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July 23, 2024

Otonomi Expands Parametric Cargo Insurance to New Transport Modes

Otonomi, an insurtech startup, has expanded its parametric cargo insurance to include more transport modes. Initially focusing on aviation cargo, Otonomi has now added maritime and intermodal coverage, enhancing their ability to manage supply chain disruptions and shipping delays. This move follows a significant investment to develop their algorithmic underwriting model.

Parametric Insurance Model

Otonomi’s parametric model provides automatic payouts based on predefined conditions such as transit time discrepancies. The coverage focuses on mitigating risks from delays rather than direct damages, covering goods like perishables and high-value items in aerospace, technology, and automotive industries.

Recent Developments

In 2023, Otonomi piloted a parametric insurance product for pharmaceuticals and cold-chain assets, later expanding to include maritime transport delay coverage and aviation delay insurance. These additions are part of their broader vision to offer end-to-end coverage across multiple transport modes, driven by sophisticated data analysis and automated processes.

Future Goals

Otonomi aims to provide seamless, comprehensive coverage for complex shipping routes involving multiple transport modes. Their goal is to create an integrated insurance solution that covers every stage of the shipping process, ensuring continuous protection and efficiency for their clients.
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July 23, 2024

Severe Storms in the US Drive Global Natural Disaster Losses in H1 2024

The first half of 2024 has seen severe convective storms (SCS) in the United States accounting for $37 billion of the $61 billion global insured losses from natural disasters. This represents 61% of the total global losses, marking the second-highest H1 total for the US, trailing only behind 2023.

Economic and Insured Losses

During this period, global economic losses from natural disasters reached an estimated $128 billion, slightly below the 10-year average. The US experienced 20 billion-dollar events, with 14 attributed to SCS, highlighting the significant impact of these storms on insurers and the economy.

Strain on Insurers

Primary insurers are bearing the brunt of these losses, with reduced reinsurance coverage leading to increased direct loss costs. This has eroded underwriting performance and quarterly earnings, emphasizing the need for robust risk management and mitigation strategies. The continued frequency and severity of SCS in the US highlight the urgent need for effective disaster preparedness and insurance strategies to manage and mitigate these substantial financial impacts.
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July 23, 2024

Commercial Insurers Lead in Customer Satisfaction Scores

A recent report highlights commercial insurers with above-average customer satisfaction scores. These insurers have excelled in providing quality service, meeting customer expectations, and managing claims effectively, setting a benchmark for the industry.

Key Factors Driving Satisfaction

Customer satisfaction is influenced by various factors, including efficient claims processing, comprehensive coverage options, and exceptional customer service. Insurers with high scores have successfully balanced these elements, ensuring a positive experience for policyholders.

Industry Implications

High customer satisfaction scores reflect well on insurers, enhancing their reputation and customer loyalty. For other insurers, these top performers serve as a model for improving their own service standards and addressing areas of customer concern. In conclusion, achieving high customer satisfaction is crucial for commercial insurers to maintain competitive advantage and build lasting relationships with their clients.
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July 22, 2024

Addressing Silicosis: A Call for Comprehensive Data

In response to the increasing prevalence of silicosis among California workers, the state’s Insurance Commissioner has called on the Workers’ Compensation Insurance Rating Bureau (WCIRB) to conduct a detailed study of silicosis claims over the past decade. This study aims to provide a clearer understanding of the disease's impact and ensure affected workers receive adequate compensation.

The Impact of Silicosis

Silicosis is an irreversible lung disease caused by inhaling crystalline silica dust, particularly prevalent among workers handling engineered stone countertops. The disease poses significant health risks and challenges in securing workers' compensation benefits.

Data Collection Focus

The Commissioner has requested comprehensive data, including the number of silicosis cases, average claimant age, claim acceptance and denial rates, associated medical costs, and details on disability benefits and loss adjustment expenses. This information will help assess the scope of the problem and guide future policy decisions to better support affected workers.

