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2017 Annual Report
The Future of Insurance
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2017 Financial Results
Working at Argo
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Internet of Things
Impact of Natural Catastrophes
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2017 was an important year for Argo. Despite significant, industry-wide catastrophe claims and underwriting challenges in the London market, our balance sheet held up well, and we finished the year in a better competitive position than we started.
We surpassed our 2017 gross written premium goal – up over 20% to $2.7 billion from $2.2 billion in 2016. Our net earned premium at $1.6 billion was 11.5% higher than the previous year. While our goal is to grow the bottom line first, over time it matters that we grow our business profile as well. 2017 was a good example of that.
After an extraordinary series of catastrophic events, we served our customers faithfully through expeditious claims handling. The resulting losses affected our bottom line, but they also remind us that we are fulfilling our mission: We’re here to help businesses stay in business. Our net exposure relative to our internal models was within reason for all the events we experienced, which equaled 7% of equity and 8% of net earned premium, well within the range of our peers. This equated to approximately $127 million in claims net for 2017 and a combined ratio of 107.2%, compared to 96.2% in 2016. Reflecting those losses and our experience in the London market, our net income was $50.3 million, compared to last year’s $146.7 million. It was, however, unfortunate that our acquisition of Ariel Re closed in the first quarter – meaning our net retentions for multiple reinsurance programs resulted in an additional impact on the bottom line. Going forward, we expect our net exposure to similar events to be close to 5 combined ratio points.
Our investment portfolio performed well again in 2017. We took deliberate steps to broaden the scope of our investment activity, and I am pleased to report investment income – even in a challenging environment – rose more than 21% to $140 million, compared to $115.1 million last year. This was aided by growing income from bonds and stocks, and a higher contribution from alternative investments. We continued building our assets, ending the year with cash and investments totaling almost $5 billion.
During the year, we increased our dividends to shareholders by more than 25% to $1.08 per common share from $0.86 the year before, and we repurchased approximately 750,000 shares for $45.2 million. We believe the best measure of our long-term performance is based on book value per share. In 2017, our book value per share plus dividends grew by nearly 4%. For the last 15 years, including dividends paid, the compound annual growth in book value per share has averaged 9.4%.
We are seeing early positive signs in the U.S. economy as a result of the new tax law, and we are optimistic it will create more growth among small to midsized businesses in America, which make up the core of the clients we serve. After an initial analysis of the law, we do not, however, expect a significant impact on our tax expense. In any period, the geography in which we earn profits determines our future effective tax rate. While we can’t know the outcome until the rules are written, we still anticipate an operating tax rate of approximately 20% or better going forward, keeping in mind it may vary each quarter depending on geography.
This was a good year for our U.S. business. Our excess and surplus casualty lines, surety, specialty programs and professional lines all benefited from targeted, tactical support, including digital systems improvement, team strengthening and marketing programs. All four businesses enjoyed important gains in both top-line and bottom-line growth. Casualty grew 26.8%, surety 27.7%, specialty programs 27.8% and professional lines 25.7% in top-line growth. In addition, our excess and surplus lines operation updated its technology yet again and can now respond to any submission within hours; in many instances, they can now respond within minutes. Rockwood grew 31.5% year over year by expanding its offerings well beyond its core clients’ mining-related exposures to include coverage for commercial automobile, pollution liability and surety. It’s telling that our increase in U.S. gross written premium was made within an overall market that was relatively static. Congratulations to Kevin Rehnberg and the heads of our individual businesses for their great success.
In 2017, U.S. gross written premiums were $1.5 billion, up $232 million or 18% over the same period last year. Underwriting income was $89.4 million, compared to $111.5 million in 2016. The combined ratio of 90.5% compares to 86.9% in the previous year. The primary differences were related to catastrophe activity and a number of non-recurring charges.
As we would expect, given the risk portfolio, our International business was more heavily impacted by catastrophes during 2017. Despite these challenges, it remains an important part of our business for the future. In London, we concluded our ability to select risk can only go so far in the Lloyd’s subscription market – one of the toughest in the world – where we incurred large and more frequent losses over the year than expected. To reverse the trend, we added new leadership, reorganized our teams, strengthened our underwriting guidelines and raised our prices where needed. Because much of this work began in early 2017, our prospects look brighter for 2018.
