Sedgwick
Connecting forward: Carriers
Applying lessons learned from the year’s trends as we prepare for 2025
Early this year, Sedgwick released its Connect 2024 trends list, putting a spotlight on issues and opportunities we are watching alongside our clients and partners. On that list are many things critical for insurance carriers — and some have emerged as the hottest, even in an unseasonably warm year. While we take a moment to look back at what’s made the most impact for carrier partners and their clients so far in 2024, we can also thoughtfully prepare for the trends expected to impact your business looking forward — connecting claim expenses to resourcing, the active storm season to resilience, unpredictability to partnership, and data and technology advancements to continual improvement.
Claim expenses + resourcing
Amid continued impacts of inflation and economic uncertainty, carriers across the globe are watching allocated loss expenses and variable costs, looking for ways to reduce them through efficiencies. With capacity in the market still tight, any reduction in expenses helps balance out combined ratios. Consequentially, we see carriers across lines of business and geographies shifting resources through reductions in force and restructuring. In many cases, the expertise leaving organizations is seasoned, and technical brain drain is real. After seeing nearly 7,000 insurance carrier jobs reduced in 2023, a recent labor market study reports that 14% of carriers are planning to reduce headcounts in the next year.
Yet, the predictions are mixed: the same study notes that 52% of insurance companies plan to increase staff in select areas, including claims, and predict hiring challenges for those roles into 2025. And while recent interest rate cuts are expected to help boost business activity and improve the outlook into 2025, carriers must find ways to cope with labor fluctuations in the meantime.
Under these circumstances, outside staffing or resource solutions can step in to fill the gaps, not only in surge situations such as catastrophes, but to maintain service levels for everyday claims and loss adjusting coverage, and to supplement carrier teams with deeper, veteran expertise. As carriers take an outsourced or blended approach, it is critical to build partnerships around service — custom-designed, flexible teams, aligned on a cultural level, supported through technology.
Active storm season + resilience
CAT season had been steady if not the most active, kicked off by Hurricane Beryl which, in July, became the earliest Category 5 hurricane to form in the Atlantic Basin. An early start brought an increase in conversations about catastrophe preparedness and resilience. And then, Hurricane Helene hit. Making initial landfall as a Category 4 storm and sustaining Category 2 strength as it made impact inland, devastation reached 1000-year flood levels in many areas. The recovery ahead looks long and costly — and resilience and sustainability measures are truly being tested. Early projections say insured losses will exceed $5B, with carriers expected to cover the majority due to tougher terms in the reinsurance market. Recovery will cost far more when considering uninsured flood losses and business interruption.
According to Verisk Extreme Event Solutions, the “industry should now expect average annual CAT losses of $151B,” and about half of this global estimate can be attributed to rising secondary losses. Moody’s questioned “whether ‘secondary’ perils should be classed as secondary at all,” after releasing a report detailing the magnitude of record-breaking events in 2023 like the Canadian wildfires, a U.S. tornado season exceeding $52B in losses, and catastrophic flooding from California to Italy, New Zealand, Hong Kong and China. In addition to driving an increased percentage of CAT losses, these weather events are difficult to model and create uncertainty in capacity as they tend to be more concentrated locally. They pose coverage, pricing and reinsurance challenges, particularly as we sit in a lengthy hard market.
As these weather-related disasters continue to rise in frequency and severity, parametric insurance has been added as a layer to many policies to diversify funding, cover the gap, and improve resiliency. 2024 has already had several major parametric loss payments.
Why parametric insurance?
- Offers a pre-agreed payout based on set triggers rather than specific loss costs
- Covers any type of economic loss, not just physical property
- Improves stability and predictability for both carriers and policyholders
- Promises quick reimbursement to facilitate faster recovery and, therefore, lower lag-time costs
Partnership is critical in taking on both the challenges and opportunities that will arise for parametric models in the current environment. One challenge is that the recovery and resilience side of claims may not be sufficiently covered if claimants are simply given a payout and no guidance on what comes next. The speed of a parametric payout loses its value if resources aren’t aligned for quick, reliable access to contractor networks, temporary housing and adequate supply chains.
And if speed is the key, faster is better on all fronts. As parametric policies and practices become more common and predictable, and technology evolves to match it, another area of opportunity is automation for approving and paying claims based on the parameters of the policy, the specific triggers, and the ease of linking authoritative data sources for straightforward validation.
