Category Archives: Technology

Catastrophes, Disaster Preparedness, Disaster Resilience, Homeowners Insurance, Technology, Wildfire

Data Granularity Key
to Finding Less Risky Parcels in Wildfire Areas

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As high-severity natural catastrophes – wildfires, floods, hurricanes, and others – become more frequent and more people move into riskier locales, insurance affordability and availability have become a challenge in many states.

Insurers underwrite and price coverage based on the risks they’re assuming, and rising premiums in these states have pushed more homeowners into residual market mechanisms, such as state-backed insurance pools or agencies. Reliance on these funds – which often provide more limited coverage at higher costs – is not sustainable in the long term.

To ensure market stability and continued insurance availability and affordability, insurers must leverage more granular and dynamic risk models that account for real-time environmental conditions, mitigation measures, and property-specific characteristics. A new paper by Triple-I and Guidewire – a provider of software solutions to the insurance industry – uses case studies from three California areas with very different geographic and demographic characteristics to show how such tools can be used to identify properties with attractive risk properties, despite their location in wildfire-prone areas.

California’s risk profile

In addition to its particular risk characteristics, California’s insurance challenge is exacerbated by a 1988 measure – Proposition 103 – that has constrained insurers’ ability to profitably insure property in the state. In a dynamically evolving risk environment that includes earthquakes, drought, wildfire, landslides, and damaging floods, regulatory interpretation of Proposition 103 has made it hard for some insurers to offer coverage in the state.

In some cases, this has led to insurers limiting or reducing their business in the state. With fewer private insurance options available, more Californians are resorting to the state’s FAIR Plan, which offers less coverage for a higher premium. For many, this “insurer of last resort” has become the insurer of first resort. This isn’t a tenable situation for the state or its policyholders. California’s insurance availability/affordability challenges will require a multi-pronged approach, and underlying every component is the need for granular, high-quality, reliable data.

Modeling based on granular data

Guidewire’s analysis, based on its HazardHub Wildfire Score, has shown that wildfire mitigation and home hardening can reduce wildfire damage by as much as 70 percent. But identifying less risky lots in such areas is no easy task.

“Every property being assessed for wildfire risk is unique,” the report says. “Therefore, it’s important to subject as many relevant variables as possible to analysis. For example, proximity of structures to fuel is important – but, to be more predictive, it helps to know more: What kind of fuel? Is there potential for a wind-driven event? Is the property on a hill? If so, is it north-facing?”

Guidewire’s model includes standard variables, such as slope, aspect, wildfire history, wind, and the amount of nearby vegetation. It also includes differentiators like vegetation type and fire-suppression success rate.

“The traditional approach to wildfire risk assessment has left many Californians without access to affordable property insurance coverage,” said Triple-I Chief Insurance Officer Dale Porfilio. “Our research shows that with more detailed, property-level analysis, insurers can confidently offer coverage in areas previously deemed too risky.”

Important moves by California

California has taken steps to address regulatory obstacles to fair, actuarially sound insurance underwriting and pricing – most notably, the state’s Sustainable Insurance Strategy, an ambitious plan released by Insurance Commissioner Ricardo Lara in 2023 plan aimed at safeguarding the health of the insurance market while ensuring long-term sustainability. A key component of the plan is a requirement that insurers writing homeowners coverage in the state write no less than 85 percent of their statewide market share in areas identified by the commissioner as “under-marketed.”

Tightly focused, data-driven analysis using tools like the HazardHub Wildfire Score, can go a long way toward helping insurers meet those requirements by identifying less risky parcels in undermarketed areas.

“The Triple-I analysis highlights how next-generation tools and data can uncover lower-risk properties – even in high-risk areas – empowering insurers to expand coverage confidently and responsibly,” said Leo Tenenblat, Senior Vice President and General Manager, Data and Analytics at Guidewire.

