Until recently, it was said that the only constant was change – now the only constant is uncertainty. 

Uncertainty is at a generational high in almost every aspect of our lives: socially, financially, politically, and technologically. One of the most serious consequences of this uncertainty is its impact on risk assessment across all lines of insurance. However, it also represents a major opportunity for insurers.  

The model of risk transfer is centuries old and thrives on predicting when and how much known exposures are likely to happen and what the costs involved are. Thus, not all risks are insurable -- such as moral hazards where the incentives are misaligned. Risk transfer is further disrupted when doses of uncertainty distort predictive models.  

Uncertainty exists when the magnitude (frequency and severity) of possible future events is obscured, making reasonably accurate forecasts unreliable. As uncertainty grows, the ability to effectively manage risk is proportionally reduced.

The implications of this new normal for insurance are existential for some insurers and more expensive for all, as it becomes harder to assess and properly price risk in the face of so much uncertainty. Not to mention the havoc that uncertainty wreaks for most consumers and businesses, including on insurers’ ability to plan and adjust. A result is uncertainty about insurance availability, degree of premium increases and extent of reduced coverage.

To make matters worse, several carriers seeking to contain risks have been withdrawing from regional markets where recent losses have unexpectedly spiked as a result of unprecedented losses from extreme weather exacerbated by ill-prepared mitigation. These pullbacks, which already target approximately 15% of U.S. property, are not only detrimental to policyholders in the affected regions but also undermine the benefits of risk pooling for all policyholders.     

Yet the idea of insurance is to provide a promise of protection and safeguard against uncertainty. This goes beyond the functional insurance contract and strikes an emotional nerve, as well – peace of mind. The proverbial security blanket serves in more than one way, and the industry will hopefully find the right balance.

Trade/Geopolitical Uncertainty

In the wake of President Trump’s on-again, off-again, up-again, down-again trade tariff announcements – and the retaliatory counter tariffs from the world’s largest countries – economic uncertainty has evolved almost overnight. Markets are similarly volatile, prompted by the uncertainty of how far tariffs and reciprocal action will go. At present, we are now officially in a stock market correction, in which a stock market index drops by more than 10% and indicates pessimistic investor sentiment.

Facing unexpected market volatility and geopolitical uncertainties, normally optimistic dealmakers are sounding a more cautious note for the coming weeks and months but are confident the pace of mergers and acquisitions will pick up later this year.

The costs associated with auto and property insurance are especially exposed to tariff impacts, including increased cost for new and used vehicles, repairs and replacements parts. Bob Passmore, department vice president of personal lines at APCIA (American Property Casualty Insurance Association, the primary national trade association for home, auto, and business insurers), estimates that the impact of tariffs on personal auto insurance could range from $7 billion to $24 billion.

Undoubtedly, even higher premiums will follow quickly, and the insurance protection gap will continue to widen should retaliatory tariffs actually stick. Either way, insurers are watching loss costs closely.

Consumer Sentiment

Consumers sentiment is down significantly month-over-month and year-over-year. It slid nearly 10% from January and fell for the second straight month. The decrease was unanimous across groups by age, income, and wealth. The Consumer Sentiment Index fell to 64.7 in the February 2025 survey, down 9.8% from 71.7 in January and 16% below last February’s 76.9.

Consumer sentiment is considered a leading indicator of economic activity. Sentiment levels can also affect consumers’ willingness to make large purchases such as automobiles. Over the last 18 months, policyholder behavior has changed around smaller losses. They forgo making claims for fear of premium increases or select higher deductibles and drop coverages. Meanwhile, credit card debt is over $1.21 trillion; negative equity in auto loans has reached a record, and late payments are on the rise.

Executive Stress

More than two-thirds of executives polled in a recent survey reported feeling more stressed at the beginning of 2025 than they did at the start of 2024. The survey, conducted by Wakefield Research on behalf of Sentry Insurance, found stress levels elevated in 67% of participants. At the same time, 74% of executives said they were not completely confident that their company’s current insurance coverage is adequate.

Economic uncertainty (47%), supply chain challenges (44%), costs of employee health care (41%), labor shortages (38%) and inflation (36%) ranked as the top five concerns among the survey participants.

Extreme Weather Uncertainty

The continuous increase in extreme weather events, and the attendant economic and human losses, are not new but are being made worse by what is now emerging as compound weather events. Cascading extreme weather events are unleashing billions in additional damages. This was clearly and tragically witnessed from the LA area wildfires, where fire prevention and responses proved shockingly inadequate. Add in regulatory rate suppression, and this becomes an untenable scenario.  

More than 100 fires ignited in South Carolina, Oklahoma and New York last weekend, fueled by a combination of arid air, dry fuels, and gusting winds, all compound weather events. We have much less data and research on these so-called secondary weather perils as compared with hurricanes. And convective storms have proven to be more challenging to translate into risk management.

Researchers and experts warn that the frequency and impact of compounding events will increase and that developing better models and preparedness strategies is crucial to mitigate the risks ahead, with some looking to Japan's earthquake preparedness culture and massive investment as a potential model.

Managing Uncertainty in Insurance

Even in periods of extreme uncertainty, there are several strategies available to carriers aside from rate actions.

Rising catastrophe losses, technological transformation, and evolving risk landscapes are forcing insurers to fundamentally rethink their approaches to underwriting, claims processing, and customer engagement, according to Datos Insights.

Insurers can diversify their portfolios to reduce the impact of any single line. At present, profitable auto lines are now highly coveted as competition has surged. Just a couple of years ago, insurers were shedding personal lines policies, as rates could not keep pace. Auto insurance lines are now forecast to have favorable loss ratios through 2027. The advantage goes to carriers growing their auto books profitably with rate-friendly tailwinds.

Excess and surplus lines grew 12%, reaching $81.6 billion in premiums last year, further demonstrating diversification opportunities. Similarly, the MGA distribution model expanded hand-in-glove, serving specialized markets and regions such as coastal exposed areas.

Carriers have always used sophisticated pricing and underwriting models, and the application of AI is expected to make them even better when it comes to ingesting more data and testing risk models -- as in digital twin comparisons and visualizing impacts well beyond just numbers on paper. This is extremely valuable in projections because historic models look backward to look ahead.

