Growing P/C Innovation Amid InsurTech, Trump Disruption

The pace of innovation in the U.S. property/casualty industry will accelerate in 2017, as technology advances and the growth of InsurTech raise customer expectations for greater innovation and new business models, according to a new report by Ernst & Young.

In its 2017 U.S. Property/Casualty Insurance Outlook, EY says the industry is at an inflection point, as continued economic headwinds provide little support for insurers plagued by shrinking investment incomes, escalating claims costs and rising regulations.

A new Trump administration raises the prospect of further economic and regulatory change and with the P/C industry in flux, this is a good time for CEOs to think through their future business strategies, EY suggests.

As insurers look to adapt to disruptive market shifts, EY expects companies will do more to develop a culture of innovation in 2017:

“The Internet of Things, telematics, artificial intelligence, driverless cars and blockchain have the potential to transform industry fundamentals and even redefine the nature of risk. In the future, competing for market share will be increasingly dependent on technology, data and analytics.”

With more than 1,000 InsurTech startups in operation, the pace of P/C innovation will speed up next year.

For example, in 2017 InsurTech startup Trov plans to roll out on-demand insurance that will enable customers to use their smart phones to turn coverage for personal belongings on and off. Trov is an example of how product innovation directed towards millennials could disrupt the P/C insurance model, EY says.

“Incumbents will be watching this space closely, creating venture funding groups that are actively monitoring and investing in InsurTech initiatives.”

Insurers will take digital transformation to the next level in 2017, expanding their use of robotics and advanced analytics across most aspects of their business, from claims handling and underwriting to customer relationship management (CRM) systems and risk management, according to EY’s outlook.

See our earlier blog post for latest data on the InsurTech sector.

Read about the top InsurTech deals of the year as reported by Insurance Networking News here.

How To Keep Commercial Insurance Customers Satisfied

A survey of more than 1,400 risk professionals at large organizations in the U.S. or Canada that have purchased a commercial insurance policy from one of the profiled insurers or brokers throws up some interesting results.

It finds that as rates across the U.S. commercial property/casualty insurance market continue to decline, the key variables in driving overall commercial insurance customer satisfaction are insurer profitability and broker expertise.

The J.D. Power study, conducted in conjunction with RIMS (the risk management society), found a distinct correlation between customer satisfaction and insurer profitability, as measured by total commercial combined financial ratios.

Among large commercial insurers, the highest performing companies in overall satisfaction—XL Catlin (773 on a 1,000-point scale); CNA (767); and Chubb (765)—are also found to have some of the strongest combined ratios in the industry.

This suggests that the most profitable insurers are able to support more flexible underwriting standards to meet customer needs more effectively, according to J.D. Power.

The study found an overall correlation between customer satisfaction and insurer profitability of 0.67, suggesting the more profitable the book of business an insurer has, the greater the likelihood the insurer will also have high levels of satisfaction.

Among commercial insurance brokers, the most significant single attribute driving that performance is quality of advice/guidance provided, with the highest-performing firms, Lockton (863) and Arthur J. Gallagher & Co. (823), outperforming larger rivals by a large margin.

This demonstrates that brokers with in-depth expertise and who have a hands-on, consultative relationship with their clients are consistently driving the highest levels of customer satisfaction, J.D. Power says.

The inverse also appears to be true, as the study shows customer satisfaction declines by an average of 136 points among the 20 percent of customers who indicate their broker does not completely understand their business needs.

Industry-wide, brokers received an average rating of 8.34 on a 10-point scale for the quality of advice/guidance provided metric.

In addition to quality of advice/guidance, satisfaction with brokers was based on the following attributes: reasonableness of fees; ease of the renewal process; effectiveness of risk control services; variety of program offerings; effectiveness of program review; price, given services received; billing and payment process; and claims process.

Satisfaction with commercial insurers is based on five factors: service interaction; program offerings; price; billing process; and claims.

Organizations included in the J.D. Power 2016 Large Commercial Insurance Study have at least $100 million in annual revenue or operating budget.

The Insurance Information Institute provides some useful facts and statistics on the commercial insurance market here.