In Bermuda, we acquired Ariel Re and integrated that company’s Lloyd’s syndicate, reinsurance operations and insurance operations into our own. We also welcomed Jorge Luis Cazar as our new head of Latin America and Matt Harris, our new head of Europe, Middle East and Asia, to lead our strategies for growth in those markets.
In 2017, gross written premiums were $1.2 billion for this segment, up $300.5 million or 33.9% over the same period last year. In 2017, we had an underwriting loss of $111.2 million, compared to underwriting income of $25.8 million in 2016. The combined ratio of 117.5% compares to 95.4% in the previous year.
“Today, we talk about such advances as drones, autonomous vehicles, augmented reality and artificial intelligence. These are not merely categories of risk that require expert underwriting, they are themselves engines of innovation that will create opportunity for insurers who are able to look ahead and who are willing to keep pace.”
— Mark E. Watson III,
Chief Executive Officer
For more than a decade, we have been anticipating the transformation currently underway in our industry, predicting the unavoidable disruption of our value chain, service delivery and capital structure. Today, I want to provide a few thoughts on how we are thinking about the future. First, the steady stream of capital into insurance has produced overcapacity, which has in turn pushed margins down as investors compete to put their money to work. Second, the entry of all-digital players into the insurance business has posed a serious threat to legacy carriers, which are now struggling to become tech-savvy and customer-focused.
But will all-digital companies backed by fresh investor capital shake up our industry even further? We don’t think so. There is an advantage to understanding the rules, owning the data and building on a history of underwriting and risk management expertise. In our opinion, the judicious use of cutting-edge technology combined with insurance expertise represents the clear and, for established insurers, successful path to continued growth. By building digital expertise, often by forging creative partnerships with existing technology players, we can collaborate in ways that bring capital closer to the risk, reduce the complexity of our offerings and provide even greater value to our customers. But responding to shifting economic and consumer demands are not the only reasons to change. We must also recognize and respond to the larger forces at play in the world and the risks they pose to our customers and to our own business as underwriters.
Last year, we continued our evolution. Under the guidance of Argo Digital, our talented team from inside and outside the insurance industry, we iteratively developed new software, invested in leading and emerging technologies and partnered with startups to devise technology that can overcome remaining bottlenecks in our business systems. To make underwriting faster, smarter and more accurate, we are now finding ways to leverage artificial intelligence, while processing vast amounts of new data from sources as varied as sensors, drones, government databases and social media.
We evolved our technology in 2017 to more efficiently connect with our distribution partners and their customers. For example, our digital Protector platform now serves 2,400 brokers and more than 50,000 active customers in Brazil. We launched a sensor-based technology that lets operators of restaurants, supermarkets and other retail businesses reduce the frequency and severity of customer and employee accidents. We built and launched a digital account-management environment where brokers and policyholders can find information they need quickly. We are partnering with a cybersecurity startup to give our customers the tools they need to prepare for and respond to cyberattacks.
Technology advancements in every domain will create new risks for people and businesses, of which cybercrime is a clear example. Cyber risks are unique in that they are both unlimited and perpetual. As an industry, we have little experience assessing the possible impact of new hacking technologies against multiple smaller entities. Imagine the losses following concurrent attacks against one million small businesses, the shutdown of every self-driving car, or perhaps just the bricking of every digital door lock. The payouts could be massive, and yet today’s premiums cannot truly reflect the scope of the risk, because we do not always know what that scope is.
As we look to the future of insurance, the risk posed by natural catastrophes will also evolve. Predictive climatology suggests that hurricanes, droughts, fires and floods will increase in magnitude. Melting ice fields at the North and South poles support forecasts of warmer weather and rising sea levels. Given the density of population and volume of business activity in coastal areas, revised assessments of the nature of catastrophic risk at or near sea level is imperative. As claims mount following these catastrophes, either pricing of insurance will have to rise or the scope of coverage contract. And while there is no direct correlation between sea temperature and the frequency of hurricanes, we now have ample evidence showing how much more quickly they can intensify – look no further than the storms of 2017.