Likewise, investing in claims is a priority as worthy efforts to streamline are balanced with controlling loss costs at a time when adjuster resources are squeezed from retirement “brain drain” at the most skilled levels. Technology investment must go beyond core system upgrades to greater digitization while orchestrating the multitude of new tools, integrated provider partners and the numerous insurtech opportunities circling the tower and waiting for a landing spot.

New insurance products, high consumer awareness translating to greater insurer/policyholder engagement and joint risk management are evolving and opportune. 

Now more than ever in our insurance history, greater resilience and innovation coupled with a transition to a Predict & Prevent defensive posture is critical and urgent. 

Paul Carroll 

Things are so crazy in Washington DC these days that I can’t ask you for the sorts of precise predictions on inflation, GDP, prospects for the insurance industry, etc. that we usually discuss. What passed for U.S. economic policy this morning could be rather different by this afternoon. So I’ll ask you, more generally, what key trends we should watch out for in terms of the effects of tariffs and in terms of the broader economy.

Michel Léonard

Yes, while our conversations are generally pretty evergreen, I’ll note that we’re talking on March 7th at 1:00 PM Eastern time, which is relevant given yesterday's announcement about suspending some tariffs on Canada. Let me outline where we stand and the key baselines we should consider.

Regarding the economy, while growth has been diminishing, the economy has remained resilient. The key question now is whether this resilience is sufficient to survive the current instability and uncertainty. As of this first quarter, I believe we still have enough GDP momentum to weather what we're seeing now, even if these conditions continue for a full quarter. However, the risk of GDP contraction rather than growth is certainly present.

On inflation, we've seen it coming down to sustainable levels, which we define as 2% to 3%. The Fed has indicated it will tolerate inflation up to 3% before taking action. Looking at the baseline for interest rates and monetary policy over the next year, the trend line remains accommodative, with two main concerns: inflation resulting from tariffs and potential policy misjudgments. 

As [former Fed Chairman Alan] Greenspan used to say, the medication must fit the disease. It's important to remember that rising interest rates are effective when inflation is driven by consumption. Higher interest rates can drive down demand. However, when inflation is driven by tariffs or other factors related to consumption, raising interest rates doesn't work.

We're likely to see inflation hovering between 2.5% and slightly above 3%, without factoring in geopolitical risk. Continued geopolitical risk will put upward pressure on inflation. 

Looking at the big picture for the economy, I still see this year being resilient, ending with flat to slightly positive growth.

Paul Carroll

The Atlanta Fed recently forecast a potential 2.5% to 3% annualized decrease in GDP for the first quarter. Is that an outlier, or might that be correct?

Michel Léonard

When considering benchmarks for comparison, I think back to the first year of COVID, when we faced tremendous uncertainty around March 2020 regarding GDP projections. Firms like JP Morgan and Goldman were suggesting potential contractions of up to 30% -- numbers that were unprecedented but that made sense given the unique circumstances.

We're again in an environment of extraordinary uncertainty. We may be getting tired of describing everything as unique and new, but this situation truly is, perhaps even more so than before. 

At this point, I don't think we can clearly distinguish where performative policymaking ends and where the real impact on growth and growth expectations begins. Just yesterday, we saw another 30-day postponement in the imposition of tariffs, and there's fatigue around that. The market today is hovering flat after one of the worst weeks in a year, and there's fatigue there, too, as we would expect. While I traditionally focus on the real economy as an economist, my current concern is market sentiment.

The resistance in the market that keeps prices from going even lower stems from those of us who remain optimistic about growth this year -- and there are fewer and fewer of us on the optimistic side. Each time there's a performative announcement, the market's recovery within the following days becomes less robust. 

That exhaustion could lead to the Atlanta Fed's -2.5% projection happening for the full year, but that would require a very significant correction in this quarter and next quarter, and I don't think we're there. I don’t think that sort of contraction in the first quarter alone is possible. 

Paul Carroll

How much do you think Trump’s tariffs could drive up replacement costs, which have been such an issue for insurers in recent years?

Michel Léonard

Double-digit tariffs are not marginal adjustments. They're not about moving production -- they're about stopping production entirely.

Let me break this down step by step. First, as a baseline, we can look at what we experienced during COVID. Certain segments of the economy and insurance were particularly affected -- especially the auto sector. Due to supply chain issues, used auto prices soared. Interestingly, autos and motor vehicles are also key targets of potential current and future tariffs, so there should be some parallel with the COVID situation.

The impact of tariffs is already visible through uncertainty alone. People are already changing their purchasing decisions regarding cars. For example, in Canada, buying patterns are shifting. I'm originally from Canada, and my brother, who owns two American cars and was considering a third, suddenly changed his mind about buying another American vehicle. Similarly, bourbon producers in Kentucky are seeing demand drop because Ontario's liquor board, the world's largest buyer of alcohol, followed by Quebec, is already making different purchasing decisions.

For motor vehicles, we will inevitably see a significant drop in underlying growth, even if tariffs are suspended indefinitely, because the uncertainty is already present. This affects replacement costs for parts and repairs, though less so for labor. During COVID, replacement costs for motor vehicles -- both personal and commercial -- rose around 60%, largely due to used auto prices. I could see this happening again, following a similar timeline.

Ultimately, I believe we'll retain some version of Auto Pact, the predecessor to NAFTA. We'll likely end up with a cosmetic renegotiation -- remember, the current North American free trade agreement was negotiated by President Trump. The real question is timing -- whether it takes one month, three months, or six months. Insurance underwriters and industry professionals should be prepared for increases that could approach those COVID-era numbers for motor vehicles, the longer this situation persists.

And these double-digit increases in tariffs on lumber, auto parts and other materials don't just mean higher replacement costs – they mean many materials aren't available through the supply chain.

During COVID, lumber was still available, but we just couldn’t get auto parts and used cars. Now, we need to anticipate that goods will be stuck in transit at borders, creating significant delays. For people on both sides of the transaction – whether it's carriers handling rebuilding and repairs or homeowners getting their properties repaired – the issue is going to be time. We'll likely see more delays and uncertainty than we did during COVID.

