Commercial insurance is characterized by complex coverages, heterogeneous exposures and risks, and individually negotiated and priced contracts. Distribution is often through independent agents and brokers; there is an involved sales process of negotiation between policyholder, agent, and insurer.

Commercial lines insurers continue to raise rates, seek growth through expanded jurisdictions and new products, and are adopting AI and analytics more broadly. Insurers want to drive down the cost of service, refine pricing and underwriting, and pursue growth.

Increased Use of Artificial Intelligence (AI)

Commercial lines insurers continue to use AI and machine learning for use cases ranging from contractor insurance verification and customer experience to claims and underwriting. The number of companies using geospatial and property intelligence solutions to better assess underwriting risks continues to grow. Given the previously mentioned impacts of climate change, more companies are leveraging aerial imagery and machine learning to determine more accurate pricing for the insured exposures.

The use of AI for the ingestion of unstructured text for use in claims and underwriting is becoming more common. Insurers’ investments in data availability and AI-enabled decisioning are letting them streamline or fully automate formerly time-consuming processes for loss-run ingestion, submission intake, and transaction clearance.

Insurers are also using AI and analytics to determine next best actions in claims. Starting with first notice of loss, carriers are able to triage the claim for adjuster assignment, ingest damage photos, estimatics, and payment. Claims fraud continues to challenge the industry as fraudsters seek more sophisticated mechanisms to take advantage of insurers. AI helps to combat fraud by continuously learning new patterns from a variety of data sources and generating a fraud prediction score. Insurers are benefiting from AI to identify provider fraud rings across claims as well as claims that are completely fraudulent.

In evaluating potential intelligent document processing solutions, insurers should consider whether to pursue a horizontal solution, fit-for-purpose solution, or platform component, which will subsequently dictate how broadly applicable the solution will be, how long it will take to achieve value in the form of accurate results, and how easy it will be to tie the solution into the rest of the insurer’s ecosystem.

Insurers are beginning to explore the possibilities of generative AI and large language models (LLMs), with use cases including basic research, chatbots, and policy language interpretation. Insurers should ensure they have basic data and analytics capabilities, data governance, and a data strategy in place before chasing the newest technology. They should also ensure that they can demonstrate the fairness and transparency of their AI processes to various regulators. With these foundations in place, insurers can more comfortably deploy value-added, AI-enabled solutions throughout their organization.

The number of insurers using AI and related technologies to extract data from documents in multiple formats for loss runs, new business, and renewal submissions, and passing that data into core underwriting systems through API integration or robotic process automation continues to increase along with the number of solution providers offering these capabilities. Insurers should consider whether they want to deploy horizontal solutions, fit-for-purpose solutions, or platform components.

ISO Product Revisions

Verisk regularly makes updates to ISO commercial insurance forms, loss costs, and rules to help commercial insurers keep their programs aligned with today’s realities. ISO programs already address the cannabis market, cyber risks, data privacy risks, the gig economy, and microbusinesses. ISO recently revised its general liability coverages to offer exclusionary endorsements for Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS), data privacy regulation violations, and cyber incidents, as well as optional buy-back endorsements for coverage of bodily injury or property damage as a result of cyber incidents.

Other recent revisions include optional exclusionary endorsements for businessowners, commercial auto, commercial property, and crime/fidelity; for businessowners, related rules, and loss costs for microbusinesses with zero to four employees; for commercial auto, a new class plan/rules manual to improve risk classification, updated loss cost filings for hired auto liability and physical damage and auto dealers liability; and for commercial property, a mandatory exclusion of cyber incidents with an exception for loss or damage caused by fire or explosion, a California-specific rule on availability and application of credits for insureds’ wildfire mitigation risk characteristics, and an optional endorsement to provide cannabis coverage where cannabis is legal.

Verisk ISO also plans new and updated classifications, rules, endorsements, and coverages for commercial general liability; a potential commercial auto exclusion for cyber and coverage for operational data outside cyber; a commercial property exclusionary endorsement for risks from solar flares or other space weather; an optional exclusionary endorsement for loss or damage to covered property caused directly or indirectly by space weather, regardless of any other cause or event that contributes concurrently or in any sequence to the loss; optional exclusions for non-fungible tokens and electronic currencies; and new and updated classifications, forms, rules, endorsements, and coverages for businessowners.

Recent Financial Trends

MarketScout reported in Q2 2023 that the average commercial lines rate increase was 5%, with the highest rate increases in cyber insurance, commercial auto, and commercial property. The smallest rate increases were in fiduciary, crime and surety, and workers’ compensation.

Inflation and Supply Chain Constraints

High inflation and the war in Ukraine have continued to affect supply chains, resulting in higher claims costs, from replacement parts for commercial auto to rebuilding and repair costs for commercial property. In addition to materials costs, labor shortages have affected commercial auto and commercial property. Labor shortages and supply chain constraints also lengthen claims settlement times, reducing customer satisfaction. Insurers have been raising rates on commercial auto policies, though it is unclear whether this will be sufficient to address rising loss costs. A shortage of truck drivers, exacerbated by increasing retirements and moves to hire younger replacements, affects claims frequency and severity.

In addition to wage and price inflation, insurers are experiencing increased claim costs due to social inflation, driven by shifts in societal attitudes toward litigation and larger jury awards and an overall negative perception of large corporations. Talent shortages continue to affect carriers (as experienced employees retire) and the businesses they insure. Less experienced business employees can result in poorer quality goods and services.

Firms’ restructuring of their supply chains, including reshoring and related investments in infrastructure and production facilities, will increase demand for commercial insurance. Swiss Re estimates supply chain restructuring will lead to US$36 million in additional commercial premium globally.

Climate Change

Climate change impacts a broad swath of lines of business. Changes in weather patterns mean that insurers can no longer rely upon historical data; they must modify catastrophe (CAT) models. Climate change also increases the chances of tropical diseases spreading to new areas, so insurers must quickly decide how to handle future pandemics.

Insurers have already begun to reduce or end underwriting for fossil fuel companies, a change that European insurers have led. Activists, lobbying groups, and other businesses are pressuring underwriters to accelerate this process. Shipping is an important source of emissions from transportation. The war in Ukraine may be reversing the trend of moving away from the fossil fuel business as countries seek to diversify their sources of fossil fuels. Some state governments are making moves to ban financial services firms from considering environmental, social, and governance factors in their investing strategies and when setting rates. If you’d like to discuss our key findings in the commercial lines insurance space, please read our new report Business and Technology Trends, 2023: Commercial Lines or contact Martina Conlon, Carey Geaglone, or me to continue the conversation.

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Insurers are realizing that our consumer-centric society means more emphasis on the importance of customer experience from the perspective of both policyholders and producers. This insight prominently manifests in new business and contract issuance, with continuing straight-through processing (STP) efforts. To increase both speed and service, some annuity manufacturers are exploring use cases leveraging generative AI and large language models.

The Role of Interest Rates 

Annuity companies became accustomed to a prolonged low interest rate environment, which made variable annuities (VAs) more attractive to consumers. Inflation is now a concern, which means the Federal Reserve may continue raising interest rates. Annuity companies must account for interest rates and stock market activity when considering product mix and features. Otherwise, they risk misjudging demand from prospects and reducing their profitability due to spread compression. The economic uncertainty may bode well for annuity sales, especially fixed, but the same forces challenge insurers’ investment portfolios.