Ensuring Adequate Protection

By gathering detailed data on silicosis claims, the WCIRB aims to provide insights that will enhance the effectiveness of workers' compensation systems and ensure that workers suffering from this debilitating disease receive the support and benefits they deserve. The initiative reflects a commitment to addressing occupational health risks and safeguarding worker welfare in California.
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July 22, 2024

New Jersey Proposes Insurance Surcharges and Oil Fees for Climate Resilience

In response to increasing climate-related disasters, a New Jersey group has proposed a 2% surcharge on property insurance policies and mandatory fees on the oil and gas industries to fund climate resiliency projects. This proposal aims to proactively invest in infrastructure to protect against future storms and environmental impacts.

Legislative and Public Support

The initiative includes holding a public referendum for voter approval and creating a "Superfund" financed by the proposed surcharges. Similar legislation has been introduced in other states, such as New York and Massachusetts, emphasizing a proactive approach to disaster preparedness.

Addressing Climate Vulnerability

New Jersey has experienced significant climate-related challenges, with 14 federally declared disasters from 2011 to 2021. The proposed measures aim to secure a stable funding source for long-term resiliency projects, enhancing the state's ability to withstand and recover from severe weather events. The proposed insurance surcharges and oil fees represent a strategic move to enhance New Jersey's climate resilience. By securing dedicated funding for proactive measures, the state aims to mitigate the impact of future climate-related disasters and safeguard its communities and infrastructure.
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July 22, 2024

Insurers Brace for Business Interruption Claims Post-Tech Outage

According to cybersecurity expert Troy Hunt, the global cyber outage that disrupted airlines, businesses, and emergency services on Friday may be the "largest IT outage in history."
A global tech outage caused by a software update from a cybersecurity firm led to widespread disruptions across multiple industries, grounding flights, interrupting broadcasts, and halting access to healthcare and banking services. This incident has triggered a surge in business interruption claims as organizations scramble to recover from the losses.

Insurance Coverage Challenges

Despite the significant impact, not all businesses will find relief in their insurance policies. Standard business interruption coverage in commercial insurance typically does not cover non-malicious tech outages. Moreover, many cyber insurance policies exclude such events unless specifically included, often at an additional cost.

Economic Implications and Legal Consequences

Economic damages from the outage could reach tens of billions of dollars, highlighting the necessity for robust cyber insurance coverage. Additionally, affected industries might pursue legal claims against the cybersecurity firm responsible for the defective update.

Preparing for Future Outages

This incident underscores the importance of comprehensive cyber insurance policies that include coverage for non-malicious events. Insurers and businesses alike must reassess their risk management strategies to mitigate the financial fallout from similar disruptions in the future. The recent global tech outage has exposed significant vulnerabilities and has emphasized the critical need for robust, comprehensive cyber insurance policies to protect against business interruptions and associated economic losses.
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July 19, 2024

Construction Industry Challenges and Insurer Responses

The construction industry faces significant challenges post-COVID-19, including persistent project delays, supply chain disruptions, and soaring material costs. According to a KPMG report, only 25% of construction projects meet their original deadlines, with 98% of large projects experiencing delays or budget overruns. Rising costs for essential materials like concrete and structural steel have exacerbated these issues, significantly impacting builders and developers.

Environmental and Labor Issues

Natural disasters, such as wildfires, have further complicated the construction landscape. Wildfire risk has made it difficult for builders to secure affordable insurance, particularly for wood-framed buildings. Additionally, labor shortages are a critical issue, with many contractors unable to find enough skilled workers. An aging workforce and high turnover rates contribute to this problem, deterring new projects.

The Impact of Nuclear Verdicts

The construction industry also faces increased liability due to nuclear verdicts—exceptionally large jury awards in civil cases. These verdicts, often exceeding $10 million, have risen dramatically, prompting insurers to reduce risk capacity or increase premiums. This shift poses significant challenges for builders and contractors seeking sufficient protection.

