When you think of insurance, you probably think of Geico’s Gecko or
There are two main categories of insurance companies. P&C insurance reimburses you for losses caused by a car accident or when your house burns down. These policies also include liability coverage for damage caused to other people and their property by you.
It’s likely that you also have life insurance, which covers unexpected mortality risk and usually pays the benefit to your spouse or children when you die.
Each insurance company underwrites risk based on an aggregate loss in a particular type of class and then an expected loss rate. As a regulated industry, similar to banking, insurance companies must maintain certain levels of capital based on the risks they are underwriting.
When a major event such as an earthquake, wildfire, or hurricane occurs and several different insurance companies are hit with losses, the overall capital base of the industry begins to shrink.
A smaller capital base forces a business to reduce the risk it can take, which reduces competition, leading to higher insurance prices.
As artificial intelligence, big data, and cloud computing have become more prevalent in recent years, companies are looking to use these capabilities to improve underwriting and deliver price savings to customers.
An example is
Generally, insurance companies underwrite these risks in a standardized way given the low amount of the premium to reduce underwriting costs. Kinsale has created an underwriting process using big data and artificial intelligence to provide lower cost insurance to these customers.
Another company using big data is
Thanks to technology, they were able to reduce costs and help customers.
Each individual’s risk and return objectives are unique to them and require discussion with their investment professional before making any investment decision.
Sources: Factset, company reports
Beese Fulmer Private Wealth Management was founded in 1980 and is one of
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