An executive order signed last week by Gov. Gavin Newsom to try and stabilize the straining California’s property and casualty insurance market and lure reluctant insurers back to the state contained some long sought-after industry provisions but it’s too soon to say it will meet its goals.

Three main components of the order, which was immediately embraced by the state’s insurance commissioner, essentially will allow insurers to consider future climate risks when calculating their rates, something that had been prohibited. It also allows for reinsurance costs to be included in the rate change calculations that can be passed on to consumers. In return for those concessions, the department of insurance will require carriers to cover homeowners in wildfire-prone parts of the state at 85% of their statewide coverage. For example, if a company provides 10% of the homeowner polices across California, they would be required to provide 8.5% of the coverage in “at-risk” areas.

Several major insurance companies, representing more than 60% of the P&C market, had abandoned the state or reduced coverage in California because of the increasing wildfire risks. Both State Farm and Allstate said they would not issue new policies while Farmers capped the number of new homeowners policies each month, severely reducing the options for homeowners in high-risk areas. No word from them yet if the executive order will change their decisions.

“These proposals to permit insurers to price catastrophe risk with forward-looking projections will be a game changer in improving market conditions,” said Roger Arnemann, general manager of Guidewire Analytics, an insurance data research and software company. “The current requirements that relied solely on historical data were outdated in a time when weather and natural catastrophe events are changing rapidly.”

Insurability factors

Despite current challenges, the state of California is highly insurable, Arnemann believes, provided the right regulations are in place – and the right risk analytics are employed.

Guidewire HazardHub data shows that more than 90% of the property damage in California is concentrated in just 10% of the state. Homes in these areas are 50 times more likely to suffer wildfire damage. With the right regulatory structure and the right data and risk analytics, California’s insurers can more accurately identify, price, and account for risk at the individual property level and the portfolio level, Arnemann said.

According to Guidewire’s data, with an average of 8,273 wildfires per year, California is the state most prone to wildfire risk. Over the past decade, the state has seen an average of 933,000 acres burned yearly by wildfires. California is the nation’s largest P&C market with more than $11 billion in homeowners and fire insurance premiums written.

“The technology and data exist to examine over thirty data elements correlated with higher wildfire risk – and to map and define that risk at the exact property address level,” said Arnemann.

Calif. Proposition 103 contributed to ‘crisis’

The state’s 35-year-old Proposition 103 is largely blamed for leaving the state unable to keep pace with national trends and product innovations.

A new white paper by International Center for Law & Economics said 1988’s Prop 103 rating system, which was intended to protect consumers from arbitrary insurance rates and encourage a competitive marketplace, was “slow, imprecise, inflexible, unpredictable,” and was of questionable value to the state’s unique rate-intervenor system.

“Prop 103’s suppression of property-insurance rates in the private market has contributed to an availability crisis and the shunting of policyholders into the surplus-lines market and the California FAIR Plan, both of which will inevitably have to raise rates accordingly to be able to meet their obligations,” the ICLE authors wrote. “Prop 103 has created an insurance market that struggles to work efficiently even in the best of times and is virtually impossible to sustain in periods of acute stress.”

Ricardo Lara, the state’s insurance commissioner, conceded as much in a press conference last Thursday in which he praised “emergency regulatory action” to address the declining options for California home and business owners.

Insurance commissioner cites current issues

“The current regulatory framework does not meet our needs,” Lara said. “Can consumers get the insurance they need? Can they get it today? And the answer, in all honesty, is no.”

But some are skeptical the new revisions will achieve their goals and sit well with consumers. Moreover, there isn’t enough hazard mitigation measures in the new rules, they said. Although it could have been worse.

“My reaction to Lara’s proposal is that a tradeoff of expanded coverage for higher rates is in my opinion preferable to the outlines of the deal that was reportedly being negotiated by Lara in the final weeks of the legislature,” said Jordan Haedtler, a climate financial policy consultant. “It seems like a very precarious moment to statutorily weaken Prop 103 and institute a charge on all California policyholders.”

Haedtler says he believes the Legislature will have to go back to the drawing board next year.

“Hopefully they’ll pursue a publicly inclusive process is for legislation that includes regulatory reforms like inclusion of wildfire risk in the formula for capital requirements; stronger incentives for homeowners to adopt climate resilience/hazard mitigation measures; and better transparency in the models that Lara’s proposal contemplates authorizing,” he said.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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Consumer’ prolonged concern about inflation and retirement income is leading them to prioritize income protection over maximizing growth, according to new research by the Insured Retirement Institute (IRI).

For financial advisors, insurance agents and similar professionals, this could signal a need to adjust business strategies to better meet clients’ goals in a rapidly evolving economic landscape.

