with the increasing cost of capital, financial market volatility, and economic inflation.

To learn more about Triple-I’s take on these and other commercial property insurance trends, read the issue brief and follow our blog.

Risk Management, Technology

JIF 2024: Panel Highlights Human-Centered Use
of Advanced Technology

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By Lewis Nibbelin, Contributing Writer, Triple-I

Technological innovations — particularly generative AI — are revolutionizing insurance operations and risk management more quickly than the industry can fully accommodate them, necessitating more proactive involvement in their implementation, according to participants in Triple-I’s 2024 Joint Industry Forum.

Such involvement can ensure that the ethical implications of AI remain integral to its continued evolution.

Benefits of AI

Increasingly sophisticated AI models have expedited data processing across the insurance value chain, reshaping underwriting, pricing, claims, and customer service. Some models automate these processes entirely, with one automated claims review system – co-developed by Paul O’Connor, vice president of operational excellence at ServiceMaster – streamlining claims processing through to payment, thereby “removing the friction from the process of disputes,” said O’Connor. 

“We’re at an inflection point of seeing losses dramatically reduced,” said Kenneth Tolson, global president for digital solutions at Crawford & Co., as AI promises to “dramatically mitigate or even eliminate loss” by enabling insurers to resolve problems more efficiently.

Novel insurance products also cover more risk, said Majesco’s chief strategy officer Denise Garth, who pointed to usage-based insurance (UBI) as more appealing to younger buyers. UBI emerged from telematics, which can leverage AI to track actual driving behavior and has been found to encourage significant safety-related changes.

Alongside lower operational costs resulting from AI efficiency gains, such policies suggest a possibility for reduced premiums and, consequently, a diminished protection gap, Garth said.

Utilizing AI presents “the first time in decades that we have the opportunity to truly optimize our operations,” she added.

Industry hurdles

For Patrick Davis, senior vice president and general manager of Data & Analytics at Majesco, developing effective AI strategies hinges not on massive budgets or teams of data scientists, but on the internal organization of existing data.

AI models fail when base datasets are inaccessible or ill-defined, he explained. This is especially true of generative AI, which encourages decision-making by producing new data via conversational prompting.

 “Extremely well-described data” is essential to receiving meaningful, accurate responses, Davis said. Otherwise, “it’s garbage in, garbage out.”

Outdated technology and business practices, however, impede successful AI integration throughout the insurance industry, Davis and Garth agreed.

“We have, as an industry, a lot of legacy,” Garth said. “If we don’t rethink how we’re going about our products and processes, the technology we apply to them will keep doing the same things, and we won’t be able to innovate.”

Beyond frustrating innovation, cultural resistance to change within organizations can delay them in preemptively balancing their unique risks and goals with the likely inevitable influence of AI, leaving themselves and insureds at a disadvantage.

“We’re not going to stop change,” said Reggie Townsend, vice president and head of the data ethics practice at SAS, “but we have to figure out how to adapt to the pace of change in a way that allows us to govern our risk in acceptable ways.”

Ethical implications

Responsible innovation, Townsend said, entails “making sure, when we have changes, that they have a material benefit to human beings” – benefits which an organization clearly defines while being considerate of potential downsides.

Improperly managed data facilitates such downsides from using AI models, contributing to pervasive bias and privacy concerns.

Augmenting base datasets with demographic trend information, for example, may be “tempting,” O’Connor explained, “but where does this data go, once it gets outside our boundaries and augmented elsewhere? Vigilance is absolutely required.”

Organizational oversight committees are crucial to ensuring any major technological advancements remain intentional and ethical, as they encourage innovators to “overcommunicate the ‘why,’” said discussion moderator Peter Miller, president and CEO of The Institutes.

Tolson reaffirmed this point in discussing how his organization’s AI counsel holds him accountable by fostering “diligence and openness” around an “articulated vision,” further fueling collaborative sharing of data cross-organizationally. Collaboration and transparency around AI are key, he stressed, “so that we don’t have to learn the same lesson twice, the hard way twice.”

Looking ahead

Though they do not currently exist in the U.S. on a federal level, AI regulations have already been introduced in some states, following a comprehensive AI Act enacted earlier this year in Europe. With more legislation on the horizon, insurers must help lead these conversations to ensure that AI regulations suit the complex needs of insurance, without hindering the industry’s commitments to equity and security.