With some 400,000 industry professionals set to retire within the next five years, attracting talent is looming as a major issue for our industry. No amount of automation will overcome the need for talented and inventive professionals willing to take up insurance careers. Competition for their loyalty is strong. To attract them, we must prove that our industry is as dynamic and rewarding as we know it can be.
At Argo, we hold commitment to our employees and to each another as a central value, and one way we proved it again in 2017 was through the launch of Argo Academy, an online learning environment. In recognition of our focus on continuous learning, we were pleased to be named to Training magazine’s 2017 Training Top 125.
Also core to Argo’s culture is our employees’ deep commitment to the communities in which they live and work. In 2017, hundreds of Argo employees were involved in projects around the world. After Hurricane Harvey smashed the Texas coast in late August, thousands of homes and businesses were flooded. Argo employees moved into action. Making numerous trips between our U.S. headquarters in San Antonio and the Houston and Corpus Christi areas, they delivered much-needed supplies. They also spearheaded our corporate support of nonprofit organizations delivering relief, including the American Red Cross, the Insurance Industry Charitable Foundation and several local organizations.
The speed and variety of emerging risks is growing. Yet the factors I’ve mentioned – capital, climate, new risk and talent – are the home turf of specialty insurance at which Argo excels. Specialty insurance lives at the crossroads of new ideas and new threats. We are confident specialty underwriters will continue growing in importance as a critical support for new enterprises, enabling entrepreneurs to mitigate the considerable risks associated with early adoption of new technologies. Today, we talk about such advances as drones, autonomous vehicles, augmented reality and artificial intelligence. These are not merely categories of risk that require expert underwriting, they are themselves engines of innovation that will create new opportunity for insurers who are able to look ahead and who are willing to keep pace. We will continue to be one of them.
Mark E. Watson III
Chief Executive Officer
For the second year in a row, Forbes magazine named Argo Group to its list of America’s 50 Most Trustworthy Financial Companies.
In January, we launched Argo Risk Tech, a state-of-the-art web-based inspection platform that helps minimize workplace risk.
Our acquisition of Ariel Re earned Insurance Insider Honours for M&A Transaction of the Year.
Argo Seguros was named Brazil Insurer of the Year in the annual Reactions magazine Latin America Awards.
Bryan Mortimer, an Argo Surety mining engineer, was granted a U.S. patent for co-inventing a ventilation system to repurpose methane exhaust in mines as an energy source for surface refineries.
Reigning World Touring Car champion José María “Pechito” López joined Argo-sponsored Formula E team Dragon Racing as a driver in the 2017-2018 season.
Argo Group was honored with the CIR Risk Management Operational Risk Initiative of the Year award for the risk assessment we conducted during our deal to acquire Ariel Re.
A.M. Best rating for 13 years in a row
Nautical miles the Argo-sponsored team Vestas 11th Hour Racing will sail across four oceans during the 2017-2018 Volvo Ocean Race
Square feet gained in Argo’s new LEED-certified office in New York City’s Meatpacking District
Average percentage of employees who refer others to work at Argo every year
Number of employees recognized for outstanding achievements by insurance industry publications
Argo Group gross written premiums grew to $2.70 billion in 2017, a 25% increase compared with $2.16 billion in 2016.
21.5% increase in 2017
11.4% increase in 2017
4.6% increase in 2017
Despite the challenges posed by intense weather events, Argo’s U.S. operations achieved a fifth consecutive year of profitability in 2017. Our claims teams worked around the clock, responding quickly and fairly to claims arising from extensive damage caused by natural disasters. While hurricane, fire and flood activity dampened our reported bottom-line results, our businesses stayed focused and performed exceptionally.
Last year, we identified four business lines with high growth potential and gave them additional resources to accelerate their growth. We made sure they had the right people in the right roles making wise decisions. We teamed business leaders with process-optimization experts and digital-systems developers to re-engineer the way they do their work. And we harnessed the strength of the Argo brand, demonstrating to customers how Argo’s specialty underwriting expertise and financial stability can help them grow their own businesses.
Within our excess and surplus lines (E&S), we underwrite primary and excess casualty, property, and professional liability coverage for hard-to-place risks. To propel our casualty business last year, we placed top talent in key positions, overhauled most of our internal processes and made it easy for our producers to work with us. Notably, we found ways to further accelerate our submissions process. Able to respond to any submission in fewer than five hours, Argo now stands in a class of its own.
