Embedded Insurance Has Been Slow to Bear Fruit for Most Lines of Business

By Mary Sams, Senior Research Analyst, Triple-I

“Embedded insurance” – often described as “B2B2C insurance” – has long been touted as a path toward innovation and growth in the traditional insurance market. However, it has been slow to mature.

The term refers to the integration of insurance products and services into retail transactions. The objective is to offer insurance solutions at the point of sale or as part of a package of products or services. This requires that the products and processes be simplified so that the consumer can make an informed purchase. Complex commercial insurance products are not likely to succeed using the embedded insurance model.

Six years ago, according to a report published by global investment management firm Conning, embedded insurance was frequently cited as a use case for distributed ledger technology or blockchain. Blockchain is a complex, ledger-centric technology that has a multitude of benefits, such as enhanced data security, immutability, and optimized data sharing.

More often than not, these benefits are overshadowed by cryptocurrency’s somewhat lackluster reputation. This complexity – and the more recent travails of crypto — may have contributed to the slow adoption of this technology for embedded insurance.

 “We’re overwhelmed by the insurance industry’s curiosity in network-based technologies, such as blockchain,” says Brendan Picha, head of outreach for the RiskStream Collaborative. “We have several initiatives, some global in scope, that are reaching a welcomed point of maturity within the enterprise. This is happening at an interesting intersection with developments of other emerging technologies. The industry is now looking carefully at how these technologies could work together and RiskStream is well positioned to support and usher in this exploration.”

RiskStream – like Triple-I, an affiliate of The Institutes – is a member-led non-profit that aims to create an ecosystem using blockchain to streamline data flow and verification, reduce operating and vendor costs, drive efficiency, and enhance customer experience.

Many applications for embedded insurance have used open APIs and microprocesses to scale applications with retail partners. These technologies have helped support the growth of embedded insurance in travel insurance, personal auto, homeowners, and extended warranty products.

However, for most traditional insurance products, embedded insurance poses a challenge. These products are “sold, not bought,” and moving the purchase to a simplified platform and linking it to the retailer offers customers choices they may not be prone to make without a sales pitch.

Private equity investment companies have been attracted to companies seeking to expand into embedded insurance, attracting $3.5 billion since 2015, according to Conning. Gartner, a large research and consulting firm, has positioned embedded insurance at the heart of what it predicts will become the dominant insurance business model.

Growth in online sales since 2020 has increased the opportunities presented by embedded insurance as consumers have become more engaged in all types of online transactions. Financial services companies have grown and expanded tremendously during this time. Consumers have engaged in buying and selling automobiles online and have expanded the OEM relationship.

However, online sales of insurance have not seen similar growth. In 2017, Tesla launched a full-stack insurance business direct to consumers. While this technically is not embedded insurance, it illustrates the benefits of sharing telematics data from vehicles in underwriting the insurance program.

Expectations for embedded insurance are varied. Personal lines insurance with $400 billion in premium and small business with $100 billion in premium continue to be the greatest targets, according to Conning. Simplifying the insurance application, growing premium, lowering expense ratios, and narrowing protection gaps are all opportunities. The realization of these benefits and successes will depend on their being embraced by the carrier-retail partners.

By Loretta L. Worters, Vice President, Media Relations, Triple-I

The Insurance Industry Charitable Foundation (IICF) will host its Inclusion in Insurance Global Conference June 13-15 at the New York Hilton Midtown.

The first in-person international event in the conference series since the 2019 Women in Insurance Global Conference, it will bring together hundreds of insurance professionals, C-suite executives, and experts on leadership and diversity, equity, and inclusion (DEI), along with sustainability, wellness, and business leaders for sessions dedicated to advancing ideas into action and providing actionable take-aways and strategies.

What makes any conference strong is the quality of the content and its speakers. IICF’s planning committee, which changes from year to year, is made up of industry professionals who are closest to the issues of the day, representing all areas of the United States and the United Kingdom in the planning.  It’s an industry working together that makes this conference particularly powerful. 

