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Tariffs have radically altered Morningstar’s second-quarter U.S. economic outlook as the organization’s chief U.S. economist said President Donald Trump’s proposed tariffs have pushed projected gross domestic product down, pushed projected inflation rates up and increased the risk of a recession to 40%.

“These tariffs will set in motion a cascade of supply and demand shocks,” Preston Caldwell said in a Morningstar webinar Tuesday.

Morningstar is projecting 2025 GDP growth at 1.2%, a drop from the 1.9% growth it projected in March. In addition, Morningstar projects inflation rates to hit 3% in 2025, an increase from the 2.4% inflation rate it predicted last month.

“The U.S. had nearly beaten back inflation but tariffs will breathe new life into inflation,” Caldwell said.

He added that uncertainty over whether Trump will change his mind on tariffs or back down on them, and over whether other nations will retaliate and escalate the tariff war makes it difficult to predict what tariff levels will be. Morningstar estimates the average U.S. tariff rate will be 25% and will be at 18% at the end of the year.

Tariffs ‘are here for the long haul’

“In our prior forecast, we thought tariff threats were largely saber-rattling,” Caldwell said. “But we now think high tariffs are here for the long haul.”

Tariffs bring shocks to both supply and demand, he said. On the supply side, tariffs drag on economic efficiency. Tariffs bring fiscal contraction and uncertainty to the demand side. Both supply and demand shocks pull down real GDP.

“This hit to the supply side is permanent if the tariffs aren’t removed,” he said. “The bigger demand-side issue is uncertainty that could lead to firms and households cutting back on spending. This all makes it hard for businesses to plan for a new tariff regime. Putting all this together, we expect supply shocks to dominate.”

Morningstar believes it’s unlikely that tariffs will reduce the U.S. trade deficit, Caldwell said. The impact of tariffs on the current deficit should be offset by retaliation and U.S. dollar appreciation, unless confidence in the U.S. collapses so capital flows contract. “It’s extremely unlikely that tariffs will make a dent in the current deficit,” he said.

“We are projecting that GDP will decline and there will be a surge in imports as companies in the U.S. race to stock up on foreign-made goods before the tariffs take effect,” Caldwell said.

U.S. job growth “still is in solid territory,” he added but slowing GDP growth is likely to drag job growth downward later in the year.

Morningstar predicts the Federal Reserve will cut interest rates this year and in the next two years, with three cuts in 2025, three in 2026 and two in 2027.

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A California judge is giving plaintiffs until late April to file a fourth amended complaint alleging that Cigna used a computer algorithm to improperly deny claims.

Judge Dale A. Drozd awarded Cigna a partial summary judgment last week, leaving a narrow opening for plaintiffs to keep their class-action lawsuit alive.

Initially filed in July 2023, the federal lawsuit alleges that Cigna used a computer algorithm to automatically reject hundreds of thousands of patient claims without examining them individually as required by California law.

At issue is Cigna’s “procedure-to-diagnosis” or PxDx software, which reviewed and denied customer claims.

Judge Drozd rejected some claims based on “timeliness.” Some defendants exceeded the time set by their benefits’ plans to allege Employee Retirement Income Security Act of 1974 violations, Cigna noted.

The judge also accepted Cigna’s claim that plaintiffs Suzanne Kisting-Leung, Christina Thornhill and Amanda Bredlow lacked standing to claim that PxDx denied their treatment. Cigna introduced an affidavit from Dr. Julie B. Kessel, a Cigna medical officer, to support their contention that the three plaintiffs “did not have their claims denied through PxDx review, and therefore have not suffered the alleged injury in fact,” the judge noted.

“Plaintiffs provide no countervailing evidence, though they do argue defendants’ evidence is speculative,” Drozd wrote.

Breach of fiduciary duty alleged

Judge Drozd allowed other claims to continue – for example, breach of fiduciary duty allegations.

“Because plaintiffs adequately alleged that defendants violated the plan terms when they entrusted medical necessity determinations to the PxDx algorithm, they have adequately
plead a breach of fiduciary duty,” the judge wrote.

Drozd was not buying Cigna’s claim that because doctors can control PxDx they are fulfilling a plan requirement that “medical necessity decisions be made by a medical director.”

“[T]he court finds defendants’ interpretation of the plan provision requiring determinations of medical necessity be made by a medical director—as allowing an algorithm to make the decision so long as a medical director pushes the button—conflicts with the plain language of the plan and constitutes an abuse of discretion,” Drozd wrote.

The judge issued his opinion on March 31, giving plaintiffs 21 days to file a fourth amended complaint.

