Ryan T Vollmer
When you think of insurance, you probably think of Geico’s Gecko or Progressive Insurance’s Flo. It is possible that your investment portfolio owns one or more insurance companies. Some companies that may sound familiar include Cincinnati Financial, Chubb Insurance, Travelers Insurance, and Met Life.
When you think of insurance, you probably think of Geico’s Gecko or Progressive Insurance’s Flo. It is possible that your investment portfolio owns one or more insurance companies. Some companies that may sound familiar include Cincinnati Financial, Chubb Insurance, Travelers Insurance, and Met Life.
There are two broad categories of insurance companies. Property and casualty insurance reimburses you for losses caused by a car accident or when your home burns down. These policies also include liability coverage for damages to other people and property that you cause. It’s also possible that you have life insurance, which guarantees unexpected risks of death and usually pays interest to your spouse or children upon your death.
Each insurance company covers the risk based on a loss aggregated in a particular type of category and then the expected loss rate. As a regulated sector, similar to banking, insurance companies must maintain certain levels of capital based on the risks they underwrite.
When a major event such as an earthquake, wildfire or hurricane occurs, and many different insurance companies are affected by losses, the overall capital base of the industry begins to shrink. The smaller capital base forces the company to reduce the amount of risk it can take, which reduces competition which leads to higher insurance rates.
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 offer price savings to customers.
One such example is the Kinsale Capital Group, which was founded in 2009 by former industry executives. They focus on securing smaller companies in turnover and operating businesses in high-risk categories. Generally, insurance companies undertake these risks in a uniform manner given the small amount of premiums to reduce underwriting costs. Kinsale has built an underwriting process using big data and artificial intelligence to offer low-cost insurance to these customers.
Another company that uses big data is Palomar Holdings, an insurance company that focuses on specialized insurance for residential and commercial clients in areas such as earthquakes, excess property, professional liability, and flood insurance. Through technology, they have been able to reduce costs and help customers.
The risk and return objectives for each individual are unique and require discussion with an investment professional before making any investment decision.
Sources: Factset, Company Reports
Beese Fulmer Private Wealth Management was founded in 1980 and is one of the oldest and largest investment management firms in Stark County. The company serves high net worth individuals, families, and non-profit organizations and has been ranked as one of the largest money managers in Northeast Ohio.