Registered index-linked annuities are the only variable annuity category still experiencing growth in sales, due to their offering floors on performance losses.  Fixed annuities account for most individual annuity sales growth. For some companies, the new business volume has been so large that reputational risk has been an issue due to impaired service times.

Distribution Changes

Carriers and vendors are promoting annuity sales through advisors; they are offering financial advisors simplified, low-cost products without commissions through marketing organizations in some cases, which is making annuities more attractive to registered investment advisors (RIAs) than they have been previously.

Carriers have begun to offer annuities online through third-party platforms that show side-by-side comparisons of annuities, marketing support, and product education. The share of business transacted through these platforms is unclear—but Envestnet’s Envestnet Insurance Exchange, for example, already has 13 annuity partners. 

Annuities require more guidance than simpler life insurance products, but there is still room to leverage third-party data and digitize processes to improve efficiency and increase STP.

Fraud and Security

The current economic uncertainty has heightened fraud and security concerns. Carriers are using various options, including staff education, participation in LIMRA FraudShare, and voice printing. In 2023, 54 annuity carriers are participating in LIMRA FraudShare. However, as we go to press, voice printing is becoming a more widely used attack vector due to improved AI capabilities and the ability to impersonate someone else’s voice.

Malicious external entities drive some account takeover (ATO) attacks, but the most difficult cases to prevent might be when the ATO is driven by a relative or close friend. Aite-Novarica Group sees tools such as document-based authentication as the next layer that firms will have to consider unless this trend reverses.

Regulation

The Department of Labor’s best-interest rule will reemerge, but the timing is uncertain. As of April 2023, 36 states have adopted annuity suitability sales standards based on the National Association of Insurance Commissioners model legislation, which is intended to be compatible with the SEC’s Regulation Best Interest. Best interest is the dominant paradigm at present, but RIAs are emerging as distributors of annuities, and they are required to comply with a fiduciary standard.

Carriers are concerned by Department of Labor plans to narrow the definition of “independent contractor” since investment advisor representatives may shift from being classified as independent contractors to being classified as employees. Other RIAs feel the new definition will help financial professionals who want to remain independent contractors to maintain their status. If you’d like to discuss our key findings in the annuities space, please read our new report Business and Technology Trends, 2023: Annuities or contact John Keddy, Deb Zawisza, or me to continue the conversation.

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This is happening through investments in distribution (especially new business submission), product development, underwriting, and claims. In addition, ChatGPT and other large language models (LLMs) have spurred conversations about broader AI strategies.

Here are six of the top developments happening in the specialty lines market:

1. Specialty lines renewal rate increases are moderating.

The specialty lines market is seeing moderating rate increases for many lines, greater underwriting capacity, and increased breadth of coverages. Economic, political, and regulatory uncertainty is impacting several lines, including environmental, healthcare professional liability, kidnap and ransom, marine hull and liability, and terrorism and political risk.

Higher reinsurance pricing is impacting rates for some lines, and ongoing concerns (labor shortages, social inflation, supply chain issues) also play a role in limiting rate decreases.

2. Regulations around data protection and privacy will only grow.

State regulations such as the California Consumer Privacy Act (CCPA) are driving the need for increased cyber-risk coverage, especially for financial institutions and third parties doing business with them. These regulations continue to be clarified and modified.

Other states have passed or are considering data protection and privacy legislation. As of April 18, 2023, 18 states had active legislation, according to Husch Blackwell’s 2023 State Privacy Law Tracker. There has been no progress toward federal legislation, though concern over AI and TikTok may move things forward.

3. The war in Ukraine is mostly impacting non-U.S. specialty insurers—for now.

London market aviation insurers have imposed sublimits for confiscation-type risks within the aggregate limit applicable to hull war cover and are now imposing blanket exclusions related to Russia, Belarus, Ukraine, and Crimea. There is still significant appetite for marine cargo, with Aon calling out interest in project cargo and delay-in-startup insurance for renewable energy project clients. Protection and indemnity club insurers are cancelling war risk cover for Belarus, Russia, and Ukraine, following pullouts by reinsurers.

Other impacted lines include agriculture, energy, surety, and trade credit. The invasion is also driving inflation and market volatility, in addition to the direct impact on claims and premiums, which could pressure insurers’ capital and margins.

4. There is an increase in both creation and consolidation of MGAs.

Insurers are both establishing and purchasing managing general agencies (MGAs). MGAs offer expertise in attractive markets; they are a means for insurers to expand to new geographies without the expense associated with hiring personnel, building offices, etc. and can free up balance sheet capacity for more attractive purposes.

5. Specialty lines insuretech firms continue to obtain funding.

Some insuretech firms have transitioned from MGAs to become full insurers, especially in the cyber insurance space. Other insuretech firms focus on offering innovative products. The focus on ESG has led to increased attention on climate risk and related insuretech firms. Incumbent specialty insurers also partner with insuretech firms on solutions to business problems. Insurers and other parties are continuing to invest in insuretech firms.

6. Specialty insurers are still investing in data and analytics and automation.

Specialty line insurers are prioritizing cloud data warehouses, reporting tools, and data science investments to optimize their portfolios and improve underwriting; upgrading to highly configurable policy administration systems to improve underwriting and enable product development flexibility to accelerate entry to profitable niches; and investigating automation support for ingesting new business application documents and building out broker platforms. Digital broker platforms and API catalogs are also assisting within automation.

If you’d like to discuss these key findings for the changing environment for specialty carriers, please read our new report Business and Technology Trends, 2023: Specialty Lines or contact myself (skaye@datos-insights.com), Eric Weisburg (eweisburg@datos-insights.com), or Mitch Wein (mwein@datos-insights.com) to continue the conversation.

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But the definition of MGA is slippery. Though it has an official/regulatory definition, the term “MGA” is often casually used to refer to businesses that fall into a broader category. To add to the confusion, a firm may function as an MGA with one or more carriers and as an agency or broker with other carriers. 

What Defines an MGA?

MGAs are a type of retail or wholesale insurance distributor. They may be responsible for appointing agents and brokers, underwriting, pricing, binding of coverage, reinsurance cession, premium collection, and collection of premium and reinsurance cession on behalf of (re)insurers. Some may also adjust claims. The line can be blurry between MGAs, managing general underwriters (MGUs), and program administrators.

MGAs may be affiliated—i.e., owned and controlled by a single (re)insurer—or non-affiliated. In addition, some MGAs act as product distributors, while others invest in marketing directly to businesses or consumers.

Reasons for Acquiring or Launching MGAs

Brokers and insurers acquire or launch MGA operations for many reasons in what could be a growing trend. MGAs may be used to roll over books of business, expand into new geographies or product lines, access a strong retail distribution network, or increase underwriting reach without having to make significant investments in building out distribution.

MGAs do not take on risk; thus, they do not impact broker or insurer balance sheets meaningfully and offer their owners commission income as an additional revenue stream. Consequently, in most cases, they are not subject to state insurance department requirements around reserving. 

MGAs attract more entrepreneurial staff than insurers: This has business benefits (identifying and rapidly acting on market opportunities), but it can also lead to an opportunistic approach to technology issues (underinvestment) or to senior underwriters leaving insurers for MGAs. MGAs tend to be more agile than insurers. They can introduce new products and product modifications in a fraction of the time it takes traditional markets. MGAs are already offering solutions for cannabis, climate, and cryptocurrency risks, as well as the gig and sharing economies. 