ProPublica investigation

The lawsuits can be traced to a May 2023 investigative report by ProPublica. The story claimed that Cigna “has built a system that allows its doctors to instantly reject a claim on medical grounds without opening the patient file, leaving people with unexpected bills, according to corporate documents and interviews with former Cigna officials.”

Over a period of two months last year, Cigna doctors denied over 300,000 requests for payments using this method, spending an average of 1.2 seconds on each case, ProPublica reported, citing documents.

Plaintiffs accuse Cigna of “deceptive and misleading representations.”

“For example, Cigna’s policies falsely claim that determinations related to medical necessity of health care services would be made by a medical director, when in reality the medical directors are not involved in reviewing patients’ claims,” their lawsuit states.

Cigna’s motion to dismiss the Kisting-Leung lawsuit calls the ProPublica piece “misleading and inflammatory” and said the lawsuits that followed are “based on a fundamental misunderstanding about how the PxDx claims review process works and when Cigna uses it.”

Dr. Alan Muney, Cigna’s former chief medical officer, helped develop the PxDx process and cooperated with the ProPublica article, Cigna said. As Muney explained, the PxDx process was “designed to prevent claims for care that Cigna considered unneeded or even harmful to the patient,” the motion to dismiss says, and it “simply allowed Cigna to cheaply identify claims that it had a right to deny.”

In a previous statement sent to InsuranceNewsNet, Cigna explained its position: “To be clear: patients are not denied care through PxDx because the review takes place only after they receive treatment, and most do not experience any additional costs even if a claim is denied. Procedure to Diagnosis is a simple process that helps accelerate payments to clinicians for common, relatively low-cost tests and treatments, and it is not powered by AI or an algorithm. This is an industry-standard review which is similar to processes that have been used by CMS and our peers for many, many years.”

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Charitable gift annuities are one of the simplest ways of giving but one of the most overlooked.

That was the word from two members of PNC Institutional Asset Management’s planned giving solutions group, who gave a webinar advising financial professionals of the ins and outs of this financial and philanthropic tool.

CGAs are gaining in popularity with donor prospects as they work with the charitable organizations of their choice, said Chip Giese, senior regional manager.

“A CGA starts in the heart and it starts with a gift,” said Chris McGurn, director. “It’s an easy-to-understand, one-page contract.”

Donors have several reasons to create a CGA, he said. Reasons include helping a favorite cause, easy to understand and establish, providing fixed income for life, providing a charitable gift deduction and reduction or bypass of capital gains on gifts of appreciated assets.

A CGA is an agreement between a donor and a nonprofit organization that provides the donor with a fixed income stream for life. The donor makes the gift, receives lifetime income and the organization receives the remainder of the funds in the annuity after the donor’s death.

How a CGA works

McGurn explained that in exchange for an irrevocable gift of cash, securities or other assets, the charity agrees to pay one or two annuitants named in the contract a fixed sum each year for life. The payments are backed by the charity’s general resources. The older the designated annuitants are at the time the gift is made, the greater the fixed payments the charity can agree to pay. In most cases, part of each payment is tax free, increasing each payment’s after-tax value. If the donor gives appreciated property, they will pay capital gains tax on only part of the appreciation. If the donor names themself as an annuitant, the capital gains tax can be spread out over many years instead of having it all come due in the year the gift is made.

He provided a scenario in which a 79-year-old woman funds a CGA with $50,000 in cash. The payments and tax schedule would be as follows.

Giese noted that beginning in 2023, SECURE 2.0 expanded the definition of qualified charitable distributions to include distributions to create CGAs and charitable remainder trusts.

SECURE 2.0 allows a one-time maximum transfer of $54,000 in exchange with a charity for a CGA or a qualified CRT. The new QCD can be done only once during the individual retirement account owner’s lifetime and must occur within a single calendar year.

Each spouse may contribute up to $54,000 to a joint CGA from their respective IRAs. SECURE 2.0 specifies that at least one of the CGA beneficiaries must be at least age 70 ½ and the CGA must have a payout rate of at least 5%, which effectively places a lower limit on the spouse’s age.

QCDs can be made directly from an IRA – a one-time election of up to $54,000 to pass from IRA to charity in exchange for a CGA or a CRT, Giese said.

Stocks or mutual funds also can be used

A CGA also can be funded through stock or mutual funds, McGurn said. The stock must go directly from the donor’s stock account into the charity’s CGA account.

Donors may choose to create a deferred or a flexible deferred CGA, he said. This option allows the donor to choose when to take payments and is good for younger donors or for donors who want more flexibility and control.

