Dynamic pricing in insurance represents a paradigm shift from traditional pricing strategies to real-time, data-driven risk assessment and pricing optimization. By leveraging advanced analytics, artificial intelligence, Internet of Things sensors and telematics, insurers can now dynamically adjust premiums based on market conditions and behavioral patterns. This transformation enables personalized coverage and incentives for positive behavior and creates a virtuous cycle of risk reduction to deliver business value to policyholders and shareholders.

In 2023-24, as the insurance industry grappled with unprecedented climate-related catastrophes and geopolitical tensions, traditional actuarial pricing models faced challenges. When Hurricane Idalia struck Florida in August 2023, causing $3.6 billion in damages, insurers witnessed claim patterns that defied historical models. It was the strongest hurricane to hit Florida's Big Bend region in more than 125 years. Similarly, the Red Sea shipping crisis in early 2024 triggered a cascade of marine and cargo insurance disruptions, with premium rates surging. The "Change Healthcare" attack in February 2024 is an example of third-party ransomware exposure, where an insured company is affected by an attack on one of its service providers.

These events highlight limitations in traditional pricing strategy, which relies heavily on historical data, static risk factors, generalized linear models and experience rating. Also, changing risk exposures, customer behaviors, market conditions and increased competition necessitate the need for sophisticated pricing mechanisms to stay relevant and be perpetually adaptable to dynamic needs.

Current state and limitations

In the digital world, where risk postures and behaviors are changing dynamically and new risks are emerging, actuaries are facing twin objectives: to ensure profitability of the insurer and meet the obligations to insured through pricing strategies and technical provisions or reserving for payouts, respectively, in a competitive and regulated landscape. Today's pricing is anchored on generalized linear models (GLMs), historical claims data and catastrophic modeling. These traditional GLMs may not be able to handle very large or high-dimensional data sets and unstructured data (telematics, sensors, images, etc.), limiting their accuracy or effectiveness to capture behavioral changes and outliers, forecast claim cost trends and revise their assumptions that affect agility for rate revisions.

These methodologies operate on prolonged cycles such as annual rate reviews, quarterly loss development analysis and monthly exposure updates. The foundation of these relies on predetermined risk classifications, processed through batch systems with fixed rating engines and rigid schema requirements. With the emergence of dynamic risk exposures, as seen in Hurricane Idalia, geopolitical events and climate crisis, compounded by regulatory constraints requiring 60- to 90-day rate filing periods and growing demand for real-time pricing from digital distribution channels, the industry needs to evolve and adapt to new realities.

See also: How AI is Redefining Insurance Pricing Strategies

Dynamic pricing with reinforcement learning

Reinforcement learning (RL) transforms insurance pricing strategy from a static, retrospective process into a dynamic, forward-looking one. Unlike traditional methods, RL agents continuously learn from every pricing decision, interaction and claims outcome. It offers a solution by treating pricing as a sequential decision-making process where each pricing decision influences future customer behavior and market dynamics.

The RL approach to dynamic pricing involves the following components:

State Space (S) Engine:

• Demographics component to handle customer segmentation and risk profiling
• Claims analysis engine to process historical claims and identify patterns
• Market monitor to track the dynamics of competition and market conditions
• Portfolio tracker to monitor and maintain the book of business

Action Space (A) Controller:

• Price adjustment engine to manage premium modifications
• Discount manager to orchestrate incentives and promotion pricing
• Coverage modifier to handle policy/contract terms and conditions

Reward Function (R) Engine:

• Cost analyzer to monitor expenses such as acquisition costs and claims
• Revenue calculator to track income streams such as premium
• Performance metrics to measure business impact such as improvement in customer lifetime value, customer retention and profitability

It comprises a core engine, which includes:

• Environment simulator to generate hypotheses and synthetic scenarios to model customer behavior, claims and competitor responses to market conditions
• RL agent to implement the learning algorithm and employ dual learning approach, which includes active learning of customer behavior patterns, competitive response adaptation, etc., and offline learning via market scenario simulations

Data and Integration Layer:

• Real-time and batch data ingestion, processing and transforming data for RL models
• Feature store to maintain model inputs
• API gateway to manage external communications
• Service mesh component for microservices and interoperability

Decision Engine and Experience Layer:

• Policy network to determine optimal actions and pricing decisions
• Value network to evaluate state-action pairs and outcome prediction
• Experience layer to monitor and incorporate the feedback loop and improve the outcome
   

Figure 1: Dynamic Pricing Mind Map powered by RL

See also: How AI Could Set Premiums in Real Time

Value creation

Dynamic pricing empowers insurers to implement sophisticated premium adjustment frameworks that reflect dynamic risk profiles. In property and casualty insurance, telematics-based behavioral scoring models enable dynamic risk segmentation, incentives and improved loss ratios with engaged insureds. Similarly, wearable-based continuous monitoring creates opportunities for dynamic medical underwriting, risk prevention strategies and potentially reducing claims frequency and rewarding positive behavior change.

In commercial lines, integration of industrial sensor data enables dynamic exposure rating, as compared with static class rating. Also, analyzing insurance product/rate filings submitted by competitors to state regulators, using AI and large language models enables insurers to understand the proposed rate changes and objections raised by regulators. This granular approach to risk quantification not only optimizes technical pricing but also enables innovative product solutions driven by parametric triggers and usage-based insurance, leading to responsive risk management.

The Way Forward

As the industry evolves toward real-time risk assessment, dynamic pricing stands as a critical competitive differentiator. Insurers need to embrace an integrated ecosystem of data-driven pricing capabilities, which demands investment in robust data architecture, advanced analytics capabilities, seamless data exchange and personalization. The insurers that can effectively balance technical sophistication with market responsiveness, while maintaining pricing transparency and customer trust, will lead the frontier.