Learn More:

Despite Progress, California Insurance Market Faces Headwinds

California Insurance Market at a Critical Juncture

California Finalizes Updated Modeling Rules, Clarifies Applicability Beyond Wildfire

California Risk/Regulatory Environment Highlights Role of Risk-Based Pricing

How Proposition 103 Worsens Risk Crisis in California

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Emerging Risks, Flood Insurance, Homeowners Insurance, Industry Awards & Events, Insurers and the Economy, Lightning, Market Conditions, Risk Management, Technology, Wildfire

ClimateTech Connect Confronts Climate Peril From Washington Stage

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The Institutes’ Pete Miller and Francis Bouchard of Marsh McLennan discuss how AI is transforming property/casualty insurance as the industry attacks the climate crisis.

“Climate” is not a popular word in Washington, D.C., today, so it would take a certain audacity to hold an event whose title prominently includes it in the heart of the U.S. Capitol.

And that’s exactly what ClimateTech Connect did last week.

For two days, expert panels at the Ronald Reagan Building and International Trade Center discussed climate-related risks – from flood, wind, and wildfire to extreme heat and cold – and the role of technology in mitigating and building resilience against them. Given the human and financial costs associated with climate risks, it was appropriate to see the property/casualty insurance industry strongly represented.

Peter Miller, CEO of The Institutes, was on hand to talk about the transformative power of AI for insurers, and Triple-I President and CEO Sean Kevelighan discussed – among other things – the collaborative work his organization and its insurance industry members are doing in partnership with governments, non-profits, and others to promote investment in climate resilience. Triple-I is an affiliate of the Institutes.

Sean Kevelighan of Triple-I and Denise Garth, Majesco’s chief strategy officer, discuss how to ensure equitable coverage against climate events.

You can get an idea of the scope and depth of these panels by looking at the agenda, which included titles like:

  • Building Climate-Resilient Futures: Innovations in Insurance, Finance, and Real Estate;
  • Fire, Flood, and Wind: Harnessing the Power of Advanced Data-Driven Technology for Climate Resilience;
  • The Role of Technology and Innovation to Advance Climate Resilience Across our Cities, States and Communities;
  • Pioneers of Parametric: Navigating Risks with Parametric Insurance Innovations;
  • Climate in the Crosshairs: How Reinsurers and Investors are Redefining Risk; and
  • Safeguarding Tomorrow: The Regulator’s Role in Climate Resilience.

As expected, the panels and “fireside chats” went deep into the role of technology; but the importance of partnership, collaboration, and investment across stakeholder groups was a dominant theme for all participants. Coming as the Trump Administration takes such steps as eliminating FEMA’s Building Resilient Infrastructure and Communities (BRIC) program; slashing budgets of federal entities like the National Oceanographic and Atmospheric Administration (NOAA) and the National Weather Service (NWS); and revoking FEMA funding for communities still recovering from last year’s devastation from Hurricane Helene, these discussions were, to say the least, timely.

Helge Joergensen, co-founder and CEO of 7Analytics, talks about using granular data to assess and address flood risk.

In addition to the panels, the event featured a series of “Shark Tank”-style presentations by Insurtechs that got to pitch their products and services to the audience of approximately 500 attendees. A Triple-I member – Norway-based 7Analytics, a provider of granular flood and landslide data – won the competition.

Earth Day 2025 is a good time to recognize organizations that are working hard and investing in climate-risk mitigation and resilience – and to recommit to these efforts for the coming years. What better place to do so than walking distance from both the White House and the Capitol?

Learn More:

BRIC Funding Loss Underscores Need for Collective Action on Climate Resilience

Claims Volume Up 36% in 2024; Climate, Costs, Litigation Drive Trend

Data Fuels the Assault on Climate-Related Risk

Outdated Building Codes Exacerbate Climate Risk

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

Cyber Risk, Technology

Personal Cyber Risk Is Up; Why Isn’t Adoption of Personal Cyber Coverage?