A donor also can fund annual giving through a CGA. The donor can take the payment received from the CGA and donate all or part of it back to the charity, allowing an additional income tax deduction.

Donors also can use a CGA to fund an endowment to the charity, allowing for annual giving to continue.

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With new research from MDRT finding over 70% of American consumers expect their financial advisors to use artificial intelligence for customer service and operations, one expert says financial professionals cannot afford not to learn the new tech skills needed to keep up.

“What we know already is that, based on the research, clients are ready for AI and they are expecting also from advisors to use AI,” Panos Leledakis, CEO and founder of International Financial Architects Academy, said.

He added that many consumers have embraced the technology and are using AI in different ways themselves. Not only do they expect the same from their financial advisors, but the rapid pace of technological advancement also means “in six months to one year, we are going to deal with a new consumer.”

Consumer acceptance of AI has limitations, as MDRT’s study found many still want the “human touch.” However, Leledakis asserted this must be leveraged in tandem with technology.

“You might have heard that AI will not replace the advisor, for any reason, at least for the next 10 years. I don’t know. But the advisors using AI and cutting-edge technologies will replace the ones that don’t because it’s going to be an unfair advantage for them. You cannot compete anymore,” he said.

Most Americans believe advisors should use AI

According to MDRT’s study, 70.8% of US consumers who have a financial advisor, and 53.4% of those without an advisor, believe advisors should use AI for at least one professional purpose.

That exact professional purpose also makes a difference, as respondents were most comfortable with financial advisors using AI for clerical tasks, chatbots and general client communications.

“I’m sure that they are expecting advisors to give them better service and better customer experience by using AI for administrative tasks like appointment scheduling or document management… They are expecting more quick responses and better customer experience and customer service with tools like that,” Leledakis, who is also an MDRT Top of the Table member, said.

AI chatbots deemed a must

Of the various use cases of AI in financial services, Leledakis suggested AI chatbots are a non-negotiable that insurance advisors “need to deploy in any form.”

MDRT’s study noted this is by far one of the more popular AI applications among Americans, with 31.2% of respondents with a financial advisor and 37.6% of those without supported advisors using AI for 24/7 customer service chatbots.

Leledakis added, however, that this use case can also expand to AI call centers, where a client can call in and interact with a technologically-advanced chatbot through speech.

“It can make a call and discuss with a human-like discussion so you wouldn’t even understand that it’s not a human. Not the old things that say ‘press one, press two, press three’ — a human-like discussion,” he said.

He noted that some of the other major use cases for AI that consumers are comfortable with include:

• Customer service
• Product or policy comparisons
• AI analysis for product recommendations
• Risk profiling and predictive modeling

“Consumers are expecting that some advisors will be enhanced with these kinds of tools, both for the consulting part and the servicing part,” he said.

Consumers still want the human touch

At the same time, MDRT found that Americans don’t completely trust AI for everything. Respondents indicated they are not as comfortable with AI accessing their personal information or being used for tasks such as internal employee onboarding.

Leledakis added that many consumers also rely on human judgment for confirmation and fact-checking, underscoring the continued need for real-life financial professional involvement.

This is why “the future of advising is not just high tech; it’s high tech plus high touch — like emotional touch, like personal touch.”

“They trust, at least for now, more the human judgment-based advice. Like, ‘OK, the AI gave me the framework; it saved me time, it saved the advisor time, we’re better but, in the end, I want the human judgment-based advice,” Leledakis said.

New tech skills are necessary

Consumer trust in human advisors should not be taken for granted, however, as it could well change quickly in the future given the rapid pace of technological development, Leledakis suggested.

Instead, he emphasized that financial professionals must learn new skills needed to use AI or run the risk of being phased out of the picture altogether.

“With the speed that things are changing, we need to create new skills. We need to sit down again like a new school. We cannot afford not to learn new skills and leverage that,” Leledakis said.

To this end, he strongly urged advisors to “embrace technology and create new skills” as quickly as possible to be more productive, save time, create better branding, create business growth and also “deal with this new consumer.”

MDRT (Million Dollar Round Table) is a global trade association founded in 1927 and based in Illinois. It supports financial professionals in over 85 nations and over 700 companies. Its study into AI sentiments of American consumers was conducted between January 30 and February 5, 2025, with a weighted sample of 2,000 Americans. The survey was conducted by Opinium on behalf of MDRT.

IFAAcademy (International Financial Architects) is an organization that provides training, education and resources to financial professionals across the globe. It was founded in 2014 and is based in Greece, with offices in Europe and North America.