Affiliated MGAs can be a means for carriers to retain senior talent who might otherwise leave for less restrictive and more innovative opportunities. Consolidation in the MGA space also increases the likelihood of a major liquidity event, another factor in attracting talent to MGAs. Some insurers invest in MGA systems as a mutually beneficial arrangement. MGAs can leverage their market knowledge to offer specialized coverages at a lower cost, increasing insurer profitability. Some insurers have sliding commission arrangements with MGAs based on loss experience to align MGA incentives with their capacity to write better risks. 

The MGA M&A Market

The MGA merger and acquisition market is quite active. (Re)insurers seek to control their distribution chains and acquire more profitable business that grows faster than standard commercial lines. MGAs are driven to merge to ensure they retain business from the larger brokers consolidating their relationships. Insuretech firms are participating in the insurance market without the capital and regulatory burden of becoming insurers. Private equity and venture capital firms see a fragmented market with attractive growth prospects and margins. However, many attractive targets have already been acquired.  

Selling Solutions to MGAs

By starting with modern platforms, newer MGAs can offer improved customer experience, increased efficiency, and enhanced underwriting. Incumbent MGAs may be dealing with multiple systems from acquisitions, underinvestment, and other sources of technical debt. MGA vendors should negotiate pricing with MGAs to be revenue-based rather than premium-based: The MGA business model is based on commissions and fee income rather than premiums. Consequently, MGAs have significantly smaller IT budgets than similarly sized insurers. Fortunately, their IT requirements are typically less comprehensive, and their core systems may double as financial systems of record, further reducing IT requirements. 

If you’d like to discuss our key findings for the changing environment for MGAs, please read our new report Business and Technology Trends, 2023: Property/Casualty MGAs, or contact myself, Eric Weisburg, or Martin Higgins to continue the conversation.

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Carriers know that it is critical to stay relevant to younger, tech-savvy demographics in customer and producer communities, otherwise they could lose those populations to consumer-friendly financial services alternatives. Attracting these demographics will require better digital capabilities and new products that fit their needs and expectations.

Here’s a breakdown of the trends Aite-Novarica Group is observing in the individual life insurance market.

Life insurance sales were down in 2022, but 2023 holds some hope.

LIMRA reported flat annualized total individual life premiums, a 5% decline in face amount, and a 10% decrease in the number of policies year-over-year in 2022. There are signs of recovery in 2023, judging by MIB’s statistics on individually underwritten policies for Q1 2023. Applicants aged 50 and younger are responsible for the majority of application volume growth in 2023.

Indexed universal life showed the greatest year-over-year policy number and premium growth in 2022, driven by the potential for significant upside. Variable universal life also saw strong annualized premium growth in 2022. It is unclear whether policyholders will retain their existing policies in the face of market volatility, or if they will upgrade to newer policies with more attractive benefits.

Regulatory challenges continue.

The Department of Labor continues to work to bring back the fiduciary rule, and carriers still face best interest regulations from the SEC and states such as Massachusetts and New York. They must also harmonize these regulations with NAIC model legislation.

Recent accounting standards changes may render balance sheets and operating performance more transparent, but they also have implications for actuarial modeling, data and analytics strategies, pricing, and systems integration. 

There are competing proposals for fixing loopholes in Actuarial Guideline 49-A, which currently allow proprietary indexed universal life products to illustrate better than indexed products tied to benchmark indexes such as the S&P 500. Any changes to how indexed universal life products illustrate could dampen sales.

Insuretech comes calling.

Individual life carriers are exploring the potential advantages of working with insuretech startups. These startups offer insurers UI and UX capabilities they might not have in-house as well as a fast track to direct-to-consumer digital platforms. Insuretech startups are also making it easier for financial advisors and other financial services firms to offer life insurance products.

AI and analytics are an area of increasing interest for claims processing and for marketing use cases including cross-sell/upsell, policyholder retention, product recommendation, and understanding customers’ buying patterns.

Alternative brands create interesting and potentially powerful ways for insurers to experiment at a time when significant demographic and technological changes impact their core business capabilities and markets.

The future is changing for individual life insurers.

Individual life carriers wrestle both with revenue growth and with cost reduction, especially in a time of economic uncertainty. They are pursuing improved agent and customer experiences and expanding their use of AI; business intelligence; and analytics in customer service, marketing, underwriting, and other functions. For new lines of business or new products, starting fresh with greenfield PAS is attractive.

If you’d like to discuss our key findings for the changing environment for life carriers, please read our new report Business and Technology Trends, 2023: Individual Life or contact Nancy Casbarro or John Keddy to continue the conversation.

The post Individual Life Insurers Must Pursue Holistic Agent and Customer Experiences: Digitalization Is Not Enough appeared first on Datos Insights.

Second, they can manage risk better by improving pricing and risk selection using third-party data, predictive scoring, and advanced analytics in underwriting and claims. Third, they can cost less to operate by improving productivity and creating operational efficiencies via automation, digitization, and eliminating redundancies. The Three Levers gain greater urgency in a challenging economic environment with higher loss costs.

Property/casualty insurers have recently pursued the second lever, managing risk better, by adopting premium audit and subrogation analytics solutions. Premium audit solutions offer more comprehensive premium audits at lower costs, driving increased revenue.

Modern premium audit solutions offer robust rules engines and workflows, collaboration tools, custom reports, and cloud deployment options. Some leverage AI, machine learning, and predictive analytics to optimize the frequency of audits, types of audits conducted, and identification of potentially mispriced policies. Next-generation features include predictive audit generation and next-best-action recommendations, leveraging third-party data for insights and fraud identification. Premium audit solutions also offer insureds better customer experiences.

An opportunity exists to leverage claim data with exposure and environmental data to cross-reference employees based on job classifications for audit purposes and type of injury. Analysis of loss runs to determine what people are doing when they get hurt, and the indemnity benefits paid help insurers to validate the accuracy of their exposure data and identify anomalies for further review

Loss and loss adjustment expenses are the largest cost component for property/casualty carriers. As such, anything carriers can do to reduce these costs significantly impacts profitability. One element of the claims settlement process is subrogation, which refers to the negotiation between carriers following a claim as to which carrier is liable for paying a claim. An aging claims workforce with ensuing loss of experience, cost pressures, and a large volume of claims data are all reasons to adopt automated solutions, leveraging AI or related technologies, blockchain, or predictive analytics.

Subrogation analytics solutions can rapidly review structured and unstructured data to identify the most promising opportunities for subrogation recovery. They leverage business rules and digital processes to speed recoveries and the overall claims settlement process. They can also predict liability risk for the third party’s insurer. Subrogation-specific solution functionality may include one or more of the following: detection, estimation, recommendation of next best action, subrogation professionals’ workflows, recovery workflows, and total loss/salvage workflows.

Both solution categories offer insurers the opportunity for increased revenue, reduced costs, enhanced customer experience, and improved efficiency.

For further discussion of premium audit solutions, contact me at skaye@datos-insights.com or Carey Geaglone at cgeaglone@datos-insights.com, or read our report Premium Audit Solutions: Overview and Prominent Providers.

For further discussion of subrogation analytics solutions, contact me at skaye@datos-insights.com or Deb Zawisza at dzawisza@datos-insights.com, or read our report Property/Casualty Subrogation Analytics: Overview and Prominent Providers.

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Reinsurance negotiations have been prolonged and have generally resulted in reinsurers not obtaining the coverage modifications they sought according to Guy Carpenter.

