Year in review: 5 factors affecting the insurance claims industry

Deloitte released its annual Insurance Industry Outlook for this year, and the document examines industry strategies, and sheds light on a number of emerging trends such as breakthroughs in technology and an uptick in premiums. The report further reveals that property-casualty insurers in the United States saw major underwriting losses to the tune of $5.1 billion.

This is more than double the first half of 2017. What is emerging, as a result, is a ‘soft market’ in the auto and property-catastrophe industry.

Other key findings include rising car insurance premiums, as well as increased difficulty in selling life insurance and annuity policies. According to the report, there will be hikes in property-catastrophe premiums, especially in reinsurance, a trend we can expect to see moving forward. Deloitte’s Outlook also forecasts a ‘large share of U.S. P&C premium gains’ stemming from higher auto insurance rates.

These are some of the more obvious impacts on insurers; but what about the factors affecting them? Several top insurance and related-industry professionals share their take on what had the most impact on insurers in 2018.

Northern California wildfires

Not surprisingly, 2018 was another record-setting year for insurers, with losses of $845 million due to the recent California wildfires. According to a new report released by the California Department of Insurance, the state is the nation’s largest insurance market with over 1,300 insurance companies handling more than $310 billion in premiums.

The Northern California wildfires resulted in 10,000 property loss claims. In total, over 8,000 homes, 329 businesses, and 800 private/commercial vehicles were damaged. To top it off — seven out of ten of the worst wildfires in the history of the state occurred in October 2018. (As Claims goes to press, several large wildfires are prompting evacuations in California, so expect these numbers to climb even higher.)

At least one California insurance company stopped providing coverage for those deemed to be living in a ‘very high-risk area.’ AAA of Southern California announced earlier this year that it will not renew policies in ‘very high-risk areas,’ citing mitigating risks as the reason why.

Cody Webb, a consulting actuary at Milliman, believes that the frequency in which wildfires occur has caused insurers to become less willing to cover homeowners in certain areas over time.

“The result is — some homeowners have a difficult time obtaining insurance. At the same time, California legislators have considered placing restrictions on insurers to prevent this non-renewal of policies, and have set guidelines in connection with settling claims, which stem from wildfires. Legislators have also passed measures to invest in risk mitigation, especially for the state’s private utility companies whose power lines are the proximate cause of many wildfires. These investments may serve to reduce wildfire losses and ultimately prevent insurance rate increases,” Webb said.

The majority of wildfires struck in the heart of California’s wine country (Napa and Sonoma). For insurers who cover vineyards, they turned to new heights of innovation, enlisting the help of drones.

Larry Chasin, president of PAK Programs, says they are taking a tech-based approach to analyze and assess risk. This includes the use of geographic information systems (GIS), global positioning systems (GPS) and drones to mitigate risk by accessing aerial damage.

Increasingly, insurers are doing more business with companies like Kespry, which builds drones for aerial surveillance to increase claims processing speed during natural disasters. This kind of technological breakthrough leads to faster and more accurate data collection. When paired with a thorough and practiced disaster-response plan, the combination may enable policyholders to repair and rebuild faster.

Related:  12 tips to protecting yourself after a wildfire

Hurricanes

Hurricane Florence wreaked havoc in the Carolinas and is projected to have caused between $30 billion and $60 billion in damage according to AccuWeather founder and chairman Joel Myers — ranking it among 10 of the most costly hurricanes in history.

As the risk of hurricanes increases, so does the size of the flood insurance industry, as more private insurers enter the market. In the past, flood insurance was largely underwritten by the government-sponsored National Flood Insurance Program (NFIP).

“Natural disasters like Hurricane Harvey in 2017 and Hurricane Florence in 2018 underscore the need for American homeowners to purchase flood insurance, with a large fraction of the losses from both storms attributed not to wind, but to flooding, which is excluded from standard homeowners insurance policies,” explained Webb.

“Additionally, the Federal Emergency Management Agency (FEMA) recently altered a key provision that barred insurers who distributed NFIP insurance on behalf of the government from developing and offering their own ‘private’ policies. This change to the NFIP rules may assist the developing private flood insurance market, and may ultimately serve to increase the number of American homeowners insured against flood risk. This change becomes effective January 1, 2019,” added Webb.

Related:  Recognizing the unsung heroes of disasters

Cybersecurity

In 2018, we saw a major update in one of the world’s most comprehensive consumer data protection laws in history. The General Data Protection Regulation (GDPR), currently in place in 28 European Nations, was updated to include protection for the storage of personal customer data.

This widely affected insurers, as many offer policies in Europe, and therefore store customer data such as names, phone numbers, social security numbers, and other sensitive information. As the insurance market continues to thrive in the global marketplace, so will its reliance on technology — creating an opportunity for cyberattackers.

A new report by Insureon, suggests only 16% of small businesses feel they are at risk of a data breach. Jeff Somers, president of Insureon, says this is a continued problem for businesses and those in the insurance industry.

“Cyber liability insurance can add an extra layer of protection for businesses paying for data breach recovery costs, such as notifying customers of the breach and paying any regulatory fines. However, with the average small business data breach costing nearly $86,500, and 61%  of cyberattacks hitting small and mid-sized businesses, it’s important for small business owners to consider carrying a form of cyber liability insurance to prevent cyberattacks and data breaches from hurting their businesses and bottom lines down the road,” Somers said.