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With the advance of AI, the rapid change in markets, and ongoing challenges, the insurance industry is carving out new strategies at different levels as it adapts and strives for growth.

There is an ongoing trend of larger insurance brokers shedding underperforming assets in favor of diversifying their product landscape, finding cross-sell opportunities and pursuing strong adjacencies, David Crofts, insurance M&A lead, West Monroe Partners, said.

“I think what the larger brokers have done is tried to grow into the market as quickly as possible through M&A and have made a lot of bets on sort of non-core strategies. A lot of them have been technology or just trying to diversify the product landscape that they’re serving with the business case that they could do some significant cross-sell,” Crofts told InsuranceNewsNet.

Meanwhile, the lower middle market is increasingly exploring Managing General Agents (MGAs).

“The lower mid-market ones and the smaller, lower mid-market ones are looking at MGAs and trying to either build MGAs from the ground up, acquire decent MGA assets that are out there or, in a handful of cases, trying to carve out or lift out MGAs or underwriting teams out of carriers. I think that’s a trend that will continue; there’s just strong market support for that,” he said.

Additionally, the AI trend in insurance is spilling over into market activity, as Crofts said more data-enabled brokers will be successful in this space.

“For a broker to be successful in the wholesale and MGA space, it’s becoming more and more table stakes to have a very strong data and analytics competency,” Crofts said. “We’re seeing much more use of AI, much more heavy use of data-driven insights as part of the sales, the selling model and sales enablement process in brokers.”

Adjacencies and cross-selling

Crofts noted that larger brokers are “going more aggressively” into stronger adjacencies, such as retail brokers buying wholesale brokerages as a strategy to capture commission that would be otherwise lost through an outside wholesaler.

At the same time, larger brokers have been using M&As to buy new companies in different areas and diversify their product offerings. For instance, P&C employee benefit brokers buying wealth or retirement companies, targeting high-net-worth clients and trying to figure out how to “unlock the cross-sell” between benefit purchasing and retirement tools like 401(k) administration.

“What we’ve seen is a lot of the brokers have struggled to make that cross-sell work. So, these brokers have seen it as a good time to shed some of these non-core assets that maybe underperformed,” Crofts explained.

‘Underperforming’ insurtechs

Crofts noted that some insurtech businesses have been targeted for divestment as while the barriers to entry are not significantly high, it has been a highly competitive landscape where it has been difficult for many companies to scale past a certain point.

“I think that spinning them out or divesting them is best for everybody in those situations, so that the asset itself can get proper investment, can recapitalize, potentially pivot slightly into a little bit different direction and is a little bit less bound by the requirements of being part of a larger organization and contributing to the overall growth of the organization in more synergistic ways, which has been sort of difficult,” Crofts said.

Lower middle market & MGAs

Meanwhile, lower middle market carriers see the MGA space as an opportunity to diversify and separate themselves from risk while preserving brand integrity, Crofts said. It provides them with “a lot more strategic flexibility” when it comes to accepting risk, among other benefits.

“Having an MGA as part of a brokerage is a pretty sensible strategy because, just like with the wholesale side, you can send either business through your wholesaler and then into your MGA, or you can have your broker send it directly into your MGA for certain programs or markets that you support,” Crofts said.

AI driving competition

Crofts also mentioned the widespread, rapid adoption of AI is another major trend being observed in the market, as more data-ready brokers come out on top. In his experience, there has been a race for smaller, mid-market brokers to catch up with larger, more sophisticated, data-enabled brokers.

“The market is moving away from that traditional, belly-to-belly sales model of relationships. You’re seeing, especially in the commercial lines of business — and increasingly now in personal lines as well — a strong desire to move towards more digitally-enabled selling and much more selective choice of risk and business to win and retain,” he noted.

This is another factor driving divestment, he said, as brokers who have made investments into multiple lines of business may be seeing some assets underperform while at the same time facing “a lot of pressure to make these data and digital investments.”

“I think that they’re seeing a lot more opportunity to divest and simplify and focus on their core broker business and then make those investments on the data and digital side,” Crofts said.

West Monroe Partners is a business and technology consultancy based in Chicago, Illinois. Founded in 2002, the firm has more than 2,000 employees in 10 offices around the world.

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Five years after COVID-19 disrupted the world, the effects are still being felt. One of the biggest effects to impact the world of health insurance and benefits is greater awareness around mental health.

That was the word from Tom Morey, Aflac U.S. chief actuary, who told InsuranceNewsNet how the pandemic’s aftershocks are still hitting consumers, health care providers and benefits providers.