Atlantic Hurricane Season: The Long View

As the 2016 Atlantic hurricane season officially draws to a close just days after Hurricane Otto became the latest calendar year Atlantic hurricane on record to make landfall, the question on everyone’s lips is: are the seasons growing longer?

For if Otto, which struck southern Nicaragua as a Category 2 over Thanksgiving, is the last hurricane of the 2016 season, it will mark the end to the longest hurricane season on record the Atlantic Ocean has seen, according to NOAA.

The 2016 season had an early beginning—well ahead of its June 1 official start—when Hurricane Alex became the first Atlantic hurricane in January since Hurricane Alice in 1955.

At 75 knots, Alex was also the second strongest Atlantic hurricane on record in January, after 1955’s Alice at 80 knots, according to the 2016 season summary by Phil Klotzbach, head of Colorado State University’s Tropical Meteorology Project.

Regardless of whether this points to any long-term trend, it does appear that residents in hurricane-prone areas should keep an eye on the tropics year-round, not just in the June 1-November 30 window.

In the end, the 2016 Atlantic hurricane season was somewhat above average. As CSU’s summary outlines:

“The season was characterized by somewhat above-average named storms and major hurricanes, with slightly above-average hurricane numbers.”

The final tally was 15 named storms, including seven hurricanes, of which three were major hurricanes.

Three tropical storms (Bonnie, Colin and Julia) and two hurricanes (Hermine and Matthew) made U.S. landfall this year, according to NOAA.

There were a number of key takeaways, according to CSU, not least that a total of 78.25 named storm days and 26.25 hurricane days occurred in 2016—the most in an individual Atlantic hurricane season since 2012.

The 9.75 major hurricane days that occurred in 2016 are also the most in a single Atlantic hurricane season since 2010.

Florida’s record-long hurricane drought at 3,966 days ended when Hermine made landfall in the Big Bend of Florida on September 2.

Meanwhile, Matthew became the first Category 5 hurricane in the Atlantic basin since Felix (2007).

No major hurricanes made United States landfall in 2016, although Hurricane Matthew came within about 50 miles of breaking this streak, CSU notes:

“The last major hurricane to make U.S. landfall was Wilma (2005), so the U.S. has now gone 11 years without a major hurricane landfall. The U.S. has never had another 11-year period without a major hurricane landfall since records began in 1851.”

Check out I.I.I. facts and statistics on hurricanes here.

Prepared for #CyberMonday and #GivingTuesday?

With Cyber Monday and Giving Tuesday rounding out the Thanksgiving holiday digital spending and giving are expected to reach record levels, which means businesses and individuals need to be prepared for cyber threats.

In 2015, Cyber Monday was the largest e-commerce sales day ever with online orders totaling $3.07 billion and experts expect this year’s total will be higher still, according to a post on the The U.S. Chamber of Commerce’s Above the Fold blog.

It cautions businesses to be vigilant, especially when it comes to payment card protection, and offers the following tips:

—Change your passwords and make them strong: just as you would lock the doors before leaving, lock this door too. Make sure employees know this too.

—Install software updates known as patches that your payment service provider sends you for your payment systems: install updates, just as you would on your phone, so your payment system is protected.

—Keep business information private: keep passwords, user IDs, or other details for payment systems private. Confirm an unexpected call or email separately with the supposed caller or sender before proceeding.

Even digital philanthropy can bring out cybercriminals. According to the Identity Theft Resource Center (ITRC), in recent years there has been substantial growth in web-based giving or mobile donations.

In fact one of the first global-scale events that brought attention to mobile donations was the 2010 hurricane that struck Haiti. The Red Cross received millions of dollars in donations from cellphone users who simply texted the word “HAITI” to a five-digit number.

While it feels good to give, the ITRC says it’s important to remember to do your homework and check out a charity before clicking on a link or responding to potentially fraudulent email requests claiming to be a part of Giving Tuesday.

One cause you might consider supporting is The Insurance Industry Charitable Foundation’s Early Learning Initiative (ELI) which provides an opportunity for every young child – regardless of means – to learn to read and write.