Advanced technologies like artificial intelligence (AI) and machine learning (ML) are reshaping processes, enhancing efficiency, and reducing costs as the insurance industry continues to evolve to take advantage of technological advancements. At least one key area, however, still requires human expertise – language interpretation and translation. This article explores how insurance companies can find the right balance between technology and the human touch.

The Complexity of Language in Insurance

Individuals with limited English proficiency (LEP) represent a large market for the auto, home, and health insurance sectors. More than 26 million LEP individuals in the U.S. speak more than 350 languages. Approximately 68 million people in the U.S. speak a language other than English at home, according to the U.S. Census Bureau. Insurers need accurate policies and translations of other insurance documents to continue capturing this market. To service this market, insurers need accurate real-time interpretation to answer policyholder questions and process claims.

The complexity of insurance documentation and the nuance of the legal language required means that translation from English to other languages is challenging for AI and other machine translation tools. Similarly, interpretation of the often complex and nuanced conversation around policyholder questions and claims processing is also exceedingly difficult for these AI/MT tools. Let's explore both challenges and solutions that can ensure accuracy, create positive interactions with policyholders, and avoid increased liability and associated costs.

See also: Insurance: An Industry Embracing AI

Interpretation: Bridging Real-Time Communication Gaps

Interpretation involves real-time communication between two parties with the help of a multilingual mediator. In the insurance industry, interpreters play a crucial role during interactions with LEP individuals, enabling numerous activities such as reporting accidents, inquiring about coverage, or navigating the claims process.

Interpreters must traverse complex linguistic and cultural landscapes to ensure that all parties fully understand each other. This task requires language proficiency and a deep understanding of cultural nuances. For example, when interpreting for Spanish-speaking LEP individuals from different regions, an interpreter must be aware that the word "carro" means "car" in most Spanish-speaking countries, but in some regions, "carro" can also mean "cart." Misunderstanding this nuance could lead to significant confusion during an insurance claim discussion. Understanding these and other subtleties is vital for accurate interpretation and appropriate claim settlements.

Translation: Ensuring Accuracy in Written Documents

Translation refers to converting written text from one language to another. In the insurance sector, accurate translations of documents like policies, claims, and communications are essential to ensure LEP individuals fully understand their insurance coverage and the claims process.

AI and ML can assist with initial translations, providing a rough draft that can speed up the process. However, these translations often lack the precision needed for complex insurance documents. Human translators are indispensable for reviewing and refining these drafts to ensure they are accurate and culturally relevant. For instance, in Arabic, the word 'يد' (yad) typically means "hand" but can also imply "control" or "ownership," depending on the context. Such ambiguities can lead to misunderstandings if not properly addressed by a skilled human translator.

The Silent Threat Inside 25% of Insurance Claims

A staggering 10% to 25% of insurance records may be unreliable due to cultural and language nuances that elude direct translation. These subtleties can complicate claims processing, increase premiums, and delay settlements. Words in different languages can carry multiple meanings based on context, and misinterpretation can lead to significant misunderstandings with legal liability implications.

These misunderstandings can lead to significant negative outcomes:

• Claims Denials or Underpayments: Incorrect translations can result in claims being denied or underpaid due to misinterpreted policy terms or accident details. For example, if a term describing an injury is mistranslated, the insurance company might reject the claim or offer a lower settlement than deserved.
• Legal Disputes: Misinterpretations can lead to disputes between policyholders and insurers. Policyholders may feel they are not receiving the promised coverage, leading to lawsuits and legal battles, which increase costs for both parties.
• Increased Premiums: Insurers may increase premiums across the board to cover potential losses from misinterpreted claims. This affects all policyholders, including those whose claims are accurately processed.
• Delayed Settlements: Misunderstandings can delay the settlement process as additional time and resources are required to clarify and correct the information. This can be particularly burdensome for policyholders relying on timely payouts to cover damages or medical expenses.

Insurance claims' cultural and linguistic nuances are not merely minor inconveniences—they can have significant financial and legal implications. Ensuring accurate interpretation and translation is essential to maintaining the integrity of the claims process, upholding customer trust, and avoiding unnecessary legal complications.

See also: The Future of CX: Synchronizing AI, Human Interaction

The Indispensable Human Element

Despite the advances in AI and ML, the need for human oversight in translation and interpretation remains critical. AI can provide a first-pass translation of documents, but human experts must review and refine these translations to ensure accuracy and cultural relevance. When LEP individuals report accidents, inquire about coverage, or navigate claims, human interpreters are essential to facilitate clear and accurate communication. In these instances, AI's "good" isn't good enough.

As the insurance industry continues to integrate advanced technologies, the balance between AI capabilities and human expertise will be vital to providing personalized, accurate, and responsive insurance services.

In the insurance industry, conference season is a year-round occurrence, with events and meetings frequently filling our calendars. These gatherings, often hosting hundreds or even thousands of attendees, require careful planning to ensure they run smoothly and safely. While insurance professionals are naturally attuned to the risks involved in hosting events — especially larger ones — clients may not always share that awareness. As we approach the busy holiday season, this is a good time to consider how we can help them navigate these challenges.

For breweries and wineries, overlooking event safety can have significant consequences. Wineries, for instance, often host weddings, family reunions, corporate events and seasonal celebrations, especially during harvest. Breweries are also kept busy with everything from hosting company parties to product launches and holiday parties, but these, too, carry inherent risks.