“Obviously, the pandemic was isolating, and you had a lot of people going through difficult emotional and mental health effects of that isolation,” he said. “But early on, you also had family members who were sick or even dying and you were limited in your contact with them or your access to them. There were a lot of things in the early days of the pandemic that were traumatizing.”

One positive thing that came from the pandemic-induced mental health crisis is that the stigma around mental health has decreased.

“It’s probably the best it has been in my lifetime in terms of people realizing it’s OK to say you are struggling with your mental health,” he said.

Financial barriers to mental health cited

The stigma around getting help for mental health issues is only part of the reason why consumers are reluctant to seek help, Morey said. “There can be financial barriers to accessing help as well,” he said.

Aflac has added mental health benefits to its accident insurance, enabling a policyholder to receive up to 30 visits with a mental health provider following an accident.

“Mental health is one of the big legacies coming out in the pandemic, and it’s a sad legacy, but better awareness gives people a better chance for you more optimized outcomes,” Morey said.

Another impact of the pandemic, Morey said, is consumers’ underutilization of preventive health services.

“The pandemic made people more aware of health issues,” he said. “But it was puzzling to us that fewer people were getting preventive care.”

Morey attributed that lack of preventive care to two factors: People moving away from urban centers and farther away from their health care providers, and a reluctance to leave home to obtain care.

“About half people who missed preventive visits had some kind of logistical problem – they couldn’t get childcare or they couldn’t miss work,” he said.

“We’re interested in trying to get people to access care, so this gives us an idea of how as society changes and as people face new challenges, how we can build that into the coverage we provide.”

Consumers return to preventive mental health care

Consumers are beginning to return to their health care providers for preventive care, Morey said, but there is a gap in who is obtaining that care. “Younger people really fell off during the pandemic in terms of getting preventive care and they haven’t come back. Older people are much more likely to keep up with their preventive visits and not miss them.”

He attributed some of that age gap to younger adults having more responsibilities to compete for their time.

Morey said Aflac found consumers were more likely to access care offered on an outpatient basis as opposed to care offered in a hospital.

“One of the doctors that we talked to said it is a lot easier for people to have outpatient treatments where they have to be brought back and forth several times, because there’s usually somebody working from home who can drive them. And that wasn’t the case before the pandemic.”

Aflac has focused more on outpatient benefits, particularly wellness benefits, since the pandemic, Morey said.

“Our wellness benefits don’t pay for the wellness tests. That’s something that major medical insurance pays for. What we pay for is the inconvenience surrounding getting wellness tests – for example, you might need a babysitter so you can go to the doctor. We want to lower the barriers to getting that wellness care.”

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Americans are increasingly worried about high inflation and new tariffs increasing their cost of living, according to the 2025 Q1 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America. A new set of tariffs were recently announced by
President Trump.

The survey said that most Americans are expecting inflation to get worse, with 71% saying they expect it will get worse over the next 12 months. This is up from 60% at the end of last year. And three in four are now worrying that new tariffs will increase their cost-of-living expenses.

Tariffs add ‘tax’ for the consumer

“Tariffs add to the total cost of a good for end consumers with a tax,” said Kelly LaVigne, VP of consumer insights, Allianz Life Insurance Company of North America, as he explained why so many consumers are worried about them. “So, people are worried about the goods they are purchasing costing more.”

Many consumers are also worried about how continued inflation will affect their financial future, according to the survey. About 73% are concerned that the rising cost of living will affect their retirement plans. In the short term, 79% worry about rising inflation continuing to have a negative impact on the purchasing power of their income in the next six months.

With that, 67% are concerned that their short-term investments (such as bonds and money market funds) do not have high enough returns to combat ongoing inflation.

“While the pain of inflation is hurting many Americans right now, the effect of inflation on your cost of living just compounds over time,” said LaVigne. “That means inflation will continue to erode your purchasing power, unless you have a long-term strategy to address it. When you retire, it is important to plan for inflation so that your standard of living does not decrease as the cost-of-living increases.”

Fewer are comfortable investing in the market

Concerns about a market crash have also increased in the first part of the year, the survey said. For example, more than half of survey respondents are worried that another big market crash is on the horizon. At the same time, fewer Americans feel comfortable with investing in the market. Just 26% said they are comfortable with current market conditions and are ready to invest now, down from 31% in Q4 2024.

Helping clients stay on course

As financial professionals work with their clients, what can they do to help them continue investing in the market? Financial professionals need to keep their clients on course, LaVigne said. “The most critical role of a financial professional is to protect clients from making financial decisions out of emotion or fear,” he said. “A written and detailed financial plan that incorporates strategies to address risks like inflation is a great asset.”