These difficult conditions challenge reinsurers to adapt and come up with creative solutions. Reinsurers control their risk through sophisticated risk analysis, careful pricing and setting of terms and conditions, and capital management—including retrocessions, where needed. There is not pressure for modern systems, rather for stable, robust systems that can support current business. Below are some of the specifics challenges reinsurers are addressing and how they are dealing with these aspects of the market.

Macroeconomic Impacts

Inflation, labor shortages, and supply chain disruptions are driving up potential losses for reinsurers—the same as they are for primary insurers. Cat losses, rising interest rates, and their impacts on investment returns are additional factors limiting the influx of new capital, although reinsurers are still well-capitalized.

Some reinsurers are responding by reducing their property reinsurance business or diversifying into other lines so that property reinsurance is a small component of their overall book going forward. More reinsurers are avoiding lower layers of reinsurance (which tend to be affected by losses beyond the loss amounts retained by primary insurers) or specific geographic regions such as coastal Florida and the Gulf Coast. Reinsurers may require larger retentions by primary insurers in future deals.

Climate Change

One of the most significant emerging hazards that reinsurers face is climate change and the related increase in natural catastrophes. Secondary perils such as floods, storms, and wildfires are increasing in frequency and severity, and reinsurers may be underestimating their exposure to climate change.

Some reinsurers are already shifting investments from industries that contribute significantly to CO2 emissions and are investing in green technologies. They are also partnering with academic institutions, governments, and other organizations to take on some risks and promote efforts toward resilience.

COVID-19

COVID-19 loss development remains slow and difficult to quantify, a potential opportunity for modelers. The impact on reinsurers depends in part on their exposure to lines of business (e.g., event cancellation) and long-tail liability business (e.g., D&O, workers’ compensation). To date, claims have been lower than anticipated, and reserves and solvency do not present issues.

Greater concerns for reinsurers are the increase in loss costs due to labor shortages and supply chain disruptions. Life reinsurance saw more of an impact from COVID-19 but one that was still manageable. Some reinsurers have proposed ILS and related instruments to address pandemic risks going forward.

Life Reinsurance

Life reinsurance has changed from being the province of a select few companies focused on specific solutions, often around mortality risk, to include smaller players and newer entrants. These small players and new entrants are reinsuring non-core blocks of business and capital support for acquisition costs and reserving related to new business. Newer capital providers include capital markets firms, hedge and pension funds, and family offices.

Reinsurance Financial Trends

Reinsurers’ capital is more than adequate, though the return on that capital is cause for concern. As with primary insurers, finding high-growth niches and appropriate pricing and underwriting are the keys to long-term profitability for reinsurers. Existing market players and new entrants are pursuing a range of strategies to boost growth and profitability, including increasing pricing, diversifying to new geographies or into primary insurance, offering alternative capital solutions, and shifting focus toward high-growth, niche business.

Other challenges come from the impact of social inflation on loss costs and the spread of loss cost inflation from casualty lines to property lines due to COVID-related economic disruptions.

Alternative Capital

High property catastrophe activity, combined with ongoing low interest rates and high stock market activity, has led some third-party providers to deploy less alternative capital and seek better returns on capital through other avenues.

Technology Capabilities

Reinsurers are investing in core capabilities in marketing, underwriting, billing, and claims. Other investments include data and analytics for distribution and for finance as well as digital capabilities in marketing and claims. The relative lack of investment in distribution is due to primary insurers’ handling of broker commissions and low transaction frequency. Similarly, the concentration of the broker and reinsurance landscape makes marketing less of a priority.

Technology Priorities

New options for third-party data are becoming available that aggregate public and semi-public data from social media sites and government records; some reinsurers are piloting these services alongside more traditional third-party data players. Reinsurers are demonstrating their value to cession partners by acting as data aggregators to pass along underwriting insights. Reinsurers are also adopting AI and machine learning internally and on behalf of primary insurer clients.

In general, reinsurers look at core system replacement to centralize from spreadsheets and gain better access to their data. They are focusing on moving to modern technology while improving user experiences. Reinsurers continue to monitor developments around blockchain. Some are exploring robotic process automation to automate processes, freeing up resources for value-added work while improving cycle time and process consistency.

Increased regulatory scrutiny is likely. Improving data collection and control over that data are key initiatives for most reinsurers to meet regulatory standards. Reinsurer IT executives are collaborating with risk management and finance departments to prepare for more frequent data calls as well as seeking more detailed levels of data to comply with new, risk-based capital requirements.

If you’d like to discuss our key findings in the reinsurance space, please read our new report Business and Technology Trends 2023: Reinsurance or contact Carey Geaglone (cgeaglone@datos-insights.com), Martin Higgins (mhiggins@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

The post Reinsurers: Addressing Low Returns With the Aid of Technology appeared first on Datos Insights.

Premiums are up slightly overall. COVID-19 claims saw a return to a greater percentage of indemnity vs. medical losses. Other trends and priorities for carriers in this space include the following:

Pay-as-You-Go

For insureds, the widespread adoption of payroll integration, especially for small-to-midsize businesses, has simplified the process of monthly reporting and pay-as-you-go insurance. Most businesses already manage much of their finances through their payroll provider, so pay-as-you-go combined with payroll integration is now a matter of convenience and less about the cost benefits of monthly adjustment.

Numerous pay-as-you-go solution providers offer integration with core billing and policy administration solutions to calculate premiums based on insurers’ current rates, invoice policyholders, and collect premiums.

Telehealth and Workplace Clinics

Easy access to medical care is vital to improve return-to-work outcomes and manage loss costs. Telehealth adoption has expanded significantly, thanks in part to states improving access and ensuring provider reimbursement. Almost every state now allows payment for telehealth services in workers’ compensation.

Benefits from telehealth include reductions in average claim costs, litigation frequency, and average days open for cases. Telehealth has also lowered treatment costs and reduced time away from the job. Workers’ compensation uses telehealth mainly for point-of-injury care and triage.

Changing Regulations

As of June 2022, four states had enacted or pending legislation addressing the classification of workers as independent contractors. The Massachusetts Supreme Judicial Court rejected a ballot measure that would have classified gig drivers as independent contractors and specified gig driver benefits because it violated state law, which requires all elements of ballot measures to be related, instead offering multiple policy decisions.

Four states—California, Kansas, New York, and Rhode Island—introduced single-payer healthcare legislation requiring proposals that address workers’ compensation, with California’s legislation not called to the assembly floor.

States continue to legalize the use of marijuana for recreational purposes, medical purposes, or both. States remain divided as to whether they allow, prohibit, or require reimbursement for medical marijuana.

Impact of COVID-19

COVID-19-related claims declined in 2021, with more than half being indemnity-only claims. Most COVID-19-related claims are small, with relatively few high-dollar claims accounting for the majority of incurred losses. Severity decreased for indemnity-only claims in 2021, while medical-only severity increased slightly and severity for claims with both indemnity and medical components grew significantly, possibly due to evolution of medical treatments. To date, there has not been evidence of increased ergonomic-related claims due to remote work, but as cumulative trauma, ergonomic-related claims have a longer reporting time frame.

Employees may or may not qualify for workers’ compensation benefits when commuting between their home and the workplace, depending on whether the home qualifies as a second workplace. They may also qualify under the personal comfort doctrine. Employers must also consider mental health and stress, whether it stems from COVID-19, isolation from not being in the workplace, or concerns about going back to work in the office.

Recent Financial Trends

State fund premiums grew slightly faster than private insurer premiums, at 0.9% year-over-year compared to 0.7% for private insurers. Residual market share and premium continued to decline, a trend that started in 2015.