This isn't just a concern for the beverage industry; businesses across many sectors can encounter challenges when events don't go as planned. Agents and brokers have a vital role to play in helping clients identify potential risks, take appropriate precautions and determine whether additional coverage might be a wise choice.

See also: From Risk Transfer to Risk Prevention

Check in with your policyholders

One of the best places to start when it comes to understanding your client's events risk is with a visit or phone call at the beginning of the year. Agents should reach out to their clients to check if they have a calendar of events prepared. Some additional events may arise as the year goes on, but it's good practice to reach out early to help business owners and operators prepare as much as possible to host these events safely.

Before an event, agents can help their clients by not only reviewing their coverage but also helping ensure their client is set up for a successful event season. For instance, if a winery is hosting a wedding, having an event contract in place with the customer can be invaluable. A well-crafted contract can clarify responsibilities for both parties and help reduce liability exposure, providing an added layer of protection if something unexpected occurs.

Understand and relay the risks to your policyholders

When it comes to hosting events, there are certainly some risk exposures that are unique to wineries or breweries or whatever the venue may be, but many are more universal. When assessing event risk for a policyholder, consider the following risks and risk mitigation practices:

Liquor Liability: Managing liquor liability with increased foot traffic can be difficult, particularly at a small business, but a liquor liability loss can prove incredibly costly to an unprepared business. Businesses should implement ID checks, require wristbands at highly attended events to identify individuals who are legally able to drink and define protocols to handle intoxicated patrons. Staff members should be trained on this protocol well in advance of the event. Having water stations, snacks and nonalcoholic beverages available is also recommended.

Property Damage: Crowded events often come with the risk of unexpected damage. For instance, in small breweries hosting events, it's not uncommon for customers to wander into production areas, increasing the risk of liability and potential damage to expensive equipment. Simple measures like clear signs or roping off restricted areas can go a long way in reducing this exposure. Additionally, ensuring that event setups, such as stages and tents, are professionally installed can prevent collapses. Hiring private security can help manage crowds effectively and further minimize risks.

Bodily Injury: Large crowds often increase the risk of slips, trips and falls. At wineries, this is a common concern during events where vineyard tours are offered. These areas can be slippery or muddy, and with so many people navigating tight spaces, accidents are more likely. Another frequent hazard involves production areas, where hoses, lines and cords can pose significant risks. Not only can they cause trips and falls for employees, but they can endanger guests who wander through these spaces during tours.

During risk management inspections, hazards such as uneven flooring or loose boards that can amplify these risks have been identified. To help mitigate these issues, agents should encourage their clients to conduct a thorough inspection of the property before events. This process should include checking for any faulty flooring and establishing clear guidelines for areas that are off-limits to guests. Proactive steps like these can significantly reduce the likelihood of injuries and liability concerns.

Equipment Breakdown: Events can place additional strain on equipment. Business owners may overwork their equipment to ensure a smooth event, such as overusing HVAC systems or food service appliances to churn out small plates for guests. Then, when a breakdown occurs, they cannot return to normal business operations after the event. Conduct equipment inspections before any event and help insureds determine what equipment may need maintenance. Confirm their policy also adequately covers their equipment in the event of a breakdown.

Fire: With the increased load on equipment to manage significant crowds, clients have an increased fire exposure during an event. Ensure their fire extinguishers are up to date and in the right place and offer advice on fire safety practices in case a fire breaks out.

Theft and Vandalism: Large events are an opportunity for theft and vandalism. Agents should advise their clients to hire private security and install cameras and CCTV to keep track of any potential incidents.

Parking: More people often leads to an increased volume of vehicles, which increases the risk of auto accidents. Recommend clients hire parking attendants to help customers safely park and consider taking a walkthrough of your client's parking lots to inspect for potholes or other hazards.

See also: Navigating the Complexities of Venue Insurance

Be a valued adviser

To be a valued adviser, it's essential to think critically about the events your clients host and the potential risks. Certain activities — such as mixing alcohol with high-energy or physically demanding events — can pose significant safety concerns. In the winery space, for instance, activities like grape stomping may seem fun but can present risks to participants and the property. Advising your clients to carefully assess the safety of their events is key to protecting their customers, employees and operations.

Partnering with a specialty insurer can provide valuable insights into risks unique to your client's industry. Experts in winery insurance can help identify potential issues with specific events or offer tailored risk mitigation strategies. By leveraging the expertise of a specialty carrier, agents can enhance their own knowledge and provide well-informed guidance to their clients, strengthening relationships and ensuring comprehensive protection.

American roadways carry 13 million trucks, 2.9 million of which are semis that keep the country moving and connected. There's a lot at stake every time a driver gets in the vehicle, leaving fleet managers to face daily challenges and potential safety risks. 

Due to the increase in inflation, fleet managers have had to focus less on making fleet improvements and investing in software to help navigate driver safety and vehicle maintenance. Thankfully, with inflation easing and the fleet management market expected to grow to $16 billion by 2025, managers have the opportunity to reassess their operational strategies, particularly when exploring advanced telematics solutions that were previously out of reach.

Operational Efficiency Through Real-Time Data

Telematics solutions have proven critical for managing fleet-related risks, and now, with reduced financial pressures, there's room for investment in more advanced systems. These platforms provide real-time data on vehicle health, performance and driver behavior, which can directly affect the fleet's bottom line. This data also improves underwriting accuracy and helps fleets adopt safer driving practices, thus reducing accident-related claims.

With these real-time data and actionable insights, fleet managers can cut fuel consumption, reduce vehicle downtime and enhance operational efficiency — all factors that also help insurers manage their risk portfolios more effectively. Modern telematics systems can bridge the gap between reducing fleet operational costs and offering insurers more reliable data to support policy pricing and claims adjustments. Telematics provides more than economic relief; it's a risk mitigation solution that helps push fleets toward a safer future.

