Property and casualty: Rising complexity
From litigation and climate change to innovation and new ways of working
Understanding impact of the growing complexity
Over the past five years, property & casualty (P&C) insurance has been tackling rising complexity. Amid constant changes in the external environment, new risks and growing exposure to existing risks are emerging. To stay ahead of the curve, P&C insurers need to understand the broader landscape and develop the capability to manage the increasing complexity of the risks they underwrite.
For instance, during the COVID-19 pandemic, personal auto insurance experienced a significant shift in loss trends. In 2020, there was a notable decrease in loss frequency due to reduced driving activity. At the same time severity increased, which was often attributed to fewer cars on the road and higher speed accidents. The loss ratio has risen significantly since 2020. Insurers have continued to observe severity levels above their initial expectations, even as frequency moves back towards pre-COVID levels. The increase in severity has persisted rather than being a one-time occurrence.
In the commercial lines sector, excluding workers' compensation, organizations have implemented significant rate increases to keep pace with the changing risk environment. However, despite these rate adjustments, loss ratios have not decreased proportionally. Older accident years are experiencing substantial reserve increases compared to initial expectations. This trend is raising concerns and prompting caution among insurers regarding the performance of more recent accident years. The persistent gap between the initial loss ratio expectations and the current reality remains a key challenge.
Fierce litigation and changing weather patterns
The litigation environment has changed considerably, with a rise in attorney representation, litigation funding, and the occurrence of nuclear verdicts. Attorney involvement and the financial backing provided by litigation funding entities have the potential to prolong and intensify legal battles, resulting in higher costs. This has led to increased complexity, risk, and uncertainty for insurers.
Simultaneously, the industry is grappling with the effects of changing weather patterns, particularly the increase in severe convective storms. These storms, which often manifest as intense thunderstorms with damaging winds, hail, and tornadoes, have become more frequent and severe in recent years. The rising frequency and severity of such events translates into increased claims and losses for insurers.
The unpredictable nature of these storms, coupled with their potential for widespread damage, has made it more difficult to accurately assess and price the associated risks. As a result, insurers are having to adapt their underwriting practices and risk models.
Tornado alley in the center of the country is an indicator of severe convective storm activity that is continuously rising. It’s an opportunity for P&C insurers to adapt and provide prevention services to both prevent and mitigate adverse events.
Scott Shapiro
KPMG US Sector Leader, Insurance
Opportunities for innovation and modernization
P&C insurers have opportunities for innovation in products that cater to evolving customer needs, the use of technology, and modernization. For instance, P&C insurers can offer parametric insurance products that provide coverage based on predetermined triggers or thresholds, with swift and transparent payouts in response to specific events. Additionally, insurers can focus on prevention and mitigation services. This can include helping customers proactively manage and reduce risks through offerings like exposure management and resiliency efforts. By teaming with technology providers and leveraging data analytics, insurers can assist policyholders in implementing effective risk reduction measures.
There's a lot more information that can be provided to the underwriter, to make a decision a lot quicker, including exposure management and pricing analyses more frequently, and also to make more insightful data-driven decisions.
Ian Sterling
Principal, Actuarial, KPMG LLP
Advanced technologies and modernization initiatives can help streamline operations, enhance decision-making, and improve customer experiences. Underwriting modernization holds great promise. Using data analytics and technology solutions, insurers can examine the entire underwriting process, identify areas for improvement, and make quicker, insight-driven decisions. This can lead to more accurate risk assessment and pricing. Moreover, integrating technology into various aspects of insurance operations, such as claims processing and customer service, can greatly enhance efficiency and customer satisfaction. Insurers can help policyholders to easily access information, report claims, and manage their policies.
Evolving ways of working, talent, and staffing models
As new challenges and opportunities emerge, the skills and attributes required of technical roles such as actuaries, underwriters and claim handlers are also evolving. Broader skill sets are in the spotlight. Technicians are increasingly expected to possess strong communication skills so that they can effectively explain complex concepts to various stakeholders within the organization.
Dive into our thinking
Property and casualty: Rising complexity
From litigation and climate change to innovation and new ways of working
Download PDFExplore more
Event
37th Annual Insurance Industry Conference
Embrace today. Elevate tomorrow.
Insight
The Auto Insurance Affordability Crisis
Navigating the Rising Tide of UM/UIM Auto Claims
Insight
GenAI in P&C insurance
Insurers harness the power of GenAI to drive advanced operations
Meet our team