Loss costs declined for the ninth straight year, offset by payroll increases that were largely wage-driven. Private insurers reported the fifth year of loss ratios in the 40s, driven by reserve releases.

In 2021, lost-time claim frequency increased, but the long-term trend is for continued decline. 2021 medical and indemnity claims severity was moderate, though in 2022, medical costs could experience inflationary pressures.

Growing Importance of AI/Machine Learning

Insurers are increasingly using AI, machine learning, and analytics to identify claims that might be expensive without proactive intervention, to triage complex claims, and to identify fraud proactively. Several startups are leveraging AI for claims analytics, incident and loss reporting, loss control, and more accurate and granular underwriting.

Insuretech and Workers’ Compensation

The Internet of Things, combined with drones, GPS, RFID badges, telematics, and video surveillance, means most companies will soon have “smart offices” or “smart worksites.”

Workers’ compensation insuretech firms include:

• EvolutionIQ, which applies deep learning and alerts adjusters and insurer management to open claims needing action or additional attention
• InsurePay, which offers pay-as-you-go billing
• Voxel, which applies AI and computer vision technology to security camera imagery and alerts on-site personnel to ergonomics issues, hazards, and other risks

Several insurers have partnered with startups to distribute workers’ compensation online:

• Herald is offering EMPLOYERS-appointed brokers and agents access to its API for quoting and binding products, including workers’ compensation. These front-end-based approaches to partnership enable incumbent insurers to achieve faster speed to market.
• Kinetic is offering workers’ compensation insurance along with its wearable safety technology (at no cost), acting as program manager for Nationwide’s E&S/Specialty division. Policyholders are required to use the technology, with an opt-in dividend program for policyholders attaining the minimum device usage.

Several MGAs are leveraging data and analytics to lower the cost of workers’ compensation, including futureWork Insurance Solutions and Insurate.

Technology Priorities

Workers’ compensation insurers are increasingly adopting predictive analytics solutions. Small insurers are working with organizations that can provide pooled data and insights. Insurers that haven’t already upgraded their claims and policy administration systems are doing so now to gain competitive advantages via improved efficiencies in claims handling, better outcome management from improved data, and the flexibility to incorporate third-party data sources for underwriting scoring. AI and analytics solutions for severity scoring, claim triage, and medical management are enabling leading-edge insurers to improve return-to-work outcomes.

On the digital front, workers’ compensation insurers are assessing agent and customer needs and extending capabilities to them, building functionality with an eye toward reuse. They are streamlining the rate/quote/bind process with straight-through processing, particularly for the small end of the market. Insurers with loss control organizations that bring a competitive advantage to the marketplace are exploring digital service delivery. They are using business rules to manage workflow and predictive analytics to build pricing models—improving risk selection and risk pricing while reducing operating expenses.

If you’d like to discuss our key findings in the workers’ compensation space, please read our new report Business and Technology Trends, 2022: Workers’ Compensation or contact Carey Geaglone (cgeaglone@datos-insights.com), Deb Zawisza (dzawisza@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

The post Workers’ Compensation: Technology Drives Ease of Doing Business and Loss Mitigation appeared first on Datos Insights.

Agent Connectivity

The agent connectivity ecosystem has expanded to include digital insurance producers and more established agency management systems, agency management system interfaces, agent portals, comparative raters, data brokers, quote aggregators, and quote/bind platforms. Even established players have evolved their offerings. Agents who predominantly sell personal lines still largely use portals for quoting new business. Insurers and solution providers have been acquiring distribution connectivity platforms to improve producers’ ease of doing business with them.

Most digital producers have invested primarily in front-end processes. They can take advantage of APIs, cloud-based solutions, and microservices. Many insuretech producer startups started as managing general agencies, which have lower capital requirements and less regulatory red tape. Some, such as Hippo, have purchased shell companies and become true insurers.

Mobile and Telematics in Personal Auto

Insurers are seeing increased interest in telematics-based, pay-per-mile programs from prospects as a reaction to higher insurance premiums. Some insurers have begun to partner directly with auto manufacturers to share telematics data and offer policies to drivers. Some auto manufacturers are competing with insurers directly: Tesla is offering insurance, betting that its superior access to data will lead to lower insurance prices than policyholders might obtain from traditional insurers.

The Impact of Economic Changes

Claims frequency and severity are returning to pre-pandemic trends. Some observers note that the duration and timing of driving are changing, particularly in urban areas. Hybrid work and remote work may explain some of the changes.

Insurers are seeing increased costs for everything from vehicles to construction materials for homes to labor and are passing these increased costs on to consumers. Supply chain disruption is ongoing. Chip shortages due to supply chain disruptions are contributing to higher automotive repair costs, and an increase in used car prices means consumers may be more willing to purchase newer, costlier-to-repair vehicles.

Not all homeowners insurance policies offer ongoing replacement value coverage, meaning policyholders could be underinsured. Combined with the challenges in specific state markets, policy administration systems that offer flexibility to change coverages and products are growing in importance.

Upheaval in State Markets

Florida has experienced the most market upheaval, with several insurance companies entering receivership in 2022—a combination of decades of legal and regulatory developments that have increased litigation for property claims. The state also suffers from increased natural catastrophe frequency and severity and higher reinsurance costs. Insurers are raising rates and restricting coverages. In some cases, insurers are canceling policies midterm or withdrawing from markets entirely to avoid higher claims and possible litigation. It will remain an unattractive, high-risk market for property insurers without a significant reduction in claims litigation and claims fraud and actions to make properties more resilient to catastrophes or reduce exposure.

Insurers are also pulling back in California due to significant losses from mudslides and wildfires and have either stopped writing new business since 2019 or placed significant restrictions on new coverage. Combined with the California Division of Insurance’s regulation preventing insurers from non-renewing risks that had experienced wildfire losses and prohibiting rate increases for policyholders, the California homeowners insurance market is becoming less attractive.

Recent Financial Trends

A.M. Best reported improving homeowners/farmowners profitability due to premium growth and a reduction in loss adjustment expense. The line still experienced an underwriting loss due to catastrophe events and higher reinsurance pricing. Personal auto profitability declined dramatically due to higher loss costs.

Technology Priorities

Personal lines insurers are prioritizing investments in agent and customer access; business intelligence, analytics, and AI; and core systems (billing, claims administration, and policy administration and rating). The personal lines market leads the way in industry experimentation with artificial intelligence, especially in claims. Personal lines insurers are also pushing the envelope in digital self-service, but the increase in digitalization means insurers must make a commensurate investment in fraud detection and prevention and identity verification for customer service and claims.

If you’d like to discuss our key findings in the personal lines space, please read our new report Business and Technology Trends, 2022: Personal Lines or contact Martina Conlon (mconlon@datos-insights.com), Deb Zawisza (dzawisza@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

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Plan providers must satisfy three constituencies: the brokers and consultants who help firms select DC plans and specify features, plan sponsors, and plan participants. The challenge for plan providers is to satisfy these constituencies in a market where they compete with asset management firms, banks, and other financial services players.

Brokers and consultants seek analytics-driven insights and assistance managing complex and lengthy sales processes. Plan sponsors pursue financial wellness for their employees while seeking assistance with Employee Retirement Income Security Act (ERISA) compliance, superior investment performance, and lower plan fees.

These financial wellness aims also include the analytics, reporting, and communications capabilities necessary to assess plan participation and contribution levels and encourage higher levels of both, where needed. Other industries, like retail, investment banking firms, and airlines, have set self-service and user experience expectations for plan participants.