Mitigating Risk With Safety Measures

The ability for fleets to maintain real-time visibility into the location and status of assets can prevent costly delays and improve the overall reliability of operations. Here are some ways telematics solutions offer fleets the ability to reduce insurance premiums:

• Improved Driver Behavior: Telematics tracks driver habits such as speeding, harsh braking, rapid acceleration and excessive idling. With real-time data, fleet managers can coach specific drivers on safer behaviors, leading to fewer accidents and lower risk. Driver behavior monitoring through telematics has decreased speeding incidents by 34%, harsh braking by 26% and idling by 9% on average.
   
• Maintenance Scheduling: Solutions monitor vehicle health, ensuring that preventative maintenance occurs before breakdowns or safety issues arise. Well-maintained vehicles are less likely to be involved in accidents.
   
• Accurate Data for Claims Management: Comprehensive data can provide accurate, real-time information about an accident, including speed, location and impact details. This data can speed up the claims process and reduce the chances of fraudulent claims.
   
• Compliance With Safety Regulations: A strong compliance record reduces the risk of regulatory penalties, making fleets more favorable candidates for lower insurance costs. Telematics assists fleets in adhering to safety regulations by tracking compliance through inspection and certification requirements.
   
• Reduction of Idle Times and Improvement in Fuel Efficiency: Telemetry data can help optimize routes and reduce idle times, leading to more fuel-efficient and cost-effective operations. Fleets using telematics for route optimization and idle time reduction can achieve up to 15% to 20% fuel cost savings. Reduced insurance premiums can also reflect improved efficiency and lower operational risks.

By improving overall safety across fleets, reducing risks and streamlining operations, telematics makes fleets more attractive to insurers, leading to significant reductions in insurance premiums over time.

A Way Forward: Choosing the Right Telematics Provider

For fleet managers, finding the most technologically advanced system must include having the right partner. A good telematics provider isn't simply a vendor offering a product; they are a strategic ally who works closely with fleet managers to ensure the system delivers accurate, actionable data that enhances day-to-day operations.

The newfound financial flexibility offered by today's easing inflationary pressures provides an opportunity for fleet managers to reassess whether their current provider is meeting their evolving needs. The best telematics partners will provide seamless implementation and continuous support, helping fleets navigate current economic conditions and future challenges.

As the inflationary tide begins to recede, the once-distant horizon of advanced telematics solutions is now within reach, offering a strategic advantage for those who invest. By leveraging this economic opportunity, fleet managers can reduce operational costs, enhance safety and lay a solid foundation for sustainable growth.

As we head into 2025, client retention remains a top priority for agents navigating the current insurance landscape. While market conditions have softened for certain lines and could soften for others, the lingering effects of rising premiums, coverage restrictions and evolving client expectations are making retaining business and maintaining strong relationships paramount.

In this environment, agents must prioritize strategies that enhance the client experience and drive individual and agency growth.

Retention is no longer a reactive process. It's a continuing strategy. Agents who are proactive in their communication and offer personalized solutions will stand out in 2025.

Here are five key focus areas to help agents retain clients and navigate the year ahead:

1. Prioritize Client Communication Early and Often

One of the biggest lessons from 2024 is the importance of proactive communication in a challenging market. Clients, facing rising premiums due to factors like inflation, supply chain disruptions and increased litigation costs, are more likely to shop around if they feel underappreciated. Agents who establish consistent touchpoints and address concerns early on can foster stronger relationships and build trust.

To make the most of your communication strategy, agents should focus on the following:

• Start renewal conversations early. Engage clients at least 90 days before their policy's expiration date to review coverage, explain market conditions and address any life or business changes that could affect their renewal.
• Provide regular updates. Keep clients informed throughout the year about changes in coverage, potential premium increases and risk management strategies to mitigate surprises.
• Manage expectations. Set clear expectations on the renewal process and any potential changes in coverage to reduce frustration and ensure transparency.

See also: 5 Tips for Client Acquisition in a Volatile Market

2. Focus on Personalization

As the insurance landscape becomes more complex, clients expect a more tailored experience, and data plays a critical role in meeting those expectations. By tapping into various data sources — such as customer demographics, claim history and purchasing behaviors — agents can tailor communications and policy recommendations more precisely, helping them stand out.

To effectively personalize your client interactions, consider the following strategies:

• Segment your clients: Group your clients based on risk factors, demographics and needs. For example, those in catastrophe-prone areas may benefit from more frequent updates on potential rate changes due to weather-related risks.
• Customize coverage recommendations: By leveraging a broad range of client data — such as financial profiles, lifestyle preferences, business performance metrics and claims history — agents can deliver more relevant and personalized policy suggestions. Whether it's adjusting coverage to reflect a recent life event or a significant business expansion, tailored recommendations not only enhance client satisfaction but also foster loyalty, reducing the chances of clients seeking alternative coverage.
• Incorporate client feedback: Use client reviews and feedback from platforms such as Google and Yelp to continually ensure that clients feel heard and valued.

3. Streamline the Renewal Process

A smooth and transparent renewal process is essential to client retention, especially in a challenging market. Many clients are wary of premium increases and coverage changes, which makes it crucial to simplify the process.

