Transcription:
Patti Harman (00:13):
Hello and welcome to the Dig In podcast. I'm your host, Patti Harman, editor in chief of Digital Insurance. The insurance industry collects a wide range of actuarial data on a host of different risks, and over the last several centuries, it's been able to identify hundreds of new and emerging risks over time. Some of these have had a significant impact on the industry affecting claims and premiums for policyholders and insurers alike. As we reach the end of 2024, it's always good to look back on some of the more recent trends in the industry and to focus on what we should be watching in the future. Joining me to share her insights in both areas is Carol Laufer, the North American Head of Liability for Allianz Commercial. Thank you so much for joining us today, Carol. So identifying risks and trends in the industry is an important aspect of your job. You recently wrote an article for Digital Insurance that identified three risks that impacted the insurance industry over the last several decades. The first one goes back to the 1990s and involved litigation funding, which still is an issue today. Can you tell us why this was a significant trend for the insurance industry and how did it change litigation for insurers?
Carol Laufer (01:42):
Yes. Litigation funding started in Australia in the 1990s and came to the United States in the early two thousands. And the way it works is that investors would invest in lawsuits and work with lawyers who worked with plaintiffs, and they worked together so that when there's a jury verdict, they split the reward so that they were all paid for the lawsuits that they worked on. Also included were doctors later on in the process and the plaintiff used these particular doctors that worked with the lawyers and the investors to explain medical events that occurred because of an accident, and together they would build a case and try to win that case and achieve a large jury verdict. So that really was part of the increase in jury verdicts even before social inflation or what they now call legal abuse started in the two thousands.
Patti Harman (03:10):
Okay. And as a follow-up to that, then you also talked about what has become known as the reptile theory and how that began to affect litigation as well. So what kind of impact has that had on insurers and the jury awards?
Carol Laufer (03:30):
So this is all part of the evolution of plaintiff attorneys and the cases that they're bringing in front of juries to have the juries look at these cases in a certain light where the plaintiffs were wronged in their language in some way, and that there should be rewards for the plaintiff for their suffering.
Patti Harman (04:03):
Are they still having an impact today then, and are you seeing these trends continue?
Carol Laufer (04:12):
Absolutely. There is very little change in the way in which plaintiff attorneys are bringing these cases to the courts. There are defenses for many of these cases, but the plaintiff attorneys have a lot of strength in these cases, ask for very high jury awards and tap into the minds of the jurors to make them feel as though they have to make this wrong right, for the plaintiffs.
Patti Harman (04:52):
Okay. Yes. And it's very interesting how they try to appeal to the juries from that perspective and make them feel like you have to do this, this is how you have to roll. One of the other risk factors that you identified in your article is a huge issue today, even though there's legislation restricting it across the country. And by that I'm referring to distracted driving. How has technology and our use of it increased the risks for drivers and even pedestrians? Is it just that the use of technology, is it accounting for a greater distraction or are there other factors that come into play as well?
Carol Laufer (05:40):
Well, there's multiple factors that come into play for distracted driving, but certainly software addiction is making it much worse. Primarily, it is the use of cell phones that's causing the distracted driving and drivers are looking at cell phones, whether it's texting, whether they're talking on their cell phones, and it is increasing the number of accidents substantially.
Patti Harman (06:16):
As a pedestrian, I am always watching which way I'm going, and you just have to be so alert now because people aren't paying attention to what's going on. Were there any other factors or issues that you've seen that have had a significant impact on the insurance industry over the last 30-plus years?
Carol Laufer (06:38):
Well, we could talk about the wildfires and the frequency, the increasing frequency of these wildfires damaging homes and commercial businesses and nature, and they are becoming more frequent as the weather changes and causing a tremendous amount of destruction, very expensive and just very difficult to control and causing a lot of losses.
Patti Harman (07:17):
Yes, I was just actually writing an article about them this morning because even though there were fewer wildfires this year than last year, the number of acres burned, actually quadrupled, which is very concerning. So I agree that those are a huge issue. We're going to take a short break now and we'll be back in just a few minutes.
Welcome back to the Digging podcast. We're chatting with Carol Laufer, the North American head of liability for Allianz Commercial about past, present and future risks in the insurance industry. So Carol, let's switch gears a little bit and talk about what you're watching now, and that kind of leads into what we were just discussing, what you're watching now and for the immediate future. So we've seen some active years with hurricanes, wildfires, which we just talked about, flooding and other perils. Is there anything in particular that you're watching or worried about in terms of natural disasters kind of beyond the wildfires at this point?
Carol Laufer (08:34):
I'm less concerned about natural disasters than I am about addictive software and virtual reality and the roles that these technological changes play in our everyday lives and how they impact liability in general.
Patti Harman (09:01):
Why are you more concerned about the technology aspect?