This year’s conference will feature emerging topics in leadership, personal and professional growth, the business of insurance, and the future of work.

Leadership topics include:

  • Personal Finance, with Jean Chatzky — financial editor of the Today Show for 25 years and founder and CEO of HerMoney.com and the coaching programs FinanceFixx and InvestingFixx;   
  • Building the Public Voice of Women, with Emily Donahoe, founder/principal, WOMENSPEAK Training; and
  • Navigating Intergenerational Differences, with Chris Desantis, author, speaker and podcast host of Cubicle Confidential.

Industry topics include:

  • Attracting Customers to the Insurance Offer (in an Inclusive Way), with Claire Burns of The Hartford. 

Inclusion topics include:

  • Changing the Conversation about Bias, Discrimination, and Privilege Using Brain Science, with best-selling author and speaker Eric Bailey; and
  • Changing the Workplace for Good, with diversity speaker, author, and consultant Michelle Silverthorn

Other speakers include:

  • Carmen Duarte, vice president, Diversity, Inclusion & Social Impact, Intact Insurance Specialty Solutions; and

“IICF is thrilled to welcome such an accomplished field of speakers for the eleventh year of what was formerly known as the IICF Women in Insurance Conference Series,” said Elizabeth Myatt, vice president, chief program officer, and executive director of the IICF Northeast Division.  “This event serves as a powerful catalyst for our industry as we bring together insurance professionals of all ages and career stages to discuss, learn and propel critical strategies.”

Elizabeth Myatt, vice president, chief program officer, and executive director of IICF Northeast Division

Myatt, who has led the conference since its inception, noted that it’s her favorite part of the job.  “It has been wonderful to see the evolution of the conference series,” she said. “It is not just gender-focused — it is all kinds of diversity, leadership, and innovation and it’s the business of the industry itself, which has made it so valuable and meaningful to attendees.”

Myatt recognizes the importance of advancing DEI, which must be embedded in everything in the business, and everyone needs to see the shared value. She said a Congressional report this year spelled out some of the ways where the insurance industry has made an impact. 

“There has been progress in gender diversity and for African-Americans, though we have not made as much progress within the Hispanic community as we’d like,” she said. “Through our conferences and the IDEA Council’s development of the IICF Talent Hub – an online resource center for non-traditional job seekers to learn about insurance industry jobs and career opportunities – and the Mentoring Alliance, which will prepare, inspire, and empower diverse talent by pairing them with role models and allies from leading companies across the industry, we are starting to see results.”

The theme for the last four years of the global conference has been advancing ideas into action, Myatt said.  

“We want to provide tools, as well as new thinking.  We don’t want the ideas that are shared here to stay in the room,” she said. “We plan to arm our audience with ways to make change, whether it’s personal, professional, or cultural.”

To register, for the conference, go to: https://inclusion.iicf.org/.

By Matthew Scarfone, Esq., Triple-I blog contributor, and shareholder at Colodny Fass 

Florida presents property insurers with a unique set of factors that affect the availability and affordability of insurance coverage. The state boasts the third-largest population in America while simultaneously enduring a higher-than-average volume of natural disasters. It’s fair to say that operating a residential insurance company in the Sunshine State isn’t for the faint of heart.

What’s behind the mounting catastrophe in the Florida legal system?

But as damaging as the hurricanes can be, there is a man-made disaster that has contributed significantly to destabilizing the market to concerning levels: legal system abuse. In practice, some people are misusing tools of the justice system to manipulate outcomes and obtain windfalls. Insurance carriers have paid a heavy price in recent years due to the increased abuse of one-way attorney fees, bad faith claims, and other unsustainable litigation trends. 

Exploitation of one-way attorney fees and bad faith law has been especially prevalent. Until recently, if a policyholder or third party sued an insurer and obtained any monetary award, they were entitled to recover all attorney fees incurred in the litigation. This practice may have incentivized people to dispute insurance claims, regardless of whether they were justified.  