To streamline the renewal process, focus on the following:

• Highlight coverage changes: Use the renewal as an opportunity to assess clients' needs and adjust their policies accordingly. This includes evaluating new risk exposures, such as a home purchase or a growing business.
• Leverage technology: Incorporate digital tools to streamline routine tasks for agents, such as automating policy renewal reminders, processing claims and handling paperwork. Digital tools can help agents save time, reduce errors and maintain better client records.
• Offer self-service options: Provide clients with user-friendly online portals, where they can review their policies, manage renewals and make payments. Self-service tools empower clients to take control of their insurance needs with real-time access to documents, payment options and coverage details, enhancing their overall experience and satisfaction.

See also: 10 Reasons to Stress Customer Retention

4. Offer Value-Added Services to Build Long-Term Loyalty

In today's insurance market, it's not enough to simply provide coverage. Agents need to go above and beyond by offering services like risk management consulting and educational resources, which positions them as trusted advisers.

Here's how to provide value-added services that foster long-term client loyalty:

• Offer risk management consulting. Help clients manage their risks, reducing exposure and improving their insurability. For instance, an agent could use a tool to identify hazards in a client's home, such as living in a high-wildfire-risk area. Based on these insights, the agent can recommend preventive measures like installing fire-resistant landscaping or upgrading roofing materials, which not only minimize risk but also improve the client's chances of qualifying for lower insurance premiums.
• Provide educational resources. Equip clients with the knowledge to make informed decisions, whether about emerging risks or understanding complex coverage. For example, a webinar on cyber liability insurance could help small business clients understand the importance of data protection and lead them to invest in additional coverage.
• Create a loyalty program. Implement a loyalty program that rewards clients for renewing their policies with exclusive benefits, such as discounted premiums or free annual risk assessments.

5. Use Data Analytics

Data has transformed the insurance industry, and, in 2025, leveraging analytics will be critical to building effective retention strategies. Agents who harness data to understand client behavior, preferences and risk profiles can create more targeted, helpful communication and improve client satisfaction.

To maximize using data analytics in retention strategies, agents should:

• Identify at-risk clients. Use an agency management tool or customer relationship management system to track client behavior, such as delayed payments, which may indicate dissatisfaction. For example, if a client frequently contacts customer service about billing issues, this can trigger an outreach with a personalized offer, such as flexible payment options or a review of their premium, to prevent them from shopping elsewhere.
• Measure client satisfaction. Implement surveys through platforms like SurveyMonkey or Net Promoter Score (NPS) tools to gauge client satisfaction and identify areas for improvement. Agents can use this feedback to improve processes and enhance overall customer experience.
• Optimize cross-selling opportunities. Use built-in analytics tools from your agency management system to identify existing clients who may benefit from additional products. For example, if a client holds home and auto insurance but not an umbrella policy, the system can flag this gap, allowing the agent to offer a tailored bundle, deepening the relationship and providing more comprehensive coverage.

Navigate 2025 With Confidence

As agents prepare for 2025, client retention will rely on proactive communication, personalized service and a smooth renewal process. By focusing on these strategies, agents can strengthen client relationships, improve satisfaction and confidently navigate 2025's challenges. Leveraging data-driven insights, offering value-added services and building long-term loyalty will set agents apart in an increasingly competitive market.

Agents who approach 2025 with a thoughtful, strategic plan — their "why" — will not only retain clients but also strengthen their individual relationships and build a more stable and resilient foundation for future growth.

Juries in the U.S. have ordered a record number of supersized verdicts against companies in recent years. "Nuclear" verdicts have almost tripled since 2020, while the median verdict value has more than doubled.

In 2023 alone, the number of nuclear verdicts (more than $10 million) grew by more than 27%, while the number of "thermonuclear" verdicts (more than $100 million) increased by 35%, according to Marathon Strategies, affecting industries ranging from automotive to entertainment to chemicals. Such verdicts are not just a problem for U.S. companies as they also affect international firms doing business in the U.S., according to a new report from Allianz Commercial.

See also: Top Causes of Business Insurance Loss

The rise in nuclear verdicts

Growth in the number and size of these verdicts is down to multiple drivers, including growing mistrust of corporations, the changing tactics of plaintiff attorneys, the erosion of tort reform, changes in jury pool demographics, and the normalization of such verdicts, including the rise of billion-dollar awards for personal injury. Awards can be driven by a combination of punitive, compensatory and non-economic damages, such as pain and suffering, all of which are increasing. Such upward trends in social inflation are not sustainable for the long term, as the increasing costs from nuclear verdicts ultimately fall back on businesses, consumers and insurers.

Pharma class actions more complex and volatile

Recent years have also seen a growing list of pharmaceutical, food and chemical products become the target of billion-dollar class action litigation, including opioids, talcum powder, indigestion remedies and herbicide. Cancer is increasingly a feature of such litigation. Scientific research, regulatory orders or voluntary withdrawal of products that may be carcinogenic can trigger litigation. Such claims create volatility for liability insurance due to the long latency of cancer symptoms, with risks only understood many years after a product was sold and the insurance underwritten.

PFAS litigation mounts

A class of synthetic chemicals used widely in industrial and consumer products such as food packaging, cosmetics and household goods and even firefighting foams since the 1940s, PFAS, also known as forever chemicals because of their resistance to degradation, have been the subject of mounting litigation in recent years. This has largely been focused on three main areas: environmental pollution; water and waste treatment/contamination; and personal injury, such as people working directly with products, like firefighters.

While litigation has so far concentrated on the U.S. – environmental contamination-related PFAS settlements are already in the double-digit billions of dollars – there have also been cases elsewhere, for example in Europe. The extent of future litigation is uncertain, although further regulatory measures may play a part in shaping the trends.

See also: Climate Change and Product Liability

Collective actions outside of the U.S.

Social inflation is predominantly a U.S. phenomenon, but moves to increase access to justice in Europe could result in a rise in collective actions.