Join your insurance industry colleagues in the worldwide #GivingTuesday movement by contributing $5 for ELI here.

Check out the Insurance Information Institute’s facts and statistics on corporate social responsibility here. The I.I.I. white paper Cyberrisk: Threat and Opportunity has the latest information on the current exposure and how insurers are responding.

Hurricane Season Not Over Yet

Tropical storm Otto, earlier on record as the seventh hurricane of the 2016 Atlantic hurricane season, continues to head across the Caribbean toward Nicaragua and Costa Rica for an expected landfall on Thanksgiving Day, possibly as a hurricane.

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The National Hurricane Center has warned that Otto could bring life-threatening flash floods and mudslides to parts of Central America.

Total rainfall of 6 to 12 inches, with isolated amounts of 15 to 20 inches, can be expected across northern Costa Rica and southern Nicaragua through Thursday.

The combination of a dangerous storm surge and large and destructive waves could raise water levels by as much as 2 to 4 feet above normal tide levels in areas of onshore flow within the hurricane warning area, the NHC said.

Otto has already been blamed for three fatalities in Panama, according to reports.

As noted over at Dr. Jeff Masters’ WunderBlog, Otto was christened on November 21, unusually late for a Caribbean tropical storm. Only 11 Caribbean storms since 1851 have had a later formation date.

A storm of Otto’s expected strength has never made landfall so far south in the Caribbean, and there is no record of any hurricane striking Costa Rica, WunderBlog said.

The Weather Channel also tells us that NOAA has recorded only one tropical storm making landfall in Costa Rica, in any month, either from the eastern Pacific or Caribbean Sea side in their 174-year database, a December 1887 tropical storm.

Check out Insurance Information Institute facts and statistics on the Costa Rica insurance market.

It’s worth adding that it’s not unusual for Atlantic basin tropical storms to form in November.

NOAA records indicate there have been 36 Atlantic tropical cyclones of at least tropical storm strength in November from 1950 through 2015, of which 20 became hurricanes, according to the Weather Channel.

Late season storms can also be very destructive. In 1985, Hurricane Kate struck November 20-21 in the Florida Panhandle, causing $77.6 million in insured losses (about $170.9 million in 2015 dollars).

The Atlantic hurricane season officially ends November 30.

Check out I.I.I. facts and statistics on hurricanes here.

InsurTech: Outlook Positive

Investors are expected to become more confident in the FinTech sector, including InsurTech startups, as fallout from the Brexit vote in the United Kingdom and uncertainties associated with the U.S. Presidential election stabilize.

A quarterly report from KPMG and CB Insights says that while many investors in Europe and North America took a break from deploying capital in the third quarter of 2016, fintech investment is expected to regain momentum in the fourth quarter of the year and into 2017.

In the third quarter of 2016, venture capital-backed fintech companies raised $2.4 billion across 178 deals, accounting for 83 percent of the $2.9 billion in overall global fintech funding.

Both the number of deals and value of investments were lower than in the second quarter of the year, and when compared to the third quarter of 2015.

Still, the outlook is positive, with InsurTech and other sectors flagged for growth, the report said.

“Over the next few quarters, artificial intelligence is expected to gain more investor attention in addition to RegTech, InsurTech and data and analytics.

At the same time, fintech areas that have emerged over the past year (particularly blockchain) may receive more scrutiny as investors assess when and if investments will deliver returns.”

(RegTech refers to technologies that reduce the cost of regulatory compliance and improve risk outcomes for financial institutions.)

InsurTech VC-backed global investment activity totaled $204 million across 22 deals in the third quarter of 2016, KPMG and CB Insights noted.

The U.S. led the way with 10 InsurTech deals and $104.7 million in investment activity, followed by Germany with 4 deals and $47.2 million in investment.

The top InsurTech deals in the third quarter were pay-per-mile auto insurer Metromile ($50 million in funding), cybersecurity analytics services provider Cyence ($40 million in funding) and insurance brokerage app FinanceFox ($28 million in funding).