Paul Carroll

I suspect we’re just getting started on the effects of these policy changes and all the uncertainty that surrounds them. Even if Trump’s protectionism proves short-lived – and I’m not sure it will – companies will have to rethink their global strategies. That could cause major changes to supply chains… and the companies that insure them.

Michel Léonard

As an American who immigrated from Canada, I've been shocked by how seriously other countries are taking these developments on protectionism. Those of us looking at this professionally know these are serious issues, but we also see a performative form of policymaking.

Those of us in the U.S. lived through the changes during the first Trump term, but it doesn't seem the rest of the world experienced it the same way we did. I've been surprised by that, and I think it's significant in terms of the damage done. It's quite difficult to imagine that the same level of trust will remain, for better and for worse. 

There are certain areas where change is good, and even if it's constructive destruction, sometimes it is useful. But I do think there is a great deal of damage. 

Paul Carroll

Do you see any historical parallels to what we’re going through?

Michel Léonard

What we're facing is potentially comparable to Margaret Thatcher's first two years as prime minister in the U.K. When Thatcher came in, she cut government spending, privatized industries, and moved extremely rapidly. She was actually on track to lose her position until the Falklands War came about and allowed her to recover politically. During this period, the U.K. experienced one of the deepest recessions since World War II.

That's the kind of economic pain we could be talking about here, but potentially on an even larger scale because it's the U.S. The agenda we're seeing now is even more transformative. The individuals involved in the current administration are much more like outsiders compared with those in Thatcher's administration, which makes this an even more striking parallel.

We're potentially looking at unemployment reaching high single or double digits, which in the U.S. has rarely happened since the Great Depression. This is why I'm concerned about the scale of transformation. We're not just looking at a typical stock market correction of 5% or 7% -- we're potentially looking at something that combines the impact of all previous corrections together. 

I haven’t given up. I’m still an optimist. But the potential implications go far beyond simple replacement costs, and that's what makes this situation particularly challenging.

Paul Carroll

Thanks, Michel. Fascinating, as always. 

In 2009, I gave a talk to a group of about 20 Silicon Valley CIOs, who were focusing on a novel question: what to do about all the personal smartphones employees had begun using since the introduction of the iPhone two years earlier. 

The inclination was to ban them for business purposes, or at least to tightly restrict their use. After all, employees had almost exclusively used company-issued electronics for their work, and CIOs liked the control that ownership of the devices gave them. 

Besides, smartphones introduced all sorts of complications. What if a company sanctioned the use of personal phones and an employee got distracted and had a car accident? Would the company be liable? What about protections for corporate data? If employees routinely used personal devices for work, they could much more easily walk off with company secrets. How would you even incorporate all the different flavors of smartphones into the IT infrastructure?

Now that we're a bit more than two years into the generative AI revolution, we're about to face the same sort of adjustment and discomfort because "bring your own" AI to work will happen more and more.

The good news is that, as employers and employees cope with the confusion, we can learn some lessons from what happened with smartphones and other waves of innovation. 

Let's have a look.  

The first lesson is that employers can't resist the trend toward BYOAI any more than King Canute could command the tide to stop coming in. Current employers are getting accustomed to using generative AI and will want to keep using the same large language model (LLM) when they move to a new employer. All the digital natives entering the work force from college will expect to have access to the AI tools they've been using in coursework or experimenting with on their own. 

Employers will have more control with BYOAI than they did with smartphones, because licensing fees for LLMs can be steep, and most employees will rely on their employers for access, rather than just heading to Best Buy and purchasing something on their own. In addition, as insurance companies increasingly develop specialized tools for agents, claims representatives, underwriters, etc., employees will have to fit into the corporate system.

Still, some uses of generative AI, such as individual productivity tools for research and writing, will be based on personal preference, and employers should be prepared to try to accommodate employees. Employers should actually encourage experimentation with models and templates built on top of them. That's because, while most innovations need to be sponsored by a manager or even the C-suite, a lot of innovation with generative AI can bubble up from the lower ranks. Yes, rethinking a claims process is a major, departmentwide or companywide endeavor, but individuals are finding ways to improve productivity for themselves and the small groups they may work in, and that sort of progress should be encouraged.

A second lesson from earlier technological leaps is that there will be legal issues. There are always legal issues. 

One will concern just what I can bring with me if I go to a new employer. If I've finetuned an editing template on top of an LLM you've bought me access to and did the work on your time, is that template my property or yours? I suspect it's yours, but those are the kinds of issues courts will sort out. 

Generative AI will also make it easier for people to walk off with information that companies will view as proprietary data and trade secrets. Part of the magic of generative AI is that it can amalgamate data from so many different sources, so quickly, and many companies are using that capability to speed underwriting and other capabilities. But that ease of access also means many employees may be able to get into far more internal systems than they could in the past. 

There will also certainly be copyright violations, because generative AI systems scoop up so very much information and sometimes don't flag that what they're producing in reply to a prompt is drawn almost verbatim from text or an image. That's a problem, in general, but will be more severe with LLM use that happens outside of corporate standards. 

The third big lesson I see is that BYOAI will make it harder to have a "single version of the truth," just as spreadsheets and PowerPoint presentations did. With spreadsheets and PowerPoints, individuals would use corporate data but would interpret it in their own way. They would sometimes get the data wrong or misinterpret it. They would also supplement the data with other sources. When they were done, they had come up with their own version of the truth, and it stayed on their computer, generally not available to others and not synched up with others' versions of the truth. 

CIOs have been fighting the battle over data consistency for decades, and they'll face it again with generative AI, in general, and with BYOAI, in particular. People will again download information, process it with AI, add their thoughts and produce a version of the truth that will generally stay on their computer. That so many companies operate in the cloud these days could make synching up easier, but CIOs will have to work to make sure they don't face the kind of splintering that happened with earlier technologies.  

How, then, should insurance companies react to the issues that BYOAI will raise?

Some MIT researchers have three general suggestions, as reported in the MIT Sloan Management Review.

They warn, off the top, against banning BYOAI tools:  

“If we restrict access to these tools, employees won’t just stop using generative AI. They’ll start looking for workarounds — turning to personal devices and using unsanctioned accounts and hidden tools. [In that case], rather than mitigating risk, we’d have made it harder to detect and manage.”