Collective actions are already becoming more prevalent in some European countries, as consumer groups start using collective redress frameworks and legislative change to chastise companies and fund remedial work, while consumer protection agencies have already brought claims in areas like water quality and pharmaceuticals. A record number of class actions were filed in Europe in 2023 (133), up 10% from 2022, according to law firm CMS, with the U.K., Netherlands, Germany and Portugal accounting for over three-quarters of these. Product liability, consumer and personal injury were the largest sources of litigation.

Major causes of liability claims

Defective product incidents account for more than 40% of the value of all liability claims over the past five years, with the other most expensive causes of claims including collision/crash incidents, faulty workmanship/maintenance and bodily injury.

Read the full Allianz Commercial Liability Loss Trends Report here.

The threat of climate change is an urgent reality that businesses across industries and regions are increasingly grappling with. As global temperatures rise, extreme weather events — including wildfires, storms, heatwaves, floods and droughts — are growing in both frequency and intensity. These events affect employee health, property and supply chains, underscoring the importance of understanding climate change's effect on not only the environment but also the operational viability of businesses.

Extreme weather can spoil perishable goods, damage packaging and weaken critical infrastructure like asphalt, which limits transportation. Water shortages disrupt global supply chains in agriculture, manufacturing and energy. For instance, Emirates Airlines suffered a $110 million loss due to severe rainfall in April 2024, while floods in Malaysia disrupted semiconductor supplies. These incidents serve as stark reminders of the pressing need for businesses to adopt strategies that mitigate climate-related risks and enhance their resilience in the face of such challenges.

See also: Climate and Catastrophe Risk Strategies

Adapting to Climate Challenges

As climate challenges intensify, businesses, local communities and governments must adapt swiftly. The Marsh McLennan Flood Risk Index reveals that nearly a quarter of the world's airport capacity and a third of global trade are at risk from flooding, with these risks expected to double if temperatures rise by 2 degrees Celsius. Adapting to climate change is essential for effective risk management;;according to a Marsh survey, half of corporate respondents reported experiencing extreme weather events in the last three years. Recognizing this urgency, companies already have the tools to respond to these unpredictable events, from risk management frameworks to business continuity plans.

While 83% of companies are aware of climate-related physical risks, only 48% assess them quantitatively, often overlooking connected, system-wide factors such as suppliers, regulators and ecosystem services. However, it is encouraging that 90% have begun climate adaptation discussions, focusing on business continuity planning, asset engineering and adapting work patterns to manage climate risks. This growing awareness indicates a shift toward recognizing the importance of embedding climate resilience into corporate strategies.

Building Comprehensive Adaptation Strategies

Effective adaptation requires a comprehensive approach that includes assessing supply chain vulnerabilities. Businesses must look beyond core operations and consider the dependencies of their suppliers and partners to understand how climate risks might disrupt supply chains. Increasingly, companies are aware that aligning resilience planning with these external factors is critical; however, true risk mitigation requires a collaborative, cross-organizational approach. By fostering partnerships across their supply chains and engaging with stakeholders on resilience efforts, businesses can create more robust strategies for managing climate-related risks.

Although many companies acknowledge the value of climate adaptation, only 43% currently apply cost-benefit analysis when planning for it, and few integrate resilience considerations into insurance strategies. Products like parametric insurance provide options for companies to mitigate financial losses from extreme weather. Corporate risk managers also play a vital role in embedding resilience through infrastructure and technology investments that can withstand climate disruptions.

See also: Parametric Insurance Can Tackle Climate Risks

Engaging Stakeholders for Long-term Resilience

Adaptation strategies must encompass factors like government regulations, ecosystem dependencies and community well-being. Viewing adaptation as an investment rather than a cost positions businesses for greater resilience over the long term. Collaborative efforts across stakeholders — including governments, capital providers and local communities — are critical to building a climate-resilient framework. This collaborative approach not only enhances individual business resilience but also contributes to broader community stability in the face of climate challenges.

To ensure adaptation strategies remain effective, businesses must set measurable resilience goals and continually review and refine them as climate risks evolve. Here, corporate risk managers can apply the "3 As" — Ambition, Analysis and Action — as guiding principles:

• Ambition: Establish clear resilience goals and define the level of climate preparedness required.
• Analysis: Assess risks across assets, operations and stakeholders to identify the most important adaptation strategies.
• Action: Prioritize adaptation measures, build a strong business case for funding and guide implementation.

Concentrating on the "3 As" framework empowers businesses to avoid disruptions, recover quickly from losses and adapt to continuing changes in climate risk.

Closing Points

Through a holistic strategy that protects operations, assets and supply chains, businesses can ensure that they not only survive but thrive in the face of intensifying climate challenges. Now is the time for businesses to act by embedding resilience into their strategies and securing a sustainable future for themselves and their communities.

Commercial property insurance managers face an increasingly intricate set of challenges, from heightened risk complexity and regulatory demands to fluctuating market dynamics and data overload. Although challenging, these conditions offer an opportunity to change the risk landscape. 

By embracing data-driven strategies and advanced analytics, insurance professionals can move toward a future that is more resilient, efficient and client-centered.

This piece explores how commercial property insurance is changing, driven by cutting-edge technology that's making risk assessment more precise and portfolio management smoother. Internet of Things (IoT) devices, for example, enable real-time monitoring, which means potential risks are spotted early. With artificial intelligence-powered predictive models, insurers gain the insights they need for strategic decisions. These tools work together to help insurers enhance risk assessment accuracy, reduce risks, make smarter decisions and improve operations, all of which benefit both clients and the business.

