Corporate Insight attended the virtual edition of the 2021 SIR National Conference in which industry experts reviewed topics and trends within the property and casualty marketplace. Speakers debated the fairness of credit-based insurance scores (CBIS), projected a rise in the popularity of virtual claims and delved into the impact of extreme weather events on future property insurance premiums. Overall, this conference offered attendees an overview of the market outlook as the industry emerges from the COVID-19 pandemic and heads into 2022. Below are some noteworthy themes referenced by speakers throughout the two-day event.

Climate Change and Claims

It would be nearly impossible to hold a conference in 2021 that did not pay appropriate credence to the major global factors affecting the insurance industry: climate change and extreme weather risks. This edition of the SIR National Conference included plenty of climate change talk. Jeff Dunsavage of the Insurance Information Institute, Katie Sabo of Aon and Daniel Kaniewski of Marsh McLennan headed SIR’s Climate Change Panel, sharing real-life examples of how climate research has informed product development and underwriting, and reserving, as well as strategies that go beyond risk transfer.

Insured losses caused by natural disasters have grown by nearly 700% since the 1980s, and four of the five costliest natural disasters in US history have occurred in the past decade. Last year insurers paid out $67 billion because of natural disasters. – Jeff Dunsavage

It comes as no surprise that over the past 18 months, consumers’ transition to digital services has rapidly accelerated companies’ innovation roadmaps. However, the panelists highlighted that as the industry completes its transition from the previous “repair and replace” mindset to a more proactive, preventative approach, there is an even greater need for research and data modeling in the nexus between climate change, insurance, and emergency management.

The panelists noted that as data processing has improved, the industry has not only gotten better at underwriting but also begun to identify opportunities. For example, only 15% of Americans have flood insurance, resulting in a large protection gap. Improved modeling has helped increase private insurers comfort with and appetite for flood coverage and spurred the development of new products.

Still, at the end of the session, all of the panelists stressed that building resilient infrastructure and mitigating harm from extreme weather will require a diversity of data streams and cross-industry collaboration between the federal government, bodies like NOA and FEMA, and the private sector.

Fairness and Diversity

Several SIR National Conference sessions addressed the growing conversation around fairness and equity in insurance pricing, particularly Brian and Patrick Sullivan of Risk Information, who discussed what they dubbed ‘The Credit Fairness Wars.’ Consumer groups have for a while now maintained that credit-based pricing is unfair to low-income and marginalized consumers; moreover, the traditional pricing approach often lumps applicants into actuarial categories by characteristics such as education and occupation, which likewise have come under fire. In 2020, state regulators went so far as to pledge to rework exiting practices that may place marginalized groups at a further disadvantage. Many of these thoughts and concerns were echoed across other sessions throughout SIR, including Sharla Floyd and Dr. Leroy D. Nunery, who emphasized that advancing DEI efforts industry wide must include being attentive to bias and inequity in product offerings. However, the Sullivans argue that simply removing credit from pricing models does little to mitigate inequity.

“Go take a look at a modern pricing model, yank out credit, and see where the pricing weight goes. Unsurprisingly it goes to similar financial responsibility factors that have similar issues with fairness and bias (…) I think it’s fair to say that credit is not dead yet” – Brian Sullivan

Brian and Patrick referenced several recent developments which point to the industry’s transition in coming years from potentially unfair ‘traditional’ risk factors, such as CBIS, to using telematics to determine rates. As our recent telematics report describes, this is a rapidly growing space. It is also rapidly evolving, with recent news such as CMT acquiring Trumotion, General Motors launching and expanding OnStar, and Allstate announcing that it was in conversation with state regulators to implement more widespread use of telematics. Washington Insurance Commissioner Mike Kreidler went so far as to implement an emergency temporary order that prohibited insurers from using a consumer’s credit score to price auto, renter and homeowner coverages (which was subsequently overturned).

“Telematics is not necessarily more fair nor is it a one-to one replacement for credit… it’s just a different rating factor” – Pat Sullivan

However, while they stress being attentive to telematics in the upcoming ‘Fairness Wars,’ Brian and Patrick warned attendees away from considering telematics a one-to-one replacement for standard pricing factors and noted that it is also does not provide carriers with an entirely fair and neutral means of assessing risk. Drivers are still at risk of being penalized by higher premiums based on lifestyle and demographic factors unrelated to their actual driving ability, such as living far away from their jobs or sharing a single vehicle among multiple drivers.

Insurtechs and Product Innovation at SIR National Conference

As the industry continues to respond to dramatic changes due to technological, economic, political, and societal shifts, many insurers are keenly aware of the impact that new entrants to the market, known as insurtechs, have had on the future of the value chain. The InsurTech Fueled Product Innovation panel session, headed by Daniel Ajun of Kin Insurance, Squire Aschinger from Root Insurance and Alan Demers of InsurTech Consulting discussed how breakthroughs in technology and new entrants into the industry are impacting how insurers manage customer expectations, adopt and test new concepts, and utilize data in new ways to drive better decision making.

The panelists detailed how COVID-19 revealed some insurtech strengths relative to traditional insurers. As lockdowns and social distancing protocols disrupted the industry, insurtechs which already rely primarily on digital technologies were able to adapt more easily to the shifting landscape of the pandemic. Moreover, consumers seem to value this agility—auto insurance telematics programs and usage-based insurance pricing saw a particularly dramatic increase in popularity, as did the installation of connected home devices, such as water leak detectors or home fire prevention sensors.

“Most of us drove our cars very little (…) We gradually started driving more over the summer, finding a new normal. This had a huge impact on auto insurance companies, because the ratings plans weren’t really designed to handle large swings in vehicle usage” – Alan Demers

This tracks with Corporate Insight’s Property & Casualty Insurance Monitor 2021 survey which gauges consumer sentiments and identify emerging trends. When we contrast our 2021 survey data with findings collected in 2019, shifting consumer habits are clear. We saw a substantial jump in the number of respondents either currently or formerly enrolled in a telematics program, from 22% in 2019 to 36% in 2021, with a similar jump when it comes to smart home device ownership. Insurtechs like the two in our coverage group, Metromile and Hippo, are thus are well-positioned to capitalize on these still-developing connected home and vehicle product offerings, especially considering that traditional P&C insurers often lack prominent smart product positioning.

For more of Corporate Insight’s insurance coverage, see out P&C Insights section here.