Then, they recommend:

"1. Build specific guidance. 

Leaders should develop clear guardrails and guidelines that enable employees to experiment safely with generative AI tools. Company experts in technology, law, privacy, and governance should be tapped to develop policies on sanctioned and unsanctioned generative AI use and specify which tools are acceptable and under what conditions.... 

"One leader on the MIT CISR Data Board [said] their organization clearly communicated approved uses of generative AI to employees, such as using publicly available information in their AI queries, versus off-limits uses, such as uploading data that contains personally identifiable information, strategic information, or proprietary data. The organization also had a clear process in place for anyone who was unsure about whether AI use was appropriate....

"2. Develop training and establish communities of practice. 

"Organizations should develop AI direction and evaluation skills to help employees use generative AI tools effectively. This training should cover the AI models that power generative AI tools, ethical and responsible use of AI, and how to critically judge AI-generated content....

"For example, the data and analytics unit at animal health company Zoetis holds twice-weekly office hours during which employees can learn how to start using generative AI tools and ask questions. This helps employees learn, improve over time, and build confidence..... 

"3. Authorize certain generative AI tools from trusted vendors. 

"Staying current with the ever-evolving market for AI tools requires considerable time and effort. To crowdsource this process, create a cross-functional team tasked with evaluating tools and giving feedback to IT about which tools promise real value....

"To simplify AI access and encourage employee use, Zoetis set up a generative AI app store in which employees can apply for tool licenses and learn about effective and responsible use. For each tool, employees can access guides for getting started, watch training videos, read the organization’s AI policies and guidelines, and more. Employees are also encouraged to submit stories describing how they used a tool. This feedback has helped the organization understand which tools deliver the most value for employees."

I suspect we'll wind up feeling our way through a lot of the issues, through trial and error, much as those Silicon Valley CIOs wound up doing with smartphones. But at least we can get a sense from history of the sorts of issues employers and employees will face as they adjust to generative AI and can avoid some of the potholes we've hit in the past.

Cheers,

Paul 

While third-party administrators have a long history of serving the insurance industry and have bright prospects, they face a once-in-a-generation change: generative AI.

AI Incoming

Prognostications on the impact of AI are ubiquitous – with insurance claims ripe for transformation. Several opportunities exist for AI to enhance or redefine the claims process, such as:

• Fraud Detection

• Claims Prioritization

• Claims Processing

• Settlement

• Subrogation

While the possibilities are nearly endless, the trend is clear – AI is changing the nature of the claims business in a way that will affect the relationship between third-party administrators (TPAs) and carriers.

First, AI is changing the nature of claims administration by challenging where human interaction (and judgment) is needed. Simple claims will see auto-adjudication without the need for an adjuster. We are already seeing carriers experimenting with this approach in the event of simple auto claims where photos and documentation result in near-instant decisions.

Second, AI should have a deflationary impact on the cost of administering claims. Pricing assumptions to manage claims on behalf of another entity are largely driven by labor costs. AI will change this by creating capacity for claims personnel, achieving both margin improvement for the TPA and potential cost savings for the TPA's client.

Third, AI will affect non-claims administrative work, such as in the contact center. AI use cases are often focused on call deflection, but everything from workforce management to key contact center metrics (e.g., average handle time [AHT]) will be affected by AI, creating additional capacity and challenging key assumptions in the TPA model.

A Brave New World For TPAs

AI will challenge the TPA market, but it will also present opportunities for those nimble enough to take advantage of them. The market has had an 8% compound annual growth rate (CAGR) over the last five years, and the increased cost associated with claims administration will only increase growth for TPAs. 

There are three opportunities for TPAs to provide greater value to insurance carriers:

1. Embrace the Complex – AI will drive down the volume of simple claims that require adjusters. It will also highlight the need that carriers, managing general agents (MGAs), employers, and others in the insurance ecosystem have for expertise to process the most complex claims. TPAs that possess the expertise to manage these claims will be in a position to grow market share.
2. Provide Data and Analytics Services – TPAs have an opportunity to leverage AI in their own operations to provide valuable insights to carriers and employers. Specifically, they can focus on providing data on what is driving claims for carriers to better underwrite in the future. This has historically been an area where carriers have struggled to gain insights.
3. Loss Prevention Services – In an era where the frequency and severity of claims are increasing, understanding how to mitigate or even potentially prevent claims provides even more valuable insights, both to TPAs and their clients. TPAs that can gain insights from their data and engage in root cause analysis on behalf of their clients can develop business units focused on loss prevention.

Why Now?

The TPA market has historically been controlled by large players. Specifically, TPAs servicing large/jumbo carriers and employers for claims administration have been able to keep entrants out due to their size.

AI changes all of this. The ability to leverage AI and other technologies successfully will allow traditionally smaller players to compete with medium and large TPAs.

In addition to this, carriers, MGAs, and others in the insurance ecosystem are exploring creating their own TPAs to meet their unique needs. What once was an expensive capability is now significantly more affordable due to technical innovations.

TPAs that do not look to enhance their existing offerings with new value risk losing significant market share. TPAs can no longer afford to simply rely on their size and scale to keep entrants out of the market, particularly if they are not price competitive.

The recent wildfires in Southern California have had a devastating impact, further straining the insurance industry and exposing serious gaps in traditional home insurance. With at least 200,000 displaced residents, 16,000 structures destroyed, and $250 billion in estimated economic losses, this catastrophe is poised to become the costliest natural disaster in U.S. history, surpassing even Hurricane Katrina.

As severe weather becomes a pressing reality for more Americans, insurers must reexamine existing policies and explore new models to ensure both consumer protection and industry sustainability. This latest catastrophe underscores the need to address three critical areas: population growth in disaster-prone areas, extended seasonal disaster threats, and the role of immediate services and assistance to displaced policyholders. By recognizing these challenges, we can develop solutions that better serve clients and support their financial stability.

Increasing Risk in Fire-Prone Areas

Housing development and population growth in disaster-prone areas present a growing challenge for the insurance industry. As residents move to these regions seeking affordable housing, they may not fully understand the exposure to potential loss associated with their location. In the last 30 years, the populations of high-risk counties have grown three percentage points faster than low-risk counties. From an insurance perspective, underwriting policies in these high-risk zones has become increasingly difficult. Insurers must account for heightened risk factors through higher premiums, reduced coverage options, or, in some cases, complete withdrawal from certain markets (such as California and Florida).