The problem was further exacerbated by the abuse of assignment of benefits (AOB) agreements, which created an opportunity for contractors to inflate costs. As a result, a modest homeowners insurance claim could lead to multiple lawsuits by different assignees, each asserting a separate claim for attorney fees. Manipulating this loophole encouraged excessive claims and unreasonable demands, forcing insurers to choose between paying the inflated bill or risking a lengthy trial where the attorney fees alone could exceed the claim amount. On top of that, courts have had broad discretion to apply fee multipliers and can award 1.5-3 times the reasonable attorney fee. 

Cases involving allegations of bad faith further compound an insurer’s exposure because these cases can be costly to defend and involve intrusive discovery, amorphous damages, and unpredictable juries. Bad faith cases are not ripe (i.e., ready to potentially warrant judicial intervention) until there has been a final determination regarding coverage and the damage amount. Therefore, insurers regularly face the prospect of defending a bad faith case even after resolving the underlying dispute.  

Florida’s courts did not help matters by ruling that appraisal awards—tools designed to help resolve disputes—could lay the procedural groundwork for bad faith actions. In other words, after resolving a claim through appraisal, insurers could still be left to defend a lawsuit for bad faith. Some attorneys used this caselaw as a playbook to fast-track claims into bad faith litigation by misusing the appraisal process. 

The problem looks even worse when you quantify it. According to the Florida Office of Insurance Regulation (OIR), as of 2020, despite Florida only accounting for 9% of all homeowners insurance claims in the country, it accounted for 79% of all homeowner insurance litigation nationwide. Additionally, over the last decade, only 8% of the $51 billion paid out by insurers went to claimants, yet plaintiffs’ attorneys took home 71%. Meanwhile, eleven Florida property insurers fell into liquidation since 2017—five of those occurring last year alone. 

Legislators recognized need for urgent action to help curb costs of insurance claims.

The Florida Legislature has responded to the growing crisis by passing multiple pieces of significant insurance reform, primarily tackling the problems with AOBs, bad faith claims, and excessive fees.  For example, the new laws eliminate one-way attorney fees in property insurance litigation, forbids using appraisal awards to file a bad faith lawsuit, and prohibits vendors from taking AOBs under new policies. Despite criticism from the plaintiffs’ bar, these reforms are not all “one-sided.” Recently passed legislation also ensures transparency and efficiency in the claims process and encourages a more efficient and less costly alternative to litigation.  

While it’s too soon to know exactly how recent reforms will improve the state’s insurance market, there is a sense of hope that these measures will decrease the volume of property insurance litigation and foster a more viable and stable residential insurance market that enables greater consumer access to affordable coverage. 

It may take time for these reforms to have a measurable impact on Florida’s property insurance market. Still, insurers and policyholders alike should be optimistic that the market is headed in a more sustainable direction. 

By Loretta L. Worters, Vice President, Media Relations, Triple-I

The gender pay gap is a sensitive topic we need to spotlight. We’ve seen it in every industry, from entertainment – when Patricia Arquette called for wage equality in her 2015 Oscars acceptance speech – to Wall Street, when CNBC reported in 2019 that Citibank admitted that its female employees earned 29% less than its male employees globally.   

In the United States, the gender pay gap is 18%, which means that on average, in 2022, women made 82 cents for every dollar men earned in any industry, according to a recent Pew Research Center study —a rate that hasn’t significantly changed for two decades. Women of color continue to suffer the most severe gender wage gap in this country. Black women are paid 63 cents for every dollar white men are paid and must work an additional 214 days to catch up to what white men made in 2020 alone. Native women are paid about 60 cents and Hispanic women only 57 cents for every $1 earned by white men. In the insurance industry, women fared worse, earning just 62 cents on the dollar in 2020. As a result, women cannot build savings, withstand economic downturns, and achieve financial stability. This earnings gap widens during a woman’s career.  