Carol Laufer (09:07):
I find that addictive software is the most concerning peril for liability because of what we talked about. For example, with the distracted driving, it is very difficult for consumers of information to stop looking at their texts and stop looking at their phones. And it has become a way of communicating without necessarily speaking to other people. And there is a fear of missing out amongst younger generations. And we are finding that some countries are stopping their youth from using cell phones at school because the students can be distracted at school by these text messages and it is very hard for them to put these phones down and when they are not on these phones, and I think that this is true for adults also, they don't want to be left out of conversations. And there's the question of whether or not this may ultimately have some impact on their mental health.
Patti Harman (10:39):
I remember when my daughter was younger, our house was the place where everyone hung out and she would have 12 or 15 girlfriends over and I remember them sitting in my living room, everyone was on their cell phones. I'm like, you guys, you're here, you're talking to each other. And their response to me was, well, we're talking to friends who aren't here. And it goes back to what you were talking about that fear of missing out. So kind of along the same lines, AI and generative AI have managed to permeate so many aspects of our lives. Do you have any concerns about its use or impact on issues like virtual reality or any new technology? There are pros and cons, but is there anything that you're watching with generative AI as well?
Carol Laufer (11:35):
Well, it is important that the information that we get from artificial intelligence is accurate and being used in the right way. For the most part, I think that artificial intelligence is going to have very favorable impact. For example, perhaps on people's health, their medical health. It is a very evolving industry and impacting all other industries and should be positive in the long run. However, like many of the things that we talked about today, whether it be wildfire or addictive software, there are social areas to be concerned about, economic areas to be concerned about. And I do expect that ultimately there will be some sort of regulation to artificial intelligence as there is to so many other areas in the lives that we live and that we will adjust to it eventually and we will benefit from it in the short run and the long run. But all of the areas that we're talking about today have an evolution and they will begin and we will get used to them. There will be regulation potentially, and it will become part of our lives. So I think it's important that we welcome artificial in intelligence, but proceed with it cautiously so that we can achieve the ultimate benefit from it.
Patti Harman (13:33):
Yes. I like how you described it as something that will kind of become a part of our daily lives. And as you were saying that, I was thinking back to the introduction of the internet and just how that has changed my job as a reporter. When I used to have to do research, I had to call someone or I had to go to a library, different things like that. Now I can simply type a search topic in to Google and find out all kinds of information online. Literally I have it at my fingertips. So I think you're right about seeing that type of an evolution going forward. We've covered a lot over the last few minutes. Is there anything else that you'll be watching and let's just say in the next 12 to 18 months, any types of risks or other areas that you're keeping an eye on?
Carol Laufer (14:28):
I think that the items that we've covered are the most significant, not the earlier areas that we covered necessarily, but more recent in our conversation. And that is what I am focused on for the near future. I can only add that there is a pattern to the historical and future incidences in liability and that the industry is quite efficient about working through changes and making sure that we bring options to consumers of insurance. So if you look back historically, there was a time where we were concerned about Y2K and that turned out to be all right, and a lot of companies worked on their programming to make sure that that was a smooth transition. And the wildfires started significantly all the way back to 2007. The reptile theory we began to deal with in 2009, the distracted driving starting in 2011. We didn't talk a lot about shootings and school shootings, but that became very significant in 2012, and that starts bringing us to 2014, very significant cyber breach, and then we had to deal with Covid in 2020. So there's constantly events that are going on that the insurance industry responds to so that when we see items like addictive software and virtual reality, I believe that the industry can handle these changes that are social and economic and governmental and bring coverages. Some might be limited, but bring coverages for these new exposures that we're seeing as the world continues to change.
Patti Harman (17:02):
What excites you about the opportunities ahead for the insurance industry? As you said, it adjusts and it's constantly changing, but what excites you about what's ahead for our industry?
Carol Laufer (17:23):
I think that the world is changing very quickly, and if we find ourselves in a virtual reality type of world where people possibly have accidents and get hurt in virtual reality, we have to ask ourselves how that is going to be covered, if it should be covered, and if so, how? And this is a new area, but like I said before, we look at these new areas, we come to conclusions between the underwriters and the brokers and the reinsurers, and we try to provide coverage where we can. And it's just been proven over and over again that the industry can rise to these occasions and we want the world to change and evolve and it's very exciting.
Patti Harman (18:31):
I agree. Is there anything I haven't asked you that you think our listeners should know about emerging risks at this point in time?
Carol Laufer (18:41):
We in the insurance industry are very open to these changes and we look forward to providing insurance for the changing world. There's really nothing new about this. And we do work together with our clients, with our brokers, and we the insurance companies to provide solutions in the past, in the present, and we certainly will do the same in the future.
Patti Harman (19:11):
Thank you so much, Carol, for sharing your insights with our audience. Thank you for listening to the Dig In podcast. I produce this episode with audio production by Kelly Malone Yee. Special thanks this week to Carol Laufer of Allianz Commercial for joining us. Please rate us, review us, and subscribe to our content at www.digin.com/subscribe. From Digital Insurance, I'm Patti Harman and thank you for listening.