Surety is a complicated and competitive business, but we have a keenly competitive appetite and a broad portfolio of offerings. In 2017, we strengthened our surety contract team with a number of seasoned industry professionals eager to join our growing enterprise. That larger team is now using its deep underwriting expertise to build solid, enduring and profitable relationships within an expanding base of clients.
Argo Pro is our mid-market professional lines platform. In a year of strong performance, we made improvements across a broad spectrum of activity. We rebuilt all our forms and contracts from scratch, making it easier for our producers and their customers to work with us. At the end of the year, we helped launch Coalition, a unique combination of digital tools and insurance coverage designed to help organizations address the threat of cyberattack.
A year of strong growth in this business came from both simplification and expansion. To simplify, we sold renewal rights to a number of our agency programs, choosing to concentrate wholly on our services as a risk-bearing carrier. To expand, we worked with our partners and producers to pursue opportunities in new areas. We successfully implemented three mature, profitable books of business that substantially increased our revenue, providing scale for steady, sustainable future growth.
18% increase in 2017
In 2017, these four business units were growth priority areas. The year-over-year results are notable.
2017 was a pivotal year for Argo’s international operations. Building on our solid foundations in Bermuda and London, we took decisive action to expand our global footprint. First, we put top-performing industry professionals in critical leadership roles. Next, we made acquisitions that brought us new teams, platforms and customers around the world. Finally, we took deliberate steps to deepen our presence in Europe, Latin America and Asia.
Our acquisition of Ariel Re in February brought us new tools and talent, and gave us the scale we sought in both our reinsurance business and our London operations. With Argo Re and Ariel Re operating under a single banner, we now offer our reinsurance customers alternative risk-transfer solutions, leveraging our insights supported by data analytics and modeling capabilities. We restructured our insurance operations in Bermuda to better serve the evolving needs of our clients. We also strengthened our property business by adding the team of property underwriters that came from the Ariel Re acquisition to our existing team of Argo property experts. Late in the year, we unified our international open-market property businesses to allow our London, Bermuda and U.S. teams to participate on joint accounts and better deploy our growing capacity.
In London, we organized our Lloyd’s syndicates 1200 and 1910 efficiently under a single Argo Managing Agency. Under the watchful eye of a newly appointed international chief underwriting officer, we worked to exercise more rigorous underwriting discipline, refusing to chase top-line growth in one of the industry’s most challenging markets. We appointed a new head of Europe, who now leads our effort to find the right geographical mix as we grow across the continent. We added a team of underwriters to capitalize on new opportunities in Germany, Austria and Switzerland, and we successfully introduced our specialty product capabilities into southern Europe.
With a new head of Latin America onboard, we opened an office in Miami to allow us to explore opportunities in the fast-growing facultative market and to serve as a launching pad to explore profitable growth opportunities, including a variety of new markets in both Central and South America. Our operation in Brazil once again produced good results. Despite the barrage of economic and political challenges that perplex that country, we grew our core business in Brazil by 30 percent; through our digital Protector platform, we now serve over 50,000 active customers through a network of more than 2,400 producers. Our ability to identify untapped market niches, create new ways of doing business and provide superior coverage earned us a nod from Reactions Latin American Awards as Brazil’s Insurer of the Year.
With offices in Shanghai and Singapore, we were able to drive business successfully in two highly complex markets. Our focus in Asia, as always, is to find unique opportunities where our long experience as specialty underwriters allows us to compete, even against much larger carriers. Last year, we continued that approach by opening a center in Hong Kong, where our expertise in sustainable energy has attracted the interest of businesses ready to launch infrastructure projects related to clean, renewable power.
33.7% increase in 2017
As a leading global specialty underwriter, we do business around the world.
Rio de Janeiro
As we grow, we’re committed to securing the future for our employees, just as we are for our clients, shareholders and communities.
We start by hiring the best people. “We’re pushing boundaries to attract the best and brightest,” says David Harris, head of group performance. “This is something the insurance industry hasn’t always done.”
HR Operations Specialist
One reason insurance is attracting a new generation of digital talent? “This is one of the original data businesses,” says Andy Breen, senior vice president of Argo Digital. “People see that they have the opportunity to actually evolve the business from the inside by applying artificial intelligence and machine learning.”