Challenges in Commercial Property Insurance Management

Commercial insurance managers face challenges:

• Preparing for Emerging and Increasing Risks: As commercial properties become more advanced, the complexity of risks grows. Managers now face a range of challenges, from cybersecurity threats in smart buildings to the effects of climate change and emerging risks like pandemics and social inflation — issues that traditional models may not fully cover.
• Managing Data Overload: Huge amounts of data come from IoT devices, climate models and economic indicators. While this data can be valuable, it's overwhelming. Managers have to sift through it to find the important bits that will truly help with risk assessment and pricing.
• Dealing with Increasing Regulatory Pressures: Regulations are constantly changing, and insurance professionals have to keep up, especially across different regions. Staying on top of all the shifting rules can make risk management and pricing more complicated.
• Coping with Mounting Pressures for Precision: In a competitive market, there's pressure for accurate and detailed pricing. Insurance managers need to use advanced tools and methods to evaluate properties more thoroughly.
• Balancing Market Fluctuation: Property values and construction costs make it challenging for insurance managers to maintain accurate risk assessments and pricing. To stay competitive, insurers must quickly adapt to these changes while balancing the need to offer attractive rates and maintain profitability amid rising claims and costs.

These growing challenges mean that traditional methods of risk assessment and management are no longer sufficient. Commercial insurance managers are feeling the pressure to innovate, adapt and use new technologies to stay ahead in an increasingly complex environment.

See also: The Growing Need for Real-Time Data

The Importance of Infrastructure Management for Insurance Leaders

For commercial insurance managers, understanding a property's infrastructure is key to accurate risk assessment and pricing. Well-maintained systems don't just keep things running smoothly — they're also crucial for preventing claims and minimizing risk.

Take electrical systems. According to the National Fire Protection Association (NFPA), electrical equipment failures, particularly in distribution, lighting and power transfer systems, were the leading cause of structure fires in industrial properties from 2017 to 2021. This makes it clear why insurance managers need to closely evaluate electrical maintenance and upgrades when underwriting policies.

Water damage is another concern. For insurers, this highlights the need to encourage measures like regular plumbing checks and installing leak detection systems in the properties they cover.

Advancing Risk Management Through Technology

The adoption of advanced property risk management software offers commercial insurance managers a comprehensive solution for addressing today's multifaceted challenges. These platforms are designed to enable:

• Risk Identification through Analytics: Analytics allow managers to recognize issues before they escalate, equaling more accurate underwriting and pricing.
• Predictive Maintenance: Tools that predict maintenance needs allow managers to address looming issues ahead of time, lowering the chances of claims.
• Real-Time Monitoring: IoT-powered monitoring devices deliver real-time risk profiles, enabling insurance managers to make prompt adjustments.
• Risk Mitigation Plans: Comprehensive strategies can be added into policy terms and pricing models, supporting clients and insurers.
• Sustainability Integration: Sustainable practices reduce risk and also lower costs, allowing insurers to offer additional competitive premiums.

These innovations give commercial insurance managers the tools to take a more proactive approach, which can lead to fewer claims and healthier portfolios. By assessing risks more thoroughly, insurers can create personalized policies that better meet client needs, strengthening those relationships in the process.

The Importance of Building Stronger Client Partnerships

There's a growth opportunity in strengthening client relationships. Studies show that less than half of commercial insurance clients are happy with their carriers, which highlights the need for a more collaborative approach.

By moving past the traditional annual renewals, insurance managers can build stronger, long-term partnerships with clients, offering continual insights into their changing risk profiles. With data-driven strategies, managers can give more personalized recommendations, leading to better risk management and higher client satisfaction.

See also: How External Data Is Revolutionizing Underwriting

On the Horizon

As the commercial property insurance industry continues to evolve, those who embrace data-driven strategies and active risk management will be in the best position to navigate its challenges. With tools like AI-powered risk assessments, real-time monitoring and predictive analytics, forward-thinking insurance professionals are raising the bar for efficiency and client service. By turning challenges into opportunities, commercial insurance managers can drive sustainable growth and lead the way toward a more stable, transparent and mutually beneficial future.

From synthetic identities to AI-powered scams, fraudsters are becoming increasingly sophisticated in their attacks, adapting their tactics and leaving organizations scrambling to protect their assets and customers.

Fraud is also becoming more costly, responsible for businesses worldwide losing an estimated 5% of their annual revenues through various schemes.

Forbes estimates that insurance fraud costs companies more than $300 billion annually. Of course, companies aren't the only victims as fraud is associated with a $900 increase in customer premiums.

That's why insurers face a difficult task: combating fraud and implementing consumer protections without eroding the customer experience.

Fortunately, it is possible. Here's how.

See also: How GenAI transforms insurance fraud

Adapt to the Latest Fraud Trends

Few technologies garner as much attention and trepidation as generative AI (Gen AI) and machine learning (ML). Just two years after OpenAI's ChatGPT made Gen AI known and accessible to the masses, 65% of companies say their organizations are "regularly using Gen AI."

Fraudsters feel the same way, leveraging these advanced technologies to develop more sophisticated schemes, automate attacks and exploit vulnerabilities faster than ever before.

More specifically, Gen AI poses a threat to insurance providers because it allows fraudsters to quickly fabricate realistic and difficult-to-detect fake identities and documentation that can be used to carry out fraudulent activities.

Among the most troubling developments is the evolution of familiar types of fraud, such as synthetic identity fraud (SIF) and phishing.

For instance, 60% of insurers report seeing an increase in SIF at their organization, and 67% say they are concerned about SIF increasing in the future.