IRI’s Vice President of Research Frank O’Connor told InsuranceNewsNet that the research suggests clients want to protect themselves against a major, unexpected financial crisis cutting into their retirement income.

He said some moderate interest in growth is expected as clients need that growth to keep up with inflation but explained that their primary concern is protecting that growth.

As such, he said it follows that they seem most interested in downside protection and guaranteed income, “both of which are available through annuities.”

“Balanced portfolios, diversification, these are all tools that can reduce the impact of a significant decline in financial markets but can’t prevent it [and] can’t protect against it,” O’Connor said. “The only thing that can actually protect against it is an annuity, is some type of an insurance product.”

IRI findings highlight asset protection

IRI published its findings in a report entitled “Advisor Views on Client Goals, Concerns and Preferences,” the three-page brief of which detailed key findings as well as possible implications for financial advisors.

“The results of the survey can be summarized in one short phrase: clients want advisors to help them secure income and protect assets,” IRI’s report concluded.

The study did not survey consumers directly but assessed the perception advisors have of their clients’ goals, interests and needs. Eighty-two percent said their clients are most concerned about securing their income; and 65% are most concerned about asset protection. In comparison, just 53% seem most concerned about asset growth.

Advisors noted that their clients are still interested in investment products with growth, but at a lower level than they are interested in more protective measures. Fifty-five percent said clients have high interest in investment products with downside protection, overshadowing high interest in any other category. Conversely, an equivalent 55% have moderate interest in maximized growth.

Annuities as a solution

“For an advisor who doesn’t use annuities, there are other ways to mitigate some of these risks, but not guarantee against them,” O’Connor said.

“So, I think whether or not the client chooses to purchase an annuity, it’s a missed opportunity to not talk to the client about what annuities can do for their portfolios…That’s a missed opportunity to do something for the client that is in line with their goals.”

Several advisors told InsuranceNewsNet that they have seen an increased interest in annuities among their client base, and most said they plan to adjust accordingly.

Danny Ray, founder of PinnacleQuote Life Insurance Specialists, said, “I believe current uncertainties make people value security more, and I’m adjusting to provide clearer guidance on annuities.”

Several others agreed, but Evan Tunis, president of Florida Healthcare Insurance, took a more nuanced approach. “Annuities can be a great addition to one’s portfolio, but they are not appropriate for everyone,” he said, adding, “It is important to evaluate each client on their individual financial situation.”

On the other hand, Rob Drury, executive director of the Association of Christian Financial Advisors, described the increased interest as something of an expected knee-jerk reaction to a volatile market.

Drury said his business has no plans to adjust their strategy, adding, “My philosophy will always be to apply the correct product or methodology to fit the situation.”

Future considerations for annuities

O’Connor and several of the insurance advisors suggested that it would not be surprising to see continued interest in annuities given the United States’ aging population.

Inflation was highlighted as one of the major reasons for the shift in consumer sentiment, but this secondary factor of age is likely also playing a major role in a way that advisors should pay attention to going forward.

“The baby boomers are almost all fully retired, and Gen X is right on their heels,” O’Connor commented. “So, you’ve got a large number of retirees [and] some of them no longer have earned income. They are going to be very concerned about anything that erodes their purchasing power.”

IRI conducted an online survey of 188 financial advisors who have at least one year of experience and who have sold at least one annuity within the last year. The survey was conducted between May 5 and June 15, 2023.

Rayne Morgan is a Content Marketing Manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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State insurance regulators received 202 pages of comments on a draft model bulletin on use of artificial intelligence (AI) and related technology by insurers.

A National Association of Insurance Commissioner working group published its Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers in July. Comments were accepted through Sept. 5.

Most of the 24 comment letters came from industry trade associations seeking tweaks to a document with which they are mostly satisfied. Consumer advocate Birny Birnbaum is not at all satisfied and filed comments totaling 58 pages.

“We believe the process-oriented guidance presented in the bulletin will do nothing to enhance
regulators’ oversight of insurers’ use of AI Systems or the ability to identify and stop unfair
discrimination resulting from these AI Systems,” wrote Birnbaum, executive director of the Center for Economic Justice.

The bulletin is not a model law or a regulation. It is intended to “guide insurers to employ AI consistent with existing market conduct, corporate governance, and unfair and deceptive trade practice laws,” the law firm Locke Lord explained.

Meanwhile, regulators recently released a new batch of AI survey data, with 70% of the reporting homeowners’ insurers indicated that they “currently use, plan to use, or plan to explore using” AI.

Insurers are intrigued with the many uses of AI in all aspects of operations. But regulators are struggling with how to regulate the sweeping technology.