Success depends on keeping our employees engaged and challenged, as well as providing opportunities for growth.
—Jorge Luis Cazar,
Head of Latin America for Argo Group’s international business
We have an entire team dedicated to training and development. And we give employees opportunities that range from an annual leadership conference at Harvard Business School to Argo Academy, a companywide platform for continuing education that offers 250,000 tailored courses. We also have partnerships with organizations such as Bell Leadership programs and Stanford University.
“When we invest in our employees,” says Harris, “they feel a pride in and ownership of the organization.”
Underwriter, Trident Public Risk Solutions
Argo employees work hard to improve the lives of those around them. On this and the following images are some highlights of our philanthropic efforts in 2017.
We made a $10,000 matching sponsorship to Power Grants to support two high school robotics teams in Brooklyn, New York, providing financial support and encouraging the team’s communities to invest in STEM education programs.
In São Paulo, we sponsored Bikxi, a sustainable and innovative shared transportation service based on two-seat electric bikes, and we participated in a food drive to help feed hundreds of homeless neighbors.
In London, we made a yearlong commitment to The Sick Children’s Trust. From participating in Tough Mudder events to competing in cricket tournaments, employees raised money to help support the families of seriously ill children being treated in hospitals.
After Hurricane Harvey devastated Texas, we volunteered at shelters, delivered supplies and helped clear out damaged homes. In San Antonio, we provided additional assistance through United Way contributions. And in communities around the world, we supported numerous other important causes and organizations to help secure their futures.
Mark E. Watson III
Watson has served as president and CEO of Argo Group since 2000. Watson had previously invested in Argo Group's predecessor company, Argonaut Group, in 1998, and joined its board of directors in 1999. Before joining Argonaut, Watson was one of two founding partners of Aquila Capital Partners, a Texas-based venture capital firm focused on technology and life sciences companies.
Breen is senior vice president of digital at Argo Group. He is also an adjunct professor at NYU's Stern School of Business, where he develops and teaches a graduate-level course in technology product management and innovation.
Chee heads the Aquiline Technology Growth division of Aquiline Capital Partners, a New York-based private equity firm. Chee was previously a managing partner at Millennium Technology Value Partners, where he led more than 20 investments at all stages across consumer, enterprise and financial technology. He also serves on the boards of Carpe Data and BitPay.
Robert P. Hartwig
Hartwig teaches courses in risk management, insurance and corporate finance at the University of South Carolina's Darla Moore School of Business. He also serves as co-director of the Moore School's Risk and Uncertainty Management Center. Hartwig is a former president of the Insurance Information Institute, where he continues to serve as a special consultant.
Morgan is director of program management at DAQRI, a Los Angeles-based augmented reality company that builds headsets to help workers perform better. She is responsible for planning and developing DAQRI's newest technologies, programs and special projects.
White is senior vice president, group head of cyber at Argo Group. He previously served as senior vice president, head of professional, privacy and technology liability at Liberty International Underwriters. White spent nearly 20 years as a broker working on E&O and cyber-related product lines with Fortune 500 companies and large professional service firms.
Klotzbach is a research scientist in the department of atmospheric science at Colorado State University. Specializing in Atlantic basin seasonal hurricane forecasts, Klotzbach has worked in the department of atmospheric science since 2000. He has published more than two dozen articles in peer-reviewed journals such as Weather and Forecasting and the Journal of Climate.
Data in “The Future of Insurance” comes from government reports, industry organizations and academic institutions. Here are some key resources.
Argo Group International Holdings Ltd. common stock trades on Nasdaq under the symbol AGII.
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Forward-Looking Statements Disclosure
This report contains certain statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are qualified by the inherent risks and uncertainties surrounding future expectations generally and also may differ materially from actual future experience involving any one or more of such statements. For a more detailed discussion of such risks and uncertainties, see Argo Group’s filings with the SEC. The inclusion of a forward-looking statement herein should not be regarded as a representation by Argo Group that Argo Group’s objectives will be achieved. Argo Group undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.