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By Mary Sams, Senior Research Analyst, Triple-I

Personal cyber risk – historically viewed as synonymous with “identity theft” – has evolved with the rise of internet-connected devices in the home. These devices can open the door to malware that can seize control of a homeowner’s data and expose them to extortion and other threats. Phishing and financial scams have been found to generate the greatest losses for homeowners.

Insurance for these perils exists, but adoption has not grown in line with the increasing peril. Triple-I and Hartford Steam Boiler (HSB) recently conducted research to better understand why and what insurers can do about it. The survey found that personal cyber insurance – while presenting a sales opportunity – involves educational challenges for agents and consumers.

Triple-I surveyed retail agents of homeowners insurance, since personal cyber coverage is commonly sold as an endorsement to homeowners’ policies. These agents are very knowledgeable of homeowners’ risks that can result in physical damage to property, as well as theft and liability coverages.

 “Agents see the storm,” said Neil Rekhi, product manager for personal cyber insurance at HSB, “but homeowners can’t envision the damage until it’s too late.”

 While 84 percent of agents surveyed said they recognize the value of personal cyber insurance, the survey found a notable gap between agents who feel comfortable selling it and those who don’t.

 This hesitation is mirrored by consumer skepticism. The study found that 56 percent of agents report their customers either don’t understand or don’t agree with the value proposition of personal cyber insurance products.

 “There’s a significant disconnect between agent perceptions of customer needs and actual customer perceptions of product value,” noted Dale Porfilio, Chief Insurance Officer at Triple-I.

Sales efforts remain robust, with 77 percent of agents having presented personal cyber insurance options to homeowners in the past month. However, consumer adoption rates continue to lag, highlighting a fundamental communication breakdown.

Closing the personal cyber protection gap will require a three-pronged approach: consumer education, agent/broker training, and a data-driven approach to product development,” says Triple-I CEO Sean Kevelighan.

Learn More:

FBI: Elder Fraud Up; Bolsters Case for Personal Cyber Insurance

U.S. Cyber Claims Surge While Global Rates Decline: Chubb

Digital Payment Growth Faces Rising Cybersecurity Threats: Chubb

Cyber Insurance Market Continues Rapid Growth as Risk Management Strategies Improve

Digital Tools Help Agency Revenues, But Cybercrime Concerns May Hamper Adoption

Technology

Executive Exchange: Insuring AI-Related Risks

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By Lewis Nibbelin, Contributing Writer, Triple-I

Garnering millions of weekly users and over a billion user messages every day, the generative AI chatbot ChatGPT became one of the fastest-growing consumer applications of all time, helping to lead the charge in AI’s transformation of business operations across various industries worldwide. With generative AI’s rise, however, came a host of accuracy, security, and ethical concerns, presenting new risks that many organizations may be ill-equipped to address.

Enter Insure AI, a joint collaboration between Munich Re and Hartford Steam Boiler (HSB) that structured its first insurance product for AI performance errors in 2018. Initially covering only model developers, coverage expanded to include the potential losses from using AI models, as – though organizations might have substantial oversight in place – mistakes are inevitable.

“Even the best AI governance process cannot avoid AI risk,” said Michael Berger, head of Insure AI, in a recent Executive Exchange interview with Triple-I CEO Sean Kevelighan. “Insurance is really needed to cover this residual risk, which…can further the adoption of trustworthy, powerful, and reliable AI models.”

Speaking about his team’s experiences, Berger explained that most claims stem not from “negligence,” but from “data science-related risks, statistical risks, and random fluctuation risks, which led to an AI model making more errors than expected” – particularly in situations where “the AI model sees more difficult transactions compared to what it saw in its training and testing data.”

Such errors can underlie every AI model and are thereby the most fundamental to insure, but Insure AI is currently working with clients to develop coverage for discrimination and copyright infringement risks as well, Berger said.