Do you have a CAT partner who can pull it all together? Furthermore, will they be able to advise insureds how to best direct their repair process to reduce future risk? Partnering with companies like Sedgwick, whose repair teams can provide support and guidance focused on resilience and rebuilding to weather future catastrophes, could be the recovery angle that helps avoid repeating the cycle.
Unpredictability + partnership
The unpredictable state of the world was reflected in a recent CIDOB report that said, “2024 will be a year of ballots and bullets.” With more than 70 countries focused on 2024 elections, organizations are watchful to see how the regulatory environment may shift along with administrations. CIDOB also estimated that 1 in 6 people in the world were exposed to geopolitical conflict in 2023 alone and, with escalation in the Middle East, as well as tensions in the South China Sea, we continue to see a shift in attitudes and values that is eroding international norms, increasing volatility, and adding economic pressure. How do carriers and corporations maintain a sense of stability in a sea of change?
Whether preparing for the macro level of change on a global scale or the micro challenges in specific regions or jurisdictions, partners with a blend of global expertise and local understanding can bring access to diverse resources and expert, shared knowledge. Consider the following examples:
- Whether elections change or strengthen the need for regulatory vigilance in the environmental, social and governance (ESG) space for carriers and their corporate clients around the world, as well as requirements for managing climate-related risks and disclosures, carriers and claims administrators can work together to focus on accuracy, timeliness and tracking. Shared practices on sustainability and resilience from regions like the UK and EU with more progressive climate policies will pave the way for adoption in other parts of the world.
- Looking at a global issue like third-party litigation funding (TPLF) — which brings outside interests into the courtroom, increases the duration of litigated matters, decreases incentive for settlement, and pushes cases into nuclear verdict territory — regulatory change may also be uncertain in bringing more stability. While governments in the UK and the Netherlands, select U.S. states, the European Parliament and beyond have made moves toward reform, there’s little to no regulation or uniform requirement for disclosure. Meaningful change may be set aside as governmental transition takes the focus. However, partners can help navigate the interim through sharing of best practices, resources and data. The best way to avoid the impact of TPLF or any aggressive legal approach is through litigation avoidance. Timely, attentive claims support and investigations can set the right tone from the start. Local expertise paired with strong data sets and models can help predict the best opportunities for settlement, as well as the best attorneys to select in tough jurisdictions. (Take a deeper look at litigation trends and strategies in our latest liability litigation commentary paper.)
Data and technology advancements + continual improvement
Take a closer look at any of the issues on this list and you’ll find an underlying thread tied to data and technology. With the push toward digitization supported by artificial intelligence (AI) and machine learning moving ahead at breakneck speed, there’s true risk in sitting on the sidelines while innovation happens all around.
Generative AI continues to transform the insurance space, creating efficiencies in the claims process but also heightening the need for controls to protect data, preserve ethics and reduce risk. But AI isn’t the star — it’s just the tool to achieve objectives that are important to carriers and policyholders. Through generative AI and natural language processing on day-to-day tasks, information is leveraged more efficiently, and more of a claims professional’s time is freed up for care and critical thinking.
Generative AI is also transforming the data space, allowing the insurance industry to get data from reports and forms that will enhance data modeling for years to come. Through advancements in AI, data integration and automation, the industry will realize greater capabilities in predictive analytics, reach specific goals on expenses, fine-tune quality initiatives for real-time action, resolve claims more quickly and automatically, and positively impact customer experience, value and outcomes.
And while technology, including the AI revolution, will help carriers, claims professionals and the entire industry improve outcomes and satisfaction levels, we can do more to improve together. A sound partner can help identify your challenges and match them up with the right resources, teams and tools.
Conclusion
We’ve come through 2024, so far, wiser and watchful. The only thing that’s truly predictable is change, and carriers will be better positioned for their own success as well as successful outcomes for their stakeholders if they are prepared and connected. Expertise, partnership, technology…aligning reliable resources and planning for all scenarios will help you finish the year strong, resilient and ready for what’s next.
Sedgwick is here to help. Learn more about our solutions for carriers or contact us for more information.
The post Connecting forward: Carriers appeared first on Sedgwick.