Actuarial Consulting Archives

How Are Insurance Companies Responding to the 2025 Tariffs?

As U.S. policymakers ramp up tariffs on imported vehicles, auto parts, and construction materials in 2025, insurers are increasingly feeling the downstream impact on claims costs and profitability. While the consumer-facing effects are gradually unfolding, insurers are already moving behind the scenes — adjusting rate filings, underwriting practices, and reserves to manage the ripple effects of these trade measures.

In this post, the experts at our actuarial consulting firm provide a snapshot of carrier responses and market implications.

The Economic Backdrop

The 2025 tariffs — covering vehicles, auto components, and certain building materials — are expected to amplify inflationary pressures in property and auto repair costs. According to an analysis by the Swiss Re Institute[1] prepared prior to tariff changes announced in early May 2025, the direct cost to U.S. personal auto insurers could reach $31–$61 billion annually. Prior announced tariffs shifted the rate filing landscape: Filings for lower auto insurance rates dropped from 482 in March to just 95 in April 2025 as carriers halted or reversed reductions. Carriers are also preparing for multi-year pricing adjustments as the full impact unfolds. In short, carriers are bracing for change.

Impacts Across All Lines of Business

The actuarial consulting experts at our firm are keeping close watch on the language in filings to assess how carriers are responding to these landscape changes. Here are some of the noteworthy items we have seen in recent rate filings.

Auto Insurance

Progressive (Q1 2025 filing)[2]

“Tariffs and other retaliatory actions will likely result in higher loss costs, which could result in a reduction in profitability and higher than currently anticipated rate increases throughout 2025 and 2026.”

Allstate (Q1 2025 The Allstate Corporation Earnings Conference Call)[3]

“So, we’re going to manage through whatever the impacts of tariffs are, just as we did the inflation that came through the pandemic…And if we need to raise prices, we’ll raise prices…”

Accuity Insurance Company (rate filings, Oregon & Virginia)[4]
+5.5% one-time prospective loss change on property damage coverage
+11.3% one-time prospective loss change on comprehensive & collision coverages

These adjustments reflect forward-looking pricing, not just historical loss trends — a key shift in how actuaries and product managers are modeling risk.

Property / Homeowners Insurance

While less explicitly tied to tariffs, homeowners insurers are reacting to related cost pressures by reassessing replacement cost models, tightening underwriting guidelines (especially in catastrophe-exposed regions), and increasing deductibles or capping coverage on high-value items.

Market Implications

For insurance professionals, the tariff environment raises critical questions:

How can pricing and reserving models capture prospective, rather than trailing, loss costs?
Are underwriting strategies sufficiently agile in the face of shifting repair and rebuild expenses?
How will state regulators respond to tariff-justified rate filings?

How an Actuarial Consulting Firm Like Perr&Knight Can Help

Navigating this new “tariff terrain” requires specialized expertise. Our actuarial and product design consulting services can help your organization in the following ways:

Advanced Actuarial Modeling: We project the impact of tariffs on expected future losses and expenses, considering externally available data and broader economic trends.

Innovative Product Design: We collaborate with your team to design and refine insurance products that address the evolving needs of your customers in this dynamic environment.

Strategic Pricing Solutions: We help you develop data-driven pricing strategies that balance the need for rate adequacy with market competitiveness.

Robust Reserving Methodologies: Our actuarial experts can assist you in establishing sound reserving practices that account for the uncertainties introduced by tariffs.

Regulatory Compliance Support: We provide comprehensive actuarial analysis and documentation to support your rate filings and ensure effective communication with regulatory authorities.

Partner with an Experienced Actuarial Consulting Firm

Don’t let the complexities of tariffs and their impact on the insurance industry leave you behind. Our team of experienced actuarial and product design consultants is ready to partner with insurance organizations of all sizes to develop proactive strategies for pricing and product development.

Collaborating with experienced actuaries and insurance product design experts can help you stay ahead of a shifting landscape and ensure your organization’s continued success in this evolving market.

Contact Perr&Knight today for a consultation and discover how our expertise can help you turn tariff-related challenges into strategic advantages.