Blockchain is more than just Bitcoin – much more. Cryptocurrency systems such as Bitcoin and Ethereum have put blockchain in mainstream headlines, and to date most public interest has been in the potential of blockchain to revolutionize the payments industry. But the underlying technology can be used to exchange any kind of information, not just currency, in a trusted way without parties in the middle verifying the veracity of the information or transaction. So how does it work?
Imagine a single ledger – basically, a record of transactions – that's replicated across a network of thousands of computers, or nodes. Anytime a change is made to this ledger, it's replicated on every node in the network. If you've ever shared a document with colleagues using Google Docs, to which anyone can make edits, you get the basic idea. A change you make to the document displayed on your screen is immediately available to everyone else on their screen.
In the case of cryptocurrency, each time a transaction is made and a token of value is sent from one party to another, it's recorded across the network.
Since thousands of nodes can be hosting copies of any given ledger, it's essentially impossible to falsify records. Every time a transaction occurs, an unalterable record of the transaction's sender and recipient is instantly made.
Moreover, because the information isn't stored by a single entity, the records are public, easily verifiable and not subject to transaction fees or other controls of a central entity.
Here's where it gets interesting for insurers. Blockchain technology can allow any kind of data to be tracked and traded digitally, securely and transparently without a central administrator. In an industry built on trust and the transfer of data and documents, this technology holds the potential to radically streamline operations. In one scenario, claims could be settled much more quickly, without a need for transmitting paper documents and without a need to challenge the authenticity or accuracy of shared information. The result is what Andy Breen, senior vice president of digital at Argo, refers to as "distributed trust."
In short, blockchain technology could:
Want to learn more about blockchain and other technologies? Read our article The 3 Frontiers of Technology in Insurance.
That little device hovering 100 feet overhead is poised to change how public entities conduct business in the future – especially in the area of risk management.
Drones – a catch-all term for unmanned aerial vehicles (UAV) and unmanned aerial systems (UAS) – are used increasingly for tasks such as property inspection after storms, crime scene photographs and agricultural surveys, as well as in emergency situations where drone use reduces personnel risk.
The National League of Cities reports in its guide, Cities and Drones, that commercial drone usage will rise dramatically over the next five years, with an estimated 11 million commercial drones expected to be sold by 2020.
Why the predicted increase? New technology has reduced costs and made drones more accessible to public entities.
But a bigger reason is that the FAA put drone rules in effect in August 2016 after years of delay, said Bob Marinelli, senior risk control consultant at Trident Public Risk Solutions, a leader in the public sector insurance and risk management marketplace.
The new FAA rules will help cities move forward with their drone ordinances, he said, and allow more of the unmanned aerial vehicles to take flight.
But the soaring use of drones means municipalities will be faced with new risks. In turn, specialty risk insurers such as Trident are including drones in their product mix. The company recently began including a definition of UAS in its general liability, law enforcement liability and excess liability coverage.
Privacy is one of the concerns for community leaders, Marinelli said. A drone flown by a public entity to survey a park could unintentionally record activity in an adjacent private property, leaving that entity at risk of violating privacy laws. Additional complexity is added by the fluid nature of controlling federal, state and local regulations and statutes.
Some municipalities have added provisions that prohibit the use of drones for surveillance. Others have passed ordinances that prohibit drones from flying over schools and other structures without the owner's consent.
Liability is another crucial issue for municipalities, Marinelli said.
Drone liability can originate from:
The National League of Cities suggests municipal drone ordinances should:
Local government should also have written policies and procedures for their use of UAS, including compliance with FAA rules. Once those ordinances are in place, it's essential that all the parties within a municipality communicate more, Marinelli said.
"Laws put in place around drones will impact the entire municipality," he said. "It could impact a school's ability to, say, hire a drone to photograph a game. That use of a drone could be in violation of a municipality's ordinance, and the school may not realize that."
Learn how Trident Public Risk Solutions has public entities covered when it comes to risk management.
Researchers estimate that driverless cars could reduce traffic fatalities by up to 90%.
Although it's still years away, the day you see vehicles on the road with no one behind the wheel will be here before that jetpack they promised you.
General Motors, for example, recently announced the completed manufacture of 130 self-driving Chevrolet Bolt test vehicles, bringing the company one step closer in the race to marketing autonomous cars. A big topic lately is how this will impact safety: Researchers estimate that driverless cars could reduce traffic fatalities by up to 90 percent.