Solutions for Mitigating Risks

To address these issues, brokers can offer several insurance solutions:
  • Builder’s Risk Insurance: Covers potential losses due to damages or theft.
  • Excess Liability Insurance: Provides additional liability coverage beyond primary policies.
  • Business Interruption Insurance: Compensates for lost income if construction halts due to covered events.
  • Surety Bonds: Protect against contractor default and ensure project completion.
  • Thorough Risk Assessment: Identifies potential issues related to labor and materials.
  • Diversified Suppliers: Reduces reliance on a single source for critical materials.
In conclusion, the construction industry must navigate numerous challenges, from rising costs and labor shortages to increased liability risks. By leveraging comprehensive insurance solutions and proactive risk management strategies, insurers and brokers can help mitigate these challenges and support the industry's resilience.
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July 19, 2024

Analyzing Medical Professional Liability Insurers’ Loss Ratios

Recent data highlights the performance of medical professional liability insurers, focusing on their loss ratios. Loss ratios are a critical measure of an insurer's profitability, calculated as the ratio of claims paid to premiums earned. Insurers with lower loss ratios are more profitable, indicating efficient risk management and underwriting practices.

Top Performers in the Industry

The report identifies the best-performing insurers in terms of loss ratios. These companies have effectively managed their claims and premiums, resulting in strong financial health and stability. Their success can be attributed to robust underwriting standards, effective claims management, and strategic risk assessment.

Challenges for Underperforming Insurers

Conversely, insurers with higher loss ratios face significant challenges. High loss ratios indicate that these companies are paying out more in claims relative to their premium income, which can jeopardize their profitability and long-term viability. Factors contributing to poor performance may include inadequate risk assessment, higher-than-expected claims, or inefficiencies in claims processing.

Implications for the Insurance Industry

Understanding the factors driving loss ratio performance is crucial for stakeholders in the medical professional liability sector. Insurers with low loss ratios set benchmarks for best practices, while those with high ratios highlight areas needing improvement. Industry participants must continually refine their underwriting and claims processes to maintain competitiveness and financial health. In conclusion, analyzing loss ratio data provides valuable insights into the operational effectiveness of medical professional liability insurers. By learning from top performers and addressing the challenges faced by underperformers, the industry can enhance its overall stability and efficiency.
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July 19, 2024

Drivers Seek Alternatives as Car Insurance Costs Surge

Amidst soaring car insurance rates, many U.S. drivers are no longer passively accepting the steep hikes. The average annual cost of full-coverage car insurance has increased by 12% to $2,278, following a 7% rise the previous year. This significant uptick has prompted a substantial shift in consumer behavior, with many drivers exploring new ways to manage and reduce their insurance expenses.

Shifting to Pay-Per-Mile Policies

One notable trend is the growing interest in pay-per-mile insurance plans. These policies charge a base rate combined with a per-mile fee, which can be more economical for drivers who log fewer miles annually. Research from S&P Global Mobility indicates that Americans will drive an average of 13,039 miles this year. For those driving significantly less, pay-per-mile plans offered by insurers such as Allstate, Nationwide, and USAA can result in substantial savings. For example, a driver paying a base monthly rate of $35 and 6 cents per mile would pay $59 for driving 400 miles in a month. This model benefits retirees and remote workers who typically drive less than average. However, insurance agents caution that driving more than 4,000 miles annually may render traditional policies more cost-effective.

Adjusting Deductibles

Another strategy drivers are employing to combat rising insurance costs is increasing their deductibles. By opting for higher deductibles, drivers can lower their regular premium payments. This approach has become a popular method for immediate savings, despite the potential for higher out-of-pocket costs in the event of a claim.

The Role of Technology and Data Tracking

While pay-as-you-go policies offer financial benefits, they come with the caveat of increased data tracking. Insurers often use mobile apps or devices installed in vehicles to monitor mileage, driving habits, and behaviors such as speeding and sudden braking. Consumers are advised to review the fine print of these policies to understand what data is being collected and how it might impact their rates.