“By revisiting the plan with clients,” LaVigne added, “you can remind them of how they have set themselves up to stay on track toward their financial goals. It’s important to remind clients that taking part in the market is one way to maintain purchasing power during times of inflation.

A certain way to lose purchasing power is to keep money in cash. While clients may be reluctant to invest because of market volatility, a financial professional can introduce products into the strategy that can offer protection while also participating in the market, like buffered exchange traded funds (ETFs), fixed index annuities, or registered index-linked annuities.”

Worries about the market are leading more Americans to connect with a financial professional. According to the survey, 59% of respondents said that they recently have or plan to reach out to their financial professional because of concerns about recent market conditions. This is up from 51% in Q4 2024.

Allianz Life conducted an online survey, the 2025 Q1 Quarterly Market Perceptions Study, in February 2025, with a nationally representative sample of 1,004 respondents age 18+.

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Douglas Heller, the Director of Insurance for the Consumer Federation of America, wasted no words this week while unveiling a new and startling report he co-authored titled “Overburdened: The Dramatic Increase in Homeowners Insurance Premiums and its Impacts on American Homeowners:”

“I can say that the homeowner’s insurance crisis that is squeezing millions of Americans is unprecedented,” he said. “It demands the attention of government officials who are supposed to be there to protect consumers, but who have left homeowners with a market that’s simply too expensive to be sustainable.”

The report shows that American homeowners saw insurance premiums increase by an average of 24% over the past three years. Nationally, CFA found homeowners saw their insurance premiums rise twice as fast as inflation between 2021 and 2024, which amounts to a $21 billion total price hike for Americans.

‘A national crisis’

“This is not a state crisis or a regional crisis, but a national one,” Heller said. “Whether you are in Omaha or Orlando, Denver or Dallas, Washington, D.C., Minneapolis, or Los Angeles, the price of homeowners insurance has increased two, three, or even four times faster than inflation over the past three years.”

Heller accused the insurance industry and elected officials of promulgating a narrative that the only problems worthy of attention are concentrated in Florida, California, and Louisiana.

“But Americans throughout the country know that’s not true, because they see the hike on their monthly insurance bills,” he said.

From 2021 to 2024, annual insurance premiums for a typical homeowner increased by an average of $648 across the country, the CFA researchers found. By 2024, typical homeowners paid $3,303 per year for homeowners insurance. Additional findings include:

• Premiums increased in 95% of U.S. ZIP codes, and consumers in one-third of ZIP codes saw their premiums rise by more than 30%.
• The sharpest increases were found in Utah (59% Increase), Illinois (50%), Arizona (48%), and Pennsylvania (44%).
• The most expensive states in which to insure a home are Florida, Louisiana, Oklahoma, Kentucky, and Nebraska.
• American homeowners who buy the most common coverage collectively paid an estimated $21 billion more in premiums in 2024 than in 2021. Adding in renters, condo owners, owners of manufactured homes, and homeowners who purchased less common coverage, Americans increased their annual payments to homeowners insurance companies by an estimated $27 billion over the past three years.

Policymakers ‘need to take action’

“If we want to protect affordable homeownership, federal and state policymakers need to take action to address the rising costs and reduce risk for individuals and communities, said CFA’s Director of Housing Sharon Cornelissen, a lead author of the report.

CFA has called on lawmakers and regulators to require insurance companies to publicly disclose all transactions with consumers in ways that mirror the detailed data reporting of mortgage applications. Mortgage lenders have been required to report detailed mortgage data annually under the Home Mortgage Disclosure Act (HMDA) since 1975. While the National Association of Insurance Commissioners (NAIC) collected limited data about homeowners insurance last year, the Federal Insurance Office (FIO) has only made some of that data public.

“The lack of public data on insurance companies and their reluctance to share data makes it difficult to understand and address the insurance crisis,” Cornelissen said.

In “Overburdened,” CFA also makes policy recommendations on the need for increased investments in loss prevention, risk mitigation, and resilience; the creation of a federal reinsurance backstop to address the high costs of the “insurance for insurance companies” that is sold on an unregulated global market; and improving oversight of insurance company rate increases by state insurance departments.