To be sure, SIF, phishing and fake documentation are not new tactics. However, Gen AI is taking them to another level, making implementing these tactics easier and more effective. A recent fraud report found that business leaders and decision-makers rank Gen AI (and the tactics it enables) as the most significant fraud trend over the next three to five years.

Awareness is the first step to fraud prevention. Understanding the potential dangers of Gen AI allows organizations to stay ahead of emerging threats, implement advanced detection methods and adopt a multilayered approach to safeguard against the evolving fraud landscape.

Account for Omnichannel Fraud

Fraudsters are looking to exploit customers where they are, making mobile and online channels the top targets.

However, fraud isn't just a mobile problem. It's increasingly cross-channel, so contact centers and in-person channels can't be ignored.

In response, insurers need to cultivate a holistic, multilayered approach to identity verification to effectively mitigate the threat of fraud on connected systems of online and offline channels.

With a multilayered approach to identity verification, insurers can effectively balance security with customer expectations for an experience that builds trust, deters fraud and increases revenue.

As a result, more than three-quarters of decision-makers say that identity verification can be a strategic differentiator, allowing them to outpace the competition in fraud prevention and customer experience.

See also: Deepfakes: An Emerging Cyber Threat

Collaborate to Maximize Impact

Fraud moves fast, and Gen AI and other technologies are only accelerating its evolution. This makes it more likely that bad actors will do more damage faster across industries. A single insurer's database provides a limited view of wider fraud activity and behavioral trends.

To stay one step ahead of the fraudsters, the insurance sector must collaborate with cross-industry intelligence consortiums to better evaluate risk and remain competitive.

In total, 81% of companies think cross-sector identity intelligence sharing and collaboration can be a strategic differentiator when combating fraud.

By combining insights from multiple commercial and government sources, insurers are best positioned to authenticate genuine customers and spot fraud signals or suspicious identities.

Simply put, fighting fraud is a team effort. Insurers that want to stay ahead of fraudsters and maximize the customer experience will collaborate to share intelligence, leverage broader data ecosystems and adopt unified strategies that enhance fraud detection while streamlining the customer journey.

Security and Customer Experience Without Compromise

For the insurance sector, fraud is becoming more common, sophisticated and consequential.

Insurers face a difficult challenge. They must protect against increasingly sophisticated fraud attempts while also delivering seamless customer experiences.

That's why the future of insurance belongs to companies that can turn the fraud prevention challenge into an opportunity for customer excellence.

As the insurance industry forges ahead in its digital journey, it faces a crossroads: choosing between modern legacy systems and truly cloud-native solutions. This decision is crucial, as the myths surrounding digital transformation can lead to strategic missteps, causing insurers to opt for seemingly modern but ultimately inadequate systems.

Myth #1: Partial Modernization Is Effective

Many insurers believe that upgrading parts of their technological infrastructure is sufficient. However, this often results in a disjointed system that cannot leverage the full benefits of digital transformation. Cloud-native technology, unlike modern legacy systems, offers comprehensive integration and scalability, ensuring that all components work together seamlessly, enhancing overall efficiency and agility.

Myth #2: New Systems Equate to Modernization

The assumption that new systems are automatically superior is misleading. Modern legacy systems, despite being newer, often lack the foundational architecture required for true cloud integration. Cloud-native solutions are designed from the ground up to use cloud capabilities fully, providing flexibility and resilience that modern legacy systems cannot match.

Myth #3: Vendor Solutions Guarantee Latest Technology

Many insurers are under the impression that vendor solutions offer the latest technology. However, many such solutions are grounded in modern legacy frameworks, which are not genuinely cloud-native and require substantial future modifications. Cloud-native platforms, on the other hand, are continuously updated and inherently designed to incorporate the latest technological advancements effortlessly.

Myth #4: One-Size-Fits-All Solutions

The belief in a universal solution is another pervasive myth. Modern legacy systems were built to solve the internal operational needs of an insurance company as they were defined five to 10 years ago. Cloud-native technologies challenge this by offering customizable and scalable solutions that can adapt to new and emerging business needs without the extensive customizations that modern legacy systems often necessitate.

Myth #5: Simple Solutions for Complex Integrations

Finally, the idea that a simple, out-of-the-box solution can address complex integration challenges is flawed. Cloud-native architectures excel in handling complex integrations by using microservices and APIs, which simplify connectivity and enhance data flow between different systems.

The Perils of Modern Legacy Systems

Modern legacy systems, often viewed as future-proof, are merely adapted older solutions, not truly cloud-native. These systems may require significant overhauls within a few years as they struggle to meet evolving technological demands.

The shift from modern legacy to cloud-native is more than an upgrade; it's a comprehensive, sometimes disruptive, transformation. These systems, while recently developed, were not designed with cloud environments in mind, leading to the inevitability of large-scale rewrites within five years.

This cycle of continuous re-implementation could lead to substantial operational disruptions and financial burdens, underscoring the importance for insurers to choose genuinely future-proof, cloud-native technologies from the outset.

The Future of Insurance Technology With Cloud-Native

The adoption of cloud-native technology marks a pivotal development in insurance technology, setting a new standard for flexibility, scalability and integration capabilities. Unlike modern legacy systems that are retrofitted into cloud environments, cloud-native technologies are designed from the ground up to fully leverage the cloud's potential. This intrinsic compatibility with cloud environments enables insurers to innovate faster, scale more efficiently and respond more adeptly to market changes. These technologies provide the following benefits:

• Scalability and Flexibility: They scale dynamically and adapt quickly to changing business needs.
• Enhanced Integration: They support seamless integration with other technologies, facilitating a more connected and efficient ecosystem.
• Continuous Innovation: They enable insurers to leverage continuous updates and innovations without the need for disruptive overhauls.