A recent report by Triple-I and SAS, a global leader in data and AI, centers the insurance industry’s role in guiding conversations around ethical AI implementation on a global, multi-sector scale. Defending this position, Townsend explained how the industry “has put a lot of rigor in place already” to eradicate bias and preserve data integrity “because [its] been so highly regulated for a long time,” creating an opportunity to educate less experienced businesses.

Immeasurable mountains of data produced from rapid technological advancement indicate more and more underinformed industries will turn to AI to assess them, making assuming an educational responsibility even more imperative.

Learn More:

Insurers Need to Lead on Ethical Use of AI

JIF 2024: What Resilience Success Looks Like

Changing Risks, Rising Costs Drive Insurance Transformation for 2025: Majesco

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

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

Catastrophes, Disaster Resilience, Floods, Risk Management, Technology, Webinars

2024’s Nat Cats:
A Scholarly View

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By Lewis Nibbelin, Contributing Writer, Triple-I

Triple-I recently kicked off a new webinar series featuring its Non-Resident Scholars. The first episode focused on the rising severity of natural catastrophes and innovative data initiatives these scholars are engaged in to help mitigate the impact of these perils. 

Moderated by Triple-I’s Chief Economist and Data Scientist Michel Léonard, the panel included:

  • Phil Klotzbach, Senior Research Scientist in the Department of Atmospheric Science at Colorado State University;
  • Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research;
  • Seth Rachlin, social scientist, business leader, and entrepreneur currently active as a researcher and teaching professor; and
  • Colby Fisher, Managing Partner and Director of Research and Development at Hydronos Labs.

“Wild and crazy”

Klotzbach discussed “the wild and crazy 2024 Atlantic hurricane season,” which he called “the strangest above-normal season on record.”

Abnormally fluctuating periods of activity this year created “a story of three hurricane seasons,” reflecting a broader trend of decreasing storm frequency and increasing storm severity, Klotzbach said.

While Klotzbach and his forecasting team’s “very aggressive prediction for a very busy season” was validated by Hurricane Beryl’s landfall as the earliest Category-5 hurricane on record — followed by Debbie and Ernesto — “we went through this period from August 20 to September 23 where we had almost nothing. It was extremely quiet.”

After extensive media coverage claiming the forecasts were a “massive bust,” along came Hurricane Helene, which developed into the “strongest hurricane to make landfall in the Big Bend of Florida since 1851.” Helene drove powerful, destructive flooding inland – most notably in Asheville, NC, and surrounding communities. Then came Hurricane Milton which was noteworthy for spawning numerous fatal tornadoes.

“Most tornadoes that happen with hurricanes are relatively weak – EF0, EF1, perhaps EF2,” Gensini – the panel’s expert on severe convective storms (SCS) – added. “Milton had perhaps a dozen EF3 tornadoes.”

Costly and underpublicized

Severe convective storms – which include tornadoes, hail, thunderstorms with lightning, and straight-line winds – accounted for 70 percent of insured losses globally the first half of 2024. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year.

Hailstorms are especially destructive, behind as much as 80 percent of SCS claims in any one year. Yet their relative brevity and limited scope compared to large-scale disasters earns them far less public and industry attention.

“We haven’t had a field campaign dedicated to studying hail in the United States since the 1970s,” Gensini explained, “so it’s been a long time since we’ve had our models updated and validated.”

Data-driven solutions

To rectify this knowledge gap, the In-situ Collaborative Experiment for the Collection of Hail in the Plains (or ICECHIP) will send Gensini and some 100 other scientists into the Great Plains to chase and collect granular data from hailstorms next year. Beyond developing hail science, their goal is to improve hail forecasting, thereby reducing hail damage.

Gensini pointed to another project, the Center for Interdisciplinary Research on Convective Storms (or CIRCS), which is a prospective academic industry consortium to develop multidisciplinary research on SCS. Informed by diverse partnerships, such research could foster resilience and recovery strategies that “move forward the entire insurance and reinsurance industry,” he said.