Berger also discussed the insurance industry’s extensive history of disseminating technological advancements, from helping to usher in the Industrial Revolution with steam-engine insurance to insuring renewable energy projects to facilitate sustainability today. Like other tech innovations, AI is creating risks that insurers are uniquely positioned to assess and mitigate.

“This is an industry that’s been based on using data and modeling data for a very long time,” Kevelighan agreed. “At the same time, this industry is extraordinarily regulated, and the regulatory community may not be as up to speed with how insurers are using AI as they need to be.”

Though they do not currently exist in the United States on a federal level, AI regulations have already been introduced in some states, following a comprehensive AI Act enacted last year in Europe. With more legislation on the horizon, insurers must help guide these conversations to ensure that AI regulations suit the complex needs of insurance – a position Triple-I advocated for in a report with SAS, a global leader in data and AI.

“We need to make sure that we’re cultivating more literacy around [AI] for our companies and our professionals and educating our workers in terms of what benefits AI can bring,” Kevelighan said, noting that more transparent discussion around AI is crucial to “getting the regulatory and the customer communities more comfortable with how we’re using it.”

Learn More:

Insurtech Funding Hits Seven-Year Low, Despite AI Growth

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

Agents Skeptical of AI but Recognize Potential for Efficiency, Survey Finds

Insurers Need to Lead on Ethical Use of AI

Insurance News, Technology

Insurtech Funding Hits Seven-Year Low,
Despite AI Growth

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Global insurtech funding hit a seven-year low of $4.25 billion in 2024, marking a challenging year for the sector, though AI-focused companies showed resilience by securing $2.01 billion across 119 deals, according to Gallagher Re’s Global Insurtech Report. 

Total insurtech funding in 2024 — down 5.6 percent from $4.51 billion in 2023 — represents the lowest funding level since 2018, signaling a more cautious investment climate. Last year’s insurtech deal count saw a more pronounced decline, falling 18.5 percent to 344 deals from 422 in the previous year — a low not seen since 2019. Reflecting this trend, the number of venture investors in the space decreased to 466 from 574, indicating a more selective approach to insurtech investments. 

Segment Performance 

A closer look at the market segments reveals divergent trajectories, Gallagher Re found. Property/Casualty (P/C) insurtech funding experienced a significant downturn, decreasing 24.3 percent to $2.59 billion in 2024 from $3.42 billion a year earlier. In contrast, Life/Health insurtech funding bucked the overall trend, surging by 53.6 percent to reach $1.66 billion. 

Despite an overall funding contraction, several positive indicators emerged, suggesting underlying strength in the market, the report noted. 

Early-stage funding grew by 8.8 percent to $1.22 billion, highlighting continued investor confidence in nascent insurtech innovations. Moreover, the average deal size increased by 14.6 percent to $14.67 million, indicating that while fewer deals were made, those that did close were of higher value. 

Lastly, mega-round funding — deals of $100 million or more — remained relatively stable at $930.17 million, down only slightly from $969.00 million in 2023. 

Geographic Shifts and Market Leadership 

The United States continues to be the powerhouse of insurtech innovation, accounting for 50.58 percent of all insurtech deals worldwide in 2024. 

The United Kingdom saw a significant increase in its deal share, rising to 9.30 percent in 2024 from 7.35 percent in the previous year. This growth of nearly two percentage points represents the largest gain among all countries. Moreover, the U.K. has consistently maintained its status as the nation with the second-largest share of global insurtech deals since 2017. 

While established markets continue to lead, several emerging players are making their mark on the insurtech landscape. Canada and Germany both demonstrated growth, each experiencing a 1.78 percentage point increase to claim a 3.20 percent share of global deals. South Korea is another country to watch, with its deal share increasing by 1.21 percentage points to reach 1.45 percent. 