A step back from principles

In August 2020, the NAIC adopted guiding principles on artificial intelligence after robust discussions. Regulators added language encouraging insurers to take proactive steps to avoid proxy discrimination against protected classes when using AI platforms.

The NAIC guiding principles are based on the Organization for Economic Co-operation and Development’s AI principles that have been adopted by 42 countries, including the United States.

But Birnbaum, along with some commenters at the NAIC summer meeting in August, says the draft model bulletin abandoned the effort to fight proxy discrimination inherent in many AI and big data uses.

“In place of guidance on how to achieve the principles and how to ensure compliance with existing laws, the draft tells insurers what they already know: AI applications must comply with the law and insurers should have oversight over their AI applications,” Birnbaum wrote. “The draft bulletin fails to provide essential definitions – it doesn’t even define proxy
discrimination. It not only fails to address structural racism in insurance, it incorrectly tells
insurers that testing for protected class bias may not be feasible.”

A principles-based approach to racism in insurance is not necessary or desirable, Birnbaum said. The model bulletin provides “no guidance regarding the actual outcomes a regulator expects and how the insurer should demonstrate those outcomes,” he added.

“AI System governance should start with the outcomes desired by regulators through the AI
Principles and testing to measure and assess the outcomes for fair and unfair discrimination
should be the foundation of the governance,” Birnbaum explained. “You can’t evaluate something unless you measure it and the draft bulletin offers no metrics or methods for measuring outcomes.”

Third-party AI use

Industry concerns start with how third-party providers are subject to oversight. The draft model requires that third parties meet the standards expected of insurers.

Allowing insurers to include a provision in their third-party contracts that they have the right to
audit third parties could be helpful, the National Association of Mutual Insurance Companies said in a comment letter, although “many vendors may be resistant to such provisions.”

“Eventually all third parties will be using AI, so this effectively requires the industry to audit every third party even in cases when due diligence does not uncover an issue or there is low risk,” wrote Andrew Pauley, public policy counsel for NAMIC. “This would be extremely costly and resource intensive.”

‘Bias’ not found in the code

NAIC regulators periodically butt heads with the National Council of Insurance Legislators, who resent the intrusion on their lawmaking turf. The AI issue is no exception, as Will Melofchik, general counsel for NCOIL, made clear in a comment letter.

“Any bulletin issued by an insurance regulator must be carefully crafted to carry out its necessary role of applying existing, codified law to market conditions,” Melofchik wrote, “and to avoid any hint of establishing new legal regulatory standards.”

Specifically, NCOIL objected to language instructing insurers to practice “bias analysis and minimization,” and to avoid “unfair bias.” This establishes “bias” as a regulatory standard, he added, but the word is not found in the insurance codes.

The draft model defines “bias” as “the differential treatment that results in favored or unfavored treatment of a person, group, or attribute.” But the business of insurance involves discriminating between, and classifying, risks, Melofchik wrote.

If “bias,” as the draft model defines it, “is based on risk, then the state insurance statutes authorize (and require) this result – unless the classification method is itself a protected class,” he added.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Matthew Motil, host of the podcast, “The Cash Flow King,” fraudulently raised approximately $11 million from more than 50 investors in a Ponzi scheme, according to the Securities and Exchange Commission.

In the civil action, the SEC seeks financial penalties, disgorgement of gains and to bar Motil from being allowed to sell securities in the future.

According to the complaint, Motil scammed “Investor A” out of more than $577,000, “virtually all of Investor A’s life savings and retirement funds.” At one point, “Investor B” told Motil that “he needed to receive his overdue payments because he was being deployed to Afghanistan and would not be able to communicate from there.” “Victim C” was a cancer researcher in Florida.

The SEC claims Motil told investors that he would pay the investors returns on their investments from profits from renovating, reselling, refinancing, and renting the properties. Motil allegedly promoted the same investment properties to multiple investors, telling each of them that they held the “first position” lien.

In one instance, Motil allegedly sold more than $1 million of promissory notes to 20 investors, each note supposedly collateralized by the same property he had acquired for $47,000. Rather than renovate the properties, Motil allegedly used investor money to make Ponzi payments to previous investors and to fund an extravagant lifestyle.

Motil, 42, and his wife Amy, 35, allegedly spent over $107,000 on a seven-month rental of a lakeside mansion; over $73,000 for courtside seats to the Cleveland Cavaliers; over $45,000 to repay student loans; over $37,000 on purchases from Best Buy; over $23,000 on “Leeny’s Lean Body”; over $22,000 on iTunes, over $14,000 at Starbucks; and over $13,900 at numerous pizzerias. Amy Motil is named as a relief defendant.