Rachlin and Fisher echoed this emphasis on enhancing the insurance industry’s facilitation of risk mitigation in their presentation on Hydronos Labs, an environmental software development and consulting firm that utilizes open-source intelligence (OSINT).

The costs and variability of climate and weather information have created “a data arms race” among insurance carriers, and aggregating and analyzing publicly available information is an untapped solution to that imbalance, they explained.

The company’s end goal, Rachlin added, is to promote an insurance landscape centered around “spending less money on [collecting] data and more money using data.”

All panelists stressed the ongoing need for more reliable, comprehensive data to steer industry strategies for effective mitigation. Investments in this data now are less than the costs of post-disaster recovery that will continue to plague more and more communities in our rapidly evolving climate.

Register here to listen to the entire webinar on demand.

Learn More:

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

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

Triple-I “State of the Risk” Issues Brief: Severe Convective Storms

Outdated Building Codes Exacerbate Climate Risk

JIF 2024: Collective, Data-Driven Approaches Needed to Address Climate-Related Perils

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Triple-I Experts Speak on Climate Risk, Resilience

NAIC, FIO to Collaborate on Data Collection Around Climate Risk

Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Homeowners Insurance, Market Conditions, Risk Management, Wildfire

JIF 2024: Collective,
Data-Driven Approaches Needed to Address Climate-Related Perils

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The need for collective action to address the property/casualty risk crisis was a recurring theme throughout Triple-I’s Joint Industry Forum in Miami – particularly during the panel on climate risk and  resilience. The discussion focused heavily on what’s currently being done to address this evolving area of peril.

The panel, moderated by Veronika Torarp – a partner in PwC Strategy’s insurance practice – consisted of subject-matter experts representing a cross section of natural perils, from hurricanes and floods to wildfires and severe convective storms. They were:

  • Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University;
  • Matthew McHatten, president and CEO at MMG Insurance and chairman of Triple-I’s Executive Leadership Committee;
  • Emily Swift, sustainable business framework senior manager at American Family Insurance; and
  • Heather Kanzlemar, consulting actuary at Milliman.

Part of the reason for this need to build coalitions is the diverse and overlapping causes of climate-related events and the related losses. Torarp cited a PwC study that projects the global protection gap in 2025 at $1.9 trillion, though she acknowledged that number may turn out to be “an understatement”.

Warmer, wetter, riskier

Running through the discussions of the various perils was the dynamic nature of evolving threats and the protection gap. Examples included increased inland flooding, such as the devastation caused in the rural southeast by Hurricane Helene, and damage inflicted by surprisingly intense tornadoes spun off by Hurricane Milton.

Dr. Klotzbach discussed the “very busy” 2024 Atlantic Hurricane season with its surprising impact on Asheville, N.C., and surrounding communities from Helene.

“It’s important to understand that the inland flooding threat is extremely problematic,” he said.

MMG’s McHatten emphasized the complexity of addressing flood risk, given the environmental forces driving it.

“Warmer planet, warmer ocean, more precipitation, more wind,” he said, “as well as this dynamic of atmospheric rivers and what happens to them as they start to hit higher elevations.” He pointed out how such conditions – which led to cataclysmic rains in Ashville as well as in MMG’s home state of Maine and the mountains of Vermont – are exacerbated by population trends.

“People live near water because that’s where economy and commerce was,” he said. “The ability to adapt to dynamic conditions that are changing rapidly is super-difficult. We can’t just say, ‘Raise every house six feet’ that’s near a body of water.”

Hope amid the perils

American Family’s Emily Swift discussed the state of severe convective storm risk, which she said is tending to migrate from its historic domain of the U.S. Midwest toward the Southeast.

“As we’re seeing the impact of hurricanes move further west and severe convective storms move further east, that means a lot more risk exposure to our customers who are living in those regions,” she said. “However, I think there’s a lot of hope.”

Swift talked about emerging partnerships between the insurance industry and academia — particularly work being done through Industry-University Cooperative Research Centers (IUCRC) funded by the National Science Foundation (NSF) to better understand severe convective storms and develop innovative ways of addressing the risks they pose.

“I’m optimistic that, although we don’t know quite the direction where severe convective storms are heading, we at least have diversified our risks to better manage them” – thanks, in part, to the learnings derived from these partnerships, Swift said.