AI-centered Insurtech Performance 

Artificial Intelligence continues to make waves in the insurtech industry, accounting for a significant portion of deals and funding in 2024. AI-focused firms represented 34.6 percent of all insurtech deals throughout the year, raising $2.01 billion across 119 deals. The financial prowess of AI-centered insurtechs is further highlighted by their higher average deal sizes, which stood at $18.93 million compared to $12.21 million for their non-AI counterparts. 

The fourth quarter of 2024 saw a particularly strong performance for AI in the insurtech space. AI-centered companies accounted for 42.3 percent of all deals during this period, showcasing the growing confidence in AI-driven solutions. Moreover, these AI-enabled insurtechs managed to raise an additional $5 million on average compared to their non-AI counterparts, further cementing the technology’s value proposition in the industry. 

While the numbers paint a promising picture, Gallagher Re emphasized the need for practical applications of AI in insurance. 

“Much like insurtech more broadly, AI must be part of a use case that is commercially sound and supports a broader set of business objectives,” the report stated. “Using AI to assist underwriters to make better risk selection decisions is one such clear use case, for example. Using AI to send customers down company rabbit holes where call centers once existed is not.” 

Learn More: 

Human Needs Drive Insurance and Should Drive Tech Solutions 

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

Agents Skeptical of AI but Recognize Potential for Efficiency, Survey Finds 

Insurers Need to Lead on Ethical Use of AI 

 

 

 

Auto Insurance, Homeowners Insurance, Technology

Human Needs Drive Insurance and Should Drive Tech Solutions

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By Lewis Nibbelin, Contributing Writer, Triple-I

Maintaining human centricity in an increasingly digitized world was a focus of discussion for many participants at Triple-I’s 2024 Joint Industry Forum (JIF) – particularly during the “Fireside Chat,” featuring Katherine Horowitz, executive vice president and head of business units for The Institutes, and Casey Kempton, president of personal lines at Nationwide.

As generative AI and other technological innovations help streamline the insurance value chain, such processes must continue to align with the human needs intrinsic to insurance, Kempton stressed.

“Insurance is a human business,” Kempton said. “The moment of a claim – of whatever tragedy or inconvenience that has happened – is a human moment. Theres’s emotion involved in that. I don’t expect any robot or machine to take on that experience end-to-end and be able to deliver what folks need in that moment, which is comfort and assurance.”

Rather, new technology presents opportunities to facilitate more proactive and individualized risk management than ever before, while also enabling employees to do what this industry does best: engaging with other people.

Role of telematics

Usage-based insurance, for instance, allows insurers to tailor auto rates based on the policyholder’s driving behavior, tracked by telematics. By providing feedback to encourage safer driving habits, telematics has been found to lower risk and reduce auto premiums, empowering consumers to recognize their direct influence on their insurance rates, Kempton said.

Similarly, advanced smart devices – such as those developed by Whisker Labs (Ting) and Ondo InsurTech (LeakBot) – continuously detect conditions that could lead to damage within a home and notify homeowners before losses occur. The success of these devices has spurred numerous insurance carriers, including Nationwide, to pay for and distribute them to customers.

“Supporting the delivery of these technologies to our customers is critical,” Kempton explained, as is “making the cost of entry accessible.”

Words matter

Kempton noted that mitigative insurance solutions further serve to alleviate widespread public distrust in the industry, which has become “sullied” under misconceptions of insurance as merely a commodity.

Industry language fixated on costs, rather than consumer needs, is partly to blame.

“In insurance, we talk about ‘mitigating loss,’” Kempton said. “That’s how it feels from our perspective – we see claims as losses – but let’s turn that into, ‘how can [insurers] better engender peace of mind and protection for consumers?’”

Louisiana Insurance Commissioner Tim Temple later echoed this sentiment during a panel on legal system abuse, discussing how “billboard attorney” advertising has appropriated the consumer confidence once placed in insurance carriers.

“I remember when insurance companies advertised dependability and stability,” Temple explained. “Now it’s lizards, birds, and jingles… And then you see the attorneys, and they talk about how you’re going to be safe and secure with their service. That’s [the insurance company’s] job.”