Older women bear the brunt of ageism  

We’re all familiar with the phrases “past their prime,” “put them out to pasture,” and “not enough runway,” but often ageism is gender specific, targeting older women. Data from the Bureau of Labor Statistics shows that American men don’t typically start to make less money until they’re over 65. In contrast, women’s median pay decreases when they enter the 45–54-year age group.  

Inequity can drive retirement insecurity 

Lower lifetime earnings also reduce the amount of retirement capital women can accumulate from 401ks to defined benefit pension plans to social security. Women’s retirement contributions are, on average, 30% less than those made by men, according to a recent Goldman Sachs survey.  

A 2020 report from the National Institute for Retirement Security (NIRS) finds that women can remain at a disadvantage with their retirement savings. Years spent out of the workforce for caregiving responsibilities—for children, spouses, and aging parents—significantly impact women’s total retirement savings and income. In fact, women are more likely to leave the workforce or take part-time jobs to shoulder those responsibilities – something we saw after the coronavirus struck.  

Women tend to live longer than men, too, and thus often have a greater chance of exhausting their sources of income. According to the U.S. Centers for Disease Control, the average American man will live to age 76, while the average woman in America will live to be age 81.   

Not only are women paid less, but men continue to dominate the top roles and highest-paying professions. Some folks say women need to be more confident and negotiate raises better. However, in 2019, The Wall Street Journal surveyed 2,000 graduates of an elite U.S. business school and found that 64% of the women versus 59% of the men asked for raises and promotions, but women were turned down twice as often.  

Diversity brings value 

With fewer women in top positions at insurance companies, insurers are missing out on critical sources of talent, according to McKinsey & Company. They referenced Harvard Business Review research which showed that diverse teams are more effective at solving difficult problems and reaching diverse markets and customer segments. Insurance companies need effective and diverse teams at all levels to grow and keep their competitive edge—meaning more women and women of color.  

Transparency laws help close the gender pay gap  

Wage transparency laws can close the gender pay gap, reduce discrimination, and promote fairer compensation practices. By requiring employers to disclose pay scales, job applicants can have a better sense of what to expect in terms of pay before they apply and negotiate salaries more effectively. This practice may also help women already in those jobs know what factors go into their pay and determine whether it is fair.  

The insurance industry is making strides toward equity 

Insurers are increasingly taking the initiative to transform their commitments into meaningful actions regarding pay equity based on gender, race, and overall diversity and inclusion. These organizations recognize that this is not only the right thing to do, of course. But they also realize that these practices are also good for business.  

Triple-I believes that acknowledging and celebrating those organizations working to make a difference is important. Below is a highlight of what some of our member companies are accomplishing in the DEI and pay equity space. We encourage others who have a story to tell to let us know and we’ll include them in this celebration:  