Social media maven

Motil is an Ohio-licensed professional engineer, and a self-described entrepreneur and real estate expert, court documents say. Motil holds a doctorate and an MBA, and has claimed to have a J.D. majoring in Intellectual Property, earned in one year from the University of Akron School of Law.

Motil ran a website for prospective investors on which he claimed have “investment opportunities ranging from $10,000 to $10 million,” and invited those who visited the website to “Be a Real Estate Investing Badass!” and to “fire [their] boss, quit [their] 9 to 5, and build a business/lifestyle [they] love earning a passive income from real estate investments.”

The website and Motil’s social media accounts offered links to podcasts on Apple and YouTube entitled “The Cash Flow King, The Realest Real Estate Podcast,” hosted by “Doctor Motil.” Motil released approximately 147 episodes of the podcast, court documents say.

“Motil used podcasts and social media platforms to bolster his reputation as an investing expert while fraudulently targeting investors’ hard-earned retirement assets, including, in at least one instance, almost the full balance of an investor’s self-directed IRA,” said Mark Cave, associate director of the Division of Enforcement. “We are committed to holding those who prey on others accountable for their unlawful conduct.”

Motil told multiple investors that they essentially would be “acting as a bank” because their funds would be secured by a first position mortgage lien on the property and they would receive interest payments and, at the end of the term, their principal, court documents say.

“Motil knew or recklessly failed to know that this was false,” the complaint reads. “Motil also told investors on numerous occasions (sometimes in writing and sometimes orally) that after he received their investment he would record the mortgage with the county clerk, knowing or recklessly failing to know that this was false.”

Alleged Ponzi scheme falls apart

Beginning in October 2017, Motil allegedly scammed more than 50 investors nationwide before the Ponzi scheme fell apart in early 2021. In March 2021, Motil stalled, emailing investors that he had “experienced consistent cash flow difficulties over the previous few months,” the complaint reads. Motil wrote that he experienced a deficit between rent collections on the one hand, and money due to investors, banks, property repairs, and taxes on the other.

Motil told investors that he recorded a podcast predicting future events in the shifting landscape of landlording. However, Motil explained that he did not want to release his podcast and “let the world know” what was going on in the market before he “moved on our stuff,” the complaint reads.

At one point, Investor B became so frustrated, he posted comments on Motil’s Facebook page describing his negative experience, court documents say.

“Motil responded by blocking Investor B from posting anything more, and e-mailed Investor B that negative comments were not helpful in his effort to find a ‘replacement’ for Investor B,” the complain reads. “In other words, Motil told Investor B that his negative posts were unhelpful in his efforts to lure another victim to invest.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Fee caps remain a key issue as state insurance legislators near completion of a model law to better regulate public adjusters.

A National Council of Insurance Legislators subgroup met Friday to discuss its Public Adjuster Professional Standards Reform Model Act, sponsored by Rep. Mike Meredith, R-Ky., and co-sponsored by Rep. Matt Lehman, R-Ind.,  and Del. Steve Westfall, R-W.V.

The model act is based on a public adjuster bill that passed in Kentucky, Meredith said, adding that the Property & Casualty Insurance Committee hopes to have the model ready to move forward during the NCOIL annual meeting in November in Columbus, Ohio.

“I think the time is now to address this,” Lehman said. “It gets down to making sure we don’t get rid of an industry that could be needed in certain cases, [but] at the same time making sure we’re dealing with those who have abused the situation. And here’s evidence of [abuse].”

Several states have already passed new regulations for public adjusters, who have come under fire in recent years. Adjusters inspect property damage or personal injury claims to determine how much the insurance company should pay for the loss.

Earlier this year, the Texas Department of Insurance announced an indictment of Andrew Joseph Mitchell, accused of stealing more than $268,000 in insurance claims from multiple victims.

Mitchell has a pattern of similar alleged activity across several states, Texas investigators said. Mitchell’s adjusting business, Mitchell Adjusting International, was located in Clear Lake Shores, Texas, but solicited clients across the country online.

To cap or not to cap?

The meeting over Zoom drew a robust debate over whether the model should cap the fees adjusters can charge the public.

“Any amount of money that comes out of that claim is money that the insured will not have to be able to do repairs that are needed to their home or auto,” Meredith said. “I think it’s very, very important that we understand and don’t have some large amount of compensation coming out of that, because that’s just going to be a shortfall that they’re either going to have to dip into a huge amount of their savings, or go borrow money.”

But industry lobbyists said fee caps are likely to have the opposite effect.

Cole Kline is president of the American Association of Public Insurance Adjusters, which did a study of 129 claims in 2022. Of the residential roof claims, it took an average of 377 days from the time the public adjuster was contacted to reach a settlement, he told legislators.