Among the conclusions in the CFA report were:

• Investments in homes and infrastructure to lower risk should be prioritized.
• A public insurance backstop similar to the Terrorism Risk Insurance Act should be established.
• State insurance commissioners should critically evaluate insurance rates and company decisions.
• Transparency in insurance data, similar to the Home Mortgage Disclosure Act, is necessary.
  Because the products are required for car owners and homeowners, states have a responsibility to implement basic consumer protections like ensuring rate hikes are not excessive,” said Abe Scarr, Director of the Illinois Public Interest Research Group (PIRG) and the Illinois PIRG Education Fund. “And consumer protections like these have always been merited but are particularly important now with the dramatic increase in weather disaster.”

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As increasing use cases of AI in insurance add urgency to the need for explainability and transparency, experts are recommending “explainable AI” best practices to follow and key challenges to look out for.

“Models are going to vary, but explainability is generated through being able to demonstrate the datasets that the AI is being trained on, the correlation drivers that are creating the different outcomes. In the simplest terms, it’s quite literally showing the math [and] simplifying the explanations and models to where they can generate a level of transparency and predictability,” Peter McMurtrie, partner and insurance practice lead, West Monroe, said.

“The fundamental reason a business leader should be aware of this concept is to get value from the investment that they’re making into AI, GenAI, into any of the analytics that they’re doing,” Mike Fitzgerald, insurance industry advisor, SAS, added.

Explainable AI best practices

To this end, McMurtrie and Fitzgerald recommended insurers follow these five explainable AI best practices:

1. Have an AI inventory
2. Use the right tools
3. Incorporate human oversight
4. Test systems constantly
5. Don’t get too sophisticated

However, they cautioned that there are challenges to be considered as well. Those challenges include:

1. Balancing limitations with sophistication
2. Building trust
3. Training staff
4. Getting buy-in from executives

AI inventory

Fitzgerald said insurers must start with having an inventory of AI tools being used, and then manage and carefully monitor that inventory for changes, output quality and more.

“You have to have the ability to go and look at the output of these models and identify the change in the output, which is out of the one or two standard deviations from the norm to be able to say, ‘We really need to look at this,’” Fitzgerald said.

He noted that automated processes can be implemented to identify what should be checked, such as for factors like unfair discrimination, bias or a difference in conditions or output.

Management, oversight and testing

Specialized, purpose-built model management or model risk management tools can support inventory management, Fitzgerald said. However, he underscored that humans must be kept in the loop.

“You don’t hand all of this off to the technology; you change the way that you’re managing your analytic models through your processes by using a mix of both human as well as technology,” Fitzgerald said.

He added that testing for explainability and other positive factors should be a core condition from the get-go. This, too, can be automated, he said.

“Explainability needs to be a test condition when they’re testing a model, not just to see if it works, if it uses the data and all of that, but explainability, transparency all of those need to be tests that are conditions which are put in at the time of testing,” Fitzgerald said.

Balancing sophistication

McMurtrie explained that getting the right balance of sophistication in an AI model is crucial. He noted that while an overly sophisticated system is more difficult to explain, simpler AI systems can limit the scope of what can be accomplished.

In his view, “if you want to maintain explainability, then you’re giving up something on complexity” but “if you want to leverage complexity, then that makes it harder to have it in an explainable model.”

“The biggest challenge is, I think, it limits the power of what the tool is going to do for you. There are many uses of AI that don’t require sophisticated, complex decisioning. But it’s an efficiency play in terms of how it’s being leveraged,” McMurtrie said.

Training and trust

McMurtrie also suggested insurers not shy away from leveraging transparent AI as a way to build trust with customers and even increase their openness to using AI.

At the same time, he emphasized the need for insurers to train their staff to the point where they are comfortable with using AI.

“It’s equally as important for companies to be ensuring that their associate base, their employee base, understands how the company is using AI. Not saying they have to understand the models in detail, but having that awareness and confidence in how it’s being used so that they can project that same confidence when they’re interacting with customers,” McMurtrie said.

Buy-in

Getting buy-in from executives may be a different story, however, as Fitzgerald said investing in explainable AI and appropriate monitoring tools is “a difficult case to make because the return on investment is not always a straight line.”

He explained that the benefit of explainable AI is “avoiding trouble” more than anything else, and that can be difficult to value.

“I can tell you from my business analyst days, walking into a CFO who’s running a business unit for a profit, and you start talking to him or her about the soft costs involved because we will avoid fines or we will avoid [low] market conduct grades, they don’t want to hear that. And so, it’s difficult to make the case,” Fitzgerald said.

SAS is a software development company founded in 1976 and based out of Cary, NC. With over 400 offices around the world, SAS provides business analytics and AI solutions to clients.

West Monroe Partners is a business and technology consultancy based in Chicago, Illinois. Founded in 2002, the firm has more than 2,000 employees in 10 offices around the world.