Extended Seasonal Threats

Furthermore, the Southern California wildfires occurred outside the typical wildfire season (June to October), highlighting the consequences of extended seasonal threats. Data from the NOAA illustrates how wildfires and other extreme weather events are beginning to persist year-round, beyond the scope of traditional risk planning. While factors like prolonged drought conditions can be managed and mitigated, insurers must account for today's increasingly unprecedented climate landscape in their policy offerings. This is also where local municipalities can collaborate with state and national funding programs to tackle projects designed to protect and future-proof infrastructure and property.

The Challenges of Displacement

In the aftermath of a wildfire, affected residents are faced with a slew of immediate hurdles, including finding temporary housing and accessing funds for essential expenses. The emotional and financial toll can be overwhelming, exacerbated by delays in claims processing and uncertainty about when or if their losses will be fully covered.

While insurance plays a crucial role in disaster recovery, the current claims process is often too slow to meet urgent needs. Policyholders may struggle with steep deductibles, lengthy claim assessments, and documentation requirements that hinder the rebuilding process. While many insurers cover temporary housing and other costs while a policyholder's home is uninhabitable, disbursement of these funds is frequently delayed by claim verification procedures, exclusions or coverage limits, leaving people responsible for significant out-of-pocket expenses. The average claims cycle for catastrophic events reported in 2023 was over 34 days, prompting a look at supplemental coverage to secure one's more immediate needs in the aftermath of a disaster.

The Need for Comprehensive Coverage

With these concerns in mind, the industry can look to parametric-style insurance solutions to expedite flexible financial relief. Payout models based on predefined triggers, like a wildfire, can ensure that policyholders have the resources they need when they need them most.

Multi-peril supplemental coverage, like Recoop Disaster Insurance, can diversify protection across multiple hazards while stabilizing premiums and reducing financial strain on traditional insurers. Partnerships between traditional home insurers and supplemental disaster insurers can establish robust, comprehensive coverage, particularly in high-risk regions where traditional policies are becoming increasingly unaffordable or unavailable. By offering lump-sum funds for a variety of perils within a single policy, the industry can simplify the process for homeowners and provide timely, critical first dollar coverage and financial assistance needed for meaningful recovery when the insurance industry's response threshold is tested most.

Forging Ahead

The Southern California wildfires serve as yet another wake-up call for the insurance industry. Traditional models are struggling to keep pace with the growing scale and frequency of natural disasters, leaving both insurers and the insured in a precarious position. By adapting to changing risk landscapes, exploring multi-peril coverage solutions, and putting client support at the center of industry strategy, insurers can evolve to provide more resilient protection for an increasingly uncertain future.

Insurance leaders are rapidly adopting tech tools. Following a few key steps can make the purchase process nearly painless.

Generative AI is primed to disrupt insurance and all other sectors. A recent IBM survey found that 77% of insurance executives say they must adopt AI quickly to keep up with their rivals. Beyond AI, the insurance technology market is predicted to grow 27% by 2033.

So, what happens when it's time to adopt new technology? For any tech solution that has the power to transform your business, you must meet disruption with deliberation.

Consider why the technology is needed and how it fits into the business. Then start your purchase by thinking about the decision process.

Identify key stakeholders

Before heading down the road of deploying new technology, identify everyone affected by it: the staff who use it, the clients who benefit from it, and the executives who approve the budget. Then, make sure to bring them along.

Getting support from each of these stakeholders takes more than just a pitch. Be transparent and remember that communication involves listening as well as sharing feedback.

Talk to stakeholders about why the new technology is needed and listen to any concerns. Technology should help meet business goals—such as improving renewal rates, reducing claims cycle times, or enhancing agent satisfaction—rather than being a trendy upgrade. Keep those goals in mind, and note challenges, wants, needs, and expectations.

Staff might have concerns about their job security, for instance. Be honest about those impacts. Emphasize that the goal isn't to replace them but to reduce repetitive work so employees can focus on higher-value tasks.

Or it might seem like leaders are resistant to change. Many independent agencies like paper and have been using their current processes for a long time. Make it clear why change is needed.

Launch a search—and prepare for responses

Organizing the search is a key step to finding the best partner for the job. Whether launching a formal request for proposal (RFP) or conducting an internal evaluation, detailing the process will help make a transparent, predictable, and auditable deal.

Here are the four steps of crafting a great request for bids:

• List goals. Detail how the new technology will be used. The vendors are the experts. By sharing your goals, vendors can help find unexpected ways to accomplish those goals.
• Outline the scope of the project. Transparency starts right away. List the expectations for the vendor and get ahead of any potential hurdles.
• Set the budget. Be clear about how much money can be spent on the project. And discuss internally how much extra to set aside in case the project grows beyond the original scope.
• Lay out the timeline for making a decision. Set a timeline for the decision process and stick to it. Let vendors know what steps are along the way and how communication will happen.

Laying out each of these pieces helps the communication process with vendors and makes it easier for them to know how to respond with all the useful information.

Self-evaluation, then evaluation

Maybe the most important step is what comes after the search: evaluation.

Before even looking at the first response, detail the decision process including the criteria that will be used for evaluating responses and how internal disagreements will be resolved.

Putting the decision process in writing can help in the tricky situation of getting too many good responses that need to be narrowed down.

If the call is tough to make, consider what is most important for meeting business goals. The lowest-price vendor might not offer key features or integrate with other tools. Or the technology with all the bells and whistles might be more than what's actually needed.

When evaluating a vendor, consider everything they have to offer. Not only should they meet the project's goals but also assess whether they can provide continuing support and if you trust them as a partner, because relationships matter.

Once you're ready to make a deal, stop to make sure everything lines up with the criteria that was set in the first place. The end goal is to find the solution that will best serve clients. Don't lose sight of that.

Know when to pivot

Ending an agreement or restarting a search isn't easy. When a vendor just isn't working out, don't fall for the sunk-cost fallacy. Refer back to the original criteria.