But Jon Schnautz, regional vice president, Southwest Region, for the National Association of Mutual Insurance Companies, said rate caps are working in many states.

“Texas does have … a 10% across-the-board fee cap,” Schnautz said. “We have a very robust market for [public adjusters]. And I would just encourage the committee as well to keep the model strong.”

Stepped-up regulations

The National Association of Insurance Commissioners passed its Public Adjuster Licensing Model Act in 2005. With natural disasters coming more frequently and repair costs skyrocketing, public adjusters are becoming more important, and influential.

Regulators are taking notice. A lengthy list of states passed tighter restrictions on public adjusters this year alone. Florida’s new law prohibits public adjusters from contracting with anyone other than the named insured without the insured’s written consent. If the public adjuster does contract with a third party, the third party must pay the fee and not the insured.

In Indiana, public adjusters to disclose any financial interest they have in parties that are involved in a property claim and prohibits public adjusters from acting as a restoration contractor on the same claim.

Kentucky is requiring adjusters to use specific contract forms approved by the Department of Insurance and increases the required surety bond to $50,000 from $20,000.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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So what’s preventing more women from buying life insurance? That was the main question and topic for advice during a recent LinkedIn event.

Executives from LIMRA and LOMA shared some useful insights into women’s ownership of life insurance and suggested a few steps advisors can take to persuade them to obtain life insurance or to purchase more of it.

Alison Salka, SVP and head of LIMRA research, LIMRA and LOMA, told attendees that the 2023 Insurance Barometer Study shows that women comprise a significant market opportunity for the life insurance industry, and they make up nearly half of the U.S. workforce, according to the Bureau of Labor Statistics. Women also said that they need life insurance. In fact, 44% of them said they need life insurance, or they need more life insurance. This represents about 54 million adults, Salka said.

In spite of this critical need, women are less likely to own life insurance than men. In fact, 49 % of women have life insurance this year, compared to 55% of men.

Woman’s financial concerns

Even though women said that they need life insurance, they are oftentimes grappling with a host of financial concerns, said Gina Birchall, COO of LIMRA and LOMA.

For example:

Forty-seven percent of them are concerned about not having enough money for a comfortable retirement.
Forty percent are worried about paying for long-term care services if they are to become unable to work or to take care of themselves.
Forty percent worry about their ability to save enough money for an emergency fund.

Engaging female consumers

Because of these concerns, life insurance is not usually a top concern for many women. As a result, advisors should position life insurance as part of a way that women can use to take care of themselves and their families financially, Salka said.

As advisors work with these women, they should keep in mind that education is key. For example, 61% of the women surveyed said that they would be interested in a policy that would provide a guaranteed income for them in retirement, but fewer than half of them are even aware that such a policy exists.

Single mothers comprise another group that is in dire need of life insurance, Salka pointed out. 15. 62 million families in the U.S. are headed by single mothers, who tend to have lots of responsibility and experience higher levels of stress than men.

Yet, only 41% of single moms have life insurance, even though 59% of them said they need life insurance or need more of it. This represents a market opportunity of five million households. And 38% intend to buy life insurance this year.

Barriers to ownership

So, what is preventing many women from buying life insurance or buying more of it? The number one obstacle is lack of knowledge about life insurance, which can lead to lack of confidence. Compared to 33% of men, for example, just 22 % of women said that they are very, or extremely knowledgeable about insurance.

In addition, many women tend to be less confident in their knowledge about life insurance than men and are a little more cautious than men, which can sometimes translate into inertia and can make them more hesitant, Salka said. Also, 42% of women said that life insurance is too expensive, although this is a common misconception that is not held by only women.

Another barrier to life insurance ownership is women’s perception of the life insurance industry. Advisors must be mindful of their tone and attitude when having conversations with women. And they must be mindful of the fact that women sometimes take a longer time to decide and should be more patient with them.

What women want

As they work with prospects and clients, it is a good idea for advisors to have an idea of what women are generally looking for in an advisor. Among other things, Birchall said, they are looking for financial advice and partnership.
“They want to work with a financial advisor who will be their partner. They want someone who will listen to them,” she said.

The top attribute that women seek in an advisor is a high level of trust, Salka added. The advisor should also be experienced and possess good communications skills. “Show me that you truly understand my needs,” she said.

Sources of information

As women prepare to buy life insurance, they typically go online to do their research, although they ultimately will end up buying from a person, Birchall said. The top three social media sites that women use to find information on financial products are Facebook, YouTube, and Instagram. Birchall pointed out that the advisor’s website needs to be clear, concise, and easy to understand.

In their search for information, women also turn to a variety of sources, including the telephone and conversations with friends and family.