[1] Car Insurance Rates Were Ready to Drop. Then Tariffs Came Along. – WSJ

[2] Progressive Corporation Quarterly Report for Quarter Ending March 31, 2025 (Form 10-Q)

[3] Q1 2025 The Allstate Corporation Earnings Conference Call | The Allstate Corporation

[4] SERFF Tracking #s: ACUT-134506391 and ACUT-134506395

How to Attract a Capacity Partner: Best Practices for Success

by Michael Covert

Securing a capacity partner is one of the most critical steps in launching or expanding an insurance program. Whether you’re a managing general agent (“MGA”), insurtech, or startup, Capacity Partners (“Partners”) need to see a well-researched, financially sound, and scalable operation before committing their support. Partners are not just looking for premium volume, they want strong underwriting discipline, effective risk management, a clear path to profitability, and efficient operational systems.

In this guide, we’ll walk through the best practices to position your program for success, from market research and actuarial feasibility to distribution strategies and technology infrastructure. By applying these best practices from our actuarial consulting experts you can build a compelling case that attracts the right Partner and foster long-term stability of your program(s).

Market Research & Competitive Analysis

Before approaching a Partner, it is crucial to conduct thorough market research and competitive analysis. Understanding industry trends, target market demands, and the competitive landscape allows you to position your program strategically. Partners want to see that you have identified a profitable niche or can differentiate your offering from existing solutions. Detailed competitor benchmarking, regulatory insights, and market demand assessments will help demonstrate that your program is viable and well researched.

Pitch Deck

A compelling pitch deck is your first impression with potential Partners, so it needs to be clear, data-driven, and persuasive. It should present your program’s value proposition, target market, competitive advantage, and financial projections. Strong visuals, concise messaging, and an emphasis on risk management and profitability will help capture the Partner’s attention. Tailoring your presentation to address the specific concerns and priorities of Partners will increase your chances of securing support.

Actuarial Feasibility Study / Loss Ratio & Profitability Expectations

Partners are typically risk-conscious and will be looking for a well thought out actuarial feasibility study performed by an experienced actuarial consulting team. This analysis should include the projected loss ratio (or the “loss pick”), expected profitability, along with supporting exhibits detailing the analysis. Actuarial soundness is critical—Partners want to see that your pricing strategy aligns with claims expectations and that you have accounted for potential underwriting volatility. Providing robust actuarial support, including historical data analysis, can strengthen your case.

Rating Plan Design

Your rating manual should be carefully designed to balance competitiveness with profitability. Partners will expect a rating manual that reflects sound actuarial principles. Ensuring transparency as well as maximizing price flexibility in your design will make your program more attractive to Partners and enhance profitability potential.

Underwriting Guidelines

Comprehensive underwriting guidelines demonstrate discipline in risk selection and portfolio management, which are critical for securing capacity. Partners want assurance that risks will be evaluated consistently and that underwriting decisions align with profitability targets. Clear guidelines should define risk appetite, eligibility criteria, pricing adjustments, and approval authority. Strengthening your underwriting framework with technology and data-driven decision-making can further enhance Partner confidence.

Risk Management

Partners expect more than just strong underwriting—they expect a holistic approach to managing risk throughout the program’s lifecycle. A well-developed risk management framework signals that you’re proactively identifying, assessing, and mitigating exposures. This includes setting clear risk tolerances, establishing protocols for emerging risk detection (e.g., Loss Control programs), and building feedback loops between claims, underwriting, and actuarial teams. Partners will also look for evidence of strong governance practices, including internal audits, compliance, quality control, and ongoing portfolio monitoring. Integrating risk management into your operational and strategic decisions helps ensure long-term profitability and signals to Partners that your program is built for resilience, not just rapid growth.

Proforma Financials

A detailed financial projection gives Partners confidence in your program’s sustainability and scalability. Proforma financials should outline expected premium volume, claims development, expense ratios, and return on investment generally over a three-to-five-year period. Clearly defining minimum premium thresholds and demonstrating a realistic path to profitability will help you gain Partner buy-in. Additionally, a well-thought-out scalability plan—accounting for expansion strategies and capital requirements—will show Partners that your program has long-term potential.