It's time to pivot when you've exhausted all possible workarounds. If the business doesn't meet the needs of the three stakeholder groups—clients, business leaders, and employees—or can't meet the terms of an agreement, it's time to pull the plug.

Flexibility is key to adapting when things don't go as planned.

When implemented thoughtfully, technology can benefit insurance agencies and carriers tremendously. These steps can help focus the decision-making process on what matters most and avoid common roadblocks.

With the right approach, new technology can help enhance customer service, improve operational efficiency, and stay competitive in an evolving market.

From real-time threat intelligence and continuous risk assessments, to penetration testing and cyber awareness training, the range and sophistication of tools and services designed to help businesses strengthen their cyber resilience strategies today is impressive.

Yet many U.S. businesses — even those that are larger, with typically bigger security budgets — still do not fully use proactive cybersecurity services. The 2024 Cybernews Business Digital Index, for example, shows that 84% of analyzed Fortune 500 companies scored a D or worse for their cybersecurity efforts, while small businesses often lack the resources to implement robust cybersecurity measures themselves.

Looking more granularly, there are further gaps to uncover across businesses of all sizes. For example, GetApp research suggests that 72% of C-suite executives — who hold critical business data — are targeted by cyberattacks, yet 37% of companies provide no extra protection for them. Meanwhile, just one in five companies say they're "very well prepared" to defend against high-volume AI-powered bot attacks.

These gaps sit alongside the fact that cyber threats are increasing in frequency, complexity and severity, triggered by geopolitical instability, out-of-date encryption methods and, of course, advances in AI. The result has seen the 2024 global average cost of a data breach reach $4.9 million — the highest figure yet and a 10% increase from the previous year — while ransomware alone costs an average of $5.2 million, with thieves having stolen over 1 billion records.

While some businesses operating among these risks have recognized the importance of investing in strategies that anticipate and mitigate risks before they materialize, gaps still remain.

Recognizing this, the cyber insurance industry is stepping in with efforts to strengthen the cyber defenses of its policyholders.

A shift benefiting policyholders, brokers and insurers alike

Aside from rising cyberattacks necessitating change, cyber insurance providers are also aware that any efforts that encourage businesses to be more proactive in this field are beneficial to all parties involved.

• Brokers: By positioning themselves as a trusted adviser and key part of businesses' resilience strategies, brokers can offer clients more than just policies.
• Policyholders: By following integrating advanced security solutions as part of their insurance adoption, businesses can not only reduce their exposure to cyber risks but also strengthen their overall security posture. What's more, some insurers even offer enhanced coverage benefits for policyholders who fully implement these defenses, reinforcing the value of leveraging insurance as a tool for resilience even more.
• Cyber insurers: By positioning themselves as partners in resilience, rather than just claims support providers, insurers can help businesses strengthen their cybersecurity posture, ultimately leading to fewer claims and a more robust underwriting model. As policies are increasingly structured and priced based on real-time risk assessment and continuous security improvements, rather than just historical data, the shift will ultimately transform the future of underwriting and claims.

Cybersecurity services and tools on offer

With the above in mind, many insurers are now offering their policyholders a range of cyber services at no additional cost. Examples include:

• Micro penetration testing: Preliminary penetration tests that uncover hidden system weaknesses before adversaries can exploit them.
• Phishing simulation and cybersecurity training for new policyholders: Advanced phishing simulations that mimic real-world attack methods to train employees to spot and avoid social engineering tactics.
• Cyber risk insights and recommendations: Comprehensive scans and diagnostics to quickly identify potential vulnerabilities, coupled with recommendations on remediation.
• Continuous risk assessment: of networks, endpoints, and cloud environments—ensuring any anomalies or threats are flagged in real time.
• Integration with leading security and IT platforms: Quick and seamless integration, enabling real-time risk scoring and insights.
• On-demand surveillance: of actively exploited vulnerabilities that have the potential to affect policyholders during widespread cyber events.

Alongside these, some are also branching out into offering subscription-based cyber resiliency services. These aim to offer advanced capabilities that will significantly enhance policyholders' cybersecurity posture, without requiring costly in-house resources. Examples include Managed Detection and Response (MDR) Security Operations Center (SOC)-as-a-Service, Penetration Testing-as-a-Service (PTaaS), Cybersecurity Training-as-a-Service (CTaaS), and monitoring of user access to cloud services.

The new industry standard

As cyber risks continue to evolve, it's my view that this proactive model of cyber insurance — one that goes beyond financial protection to actively enhance security resilience — will become an industry standard. And in the long run, businesses that embrace this shift early will be better equipped to defend against cyber threats, while allowing insurers to benefit from stronger risk profiles and brokers to play an even greater role in safeguarding their clients' digital assets.

Cyber insurance is no longer just about recovering from cyberattacks — it's about preventing them in the first place.

Over the last few years, artificial intelligence (AI) and machine learning have become integral to the insurtech industry. According to PwC, the global AI insurance market size was $4.59 billion in 2022 and is projected to reach approximately $80 billion by 2032, with North America leading the way. Most companies, whether they are traditional insurers or insurtechs, have a plan to implement artificial intelligence into their business operations and propel the industry forward.

As an insurtech, Cover Genius has embraced AI and machine learning since our inception to provide dynamic recommendations through our API. However, as LLMs (large language models) and generative AI continue to evolve, they promise to revolutionize even more business processes, such as integration, content creation, claims processing and distribution.

Streamlining integration

One area where AI can significantly support insurtechs is by streamlining integrations. Insurance policies are inherently complex, with different structures depending on the region, geography and underwriter. This complexity often makes launching an integration a time-consuming process, requiring extensive testing to ensure the right policy reaches the right customer in the right market.

However, AI is transforming this process by automating test cases and improving launch times. This technology enables faster, more efficient integrations, allowing brands to easily update or launch new offerings across markets. Previously, these changes required significant investment, making companies hesitate to change their offerings, even if it meant making them better.

By automating and streamlining the integrations, AI empowers insurance providers to improve and evolve their offerings with minimal investment, saving valuable time and resources while ensuring their policies meet regulatory requirements.

Content creation and claims processing

Another key area where AI is changing the insurance industry is content creation and claims processing. AI can assist in automating email responses, Web UI (user interface) translations and copy generation, leading to more personalized customer experiences, improved engagement with insurance offers and faster operations.