Year-to-date some $10.3 billion has been deployed globally across 612 fintech deals through the first three quarters of 2016, according to the report.

Read about the top InsurTech deals of the year as reported by  here.

More stories on InsurTech over at the I.I.I. Insuring California blog here.

Insurance Helps Break Cycle of Extreme Disasters and Poverty

The human and economic costs of extreme natural disasters on poverty are much greater than previously thought and insurance is one of the resilience-building tools that could help, according to new analysis from the World Bank.

In all of the 117 countries studied, the report finds that the effect of floods, windstorms, earthquakes and tsunamis on well-being, measured in terms of lost consumption, is larger than asset losses.

It estimates the impact of disasters on well-being in these countries is equivalent to global annual consumption losses of $520 billion, and forces 26 million people into poverty each year. This outstrips other estimates by 60 percent.

But resilience-building interventions, including universal early warning systems, improved access to personal banking, insurance policies and social protection systems (like cash transfers and public works programs) could lessen climate shocks.

The report finds that these measures combined would help countries and communities see a gain in well-being equivalent to a $100 billion increase in annual global consumption, and reduce the overall impact of disasters on well-being by 20 percent.

As World Bank Group President Jim Yong Kim, says:

“Severe climate shocks threaten to roll back decades of progress against poverty. Storms, floods, and droughts have dire human and economic consequences, with poor people often paying the heaviest price. Building resilience to disasters not only makes economic sense, it is a moral imperative.”

Efforts to build resilience among poorer communities are already gaining ground, the report shows.

For example, Kenya’s social protection system provided additional resources to vulnerable farmers well before the 2015 drought, helping them prepare for and mitigate its impacts.

And in Pakistan, after record-breaking floods in 2010, the government created a rapid-response cash grant program that supported recovery efforts of an estimated 8 million people.

Check out the Insurance Information Institute issues updates on microinsurance and emerging markets here, and on catastrophes and insurance issues here.

Growing Insurance Resilience to Disasters

Latest estimates from Aon Benfield that just 50 percent of the U.S. losses from Hurricane Matthew are covered by public and private insurance renews the spotlight on the growing risk protection gap and disaster resilience.

In its latest Global Catastrophe Recap report, Aon Benfield’s Impact Forecasting unit expected total economic losses from Matthew would range up to a high of $10 billion. Public and private insurance losses were considerably less, estimated as high as $5 billion.

The reason for this is that a large portion of the inland flood loss in North Carolina went uninsured due to low take-up of the federally-backed National Flood Insurance Program (NFIP), Aon said.

A post over at Artemis blog reports:

“Once again this demonstrates the insurance and reinsurance protection gap is not simply an emerging market issue, rather it is evident in perhaps the most mature property catastrophe insurance market in the world in the United States.”

Indeed, Swiss Re sigma has said the amount of financial loss caused by catastrophes not covered by insurance is growing.

This so-called global insurance protection or funding gap totaled $75 billion in 2014, according to Swiss Re.

A recent issue brief by Wharton Risk Center co-director Howard Kunreuther pointed to evidence showing that consumers tend to purchase too little insurance or purchase it too late.

As a result, it said, taxpayers wind up bearing substantial burdens for paying restoration costs from extreme events. The 2005 and 2012 hurricane seasons alone cost taxpayers nearly $150 billion.

The Wharton brief suggests there is much that can be done to better facilitate the role that insurance can play in addressing losses from extreme events, both natural and man-made.

To better meet its objectives, insurance must embody two guiding principles, first premiums must accurately reflect risk and secondly, to ensure equity and affordability, special financial assistance should be made available to homeowners who would no longer be able to afford their premiums.

More information on the protection gap problem in this Insurance Information Institute report Underinsurance of Property Risks: Closing the Gap.

I.I.I. facts and statistics on flood insurance are available here.

Rolling Stone Defamation Case Highlights Insurance Need

As the Rolling Stone defamation case moves into the damages phase today, media businesses everywhere—and their insurers—will be watching closely.