Those most susceptible to the risk of a cyber-breach are small-to-medium-size-businesses. In some cases, this can be attributed to limited resources and manpower. However, cybersecurity insurance is the fastest-growing sector of insurance. In the third quarter of 2018, cybersecurity insurance saw a 58% increase in policy growth according to CyberPolicy’s 2018 State of SMB Cyber Insurance Report.

Brian Wallace, chief technology officer of global insurance for DXC Technology, thinks regular customer and agent access to information play a key role in future security management.

“Today’s agents and customers want instant access to their information over the web and from their mobile devices. They expect to complete transactions on the spot by connecting to an insurer’s back-end systems. To meet these expectations, a growing number of companies are integrating their existing systems and business processes with web portals, third-party vendors, cloud applications and mobile technologies. Consequently, it will be increasingly important to ensure strong cybersecurity measures and technologies are in place to protect customer records and sensitive company information from increasing cyberspace threats,” Wallace said.

What we have experienced in just over a decade is high growth in usage-based insurance policies, which have transformed insurance into a more fast-paced and competitive industry, as well as vastly expanded the kinds of coverage offered. Although this is a plus for the free market, the security protocol has changed from protecting a few points of entry to protecting millions of smartphones, apps and IoT devices.

Inherently, this has made companies prone to a higher risk of attacks.

“Insurers will need to extend the visibility they’ve built into their corporate network to new consumer-driven networks. As insurers continue their digital transformation journeys, the best way to defend against next-generation threats is a structured, company-wide risk management strategy accompanied by well-defined governance and policies,” explained Wallace.

“The ultimate goal is to have resilient systems that can not only withstand cyberattacks, but also carry out mission-critical business operations after an attack succeeds. This is no easy task, as the risk environment is changing quickly. An effective strategy must now address blockchain, crypto-malware, continuous compliance, identity and federation,” he continued.

Related:  An insurer warning: Don’t drown in the data lake

Medical cannabis

Since cannabis is considered a Schedule 1 Drug by the federal government, it is highly regulated, which almost certainly discourages insurers from offering coverage. There were several precedents set in 2018, since more states and Canada fully legalized cannabis for recreational and medicinal purposes.

As regulations in Canada change, so are a handful of Canadian insurance giants. Sun Life Assurance Co. will offer coverage between $1,500 and $6,000 per year for medical cannabis needs.

Despite barriers in the United States — patients can obtain coverage in certain states. In New York State, insurers must cover any visit that involves getting a medical marijuana ‘card.’ However, it cannot be the primary reason for the visit.

Insurers are not responsible for covering the cost of the medical marijuana itself. Some states, like New Mexico, Maine, and New Jersey, require workers’ compensation insurance providers to cover the cost of future and past cannabis purchases.

Lisa Talley, ARM, assistant vice president — claims service at the Graham Company thinks it would be wise for insurers to offer coverage for medical cannabis patients.

“If an organization covers the cost of medical marijuana treatments for employees, insurance policies will need to be adjusted to ensure that the treated individual does not become a workplace safety hazard. This is especially important for states that will house newly zoned medical marijuana dispensaries, where increased treatment is inevitable,” Talley said.

“Considering the changing political landscape, some medical costs could end up shifting from group health coverage to other social programs, like workers compensation, also adding to the uptick is the number of employees requesting coverage. Insurance brokers need to work closely with the organization to advise how to best adapt and adhere to these changes,” she added.

Related:  How the legalization of marijuana affects the employer-injured worker dynamic

Autonomous vehicles

According to Hilary Rowen, senior counsel, Clyde & Co. US LLP, the accident in March involving an autonomous Uber test vehicle in Arizona, likely heightened public safety concerns. Rowen does not see it having a long-term impact on what she calls ‘public acceptance of autonomous vehicles.’ Rowen further stated that this is largely dependent on how consumers perceive the number of accidents involving self-driving cars.

By 2021, autonomous vehicles are set to mass penetrate the market. For now, there are trial periods, which act as tourist attractions and means of transportation for locals in some areas. Rowen believes, if this continues to go well, it may ‘offset the surges in safety concerns’ surrounding autonomous vehicles.

In October, the National Highway Transportation and Safety Administration (NHTSA) issued its Automated Vehicles 3.0 guide document to the public, although to date there remains no uniform federal set of guidelines.

Steve Pritchard, founder of Cuuver.com, believes that insurers will need to develop highly-customized plans to meet the needs of the public and innovators creating autonomous vehicle technology.

“In 2018, car insurance companies spent a lot of time considering how to react to the continued development of autonomous vehicles. Of course, autonomous vehicles aren’t set to be introduced until 2021 at the earliest, but that means insurers must begin planning now. Their introduction will mean fundamental changes in the way the car insurance industry operates,” stated Pritchard.

“The way people file claims will also be impacted, and what they can claim in terms of the small details involving policies, will have to be reconsidered. A full-scale rollout of autonomous vehicles will even impact how insurers determine what to charge customers for policies.

One of the more prominent ideas that have been proposed is to sell pre-insured, autonomous cars,” he predicted.

Pritchard continued, “This would likely mean that insurers would need to adjust to a B2B model, as they’d have to sell policies to car manufacturers to be built into the car’s offering.”

Expect these factors to continue to affect insurance coverage well into 2019 and beyond. If there is one constant in insurance, it’s change.

Moshe Beauford (moshebeauford@gmail.com) is a freelance journalist, copywriter and blogger. Beauford’s work has appeared in publications such as GeekTime Israel, PasteMagazine, Times of Israel, Property Casualty 360 and Claims.