Women want someone to take them seriously and to listen carefully to their financial needs, Salka said. “Do not lead with a product,” she advised. “Get to know them as people, and work to build confidence and trust first. More conversations are needed.”

A few takeaways from the event

Toward the end of the presentation, Birchall shared a few takeaways with the audience:

The insurance gap is growing—it is not getting smaller. Women are a significant and an underserved market, and the industry has an opportunity to help them understand their needs.
Be patient.
Build relationships.
Empower women with knowledge and tools to protect themselves and their loved ones with life insurance.
Help them understand their value.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

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At its peak, the labor shortage in financial services hit an estimated 500,000 openings.

That number is down to about 325,000 and on a steady decline, said Kenneth Kim, a senior economist at KPMG. He spoke this week during the KPMG 35th Annual Insurance Industry Conference in Orlando, Fla.

The employment news for financial services is good, Kim said, but it isn’t great.

“Yes, [job openings have] come down but if you take the latest figure and go back in time, just draw a straight line, you can see still see that the current level is still higher than the highs in the previous two business cycles — the business cycle that lasted from 2001 to 2008, and the one that went from 2009 to the beginning of 2020.”

A lot of what has happened with wages and employment can be traced to inflation and rising interest rates. Health care and social workers were seeing wage increases in the 9% range for a short time, Kim noted. Those rising wages are cooling, but remain higher than pre-COVID-19.

“The Fed’s interest rate increases, bringing up from zero percent to five-and-a-half percent currently is having the intended impact,” he said, “not only on inflation, but also on labor market costs.”

KPMG: Rate hikes are done

On Wednesday, the Federal Reserve said it will maintain its target range for the federal funds rate at 5.25% to 5.5%, as recent economic indicators show a mix of promising and concerning signals.

Analysts speculated on Fed making at least one more tweak in interest rates before the end of the year, but Chairman Jerome Powell said that final decision by the board of governors would be dictated by data.

KPMG does not expect any further rate hikes, Kim said, a stable forecast that should please financial services.

“We actually believe the Fed is finished raising rates for this interest rate cycle,” he said. “But nevertheless, the bottom line is that whether they’re done or they raise one more potentially 25 basis points, there is light at the end of the tunnel. Interest rates will not be moving materially higher in the coming year and next year.”

High inflation had a major impact in the property and casualty world, as vehicle parts and repair costs skyrocketed. The cost of parts is dropping, but service costs remain high, Kim said.

“Even though the parts costs have come down sharply from double digits, maintenance, servicing costs for vehicles is still very elevated,” Kim noted. “Again, it’s the highest since the 1980s currently, even though other measures of CPI have come down significantly.”

It’s a similar story in the housing sector, where the costs of materials have come down sharply. It’s an indication that the Fed’s work on interest rates is having the desired effect, Kim said.

Immigration fueling growth

In the decades to come, as U.S. birth rates remain historically low, immigration will become a growing driver of population growth, Kim explained.

“This will be the challenge for the for our economy going forward,” he said, adding that future GDP [Gross Domestic Product] growth is partially dependent on labor growth. “Household sizes have been becoming smaller, family sizes have been becoming smaller. But what that means is that that is the source of a future talent, right? So where is our growth going to come from?”

“Everything that we’ve heard about … Gen AI, workforce, upscaling digital transformation, machine learning, large language models, all that fused into your current and future workforce, because that source of labor is going to be shrinking as we go forward,” Kim warned.

Finally, Kim addressed the looming federal debt problem. The Congressional Budget Office is projecting that the federal debt will match the size of the overall U.S. economy next year.

“So what does that mean?” Kim said. “Well, interest rates are now under pressure. And there is the growing realization that this is a concern.”

The United States has work to do to avoid having its own “Japan moment,” Kim concluded. With a low birthrate and aging population, Japan’s social security system is under strain and the country suffers from labor shortages.

“If we get high growth that would be a good thing for our economy going forward,” Kim said. “And I am hopeful that we can do that.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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A North Dakota district judge denied a motion to dismiss and granted a preliminary injunction to Insurance Commissioner Jon Godfread in a dispute between insurance regulators over a long-term care financial settlement.

In 2022, Godfread was one of several state insurance commissioners to take then-Pennsylvania insurance commissioner Jessica K. Altman to federal court over a settlement agreement Pennsylvania regulators reached defunct long-term care insurance company Senior Health Insurance Company of Pennsylvania.

SHIP was put into rehabilitation in 2021 by the Commonwealth Court of Pennsylvania after regulators said it was “statutorily insolvent.” With $1.4 billion in assets and $2.6 billion in liabilities, the deficit sunk the company’s capital levels, which triggered regulatory oversight. SHIP once had 645,000 long-term care policies in 46 states when it was licensed.