Product Trends 

Some employers are concerned that target date funds do not ensure employees’ lifetime income in retirement because traditional target date fund investments may not offer protection against inflation. Collective investment trusts (CITs) are close to overtaking target date funds within DC plans, becoming more transparent, reducing or eliminating investment minimums, and moving down-market to smaller plans.

Environmental, social, and governance (ESG) investing is growing in popularity, though the number of plans offering such investments and uptake to date has been limited. Employers are exploring providing their employees with the ability to direct their contributions toward emergency savings funds, health savings accounts (HSAs), or student loans. Employers are also addressing their employees’ overall financial wellness as part of their DC retirement plan strategies, whether through offering access to personalized advice or digital budgeting and related solutions.

The Impact of COVID-19 

Plan sponsors, especially larger plan sponsors, have focused on offering additional participant services, education, and increased communications for plan participants. Considering employees’ overall financial wellness beyond retirement is a growing trend. 

On the participant side, there is a continuing increase in early retirements or employees quitting their jobs, the so-called Great Resignation. Many plan participants withdrew funds from their IRAs and 401(k) plans and plan to save more or postpone retirement and work longer.

Younger baby boomers taking early retirement could create new and different retention and investment opportunities for plan sponsors and asset managers. It could also create new opportunities for savvy investment managers as plan participants consolidate assets from multiple DC retirement plans accumulated over their working lives. 

Increased Fraud and Cybersecurity Actions

Another consequence of the pandemic, or at least from the growth in remote work, is an increase in retirement account fraud. Record-keepers have been staffing up their cybersecurity functions and expect to continue to do so. The Department of Labor has issued cybersecurity guidelines for plan fiduciaries, plan participants, and record-keepers and has begun conducting retirement plan cybersecurity audits.

The Society of Professional Asset-Managers and Record Keepers (SPARK) Institute has expanded on these guidelines to recommend a minimum set of controls for plan fiduciaries, plan participants, plan sponsors, and record-keepers, including account authentication, contact data for security-related communications, customer reimbursement, establishing and re-establishing account access, and fraud surveillance.

Increased Debt and Retirement Savings

Credit card debt is heading toward a record high, as is total household debt, including auto loans, mortgages, and student loans. The increase in credit card debt is partly due to consumers’ delaying paying off higher-priced items and the growth of e-commerce during the pandemic. The Federal Reserve will be raising interest rates, which will only grow credit card debt.

These developments make measures such as the proposed SECURE ACT 2.0’s provision for enabling the tying of employer matching contributions to student loans critical to a new generation of workers.

Regulatory Trends 

The proposed House SECURE 2.0 Act would automatically enroll eligible employees in 401(k), 403(b), and SIMPLE plans. In addition, it would enable 403(b) plans to invest in CITs and participate in multiple employer plans and establish a national database of lost retirement accounts. The act would also increase the age for required minimum distributions and remove investment caps on qualifying longevity annuity contracts, among other provisions.

Senators on the Senate Committee on Health, Education, Labor, and Pensions have introduced the “Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act,” or RISE & SHINE Act. The U.S. Senate Committee on Finance is also expected to introduce legislation, with the two bills forming the basis of the Senate’s SECURE 2.0 Act.

Proposed Treasury regulations regarding required minimum distributions for qualified retirement plans and IRAs are complex, requiring financial advisors and plan sponsors to educate plan participants and account holders.

Fintech and Insuretech 

Aite-Novarica Group has found in discussions with insurers that they are willing to investigate ways to work with fintech and insuretech firms. Still, it is challenging for them to find startups with platforms that can provide experiences and support for different plan types.

Most insurers are investing in insuretech firms that focus on retirement and retirement planning instead of acquiring them (as MassMutual acquired Blueprint Income), licensing their solutions, or partnering with them.

Some fintech and insuretech firms may compete with insurers as plan providers. For more on fintech and insuretech firms in the retirement services space, see our report Insuretech Spotlight: Retirement Services.

Technology Priorities 

DC retirement plan providers continue to invest most heavily in case installation, distribution, customer engagement, and plan design to a lesser extent. Onboarding requires investments in digital capabilities, data and analytics, and core systems. Portal initiatives and communications continue to be vital.

A focus on participant financial wellness across the board requires effective communications, reporting, and analytics. Plan sponsors are prioritizing improvements to participant contact center service and educational offerings. 

If you’d like to discuss our key findings in the DC retirement plan space, please read our new report Business and Technology Trends, 2022: Defined Contribution Retirement Plans or contact Nancy Casbarro (ncasbarro@datos-insights.com), John Keddy (jkeddy@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

The post Defined Contribution Retirement: Increasing Focus on Employee Financial Wellness appeared first on Datos Insights.

Commercial lines insurers continue to raise rates, seek growth through expanded jurisdictions and new products, and adopt analytics more broadly. Insurers want to drive down the cost of service, refine pricing and underwriting, and pursue growth. The COVID-19 pandemic has posed a revenue and loss risk for certain lines of business, but insurers report limited changes to their business and technology strategies.

Recent Financial Trends

Commercial lines rates continue to increase, though the rate of increase has slowed for many lines. Commercial property and umbrella lines showed accelerating rate increases between Q4 2021 and Q1 2022. Insurers are restricting coverage, including the pursuit of communicable disease and related exclusions for commercial liability and commercial property policies. They are also being stricter in their underwriting, increasing deductibles, lowering limits, and reducing capacity.

Property rates are continuing their increase and may accelerate. Commercial auto, commercial liability, directors and officers liability (D&O), and umbrella lines are particularly challenged due to the growing litigation of claims, increased claims severity (with factors including distracted driving, higher litigation costs, and increased cost of repair), and consequent restriction of capacity.

The Impact of the COVID-19 Pandemic

The return of business as usual has led to increases in claims frequency. To date, federal court cases brought against insurers for business interruption (BI) claims have been settled mostly in insurers’ favor, though insurers are writing explicit exclusions into policies going forward.

With state courts, the case record is mixed, though most cases have still been decided in insurers’ favor. Court rulings will continue to be a factor in insurers’ reserving strategies. Positive effects include the fast-tracking of digital initiatives that might have encountered institutional resistance before COVID-19.

Inflation and Supply Chain Constraints

The COVID-19 pandemic and the war in Ukraine have both impacted supply chains and driven up inflation. This has led to higher claims costs, from replacement parts for commercial auto to rebuilding and repair costs for commercial property. In addition to materials costs, both commercial auto and commercial property have been affected by labor shortages.

Labor shortages and supply chain constraints also lengthen claims settlement times, reducing customer satisfaction. Insurers have been raising rates on commercial auto policies, though it is unclear whether this will be sufficient to address rising loss costs. A shortage of truck drivers, exacerbated by increasing retirements, and moves to hire younger replacements impact both claims frequency and severity.

In addition to wage and price inflation, insurers are experiencing additional claim costs due to social inflation, where society holds negative perceptions about larger corporations and is desensitized to litigation and larger jury awards.

Climate Change

Climate change impacts a broad swath of lines of business. Changes in weather patterns mean that insurers can no longer rely upon historical data; they must modify catastrophe (CAT) models. Climate change also increases the chances of tropical diseases spreading to new areas, so insurers must quickly decide how to handle future pandemics.

The effects of climate change, whether in terms of catastrophes or changes in water levels, have already begun to affect shipping operations. The Panama Canal had to slow down operations in 2019 due to drought, and it cost the industry US$300 million.