Additionally, AI enhances the claims process by facilitating document translation and data extraction during the claims process, making it easier for insurers to verify claims against policy coverage. By automating routine tasks such as data extraction, document verification, and initial claim assessment, companies can reduce manual intervention and human error. In addition, AI-driven chatbots and virtual assistants can handle repetitive, administrative queries from clients, freeing staff to concentrate on higher-value-added tasks, such as coverage-related queries.

Complex claims cases will always require human oversight, but this approach helps speed response and resolution times so customers are not out of pocket on expenses for too long. At Cover Genius, we combine AI capabilities with human expertise to create claims experiences that are faster, more personalized and supportive of customers in their time of need.

Distribution and personalization

In distribution, AI enhances customer support by answering questions throughout the policy lifecycle – not just at the time of a claim. For example, advanced demand modeling and automated segmentation can contribute to more tailored offerings. If a customer books a winter flight to Switzerland, they can be identified as a candidate for ski coverage in addition to standard travel protection. As segmentation becomes more sophisticated, it unlocks new ways for customers to interact with platforms, making it easier to access relevant information and coverage quickly.

Balancing risk and compliance

AI is still a new technology, so while it is a powerful tool that can improve aspects of insurance, companies must proceed with caution, especially in areas where they are providing consumers with information about insurance products. For example, AI chatbots have often provided false answers or bad advice that do not align with actual business policies. From a risk perspective, insurtech companies must ensure they are not providing consumers with coverage advice while AI technology is still in its infancy.

Additionally, companies should remain aware of data considerations, such as customer consent and data ownership, when implementing AI measures. By carefully weighing the benefits and risks associated with AI adoption, insurtech firms can harness the full power of this groundbreaking technology while minimizing potential pitfalls.

Conclusion

AI has already transformed many aspects of the insurtech landscape, and its continued evolution promises even greater advancements. By leveraging AI for integration, content creation, claims processing and distribution, insurtech companies can maximize efficiency and deliver better services to their customers. However, balancing innovation with risk management is essential to ensure responsible and sustainable growth of AI in the insurtech sector. With careful planning and strategic implementation, AI has the potential to reshape insurance and create a more efficient, customer-centric industry.

In recent years, our communities have faced an onslaught of destructive events—from devastating hurricanes to widespread wildfires. These challenges underscore the critical need for effective crisis communication, particularly from insurance providers who serve as a crucial support system when disaster strikes. 

Drawing on my personal experiences—first, losing our home to Hurricanes Helene and Milton, and now witnessing the Myrtle Beach wildfires of 2025 and the concurrent California wildfires—this article explores how timely, empathetic, and clear communication can make all the difference for individuals affected by these events.

Wildfires in Myrtle Beach and California, 2025

As of March 7, 2025, fires in the Myrtle Beach area—particularly in Carolina Forest—have ravaged over 2,000 acres, leading to widespread evacuations. Meanwhile, California has also been battling significant wildfires this year, adding to the urgency of improving crisis communication strategies nationwide. Whether in South Carolina or on the West Coast, dry conditions and strong winds have fueled these fires, placing enormous pressure on both residents and emergency responders. In these situations, communication from local authorities and insurance providers must offer support, clarity, and reassurance.

Successes in Crisis Communication

Effective crisis communication can mean the difference between confusion and clarity, fear and reassurance. Several recent examples demonstrate how timely, transparent, and well-executed messaging has helped mitigate the chaos and support those affected. These successes provide valuable insights for future crisis responses, helping organizations refine their strategies to better serve communities in need.

Timely Evacuation Alerts

Local officials have used social media, television, and radio to issue evacuation orders promptly, giving residents real-time updates to inform decisions and reduce potential casualties.

Operational Transparency

Emergency responders continue to share regular updates on firefighting progress, containment efforts, and safety guidelines, building trust and keeping misinformation at bay.

Gaps and Opportunities

Federal Assistance Clarity

Inconsistent or incomplete messaging on resources like FEMA support has left many people unsure of the financial and logistical help available.

Insurance Communication

The coastal insurance crisis, compounded by multiple natural disasters, now faces new complications because of these wildfires. Policyholders remain uncertain about coverage details, claim-filing procedures, and next steps amid continuing threats.

Inclusive Messaging

Vulnerable populations—including older adults, non-English speakers, and those without reliable Internet—risk missing critical updates. More diverse communication strategies are essential.

Reflecting on Hurricanes Helene and Milton

My family and I witnessed firsthand how different communication approaches can either intensify or alleviate stress. While the context differs between hurricanes and wildfires, the core lessons about the importance of effective communication remain consistent. Hurricanes Helene and Milton provided two contrasting examples:

The Misstep: Stress-Inducing Insurance Emails

• Generic Messaging: Failed to address specific circumstances and referred to late payments, even though my policy was fully paid.
• Poor Timing: Arrived after the initial danger yet instantly launched into administrative details instead of first asking about safety.
• Excessive Detail: Overly lengthy policy explanations and repetitive fine print added to stress rather than clarifying next steps.
• Transactional Tone: Brief mention of safety was overshadowed by an impersonal focus on payments and deadlines.

Impact: In the midst of displacement and overwhelming anxiety, I found myself searching for reassurance. Instead, the email only deepened my uncertainty.

The Success: Outreach From Duke Energy

• Regular, Timely Updates: Essential information on outages, restoration timelines, and safety tips.
• Visible Leadership: Messages from Duke Energy State President Melissa Seixas showcased genuine concern.
• Multi-Channel Outreach: Emails, texts, mobile app, and social media ensured diverse audience reach.
• Supportive Tone: Acknowledged hardships and offered practical guidance.

Impact: This approach dispelled uncertainty, making us feel informed and supported.