  • Allstate’s performance in workplace diversity meets or exceeds external benchmarks. As of Dec. 31, 2021, women made up approximately 57% of their workforce, and 42% of their employees were racially or ethnically diverse. Minimum compensation increased in 2022 to $17/hour and $20/hour, based on geographic differentials, the second increase in the last two years. Racial equity is a pillar of The Allstate Foundation, and it aims to close the racial opportunity gap for careers with thriving wages. As of January 2023, Allstate proactively added salary ranges to 100% of its job descriptions to be transparent and show its commitment to equitable pay practices.   
  • American Family, recognizing the structural barriers in society that keep people from achieving their dreams, is doing its part to break down these barriers, committed to tackling systemic problems that impede equity and believes everyone deserves the freedom to dream fearlessly. For 2022, American Family received the Best of the Best Awards from the Professional Woman’s Magazine, among other awards. Their diversity and inclusion efforts are grounded in equity — believing fair treatment starts with giving people the proper systems, support, opportunities and access needed to achieve their professional success and advancement.  
  • AmericanAg™ has undertaken several steps to increase both the diversity of their workforce and communication in their business communities, including the use online platforms, media outlets, and search firms to recruit top talent with diverse backgrounds, not tolerating gender gap compensation issues among employees. They have initiated all-employee discussion sessions concerning diversity, equity, and inclusion to bolster communication and education.  
  • Argo Group is committed to cultivating an authentic, inclusive and respectful workplace where all employees feel comfortable bringing their whole selves to work with equal opportunities to be successful. They developed their first year report on the gender pay gap in 2020 among their team in the U.K., but the company has been tracking the pay gap and working on improvements since 2017.  
  • CSAA Insurance Group, a AAA insurer, has been named to Seramount’s sixth annual Inclusion Index, which recognizes leaders in creating an inclusive workplace. Chubb engages in pay equity analysis to ensure equal pay between employees in similar roles. The objective of this practice is to determine whether pay differences are driven by fair and compensable factors, such as location or tenure, and not by unjustifiable factors, such as gender or race. It has been a success at the organization. 
  • Farmers Insurance, ranked as a Best Employer for Women by Forbes, is partnering with Women Back to Work to support the career re-entry of women in tech. Women at Farmers Insurance have rated Team, Executive Team, and Leadership as the organization’s highest-scoring categories. Farmers Insurance ranks on Comparably in the top 5% of other companies with 10,000+ Employees for Gender Score. 
  • Grange Insurance is a proud member of CEO Action for Diversity and Inclusion™, a national initiative of more than 2,000 CEOs and Presidents who are pledging to support a more inclusive workplace for employees, communities, and society. In 2022, Grange was selected as an honoree of Columbus Business First’s Diversity in Business Award in the Outstanding Diversity Organization category. As an example of its commitment to pay equity, Grange conducts an annual gender pay equity analysis. 
  • At Hanover, measuring workforce demographics enables them to track where they stand and the work that needs to be done along their DEI (Diversity, Equity, and Inclusion) journey. This practice also helps them achieve a shared goal of attracting, retaining, and advancing a diverse workforce at all levels. For 2021, 59 % of the workforce was female.
  • Liberty Mutual was recognized by Forbes as one of America’s best employers for women every year since 2018. Liberty Mutual monitors their market competitiveness, constantly evaluating their pay practices to ensure relative parity among employees and across all business areas. They designed their compensation system to pay competitively for performance across all dimensions of diversity. Their multi-year DEI Plan includes goals to increase representation of women at all levels in the U.S. by 2025, as well as ensure progress over the long term. Delivering on these goals means that more than half of their U.S. workforce will be women.  
  • Lloyd, in its 2021 Gender and Ethnicity Pay Gap Reports, noted its mean gender pay gap is 18.6%, an improvement of 1.8% from 2020. While there is still more to do, this shows a continually improving trend since the 27.7% pay gap in their first report in 2017. Lloyd’s is working to improve pay gaps by providing career development for women; hiring one in three ethnic minorities; and having an EDGE action plan, among other objectives.  
  • MAPFRE continues reducing its gender pay gap. Its Compensation Policy lays out a compensation model that focuses on productivity and added value, contains no gender criteria, and is adapted to the competitive environment.  
  • At MetLife, they are committed to pay equity and annually review their pay practices, including compensation and benefits programs, to ensure they incent the right behaviors and provide equal pay for equal work, regardless of gender or race. Their goal is to support, reward, and compensate the entire individual.  
  • Munich Re sees diversity as the lively and active coexistence and working together of different mindsets, mentalities, experiences, and expertise. Their employees are their most valuable asset, and their diversity is the key to our success as a company. They are increasing the proportion of women in all management positions globally and Group-wide to 40 percent by the end of 2025.  
  • Seramount placed Nationwide Insurance on its Top 75 Companies for Executive Women list, which recognizes corporations that have women in top executive positions and created a culture that identifies, promotes, and nurtures successful women.   
  • In 2022 State Farm was ranked among the Top Companies for Executive Women by Seramount – and has been recognized every year since 2008. They have created the D&I Governance Council with its main objective to integrate diversity and inclusion into day-to-day business practices and how they lead their organization. They have also created learning opportunities such as Ally Skills Workshops for all employees and Inclusive Practices and Talent Decisions for recruiters and leaders. In addition, State Farm has cultivated transparency by sharing demographic data internally and externally.   
  • Swiss Re noted that they have a regularly monitored gender-neutral approach to pay across all levels of the organization. They also conduct an annual statistical analysis of base salaries and total compensation across corporate bands, job families, employee ages, and experience levels to identify gender pay differentials for comparable roles across the organization. The regression-based analysis for 2022 found no statistically significant gender pay differentials across these categories.  
  • USAA, a national insurance and financial services company focused on active military, veterans, and their families, announced its final commitment of $20 million to advance diversity, equity, and inclusion. As part of the company’s three-year, $50 million commitment made in late 2020, the latest grants to nearly 50 nonprofit organizations focus on amplifying the collaborative need to build diverse talent pipelines through education and employment programs.   
  • Utica National boasts a workforce comprised of 60% women – a figure which mirrors the percentage across the entire insurance industry, based on a survey by the U.S. Bureau of Labor Statistics. Looking back at the company’s 107-year history, their very first employee was a woman, and now women make up the majority of their workforce that keeps the company moving and growing. For five consecutive years, Utica was named a Top Insurance Workplace by Insurance Business America magazine.   
  • W.R. Berkley’s Code of Ethics and Business Conduct outlines how they address diversity and inclusion to provide equal opportunities for all Berkley employees. Many of their insurance businesses have diversity and inclusion committees that support these policies.  
  • Westfield Group’s Women’s Network works to educate, inspire and interact with women and their advocates by building a community focused on appreciating the strengths and contributions of women as leaders in the workplace. By providing advocacy and development that enables women to achieve their career goals, the network helps their organization achieve higher performance and profitability through diverse thought and voice.  
  • Zurich Insurance is committed to gender equality in the workplace and has implemented measures globally to track progress. These initiatives include the Equal Pay for Equivalent Work analysis to make sure gender is not a factor when it comes to remuneration.  

