In California, the number of acres burned per wildfire and structures damaged per acre have increased since 2013. Relentless years of devastating wildfires are stretching the California homeowners insurance industry to its limits with losses of $37 billion outstripping premiums of $32 billion since 2016.
Faced with the inability to recover all the costs of insuring California wildfires, the California admitted insurance market has been reducing its wildfire exposure. Stricter underwriting eligibility guidelines and higher rates for wildfire-exposed properties have pushed more policyholders into secondary markets, such as the California Fair Access to Insurance Requirements (FAIR) Plan. The FAIR Plan is design to accept properties that are having difficulty in finding insurance in the market and does not decline risks due to wildfire exposure.
To better understand its exposure to wildfire, the FAIR Plan asked Zesty.ai, Inc., a company that provides a wildfire risk score model, to score the FAIR Plan properties relative to wildfire risk. To read more about the FAIR Plan and Zesty.ai’s risk score model, read this paper by Milliman’s Annie Shen, Sheri Scott, and Katherine Dalis. It is the second in a series of articles examining California wildfire risk and tools that could be used to identify, quantify, and mitigate this risk.
Reinsurance helps insurers respond financially to large
catastrophes like a wildfire or earthquake. Insurers share a portion of the
premium with reinsurers to rent capital and reduce the burden of a major event
involving multiple policyholders.
In California, regulations allow reinsurance costs for earthquakes
to be included in insurance rates but not for wildfires or other catastrophes.
This penalizes insurance companies that spread the risk of major wildfires, and
results in bottom-line loss and expense outstripping premium over the long
term. This, and other issues, are making it more complicated for homeowners in
the state to find insurance with wildfire protection in the voluntary market.
With the rapidly increasing number of autonomous-enabled
vehicles on public roads, it is important to consider that autonomous driving
is not as scary as what human beings think. Autonomous cars use a sophisticated
suite of sensors and software to interpret massive streams of data from outside
or inside the car.
Autonomous cars improve safety because they:
Don’t drive drunk or text while driving
Communicate with other cars, better navigating
Carry more passengers, reducing the number of
Provide safe transportation for the blind,
elderly, and children
Distracted driving has replaced drunk driving as the leading
cause of car crashes on our roads today. Autonomous cars solve these issues and
also expand transportation options and relieve congestion.
When assessing whether machines are better than human beings
at some tasks, we are cautious, especially when making this determination
requires relinquishing control of driving. We naturally bring our prior
experiences, preconceived notions, and biases to the table.
In this paper, Milliman’s Sheri Scott takes to her Tesla and provides a statistical framework to study whether—and by how much—an autonomous car drives better than a human being.
Today, forward-thinking firms are leveraging technology in astonishing new ways that promise to transform the insurance industry. The data-fueled tech revolution is not only driving the creation of more relevant and innovative products and services, it’s also completely redefining the customer experience.
Milliman professionals work with both startups or traditional enterprises looking to connect with new consumers.
Milliman has announced a new innovation in the InsurTech space—a driving “risk score” created with tech start-up Zendrive that is up to six times more powerful than the leading predictive models.
Milliman teamed up with Zendrive, a smartphone-powered driving analytics company, to study how distracted driving and other driving behaviors can lead to auto collisions. Using Zendrive data, Milliman verified the behaviors that were strong indicators of collision frequency and created a risk score to compare the “worst” drivers relative to the “best.” Their findings revealed that the worst 10% of drivers were over 13 times more likely to be involved in a crash than the best 10% of drivers. The results were based on one of—if not the—largest telematics data set in the United States. As of today, Zendrive has captured over 40 billion miles of driving behavior via smartphone sensors.
Smartphones can measure driving behaviors that traditional, first-generation telematics can’t, such as who is driving the vehicle and phone usage contributing to distracted driving. These new-age predictors contributed to a risk score that is over six times more accurate than the current industry leader models, which use traditional hardware-based telematics devices. There’s an opportunity here for auto insurers, especially commercial auto fleet insurers, to be early adopters of this technology, and improve their abilities to measure and rate risk.
To read more about the study, click here. Also, to read more about Milliman’s InsurTech research, click here.
To subscribe to Milliman’s InsurTech updates, email us.
Increasingly, individuals are having their driving habits and living environments monitored electronically. A recent Insurance Journal article cited Milliman’s Sheri Scott discussing how exposure data tracking is shaping new underwriting practices for personal lines coverage like auto insurance.
Here’s an excerpt from the article:
Exposure tracking and the advent of autonomous vehicles are shifting personal auto insurance risk exposure from dependence on driver skills, estimated distances driven and garage location to the precise determination of vehicle locations, driving habits, driving distances and traffic conditions, all determined through the collection of trip data gathered in real time.
Yet even these underwriting considerations will soon be supplemented, if not supplanted, by the loss experience of automated vehicles and their manufacturers.
This transformation will not be without risks of its own, Scott said. In particular, she cited disruption of networked communications as a hazard, especially as vehicle occupants become dependent on automated control and less practiced at taking control of a vehicle.
“If some kind of communication goes down, there could be a very serious occurrence,” she said.
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