But self-driving cars will also have a far-reaching effect on municipalities, counties and other public entities, said Thom Rickert, vice president and head of marketing at Trident Public Risk Solutions. The new technology will impact areas such as municipal liability, law enforcement and city planning.
Self-driving cars could present an attractive target for cybercriminals. At a technology conference, a pair of computer security experts made headlines after they were able to make a Toyota Prius sound its horn and slam on the brakes by sending commands from their laptop.
"Our goal at Trident is to be prepared for the eventuality of driverless vehicles being deployed by our public entity clients," Rickert said. "As with any new technology, the coverage implications will go far past the obvious auto liability concerns."
Carlo Ratti, director at MIT's Senseable City Lab, believes vehicle automation will require 80 percent fewer cars on any given highway. So areas currently used for parking lots and roads could be converted into parks and public spaces. Some urban thinkers believe that in 15 years from now, autonomous vehicles will have erased the need for up to 90 percent of current parking lots. On the flip side, however, that could spell less revenue in city coffers. San Francisco alone makes an estimated $130 million annually from parking meters.
Technology that lets vehicles communicate with infrastructure such as traffic lights – an integral part of driverless vehicles – is picking up speed.
In December 2016, Audi announced it launched the first Vehicle-to-Infrastructure (V2I) technology in the U.S., starting in Las Vegas. Available in select models, the technology sends real-time signal information, via an onboard cellular data connection, from advanced traffic management systems that monitor traffic lights.
Although Las Vegas was the first city to connect a traffic signal network to vehicles, expect many more cities to follow suit before autonomous vehicles become widespread.
Listen to our podcast to learn about the challenges autonomous vehicles will pose to insurers.
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The insurance policies, not this descriptive article, form the contract between the insured and the insurance company. The policies contain limits, exclusions and conditions that are not listed in this article. All coverages are subject to individual underwriting judgments and to state legal and regulatory requirements. This article is provided for informational purposes only and does not constitute legal advice. Policies for this program are issued by one or more insurance companies of Argo Group International Holdings Ltd. Trident is a registered service mark of Argo Group International Holdings Ltd.
What do the odd-sounding names of Shadow Brokers, WannaCry and Petya have in common? They were behind recent massive security breaches. Shadow Brokers made off with NSA hacking tools; WannaCry and Petya are both strains of ransomware that infected computers all over the world.
These security breaches made headlines, as well they should have. But plenty of others you never heard of also have compromised millions of consumers' information. Here are the four breaches that directly affected the most consumers in the past few years.
Although these breaches received a lot of media attention, most of the news stories ended with the breaches themselves. What happens – and what needs to happen – after the breaches created relatively little discussion. And, in my opinion, that's a problem.
According to a recent study by Argo Group, there's a big disconnect between the threat of cyberattack and preparations to counter that threat. Curiously, only four in 10 survey participants believe their company is a potential cyber target, despite nearly two-thirds (63 percent) of respondents indicating they have experienced some form of cyberattack.
More than half (57 percent) of small and medium-sized enterprises (SMEs) surveyed lack any kind of cyber insurance. The future doesn't look much better. Six in 10 SMEs do not believe their current cybersecurity is adequate, but only 27 percent of SMEs report they are "likely" or "very likely" to purchase cyber insurance.
I might understand such a disconnect if data breaches were relatively inexpensive. I could imagine that companies have simply conducted a cost-benefit analysis and decided the investment in insurance wasn't worth the cost. But the average consolidated cost of a data breach (including the hundreds and thousands of small ones you've never heard of) in 2016 was $4 million, according to IBM. That's no small amount, and you can be sure that larger breaches cost a lot more.
With that kind of potential liability, I would expect a reasonable manager to spread the risk, perhaps through insurance. But that doesn't seem to be happening as much as it should.
But maybe there's another reason more companies haven't considered cyber insurance: Perhaps cyber insurance policies don't measure up to customer expectations. If another cost-benefit analysis had demonstrated that insurance wasn't worth the expense or didn't perform as desired, the insurance option would certainly be less attractive.