Attempting to avert liquidation, a Pennsylvania court in August approved a rehabilitation plan for the long-term care insurer that gave SHIP’s 39,000-plus policyholders a host of choices, all of which would mean higher premiums, reduced benefits, or both.

That’s when problems began. Since SHIP has thousands of policyholders spread across other states, the difficult agreement meant many different regulators had to acquiesce. Many refused.

North Dakota law requires approval of all proposed rate or benefit changes by the North Dakota commissioner, Godfread noted in a news release. SHIP has approximately 371 policyholders in North Dakota.

‘Very pleased’ with long-term care ruling

The North Dakota lawsuit was moved to state court last year. In its recent decision, the court denied a motion to dismiss the complaint by Godfread against current Pa. Insurance Commissioner Mike Humphreys. The court granted a preliminary injunction halting the application of unapproved rates on North Dakota consumers.

“We are very pleased with the decision by the court in this matter,” said Godfread. “We have laws in place here in North Dakota that protect consumers. No person or state can ignore the laws in another state simply because it’s inconvenient or burdensome for them.”

Similar cases have been filed against the Pennsylvania insurance commissioner in Iowa, Louisiana and South Carolina.

In past comments, Pennsylvania regulators said that the court-approved SHIP plan provides more options for policyholders than they would have if the company was in liquidation.

But others are worried about setting a precedent, particularly with Genworth looming on the horizon.

Genworth has more than 1.1 million policyholders nationwide. Genworth Life Insurance Co., which has most of Genworth’s long-term care policies, has struggled with poor financial ratings and asked for repeated rate increases.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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The insurance industry is already expert in assessing risk, and that makes the industry well positioned to use generative artificial intelligence such as ChatGPT.

During the KPMG Insurance Industry Conference this week, a KPMG panel discussed AI’s influence on the insurance sector, providing insights on the matter.

Insurance was one of the first industries to use big data, said Scott Shapiro, principal, advisory, KPMG US. The ability to take large sets of data, build even larger bodies of data around them and then query them in natural language was used by the industry years before ChatGPT captured the world’s interest.

AI technology “will significantly impact any transactions that require human intervention,” said Richard Entrup, senior advisor with KPMG Enterprise Innovation. He listed customer service, fraud detection and medical billing as some of the areas in which AI could perform about 80% of tasks currently performed by humans.

Knowledge management is “a huge opportunity for AI,” said Edward Moran, KPMG US managing director, tech leadership.

“AI can help with workflows. For example, it can tell you: ‘Here are the three emails you must answer by the end of the day.’ ‘Someone asked for a meeting, and I looked at your calendar and set the meeting up for you.’

“AI can help with the claims process and the client experience. It can help brokers do their jobs better.”

AI can make processes smoother

Jeanne Johnson, advisory principal with KPMG, said insurance executives should look at all aspects of the business to determine where AI can make processes smoother.

“I think we start with going across the value change – from marketing to service to claims – and look at where things get stuck because you need more information and you need to move the needle,” she said.

“For example, you can use AI to enhance risk profiling and that could enhance underwriting. You can give better insights to your agents so you can get better qualifying leads.”

Although AI has many applications in the insurance industry, companies must prepare for it – and that means preparing their data, Entrup said. “There’s a lot to do to get your data ready for this technology,” he said.

“AI eats data, so getting your house in order around data is essential,” said Brian Bacsu, director of architecture and platform engineering with DXC Technology.

“Data means not only your database, but it means your documentation as well. It includes your image libraries, your scans; it can include your emails.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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Surprise. You’re still getting annoying robocalls from companies even when you registered your phone number on the National Do-Not-Call list.

You’re not alone. A raft of lawsuits across the country seeking class-action status allege marketers, particularly insurance companies, are guilty of knowingly cold-calling consumers by the millions even when the targeted recipients have placed their names on the DNC list to stop the offending calls.

The suits are increasing pressure on companies to change their telephonic solicitation procedures or face huge penalties.

The biggest among the insurers, Allstate, has been hit with at least three such suits alleging violations of the Telephone Consumer Protection Act, which governs telephone solicitation. The suits, all in Allstate’s home state of Illinois, say the insurer and its vendors have been on notice since at least 2019 that it was in violation of the TCPA, “yet Allstate has allowed the violations to continue,” reads one such suit.

The most recent case, filed in July against the giant insurer on behalf of consumers in Georgia, New York, Missouri, and Maryland, alleges Allstate was aware that its approved vendors placed multiple telemarketing calls to people who had not provided the insurer with express written consent to receive the calls and had registered their phone numbers with the National Do-Not-Call List.