Key Takeaways for Insurance Providers

Both the wildfires and hurricanes highlight several essential lessons for insurance providers:

1. Timeliness Is Critical: Address immediate safety concerns before policy details.

2. Personalization: Use available customer data to personalize communication.

3. Clarity and Conciseness: Simple, clear messaging cuts through chaos.

4. Empathy Over Transactions: Prioritize human needs over administrative matters.

5. Multi-Channel Reach: Ensure broad accessibility of messages across various platforms.

6. Visible Leadership: Executive-level involvement reassures and builds trust.

A Personal Reflection and Call to Action

Having lived through these events, I recognize how important clear, empathetic communication is during times of crisis. Insurance providers and stakeholders must commit to human-centric outreach to effectively support affected communities. This can be achieved by implementing practical steps such as:

• Developing Pre-Disaster Communication Plans: Establishing clear, preemptive messaging frameworks ensures swift and coordinated responses when crises arise.
• Enhancing Digital and Multi-Channel Outreach: Leveraging text alerts, social media, and mobile apps increases the likelihood that critical information reaches all policyholders, including those with limited Internet access.
• Training Customer Service Teams for Crisis Response: Ensure frontline staff are equipped with the knowledge and tools to provide clear, compassionate guidance during disasters.
• Simplifying Claims and Assistance Processes: Reducing bureaucratic complexity in post-disaster claims can alleviate stress for affected individuals.
• Building Stronger Partnerships with Local Authorities: Coordinate with emergency management agencies and community leaders to amplify messaging and resource distribution.

By integrating these steps into their crisis response strategies, insurance providers can foster trust, provide timely support, and ultimately improve outcomes for those impacted by disasters.

Conclusion

The wildfires in Myrtle Beach and California, alongside past hurricanes, demonstrate the indispensable role of crisis communication. Insurance providers can significantly ease the trauma and uncertainty following such events by adopting comprehensive, empathetic, and timely communication strategies.

Stay safe, stay informed, and remember that clear, compassionate communication can be a powerful lifeline during a crisis. 

Consider reaching out to your local representatives or insurance providers to advocate for improved crisis communication policies and preparedness plans.

It is no secret that surprises that affect a company's results are anathema to investors. Negative surprises naturally upset investors, but even positive surprises can do the same. Such reactions are true for individual retail investors as well as investment managers and analysts. For retail investors, a negative surprise can result in share price declines and possibly dividend declines in their holdings. For investment managers, a negative surprise can result in the same issues but can also damage their credibility if their buy/sell ratings are not aligned with the new reality that the surprise created. Likewise, a positive surprise can hurt their credibility if it is misaligned with their ratings.

Chief risk officers know that when a risk is not identified or is not well managed, it can lead to a surprise affecting company performance. When companies practice true enterprise risk management (ERM), all types of risks are identified, prioritized, and managed, with a heavy emphasis on those that can materially affect the company's ability to meet its strategy and financial goals. In addition, ERM has the remit to identify emerging risks, those that are less obvious and less developed. To optimize the ERM process, the chief risk officer needs to be part of strategic discussions, be knowledgeable about what is going on throughout the organization and in the macro environment, be up to date on key performance indicators (KPIs), and be involved in new initiatives, or important risks could be missed.

Ultimately, risk management's input to the board of directors and senior management is essential so that a comprehensive understanding of company risks, including potential surprise areas, is created at the highest levels. With that understanding comes an enhanced ability to fine tune what is released in public disclosures and reporting documents.

Public companies are used to filling out SEC required forms and reports. SEC's Form 10-K Section 1A and 7A and Form 20-F both require disclosure of risks. This content gets a lot of attention from regulators and investors. For many companies, filling out these sections has become almost rote. When reading the filings of companies in the same industry, the content barely varies from company to company. Of course, companies do list some risks unique to the company. Generally, companies are less likely to list a unique risk that they are trying to resolve before it becomes too big or too public. Finally, companies cannot and do not list risks they have not even identified.

Did a tech giant adequately recognize or report the risk of its consumer demand falling in China before it was sued by shareholders? Did a coffee producer and retailer realize that the meager reporting of its risks relative to its massive China expansion plans would result in a shareholder class action? Did a well-known consulting firm recognize or report the risks involved in consulting with drug makers to increase sales of opioids before it faced shareholder dissatisfaction? Did a beer producer realize or report that a new marketing initiative might not go as planned or might even backfire to result in a drop in sales? Did a healthcare company realize or report the full extent of the risks with its AI initiatives before regulators started looking into its practices? If they did identify the risks and did report them, then their investors had a chance to consider the possible effects of the risks. However, if the risks were not recognized, then the board and senior management did not get a chance to mitigate them or determine if they should be disclosed. And, if not disclosed, then any surprise they caused that hurt company results would very likely be received with dissatisfaction among investors.

Situations like the ones described above carry the potential for deleterious effects on share price, sales revenue, reputation, and shareholder litigation. In terms of shareholder litigation vis-à-vis unreported risks specifically, the April 2024 U.S. Supreme Court ruling, in Macquarie Infrastructure v. Moab Partners, LP, held that "a corporation's failure to disclose certain information about its future business risks, without more, cannot form the basis of a private securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5." That does not shield corporations completely from lacking transparency about their risks. Suits can still be attempted despite this ruling, and liability remains if reported risks are represented inaccurately, such as when a risk is not expressed at the right level of materiality or a risk is made to seem like a future risk but is actually currently present.

Clearly there is a distinction between what must be reported due to regulations and what could be reported to ensure against surprising investors. The universe of risks that must be reported is smaller -- for example, those related to cyber incidents and environment/climate impacts -- than the universe of risks that could be reported. Nevertheless, nothing stops investors from trying to sue despite the chances of prevailing, and nothing stops investors from fleeing a company that has failed to be transparent about its risks. The current plethora of shareholder actions attests to this.

Questions posed at company earnings calls have shown that investors are paying attention to the risks companies choose to disclose or risks they suspect the company may be susceptible to. These investors know that a company that recognizes and addresses its risks is one that can avoid surprises better than others that do not. Transparent companies tend to be valued more favorably than those that are not transparent.

None of this is to say the chief risk officer should be the one deciding on what the company does or does not report. Nor is the point that the chief risk officer is solely responsible for addressing risk. Specific risk owners and senior management are primarily responsible for doing that. The point is that risk management, as a function, has a key role in identifying risks, including risks that may not be quite so obvious but that could lead to a negative surprise. ERM dictates that the full panoply of risks is within scope. As long as risks are communicated to the board and senior management, they will be enabled to make the best decisions about what to disclose and report.