However, that also doesn't seem to be the case. Companies that have cyber insurance appear to value it and use it. According to Argo's study, 36 percent of respondents with cyber coverage had filed a claim with their provider in the past 12 months, and more than one in five companies with cyber insurance policies were hoping to expand their policy coverage.
SMEs that have a cyber insurance policy are highly satisfied, as the study showed:
In addition to insurance's affordability and performance, custom solutions that can be adapted to a company's size and needs are available. A company can also complement cyber insurance with security solutions like risk assessment and management, which are among the services most demanded by clients (75 percent) according to the study.
It's apparent that although data breaches get a lot of media attention, that's not enough. Those who are responsible for managing data security need to prepare for the next cyberattack – because it's surely coming.
Looking for customized cyber coverage for your company? Explore Argo Pro's Cyber Tech PROtect.
September 2017 was the most active month for Atlantic storm activity since the mid-1800s. Scientists recorded 17 major storms, including six hurricanes with winds exceeding 111 miles per hour. Together, the most destructive of those – hurricanes Irma, Maria and Harvey – tallied an estimated $100 billion in insurance costs.
"Obviously, 2017 was an incredibly devastating season," said Phil Klotzbach, a research scientist in the department of Atmospheric Science at Colorado State University. "A normal season has about six hurricanes and two major hurricanes."
Rising ocean and air temperatures, both results of climate change, create a perfect incubator for more severe storms, according to Klotzbach.
New research published by the National Academy of Sciences suggests storms the size of Hurricane Harvey, which did billions of dollars in damage to the Houston area, are becoming more frequent. Previously considered events that occur once every 100 years, these huge storms now may occur as often as every 16.
Compounding the problem, sea levels are rising due to melting polar ice, Klotzbach added. Storms are now dropping an estimated 5 to 10 percent more rain. Harvey, for example, brought more precipitation ashore than any previous hurricane to strike the U.S.
And there's potential for even greater losses. According to analytics firm CoreLogic, 6.9 million homes along the Atlantic and Gulf coasts face risk of possible damages totaling $1.5 trillion as a result of hurricane storm surges.
While better building codes and practices can mitigate some risk, development brings homes and businesses even closer to flood-prone areas, Klotzbach cautioned. That means financial damages are likely to increase, regardless of how severe hurricanes become.
"We know storms in the future are going to be more damaging," Klotzbach said. "[That's] simply because there's more stuff in harm's way. Regardless of any human impacts on climate, we know that's going to be the case."
To learn more, watch the world's first comparison of U.S. inland flood risk modeling.
Insurance has always been driven by data, and artificial intelligence is going to empower the industry to analyze that data like never before.
AI is transforming the business, for both underwriters and customers, in three important ways:
More of the underwriting process will be automated. That doesn't mean underwriters will be out of a job, however. Manual risk assessment is challenging and time-consuming, but AI algorithms can comb through data and spot patterns to segment customers and risks more efficiently and with fewer errors. It frees underwriters to better focus on the human tasks of negotiating, sales and complex analysis.
Customers will receive better service and more personalization.
Chatbots: Natural Language Understanding and sentiment analysis will allow these virtual assistants to address customer requests, resolve claims, sell products and follow leads. Interactions can be personalized using customers' geographic and social data.
Customized coverage: AI can use customer data to create a full profile that insurers can use to offer only relevant products and remember customer preferences. Using data from internet-connected devices, insurers can assess customers' risk in real time and prompt them to act before an incident occurs. And when accidents do happen, AI can automatically assess damages and predict repair costs.
Faster claims: In the future, AI could also help insurers identify complex or severe claims early and send them to the most qualified adjuster, along with information that can assist in settling these claims. Simpler claims can be auto-processed to reduce time and costs.
Fraud detection will be more reliable. AI can identify patterns in data and recognize fraudulent claims, in many cases better than humans can. Self-learning abilities make algorithms adaptable to new cases and able to improve detection over time.
Learn how Argo Digital is using technology to change the way risk is managed and assessed in the 21st century.
With 8.4 billion devices now connected1, IoT gives insurers access to data that can help them adjust pricing, products and services. 74% of insurance industry leaders expect that by 2020, IoT will create major disruptions in the way they do business.2
As the global climate continues to warm, the intensity of hurricanes and related storms as well as wildfires is projected to increase.