The Insurance Industry Charitable Foundation (IICF) developed Advancing Ideas into Action, based on their Inclusion in Insurance Regional Forums held in 2022, furthering conversations started by IICF in 2013 during their first Women in Insurance Global Conference (now the IICF Inclusion in Insurance Global Conference) about advancing ideas around diversity, equity, and inclusion (DEI) and innovation into action.      

In its 2013 report, Increasing Gender Diversity in Insurance Leadership: Lessons from Women Who Reached the C-Suite, Spencer Stuart, an American global executive search and leadership consulting firm based in Chicago, Illinois, noted that “increasing diversity requires clear and consistent support from the CEO and senior management, and male leaders generally. Executive leadership sets the tone that diversity is a priority and sets expectations that succession plans and candidate slates will include women.” 

Peter Miller, CPCU and president and CEO of The Institutes (of which Triple-I is affiliated), couldn’t agree more. “At the end of the day, all leaders must be deliberate and consistent in their efforts to attract and grow diverse talent,” Miller said, adding that “focusing on leadership-skills-based development is a critical factor in retaining and elevating diverse talent, which in turn helps drive pay equity.”

The Institutes has consistently been recognized as a Top Workplace over the last several years and earned national recognition as a 2023 Top Workplace. Additionally, The Institutes has been recognized for its work-life flexibility and compensation and benefits. 

Social inflation contributed to a $30 billion increase in commercial auto liability claims between 2012 and 2021, according to updated research published by the Insurance Information Institute (Triple-I), in partnership with the Casualty Actuarial Society (CAS). Most of the increase for the total review period is attributable to the newly added years 2020 and 2021 to the data set.   

Findings from the research paper, Social Inflation and Loss Development–An Update, suggest that while other factors may be in play, social inflation could be responsible for driving losses over the past 10 years up by as much as 18-20%. Results also indicate that social inflation, as a loss driver, may be outpacing inflation in the overall economy by 2 to 3% per year. The actuarial models in the paper assume that exposure in commercial auto liability grows in the long term at the same rate as the overall economy. The updated research supports the conversation that Triple-I and its industry partners have fostered over recent years to increase awareness about the phenomena and encourage solutions. Both social inflation Triple-I/CAS papers were authored by actuaries James Lynch and David Moore.  