Factors Behind Rising Insurance Rates

The surge in car insurance costs can be attributed to several factors, including higher vehicle prices, increased repair costs due to more complex vehicle technology, and a rise in vehicle thefts, particularly of catalytic converters. These escalating expenses lead to higher claims, which insurers then pass on to consumers through increased premiums. In conclusion, as car insurance costs continue to climb, drivers are exploring various strategies to mitigate the financial impact. From switching to pay-per-mile policies to adjusting deductibles, consumers are becoming more proactive in managing their insurance expenses. Understanding the implications of these choices and the factors driving premium increases is crucial for making informed decisions in this evolving insurance landscape.
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July 18, 2024

The Growing Concern Over Deepfake Fraud

Generative artificial intelligence (GenAI) has stirred significant debate, primarily over copyright infringement. The technology’s ability to create convincingly human-like texts and images has led to high-profile lawsuits. However, beyond these legal disputes lies a more ominous threat: the potential for deepfake fraud, particularly within the insurance industry. Insurance professionals face an unprecedented challenge: distinguishing fact from fiction in a world where generative AI can easily fabricate realistic images and videos. The term “deepfake” predates widespread awareness of OpenAI, but its implications have become increasingly severe with the advent of consumer GenAI technology. Now, anyone can produce fraudulent media, posing a serious risk to insurers.

The Impact of Deepfakes on the Insurance Industry

The financial toll of insurance fraud is staggering, with estimates suggesting annual losses of $308.6 billion, representing a quarter of the industry's total value. Even before the rise of hyper-realistic synthetic media, preventing fraud was a significant struggle. With the current trend towards automation, the situation is becoming even more complex. The insurance industry is moving towards a model of self-service front-end processes and AI-driven back-end automation. By 2025, 70% of standard claims are expected to be processed without human intervention. While automation offers efficiencies, it also presents new vulnerabilities. AI-manipulated images and documents can slip through automated systems, leading to significant losses. This issue is not hypothetical. Instances of fraudsters using GenAI to photoshop registration numbers onto "total loss" vehicles and fabricating paperwork with convincing signatures and letterhead are already occurring. The challenge is not merely occasional fraud but a potential widespread inability to verify the authenticity of any given claim.

Leveraging AI to Detect Deepfake Fraud

Despite the threats, AI technology itself offers a solution. The same models that enable the creation of fraudulent media can also detect it. With advanced AI models, insurers can automatically evaluate the authenticity of photographs and videos, identifying suspicious content through automated processes running in the background. This dual-use of AI involves close collaboration between technology and human employees. When a claim is flagged as potentially fraudulent, human experts can review it with the insights provided by AI. This approach allows for efficient and accurate decision-making, as AI can highlight identical images found online or detect subtle irregularities indicative of synthetic generation.

Preparing for the Future of Fraud Prevention

The rapid development of GenAI means that deepfake technology is still in its early stages. As the technology evolves, so too will the tactics of fraudsters. Insurers must stay ahead by continually updating their fraud detection tools and strategies. Fighting advanced fraud with equally advanced AI tools is essential to maintaining the integrity and trust of the insurance industry. In conclusion, the rise of deepfake fraud presents a significant challenge to insurers. However, by leveraging AI technology to detect and counteract fraudulent claims, the industry can protect itself from potential losses and ensure the continued efficacy of its operations.
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July 18, 2024

Significant Drop in M&A Activity

The first half of 2024 saw a notable decline in insurance agency mergers and acquisitions (M&A), with only 300 deals announced. This represents a 20% decrease from the 385 transactions recorded during the same period in 2023, based on OPTIS Partners' M&A database. This count marks the lowest first-half total in four years and is 26% below the average for the previous five years. The trend of falling deal numbers has persisted for six consecutive quarters, indicating a significant shift in market activity.

Key Trends and Leading Firms

According to Steve Germundson, a partner at OPTIS Partners, the current level of deal-making is similar to that seen in 2019 and 2020. Some firms that were previously active have reduced their activity, while others have increased their pace. BroadStreet Partners led the first half of 2024 with 46 transactions, marking a 77% rise from the same period last year. Inszone and Hub followed with 27 and 26 deals, respectively. The top 13 buyers, primarily private equity-backed firms, accounted for 64% of all transactions.