Fueled by such advertising, excessive claims-related litigation has cost residents of Louisiana and other states across the country  thousands of dollars in “tort taxes” every year, contributing to rising premium rates as insurers struggle to predict and mitigate protracted claims disputes. Lack of transparency around third-party litigation funding (TPLF), in which investors fund lawsuits in exchange for a percentage of any settlement, exacerbates this financial strain.

“If we can avoid these additional expenses and the severity attached to nuclear verdicts, it benefits all consumers,” Kempton said. Recent reforms in Florida – once the poster child for legal system abuse – indicate as much.

But reform necessarily hinges on collaboration between all stakeholders, which is unattainable without resolving “the consumer mindset we’ve inadvertently created around what the value of insurance is,” Kempton said. Updated legal regulations are equally important to ending legal system abuse as reasserting the key values of insurers – to protect and care for policyholders.

Cyber Risk, Legal Environment, Technology

Crypto Theft Rulings
Use Simliar Logic
to COVID-Related
Business Interruption

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By Michael Menapace, Esq., Wiggin and Dana LLP

When I first wrote here about insurance coverage related to cryptocurrency theft, I discussed whether these digital assets were securities (as suggested by the SEC) or property (as suggested by the IRS) and how that might impact insurance coverage under a typical homeowners policy. 

I also discussed whether the full policy limits for generic property were available for the theft of the assets or a policy sublimit for money would apply. 

At that time, courts had provided little guidance on the issue, and few situations were analogous.  In recent years, however, guidance has emerged, including from a line of cases that would not appear to have much relevance at first glance. 

Wrestling over “physical” loss

Nearly every appellate court in the country has wrestled with the issue of whether economic losses experienced by businesses as a result of the COVID-19 pandemic were covered by their commercial property insurance policies.  A commercial property policy typically covers the “physical” loss of or damages to property.  Insurers uniformly denied those business interruption claims and thousands of businesses sued.  Courts consistently rejected the businesses’ claims for coverage because the COVID-19 virus does not change the structure of the insured property, and purely economic losses are not “physical” loss or damage. 

Similar to the commercial property insurance policies at issue in the COVID-19 claims, a typical homeowners policy covers the direct physical loss of covered personal property.

In 2021, Ali Sedaghatpour had approximately $170,000 of his cryptocurrency stolen and made a claim under his homeowners insurance policy.  The insurer paid him the $500 limit for the theft of electronic funds, but denied coverage for the remainder of the loss.  The homeowner sued and the federal district court for the East District of Virginia ruled in favor of the insurer.  Recently, the United States Court of Appeals for the Fourth Circuit affirmed the decision in favor of the insurer.  The case was titled Sedaghatpour v. Lemonade Insurance Co. (Case No. 23-1237). 

The court ruled that the digital theft of the homeowners’ currency did not amount to direct “physical” loss and the insurer owed the homeowner nothing more than the $500 it had already paid.  The appellate court did not disturb other findings by the trial court – including the lower court’s citation to dictionary definitions of cryptocurrency, which state that cryptocurrency exists “wholly virtually”

Looking ahead

In the Sedaghatpour case, the courts were applying Virginia law; however, given the uniform development of “physical loss” throughout the country in the COVID-19 context, I expect other courts around the country will come to the same conclusion when the issue of how to treat digital assets comes before them.  I likewise observe that some insurers have revised their policy language to state expressly that the loss of “electronic currency” is not covered. 

These recent court cases confirm that individuals owning cryptocurrency should take extra care to protect their digital assets and should not rely on standard language in homeowners insurance policies to hedge against theft.

Michael Menapace is a Triple-I Non-Resident Scholar, Co-chair of the Insurance Practice Group at Wiggin and Dana LLP, a professor of Insurance Law at the Quinnipiac University School of Law, and a Fellow of the American College of Coverage Counsel.

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

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

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.

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