Insurers have already begun to reduce or end underwriting for fossil fuel companies, a change that European insurers have led. Activists, lobbying groups, and other businesses are pressuring underwriters to accelerate this process. Shipping is an important source of emissions from transportation. The war in Ukraine may be reversing the trend of moving away from the fossil fuel business as countries seek to diversify their sources of fossil fuels.

Growing Comfort With Artificial Intelligence (AI)

Commercial lines insurers are using AI and machine learning for use cases that range from contractor insurance verification and customer experience to claims and underwriting. The Hartford is leveraging CAPE Analytics’ geospatial intelligence offering, which applies computer vision and deep machine learning to imagery, for its commercial underwriting.

The use of AI for the ingestion of unstructured text for use in claims and underwriting is becoming more common, as covered in Aite-Novarica Group’s report Intelligent Text Ingestion: Overview and Prominent Providers.

If you’d like to discuss our key findings in the commercial lines insurance space, please read our new report Business and Technology Trends 2022: Commercial Lines or contact Martina Conlon (mconlon@datos-insights.com), Carey Geaglone (cgeaglone@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

The post Commercial Lines Insurers Using Technology to Reduce Service Costs While Improving Pricing, Underwriting, and Growing Revenue appeared first on Datos Insights.

Insurers are waking up to the importance of customer experience from the perspective of policyholders and producers. This insight prominently manifests in new business and contract issuance, with continuing straight-through processing (STP) efforts.

The Role of Private Equity and Interest Rates

Private equity firms have been acquiring annuity writers, combining carriers’ large investment accounts with potentially higher investment returns due to private equity firms’ expertise and willingness to invest in high-risk, high-return asset classes.

Regulators have been asking questions about these acquisitions, concerned by the potential for annuity writers owned by private equity firms to be on both sides of a transaction and the question as to whether private equity firms are investing for the long haul or planning a profitable sale of the carrier in several years.

Annuity companies became accustomed to a prolonged low interest rate environment, which made variable annuities (VAs) more attractive to consumers. Inflation is now a concern, which means the Federal Reserve may continue raising interest rates. Annuity companies must account for interest rates and stock market activity when considering product mix and features. Otherwise, they risk misjudging demand from prospects and reducing their profitability due to spread compression.

Distribution Changes

Carriers and vendors are promoting annuity sales through advisors; they are offering financial advisors simplified, low-cost products without commissions through marketing organizations in some cases, which is making annuities more attractive to registered investment advisors (RIAs) than they have been previously. Insurers that offer direct-to-consumer annuities and those considering a direct-to-consumer strategy must enable online applications, including compliance and suitability checking.

Carriers have begun to offer annuities online through third-party platforms that show side-by-side comparisons of annuities, marketing support, and product education. The share of business transacted through these platforms is unclear,—but Envestnet’s Envestnet Insurance Exchange, as an example, already has 13 annuity partners.

Impact of the Pandemic

Milliman conducted a study on mortality experience for annuities through 2020 that found an 11% increase in VA contract-owner mortality, varying based on contract size, distribution channel, guarantee type, and tax-qualified status. A.M. Best suggests that through 2021, life/annuity/benefits carriers saw mortality volatility due to the pandemic, but that the impact has primarily been on income statements rather than balance sheets.

Annuities require more guidance than simpler life insurance products, but there is still room to leverage third-party data and digitize processes to improve efficiency and increase STP. Carriers have been particularly challenged with licensing and appointments during the pandemic.

Fraud and Security

Another impact of the pandemic is on fraud and security. A recent survey showed that 50% of carriers believe account takeover (ATO) is an industry issue. Carriers are using various options, including staff education, participation in LIMRA FraudShare, and voice printing. In 2022, 34 annuity carriers will be participating in LIMRA FraudShare.

Malicious external entities drive some ATO attacks, but the most difficult cases to prevent might be when the ATO is driven by a relative or close friend. Aite-Novarica Group sees tools such as document-based authentication as the next layer that firms will have to consider unless this trend reverses.

Regulation

The Department of Labor’s best-interest rule will reemerge, but the timing is uncertain. As of late May 2022, 25 states have adopted annuity suitability sales standards based on the National Association of Insurance Commissioners model legislation, which is intended to be compatible with the SEC’s Regulation Best Interest. Best interest is the dominant paradigm at present, but RIAs are emerging as distributors of annuities, and they are required to comply with a fiduciary standard.

The SECURE Act 2.0 passed the House, though it still needs to be reconciled with any Senate version. Provisions of note for annuities companies include gradual increases in the age limit for required minimum distributions. Doing so may encourage older retirees to look at annuities as an option, increasing the amount of retirement savings they can use to purchase annuities, enabling multiple employer 403(b) plans, and offering new opportunities for adding exchange-traded funds (ETFs) to VAs.

If you’d like to discuss our key findings in the annuities space, please read our new report Business and Technology Trends 2022: Annuities or contact John Keddy (jkeddy@datos-insights.com), Deb Zawisza (dzawisza@datos-insights.com), or me (skaye@datos-insights.com) to continue the conversation.

The post Annuities Writers Pursue Market Share and Revenue Growth in an Uncertain Market appeared first on Datos Insights.

Insurers may choose to subrogate claims, that is, seek recovery of expenses for claims in which their policyholders were not at fault. This may be accomplished by recouping medical costs and/or the cost of repairs from the adverse party’s insurer or in some cases by assuming salvage rights for repaired, recovered, or scrapped property or vehicles.

The Problem With Subrogation

Subrogation is still a highly manual process for many insurers, and with high claims workloads and varying levels of claims professional expertise, insurers do not pursue all the opportunities available to them.

The main drivers of missed subrogation opportunities are a lack of timely investigation, unidentified third-party liability, and missing evidence.

Automated Solutions Can Help

An aging claims workforce with ensuing loss of experience, cost pressures, and a large volume of claims data are all reasons to adopt automated subrogation analytics solutions, leveraging artificial intelligence (AI) or related technologies, blockchain to provide an auditable but immutable record for multiple parties or to automate payments, and/or predictive analytics.

These solutions can rapidly review both structured and unstructured data to identify the most promising opportunities for subrogation recovery, as well as leverage business rules and digital processes to speed recoveries and the overall claims settlement process. They can also be used to predict liability risk for the third party’s insurer.

Subrogation-specific solution functionality may include one or more of the following:

• Detection
• Estimation
• Recommendation of next best action
• Subrogation professionals’ workflows
• Recovery workflows
• Total loss/salvage workflows

While some vendors focus on identification, sizing, and prioritization of subrogation opportunities, others offer end-to-end functionality. Even automation of identifying subrogation opportunities can result in significant increases to recovery, while ensuring consistency in processes and freeing up more experienced claims professionals’ time to focus on more complex claims.

Vendors may provide access to networks for arbitration and other steps in the subrogation process, and several have offerings that address other area of the claims life cycle, such as fraud detection.

What to Look for From Vendors

It’s worth noting that there is active consolidation in the subrogation analytics vendor space, the most recent example being CCC’s acquisition of Safekeep. Insurers should bear this in mind when selecting vendors, as well as features and functionality, robust and forward-thinking roadmaps, ongoing support for model updates, and insurance knowledge.

If you’d like to discuss our key findings in the property/casualty subrogation analytics space, please read our new report Property/Casualty Subrogation Analytics: Overview and Prominent Providers or contact Deb Zawisza (dzawisza@datos-insights.com) or me (skaye@datos-insights.com) to continue the conversation.