Dynamics of Buyers and Sellers

In the first half of 2024, 62 distinct buyers were involved in insurance distribution-related M&A transactions. Of these, 41 completed fewer than five deals, and 26 firms made only one acquisition. Fourteen firms announced their first acquisition. Private equity-backed/hybrid brokers dominated the market, accounting for 71% of transactions, while privately held brokers made up 20%. Publicly held brokers and other buyers accounted for the remaining 9%. Sellers were categorized into four groups: property and casualty (P&C) insurance agencies, agencies offering both P&C and employee benefits, employee benefits agencies, and other related businesses. P&C agencies accounted for 66% of the total with 198 transactions. Employee benefits agencies had 34 deals, while agencies offering both P&C and employee benefits accounted for 33 transactions. Other sellers, including life/financial services and consulting businesses, made up 12% of the total with 35 sales.

Future Outlook for M&A Activity

Despite the current downturn, the M&A market might soon stabilize. Germundson suggests that we could be returning to a "normal" level of deal-making akin to what was observed from 2017 to 2019. A robust number of independent agencies are still looking for external ownership solutions, driving ongoing interest from buyers. If inflation decreases and the Federal Reserve lowers interest rates by the end of the year, buyer activity could pick up. Additionally, several brokers are considering going public in 2024 or 2025, which could further influence the market landscape. While the first half of 2024 has seen a significant decline in M&A activity within the P&C and benefits brokerage sectors, the market dynamics suggest a potential for stabilization and renewed growth. The continued interest from buyers and evolving market conditions indicate that the insurance M&A landscape will remain a critical area to monitor.
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July 18, 2024

California Lowers Workers’ Compensation Rates

California's Insurance Commissioner Ricardo Lara has announced a new, reduced rate for workers’ compensation insurance, lowering the annual benchmark rate from $1.41 to $1.38 per $100 of payroll. This 2.1 percent decrease will take effect on September 1, 2024. The decision reflects ongoing trends in the state’s workers’ compensation landscape, including a reduction in the number of medical services per claim and a decline in claims involving permanent disability benefits.

Factors Behind the Rate Adjustment

Several factors contributed to the rate reduction. Notably, the continuous decrease in medical services required for each workers’ compensation claim has played a significant role. Additionally, there has been a persistent drop in the percentage of claims that involve permanent disability benefits. These trends indicate improved workplace safety and effective claims management practices, which have collectively contributed to lower costs for insurers.

Incorporating COVID-19 Experience in Rate Setting

An important aspect of the new rate adjustment is the inclusion of COVID-19 experience in the rate-setting process. The Workers’ Compensation Insurance Rating Bureau of California’s (WCIRB) September 1, 2024, Pure Premium Rate Filing includes data from accident year 2023. This marks a shift from previous years, where COVID-19-related claims were excluded from consideration. Incorporating this data provides a more comprehensive view of current claim trends and ensures that rates are reflective of the current risk environment.

The Commissioner’s Advisory Pure Premium Rate

Commissioner Lara's decision sets the average advisory pure premium rate at $1.38, slightly below the $1.42 proposed by the WCIRB. It is important to note that this rate is advisory, as the Commissioner does not have statutory authority to set workers’ compensation rates directly. The approved rate is based on a thorough analysis of insurance companies' cost data, industry trends, and recommendations from the Department’s workers’ compensation experts.

Implications for the Insurance Industry

The new advisory pure premium rate of $1.38 is significantly lower than the industry-filed average rate of $1.75 as of January 1, 2024, representing a 21.1 percent decrease. This reduction could lead to considerable savings for businesses across California, encouraging economic growth and stability. Insurers, meanwhile, will need to adjust their pricing strategies and operational models to align with the new benchmark rate. In conclusion, California’s reduction in workers’ compensation rates underscores the state's commitment to maintaining a balanced and fair insurance market. By incorporating recent data and industry trends, the new rate aims to reflect the current state of the workers’ compensation landscape accurately, benefiting both employers and employees.
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