Distribution / Growth

Partners will assess your distribution strategy to ensure you have a reliable path to premium growth. Whether through retail agents, MGAs, direct-to-consumer channels, or partnerships, a well-defined distribution plan is key. Partners want to see that you have a robust network, a proven sales strategy, and an understanding of customer acquisition costs. Ensuring your growth projections are realistic and supported by market data will help build Partner confidence in your program.

Systems (Policy Administration, Claims Processing, Data Analytics)

A strong technology infrastructure is essential for efficiency, compliance, and profitability. Partners prefer programs with modern policy administration, claims processing, and data analytics capabilities. Automation and data-driven insights can improve underwriting accuracy, reduce fraud, and enhance customer experience. Demonstrating that your systems are scalable, integrated, and aligned with industry best practices will strengthen your appeal to Partners.

In summary, to successfully attract a Partner, you need a well-structured plan that encompasses most if not all of the above described best practices. Navigating this process can be complex, but you don’t have to do it alone. Perr&Knight has the expertise to guide you through every step—from market research and actuarial feasibility to financial modeling, policy form development, compliance and identifying a strong technology infrastructure. Our actuarial consulting team can also support you in crafting a compelling pitch and participating in presentations to potential Partners. With our deep industry knowledge and hands-on approach, we can help ensure your program is positioned for success. Contact us to learn more.

30 Years of Perr&Knight: What’s Next?

by Tim Perr

Perr&Knight recently celebrated its 30-year anniversary, and my partner and co-founder, Scott Knight, wrote an excellent blog reflecting on our journey and achievements over the first three decades. In this piece, I’d like to focus on what’s next for Perr&Knight.

Driven by Continuous Improvement

Looking ahead, the next chapter for Perr&Knight will continue to emphasize continuous improvement and innovation in our core technical services, including actuarial consulting, analytics, regulatory compliance, product design, and statistical reporting. We will also scale up efforts in our risk strategies services, where we assist clients with holistic and multi-disciplined approaches tailored to their unique challenges and opportunities. We will continue to introduce new services centered around information technology and artificial intelligence. And finally, we will roll out PK1Cloud—Perr&Knight’s cloud-based ecosystem that unifies all our SaaS solutions within one secure and integrated platform.

Our Greatest Asset: Still Our People

To achieve our ambitious vision, first and foremost, we’re prioritizing investments in staff development and recruitment. Recognizing that our people are our greatest asset, we remain committed to fostering talent through ongoing training, professional development programs, incentive-based compensation, and leadership opportunities. By recruiting highly qualified individuals and supporting professional growth throughout Perr&Knight, we ensure our team is well-equipped to meet evolving client needs and industry demands in a rapidly changing technological environment.

Guided by Experience & Feedback

We remain acutely dedicated to incremental improvements in our existing services. Leveraging our team’s extensive industry experience and invaluable client feedback, we are continually refining our offerings to enhance accuracy, efficiency, and value. These incremental enhancements, which compound exponentially over time, ensure we remain at the forefront of industry best practices and consistently deliver reliable and innovative solutions.

New Areas of Expertise

We are excited to introduce new areas of expertise, notably our AI consulting practice. Recognizing the transformative potential of artificial intelligence, we aim to assist our clients in leveraging practical AI technologies to drive operational efficiency, improve compliance, and secure competitive advantages. Our AI consulting services will guide clients through strategy development, technology integration, and ongoing AI-driven enhancements.

Introducing PK1Cloud

Our most ambitious endeavor ever is the introduction of PK1Cloud: our scalable, secure, and integrated cloud-based platform. PK1Cloud incorporates a proprietary central data model along with data validation and editing tools, robust analytics, natural language AI-enabled automation and reporting, and seamless integration with our regulatory and commercial insurance system partners.

Imagine the productivity gains achieved by using a highly automated state filings solution with AI-powered actuarial and product design modules. These modules will access state insurance codes to ensure compliance and other industry data, integrate with the NAIC’s SERFF system, and link with our clients’ policy and rating systems to enable no-touch or minimal-touch rate table and policy form updates upon regulatory approval.

This feature is just one part of what we are presently building as part of Perr&Knight’s PK1Cloud initiative. Other applications include statistical reporting, actuarial reserving, and advanced actuarial ratemaking—all accessible within a single, integrated ecosystem.