The number of violating calls could total in the millions, with each one carrying hundreds of dollars in potential fines. Lawyers in the case asked the court to force Allstate to share its DNC lists and after a protracted fight Allstate eventually complied.

Possible $57B robocall exposure

Writing in the National Law Review, attorney Sean Kay said “after cross-referencing Allstate’s internal DNC with that of [its Vendor], it was found that Allstate’s internal DNC was short by more than 115,000 numbers. That means Allstate faces exposure of at least $57 billion owing to a potential procedure gap – and that’s if only one call were placed to each number.”

Kay said that if a summary judgement is approved by the court the liability and willful violation exposure could rise to a potential $150 billion.

“In a case involving only a single lead source,” he said.

Allstate has already settled one class action dispute alleging illegal robocalls and the others are still pending. Allstate did not respond to requests for comment.

Another almost identical case has been filed against Lumico Life Insurance Co. of New York by a California resident.

“The fact remains that the plaintiff’s number was on the DNC list, there was no consent, and no existing-business-relationship exception seems to apply,” said Kay, associate attorney at Troutman Amin LLP. “And now, the plaintiff lists her demand at $5 million. That’s a large chunk of change for something that was so avoidable.”

Agents’ and vendors’ compliance crucial

Kay, who closely follows alleged TCPA violations, advises companies to demand greater compliance by their agents and third-party vendors.

“TCPA compliance is really, really, important,” he says. “Invest in this now so you aren’t faced with a debilitating TCPA class action suit in the future. These things are so avoidable.”

It’s a lesson that some companies are seemingly slow to learn.

A Connecticut insurer, Family First Life Insurance, and its corporate owner, is facing at least two lawsuits alleging TCPA violations in Michigan and Florida, and in May settled a third. Terms of the settlement are confidential, according to court filings.

The lawsuit, by a single Michigan resident, accused Family First Life of contacting him three times via text messages even though he said his number has been on the Do-Not-Call List since 2003.

“One text might possibly be considered an error, but three texts over three different days are willful violations,” the plaintiff, Don Campbell, said in his complaint. Campbell sought $4,500 for the violations and additional damages related to privacy violations.

Family First Life is facing another suit in Michigan that also lists four other companies – United of Omaha Life Insurance, Americo Financial Life and Annuity Insurance, Great Western Insurance, and our Senior Care Inc. – as well as several individuals for alleged illegal phone calling.

The suit says the plaintiff, Mark Dobronski, has been “besieged with telemarketing calls hawking such things as alarm systems, Google listings, automobile warranties, health insurance, life insurance, credit cards, and even financial miracles from God.”

In Florida, Amerilife has been hit with a potential class-action suit for TCPA violations. The complaint says the plaintiff, Daniel Costa, received multiple telemarketing calls from Amerilife and its subsidiaries, some of which were “spoofed” to appear to be coming from a caller in his area code and tried to get Costa to sign up for Medicare services. Costa said he contacted Amerilife to complain about the calls and was told the company had no record of the outgoing call and that they do not use pre-recorded messages.

FCC: Unwanted calls are No. 1 complaint

Although the TCPA has been in force since 1991, in response to widespread pubic outrage over intrusive telemarketing calls to homes and businesses, the Federal Communications Commission said unwanted calls and texts continue to be the number one complaint to the authority. There are thousands of complaints to the FCC every month on both telemarketing and robocalls, the FCC says. Congress explicitly found that robocalling is an invasion of privacy yet they continue with apparent willful disregard of the Do-Not-Call registry. The FCC has said that sellers can be held liable for TCPA violations even when made by third-party telemarketers.

“A company on whose behalf a telephone solicitation is made bears the responsibility for any violation of our telemarketing rules and calls placed by a third party on behalf of that company are treated as if the company itself placed the call,” according to the TCPA.

Pennsylvania law school student Andrew Perrong has become infamous for his serial lawsuits alleging TCPA violations. Although his aggressive pro-se pleadings sometimes find him out of favor with courts his victories often point to some of the largely unknown dangers for companies in that a single call could violate multiple provisions of the TPCA and be assessed multiple penalties.

In one of Perrong’s robocall cases, he alleged that 26 prerecorded calls that he received without his consent should result in $195,000 worth of damages due to each call allegedly violating five provisions of the TCPA, as well as being willful violations resulting in treble damages. Although the court didn’t completely agree with Perrong’s math, he still was awarded $39,000 for the prerecorded calls and DNC list claims.

“Many people think that a TCPA claim really only will come knocking on the big bad telemarketing companies’ doors,” said attorney Kay. “But it can apply to anyone, even when there was only a call or two at issue.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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