Tracing the wake of social inflation in commercial auto liability 

Analysts in every industry may rely on economic indicators and established quantitative methodologies to adapt to cost increases caused by general inflation in the economy. According to the definition cited as the basis for the paper, the expansive scope of social inflation can pose a more complex challenge for insurers as it can include “all ways in which insurers’ claims costs rise over and above general economic inflation, including shifts in societal preferences over who is best placed to absorb risk.” The impact of some potential factors, such as increasing lawsuit verdicts and extended litigation, can be dynamic and hard to forecast, making effective risk mitigation tactics difficult.  

Still, insurers must aim to offset increasing claim costs, and that effort can include finding a way to outline the footprint of social inflation. Thus, rather than attempting to deconstruct the components of social inflation, this update to the 2022 CAS-Triple I collaboration continues to zero in on tracking evidence of it, ascertaining the potential influence on losses over time, and potentially finding clues that may link back to the culprits. Accordingly, the research stays focused on the claim size and reviews the increase in loss development factors over time.

Research raises questions, highlights a new emerging reality  

As with many industries, the COVID-19 pandemic challenges longstanding methodologies and conventional forecasting assumptions. Claim frequency, in relation to the overall economy, decreased sharply in 2020 and remained flat in 2021, even though driving appears to have returned to pre-pandemic levels. However, severity appears to have increased significantly.  

Enter loss triangles – a conventional actuarial tool that can enable comparison of loss metrics across years and see how losses develop over time. As in last year’s paper, researchers used this tool to examine the loss development patterns of net paid loss and defense and containment costs (DCC). Analysis suggests that whereas the pandemic may have dramatically impeded the ability to file new litigation for a brief period, it may also have created more enduring repercussions by hampering the timely and, thus, more cost-effective settlement of outstanding claims.  

Even as social inflation amplifies losses for commercial auto liability, existing methods to pinpoint where general inflation ends and social inflation begins may become less dependable. In addition to covering the pandemic shocks of the shutdown, the newly added data spanned into the economic recovery and was impacted by much of what came with it – demand booms, stressed supply and labor resources, and, of course, the eventual soaring of the Consumer Price Index (CPI) for all urban consumers. In 2021, the CPI increased by a formidable 4.7 percent, the fastest inflation growth rate this century. These and other changes in the economic environment may have dampened the effectiveness of the testing and modeling framework. In any case, calculations for loss emergence revealed that for the first time in a decade, actual emergence was less than expected emergence in 2020 and 2021, reversing observations made in the previous paper about the reliability of conventional actuarial estimates.  

The importance of understanding social inflation 

It’s important to remember that although insurers are often called upon to help businesses and communities bounce back from natural disasters or other unexpected events, social inflation is arguably a human-made crisis that already looms large in the marketplace. A 2020 study by the American Transportation Research Institute found that, from 2010 to 2018, the size of jury verdict awards grew 33 percent annually, as overall inflation grew by 1.7 percent each year within this same timeframe and healthcare costs increased by 2.9 percent.  

As losses grow much faster than premiums, insurers can resort to any combination of methods to contain costs, including limiting the amount of coverage offered, increasing premiums, or discontinuing certain types of coverage. For policyholders that need to mitigate their commercial auto liability exposure, expensive coverage or lack of coverage can threaten the ability to stay competitive or even remain in operation, particularly for those in tight-margin industries.  

Unprecedented times call for new ways of collecting and reviewing claims data. The paper relies on new ways of using old-school methods and discusses how the reliability for some metrics could be improved by utilizing other data sources. A paper by the same researchers included similar observations for the medical malpractice liability sector. Key takeaways from the findings of these papers, along with an emerging body of research on social inflation, can be helpful in exploring actionable strategies, such as curbing lengthy litigation. 

For a quick summary of social inflation and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub, Social inflation: hard to measure, important to understand.