Reconsidering Risk

Six months ago, we made predictions about major trends shaping the insurance market in 2021. Now, we are revisiting them to see what came true.

4 months ago   •   3 min read

By Elisha Cheng

Six months ago, Elisha Cheng, the COO of ReFocus AI sat through ten hours of presentations from Lloyd's of London's US Showcase to gain insight into major trends shaping the 2021 insurance market. Half a year later, we came back to revisit our predictions to see what came true, new developments, and the current state of the insurance as a whole.  

If you were to list all the global catastrophes that took place in 2020, it would read like a sci-fi novel:

  • Global Pandemic COVID-19 & shutdowns, global supply chain disruption, natural disasters: largest fires in history in the western US & Australia, Midwest Derecho, historic Atlantic hurricane season, earthquakes in Puerto Rico, super typhoons in South East Asia, and civil unrest across the US.

Business as usual? Think again as the market is hardening

(True) Catastrophic weather and fire events are contributing to reinsurance costs going up. In response, carriers are shrinking capacity.

  • The increasing trend of frequency and severity of natural disasters continued in 2021. Most notably, winter storm Uri in mid-February that hit the the southern United States.  Uri caused accidents, significant disruption, blackouts, deaths, and billions of dollars of damage especially to south eastern states that were not prepared to withstand multiple days of freezing temperatures.

(TBD) The global pandemic continues due to a slow initial rollout of vaccinations caused by regulatory hurdles, caution regarding adverse reactions to the vaccine, challenges regarding logistics, storage in addition to overall challenges with the vaccine supply chain, unequal distribution of vaccines to developing countries, and not to mention vaccine hesitancy.

Communication & Relationships

(True) Retention and customer acquisition have always been the name of the game for insurance agents. While carriers want to retain and capture new business, the pool of new customers is shrinking and the appetite for renewal business is being reevaluated. With carriers reducing their capacity and rate hikes in the double digits, existing agent/broker & client relationships are being put to test. Depending on the carrier, underwriters working with large accounts may have greater flexibility to adjust pricing and coverage options. Therefore developing and maintaining strong relationships with carriers has always been and is increasingly becoming important.

  • Especially in commercial & specialty lines, as vaccinations have gradually become widely available over the last six months. Businesses that continue to successfully operate with relatively limited disruption took significant measures to manage & mitigate their risk regarding exposure to Covid-19

Tech Disruption

(Partly True) Traditionally during a hard market, insurance companies increase rates across the board. However, in an increasingly digitized industry, insurance companies armed with AI and machine learning are disrupting the playing field by utilizing their own data to identify the best prospective deals and sniping their competition's best clients by undercutting them with lower rates.

  • At the beginning of 2021 leading insurtech companies saw sky high valuations until the Q1 reports started coming in. Although their innovation saw a greater rate of adoption among millennials and an improvement to overall customer experience especially compared to traditional grueling claims processes. Many of these insurtechs suffer from massive loss ratios and face an uncertain future.

(True) We expect to see more companies forming captives to reduce their insurance costs.

  • There has been an almost unquenchable demand by companies to form their own captives due to continual rate hikes. Emerging specialty risk transfer companies are creating captives for mid to large employers. These companies seek to slash costs by transferring high risk employees to specialty care units that work faster to get employees back in working shape through utilizing AI and providing innovative treatment options for workers comp.

Emerging risks or overall national threat?

(Mostly True) Hacking and ransomware attacks leading to greater need for cyber liability.

  • 2020 ended with a massive federal government data breach via a group backed by the Russian government -- commonly known as the SolarWinds hack. This breach allowed hackers to access data and accounts from several arms of the Executive branch including the Department of Homeland Security. Some of these accounts are still being used to exploit civilian data. Other notable hacks include a massive breach of Berkshire Hathaway owned Geico, and more recently the Colonial Pipeline hack that caused massive disruption leading to widespread stockpiling and fuel shortages across the US.
  • The major attacks and subsequent data breaches of some of the most secure government entities (through leading private software vendors) puts into question the efficacy of holding private entities liable for cyber breaches if they took preventive measures? For 2021, this question will become more important as companies seek to reduce the frequency of breaches as everything becomes more digitally enabled and reliant of cloud services. If an organization is blatantly negligent or actively misusing/ poorly stewarding their customer’s data they ought to be liable. However, due to the increasing frequency, incentives, and sophistication of hacking/ ransomware organizations, does it make sense to hold a company liable that invests heavily in cybersecurity, training, testing, and best practices when they are directly targeted by hackers (often times highly trained or armed by skilled foreign actors)? Should these breaches be treated as a separate class of cyber security incidents all together?

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