A federal jury on Friday found that Rolling Stone magazine, its parent company Wenner Media and Sabrina Rubin Erdely, the author of a discredited 2014 article about an alleged gang rape at the University of Virginia, were liable for defaming Nicole Eramo, a former associate dean of students at the school.

According to this Wall Street Journal report, Ms. Eramo is seeking $7.5 million but the award could potentially go higher.

Rolling Stone also faces a defamation suit brought by the UVA chapter of the fraternity Phi Kappa Psi, the focus of the 2014 article. That case is seeking $25 million.

The verdict against Rolling Stone is the second large media liability claim this year.

In June, a jury awarded $140 million in damages to the former professional wrestler known as Hulk Hogan in an invasion-of-privacy case against Gawker Media Group over the publication of a sex tape.

Gawker settled the lawsuit just last week agreeing to pay the wrestling star, whose actual name is Terry Bollea, $31 million. Gawker was forced into bankruptcy and sold to Univision in August.

The cases have prompted legal experts to express concerns over the increasing frequency with which complaints about journalism are being settled in the “unpredictable and expensive sphere of the courts”, according to this New York Times article.

From the insurance perspective, the cases underscore how important it is for online and traditional publishers, broadcasters and other media-related firms to purchase media liability insurance.

This specialist type of errors and omissions (E&O) insurance protects creators of content against liability claims resulting from a range of exposures, including, but not limited to, defamation, invasion of privacy, infringement of copyright, and plagiarism.

While there is a fair amount of media liability insurance sold (an estimated $300 million to $500 million in the United States, and $50 million elsewhere (mostly in the United Kingdom)), according to this 2016 survey by Betterley Risk Consultants, further growth is predicted:

“We suspect that much of the media market is untapped risk, self-assumed by large organizations that can afford to self-insure, or ignored by small organizations that don’t think they are exposed.”

In the case of Rolling Stone, its parent company Wenner Media, is reported to have an undisclosed amount of media liability insurance to cover any damages related to the trial.

Still, at least one analyst cited in this report by the Wall Street Journal, says that if costs related to this lawsuit and other pending lawsuits exceed $50 million, Wenner Media may not be able to fund it with existing resources.

Check out I.I.I. resources on E&O insurance for small businesses here.

Cybersecurity and the Presidential Election

Insurance leaders say the upcoming U.S. presidential election could impact a range of issues, including healthcare and international trade.

Cybersecurity is another insurance-related issue that next week’s election is likely to impact. Forrester even predicts that the new U.S. president will face a major cybercrisis within 100 days.

A new Insurance Information Institute (I.I.I.) white paper notes that governments are facing an unprecedented level of cyber attacks and threats with the potential to undermine national security and critical infrastructure.

The I.I.I. paper, Cyberrisk: Threat and Opportunity, also highlights rising concerns over how hacked information may be used to influence a political outcome:

“Hacks of both Democratic National Committee and Republican National Committee emails during an election year have raised concerns that groups are attempting to influence the outcome of the 2016 U.S. presidential campaign.”

Just last Friday U.S. government officials accused Russia of trying to interfere in the 2016 elections, including by hacking the DNC computers and other U.S. political organizations.

And on Tuesday Microsoft said the Russian hackers believed responsible for hacking the DNC computers had exploited previously undisclosed flaws in its Windows operation system and Adobe’s Flash software.

The Wall Street Journal reports that apparent Russian attempts to disrupt the U.S. election highlight more mundane risks as well as a new weapon in information wars: the disclosure of hacked information to influence policy or public perception.

Meanwhile, cybersecurity experts have warned that the election systems in the U.S. are vulnerable at the local, state and manufacturer level.

The mounting concerns have prompted the Department of Homeland Security (DHS) to consider whether the U.S. voting systems should be classified as critical infrastructure.

Currently, there are 16 critical infrastructure sectors, such as the U.S. power grid and water supply, whose systems and networks are considered so vital to the U.S. that their incapacitation or destruction would have a debilitating effect on national security and public health or safety.

In fiscal year 2015, there were around 295 attacks on critical infrastructure control systems in the U.S., a 20 percent increase on the previous year, according to DHS figures cited in the I.I.I. paper.

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