The post Automating Subrogation for Direct Impact on Insurers’ Bottom Line appeared first on Datos Insights.

Specialty lines renewal rates are mixed.

Renewal rates are either flat or a mix of increases and decreases. The highest rate increases are in casualty excess liability, cyber, private and not-for-profit directors and officers (D&O), employment practices liability insurance (EPLI), excess construction (project-specific/controlled insurance programs), commercial/nonprofit fiduciary, and financial institutions fiduciary. D&O for healthcare, higher education, IPOs and special-purpose acquisition companies, life sciences, non-U.S. parents, oil and gas, and U.S. exposures are seeing large potential rate increases and retentions.

Regulations around data protection and privacy will only grow.

State regulations such as the California Consumer Privacy Act (CCPA) are driving the need for increased cyber risk coverage, especially for financial institutions and third parties doing business with them. These regulations continue to be clarified and modified.

Other states have passed or are considering data protection and privacy legislation. As of March 14, 2022, 22 states had active legislation, according to Husch Blackwell’s 2022 State Privacy Law Tracker. There has been no progress toward federal legislation, though that is a priority for RIMS in 2022.

The war in Ukraine is mostly impacting non-U.S. specialty insurers—for now.

The ongoing Russian invasion of Ukraine is largely but not exclusively affecting business written through Lloyd’s of London syndicates. U.S. insurers are expected to see less direct exposure than European and London market insurers. Aviation insurers may face substantial claims from aircraft-leasing firms seeing their planes held by Russian airlines and are also losing premium as they stop coverage.

Military activity in the Black Sea has led marine insurers not to offer coverage or significantly increase their rates. Shipping disruptions have knock-on effects on the rest of the supply chain. Many insurers issued notifications of war risk insurance cancellation for Ukraine and are declining coverage for calls on affected ports or greatly increasing premiums. Political risk insurance rates are likely to increase given the seizure of trademarks and some companies continuing to operate in Russia despite the risk to employees and operations. Sanctions are rapidly changing, requiring underwriters to check all parties involved in calls on Russian ports.

Other impacted lines include agriculture, energy, surety, and trade credit. The invasion is also driving inflation and market volatility, in addition to the direct impact on claims and premiums, which could pressure insurers’ capital and margins.

Cyber liability rates continue to soar.

Cyber liability rates depend on firms’ security practices and claims experiences. Employees working from home during the pandemic led to increases in phishing, malware, and ransomware. Willis Towers Watson reports 50%-150% increases in cyber rates in 2022, depending on industry exposure.

Large specialty lines insurers have experienced significant difficulty in profitable underwriting. Insurers continue to work on limiting their exposure via co-insurance, establishing sub-limits on specific coverages, increasing retentions, and offering more restrictive terms.

Climate change is impacting both claims and underwriting.

Changes in weather patterns mean that insurers can no longer rely upon historical data; they must modify catastrophe models. Climate change also increases the chances of tropical diseases spreading to new areas, so insurers must quickly decide how to handle future pandemics. The effects of climate change have already begun to affect shipping operations. The Panama Canal had to slow down operations in 2019 due to drought, and it cost the industry US$300 million.

Insurers have already begun to reduce or end underwriting for fossil fuel companies, a change led by European insurers. Activists, lobbying groups, and other businesses are pressuring underwriters to accelerate this process. Shipping is an important source of emissions from transportation. The war in Ukraine may be reversing the trend of moving away from the fossil fuel business as countries seek to diversify their sources of fossil fuels.

Specialty insurers continue investment in data and analytics and automation.

Specialty line insurers are prioritizing cloud data warehouses, reporting tools, and data science investments to optimize their portfolios and improve underwriting; upgrading to highly configurable policy administration systems to improve underwriting and enable product development flexibility to accelerate entry to profitable niches; and investigating automation support for ingesting new business application documents and building out broker platforms. Digital broker platforms and API catalogs are also assisting within automation.

If you’d like to discuss our key findings for the changing environment for specialty carriers, please read our new report Business and Technology Trends, 2022: Specialty Lines or contact Martin Higgins (mhiggins@datos-insights.com) or Eric Weisburg (eweisburg@datos-insights.com) to continue the conversation.

The post Specialty Insurers Are Responding to a Rapidly Changing Market appeared first on Datos Insights.

Carriers know that it is critical to stay relevant to younger, tech-savvy demographics in customer and producer communities, otherwise they could lose those populations to consumer-friendly financial services alternatives. Attracting these demographics will require better digital capabilities and new products that fit their needs and expectations.

COVID-19 has impacted demand, new business, and underwriting.
Carriers are reporting increased demand for life insurance as consumers focus more on mortality and seek to improve finances during the pandemic, with an understandable growth in mobile and online applications. Digital initiatives that were previously stalled or on the back burner have moved up in carrier priorities.

Despite excess mortality, most carriers are coping with the increase in death claims. Individual life carriers are pricing non-medically underwritten policies to account for potentially higher mortality rates and are adding underwriting questions to reduce risk. Some are now mandating good health statements and accepting electronic health records and historical exam and lab data instead of paramedical exams.

Some carriers are restricting sales to older age groups and limiting face amounts and premiums for new coverage. COVID-19 has impacted mortality assumptions, both directly and because of policyholder co-morbidities and policyholder postponing medical care.

Life insurance sales are up, dramatically for some lines.
LIMRA reported a 20% annualized total individual life premium increase, 6% face amount growth, and a 5% increase in the number of policies year-over-year in 2021.

Variable universal life showed the greatest year-over-year policy number growth, 53%, driven by carriers’ shift to products better suited to a low Interest rate environment followed by fixed universal life. Variable universal life also saw dramatic annualized premium growth, 74%, over 2020.

Regulatory challenges continue.
The Department of Labor is working to bring back the fiduciary rule, and carriers still face best interest regulations from the SEC and states such as Massachusetts and New York. They must also harmonize these regulations with NAIC model legislation. Recent federal tax reforms have also reduced capital requirements for carriers.

Recent accounting standards changes may render balance sheets and operating performance more transparent, but they also have implications for actuarial modeling, data and analytics strategies, pricing, and systems integration.

In July 2021, the New York Department of Financial Services issued Insurance Circular Letter No. 7, repealing and replacing a 2019 circular and laying out requirements for business continuity and disaster response planning for life and health insurance and retirement firms

Insuretech comes calling.
Individual life carriers are exploring the potential advantages of working with insuretech startups. These startups offer insurers UI and UX capabilities they might not have in-house. Insuretech startups are also making it easier for financial advisors and other financial services firms to offer life insurance products.

AI and analytics are an area of increasing interest for claims processing and for marketing use cases including cross-sell/upsell, policyholder retention, product recommendation, and understanding customers’ buying patterns. Several carriers have corporate venture capital arms or programs.

Alternative brands create interesting and potentially powerful ways for insurers to experiment at a time when significant demographic and technological changes impact their core business capabilities and markets.

The future is changing for individual life insurers.
Individual life carriers wrestle both with revenue growth and with cost reduction. They are pursuing enhanced product modeling and management capabilities; improving customer experience and customer service; and expanding their use of AI, business intelligence, and analytics in customer service, marketing, underwriting, and other functions.

If you’d like to discuss our key findings for the changing environment for life carriers, please read our new report Business and Technology Trends, 2022: Individual Life or contact Nancy Casbarro (NCasbarro@datos-insights.com) or Rob McIsaac (RMcIsaac@Aite-novarica.com) to continue the conversation.

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