Kanzlemar reinforced Swift’s optimistic tone in discussing Milliman’s work around wildfire risk. In the midst of a growing insurance availability and affordability crisis in fire-prone states – particularly California – Milliman is partnering with the Insurance Institute for Building and Home Safety (IBHS) and and stakeholders in its Wildfire Prepared Home program to gather data to help inform insurance underwriting, as well as mitigation and prevention at the community level.

“Most insurers have data on type of structure, what the roof material is, the number of stories,” Kanzlemar said, “but a lot of the granular data around eave enclosures, ember-resistant vents, that data is typically not available, and almost no insurers had that data at a community level to account for adjacent risk.”

That’s the bad news, she said, but “the good news is in the kinds of solutions we’re working toward. Most insurers were willing to consider a contributory data model like a comprehensive loss-underwriting exchange for [wildland-urban interface (WUI)] data as long as there’s sufficient participation and reciprocity. That’s an effort that we’re calling the ‘WUI Data Commons’. ”

All the panelists agreed that such collaborative, data-driven approaches that respect consumer needs and interests at the community level were going to be key to solving natural catastrophe risk in our rapidly changing future.

Learn More:

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

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

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

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

Resilience Investments Paid Off in Florida During Hurricane Milton

Hail: The “Death by 1,000 Paper Cuts” Peril

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Disaster Resilience, Insurance Industry, Insurers and the Economy, Legal Environment, Market Conditions, Risk Management

Climate Resilience and Legal System Abuse Take Center Stage In Miami

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Triple-I’s Joint Industry Forum this week in Miami brought together subject-matter experts from across insurance, academia, government, and the nonprofit space to discuss climate resilience, legal system abuse, and – most important – what is being done and must continue to be done to ensure insurance availability and affordability during this period of evolving perils and policy challenges.

The insight-rich and engaging panels and “Risk Takes” will be generating Triple-I blog content for weeks to come. The following is a brief wrap-up.

While our times are “riskier than ever,” Triple-I CEO Sean Kevelighan pointed out that the U.S. property/casualty insurance industry “is well poised to manage these risks.” At the same time, he and many participants noted that collaboration and coalition building are critical for long-term success.

With respect to climate resilience, such collaboration is already taking place. Veronika Torarp, a partner in PwC Strategy’s insurance practice and moderator of the Climate Resilience panel, discussed the multi-industry coalition PwC is developing with Triple-I and other partners. Marsh McLennan’s managing director for public sector Dan Kaniewski – who moderated the Success Stories panel – discussed a project funded last year by Fannie Mae and managed by the National Institute of Building Sciences (NIBS) that culminated in a roadmap to incentivize investment in urban flood resilience across “co-beneficiary” groups.. Triple-I played an integral role in the NIBS project, which is currently seeking communities and partners for implementation of the roadmap.

In the area of legal system abuse, there was much conversation around the benefits to Florida of recent reforms in terms of making the Sunshine State more attractive to insurers again by discouraging excessive and fraudulent litigation. Legal system abuse is a multi-headed monster that drives up costs for everyone – from home and car owners to businesses and taxpayers – and, although progress has been made to fight it in Florida and elsewhere, it is expanding as quickly as those states are able to advance in tamping it down. Triple-I’s Dale Porfilio moderated a lively panel on the topic that included Louisiana Insurance Commissioner Tim Temple; Farmers Insurance head of legislative affairs Jeff Sauls; Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual; and Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute.

Peter Miller, president and CEO of The Institutes, moderated the Innovation panel, which included Denise Garth, chief strategy officer at Majesco; Paul O’Connor, vice president of operational excellence at ServiceMaster; Kenneth Tolson, global president for digital solutions at Crawford & Co.; and Reggie Townsend, vice president and head of the data ethics practice at SAS. These subject-matter experts discussed how generative AI and other technologies are transforming insurance strategy and operations and increasing opportunities to improve and advance this most human-centered industry.

All four panels – as well as the Risk Takes and the “Fireside Chat” featuring Kate Horowitz, executive vice president of The Institutes, and Casey Kempton, president of personal lines for Nationwide Insurance – will be reported on in greater detail in subsequent posts.