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Facing accusations of maintaining a “ghost network” of doctors to intentionally confuse and deprive patients of needed healthcare, Anthem Blue Cross Blue Shield of New York said last week the case is a matter of federal jurisdiction and not the state court where the case is filed.

In a 32-page memorandum filed with its motion to dismiss the lawsuit, which was brought by several Anthem policyholders, attorneys for Anthem Blue Cross said the plaintiffs are enrollees in the Service Benefit Plan, a health insurance plan for federal employees, retirees, and their families, which is governed by the Federal Employees Health Benefits Act.

“Plaintiffs’ claims—all brought under state law—must be dismissed with prejudice because they are fundamentally inconsistent with FEHBA and the regulations and contracts thereunder,” the memo contends.

The lawsuit, filed in October of last year in the Southern District of New York, said the inaccurate doctor network led patients to pursue expensive out-of-network care that led to delays and unnecessary costs.

The law firms representing the plaintiffs completed a secret shopper survey in which they called the first 100 doctors on Anthem’s network directory and found only seven out of the 100 actually accepted insurance and would take new patients. Most did not accept the insurance, were not mental health providers, or did not accept new patients.

The lawsuit claims that there were 4,300 providers listed on a downloadable directory of psychiatrists, but many of those listings were duplicates with different phone numbers and addresses.

‘We had no idea it was this bad’

“We knew ghost networks were a problem, but we had no idea it was this bad,” said Steve Cohen of Pollock Cohen.

The lawsuit said ghost networks cause significant financial harm to patients because going out of network for their care incurs inflated expenses, as well as delays in finding essential care. Often, patients give up because they can’t find in-network doctors who accept their insurance.

The plaintiff, Anthem said, “could have informed Anthem of her difficulty in finding an in-network provider and requested an accommodation such as a single-case agreement that would have allowed her to see an out-of-network provider at in-network rates.”

Anthem argues for dismissal

In its response filed last week, Anthem attorneys did not address the validity of the accusations and only made the case that the lawsuit should be dismissed.

“They are saying it doesn’t even belong in court,” said Cohen. “And that the only remedy is for people to complain to the Office of Personnel Management. We obviously disagree and will be filing our opposition within the next few weeks.”

Accusations of healthcare insurers maintaining “ghost networks” are becoming common and have become a concern in both public discourse and regulatory oversight. Investigations and audits (including those by government agencies like the GAO and HHS) have found that many insurance provider directories are routinely inaccurate, with error rates in some cases exceeding 40%-50%.

The issue spans across Medicare Advantage, Medicaid managed care, and ACA marketplace plans. Medicare Advantage, in particular, has been heavily scrutinized for this. The Centers for Medicare & Medicaid Services (CMS) and several state insurance departments have cited numerous insurers for failing to maintain accurate provider directories.

Critics say the ghost networks give the illusion of network adequacy, helping insurers meet regulatory requirements without providing real access.

Legislation introduced

State and federal legislation is being introduced or expanded to mandate more frequent directory updates, stronger penalties, and clearer consumer protections.

In a December report, the New York State Attorney General’s Office outlined rampant evidence of “ghost networks. The report found that 86% of the listed mental health providers who staffers had called were “unreachable, not in-network, or not accepting new patients.” Though regulations require insurers to publish accurate directories, New York Attorney General Letitia James’ office did not find evidence that the state’s own insurance regulators had fined any insurers for their errors.

The Requiring Enhanced & Accurate Lists of Health Providers Act, or the “REAL Health Providers Act was introduced in Congress by Sen. Michael F. Bennet (D-CO). The bill aims to prevent ghost networks by mandating more stringent provider director accuracy requirements for Medicare Advantage plans.

Another proposed federal bill, the Behavioral Health Network and Directory Improvement Act, introduced by Sen. Tina Smith [D-MN], aims to address the issue of ghost networks in behavioral health care for individuals enrolled in private health insurance plans. The act proposes stricter requirements for provider directory accuracy, including mandatory independent audits of health plan networks by both the federal government and the health plans themselves.

Audit results would be published online for public transparency, with civil monetary penalties for non-compliance. Additionally, the bill calls for higher network adequacy standards, parity standards to keep behavioral health reimbursements on par with physical health, and for behavioral health providers to regularly update the information they submit to health plans, including timely information on whether they can accept new patients. Both bills are awaiting action in committees.

Several states, including Illinois, Oklahoma, New Mexico, and Massachusetts, have implemented measures to reduce ghost providers.

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