Reinforcing Our Unshakable Foundation

Alongside all our improvements and innovations, we remain deeply committed to reinforcing our corporate cultural foundation, which is the bedrock upon which Perr&Knight is built. This includes ensuring all engagements align with our core values, maintaining a balanced approach to work-life integration, and most of all, adhering to the integrity that our employees and clients have come to expect from Perr&Knight.

The vision for Perr&Knight’s future is bold, innovative and guided by the foundational principles that have brought us this far in 30 years. Together with the Perr&Knight team, I am confident that we will continue to develop exceptional talent, innovate, and set new benchmarks for excellence in the insurance consulting industry, extending Perr&Knight’s success well into the future.

Contact the actuarial consulting and insurance product development experts at Perr&Knight today.

Now That California FAIR Plan Assessments Are Real – Urgent Action May Be Required

by Mitchell Paden

As mentioned in the Potential Impacts of the LA Fires on California’s Property Insurance Marketplace blog, the possibility for assessments from the California FAIR Plan loomed large. That fear has become a reality, as the FAIR Plan, on February 11, 2025, levied its first assessment to member companies since 1994. The assessment totaled $1 billion and will be assigned based on the market share of the member companies. For the largest insurers in the state like State Farm, these assessments add many millions of dollars to the already significant bills they owe in the aftermath of the fires. Now that assessments have been made, what does it mean for the state’s property insurers beyond just the large bill?

$1 Billion Today, More in the Future?

Though the total assessment of $1 billion is significant, it does not necessarily mean that it is sufficient to cover all of the FAIR Plan’s costs. It is possible that the $1 billion amount was chosen specifically to coincide with the Commissioner’s September 3, 2024 Bulletin that laid out the rules for companies to recoup a portion of those assessments. That bulletin allows insurers to submit rule filings to the California Department of Insurance (“the CDI”) for approval to enable insurance companies to recoup up to 50% of those assessments in the form of a “temporary supplemental fee” that would be charged to policyholders over a period of 24 months. The FAIR Plan has said that roughly 97% of the claims submitted so far have been residential, which means the personal lines assessment is already close to that first billion. The FAIR Plan’s estimated exposure in the Palisades alone is $5 billion, so the potential threat of future assessments down the road is still very real. Once the assessments go beyond $1 billion in one calendar year, the bulletin allows that recoupment percentage to increase to 100%. Insurers may file to recoup as much as possible, so future assessments could add significant cost to the residential property premiums that are already straining consumers.

The CDI and the FAIR Plan are aware of the risk of future assessments and what it could mean for California residents, so the state has already begun enacting measures to try and make sure that doesn’t happen. For starters, Assembly Bill 226 (“the Bill”) was introduced by the state in January. The “FAIR Plan Stabilization Act” would allow the state to issue bonds to support the FAIR Plan to help it recover from large-scale disasters and increase its ability to pay claims. The bonds could help pay policyholders to begin rebuilding their lives, which is something that is sorely needed. The earlier the reconstruction efforts start, the better. It is unclear, however, how much the FAIR Plan might need in bonds, and it would not save insurance companies from the risks of future assessments. The Bill requires the FAIR Plan; if supported by bonds, lines of credit, or any other payment mechanism; to assess insurance companies “in the amounts and at the times necessary to timely pay in full all obligations.” So, while the BIll could help prevent further assessments in the short term, companies may still be exposed to more assessments in the long-term, and this time, it could come with interest.

Will Consumer Groups Stop Recoupments?

As mentioned, FAIR Plan assessment recoupments require a rule filing in order to implement the temporary supplemental fees and recoup their FAIR Plan assessments. Despite the very unique nature of these filings, they would still be subject to the public review period required by Proposition 103. The public review period allows an interested party, such as a consumer group, the opportunity to intervene on these filings. One consumer group that seems to have plans for review of these recoupment filings is Consumer Watchdog. In a public statement, Consumer Watchdog argues that insurance companies charging policyholders for FAIR Plan assessments is “contrary to the law” because the statute enacting the FAIR Plan requires insurers, not consumers to “participate proportionally in the “writings, expenses, profits, and losses” of the Fair Plan.” There is also a question about the legality of insurer’s abilities to implement the temporary fees if their reinsurance providers cover the FAIR Plan assessments as companies like Mercury General Corporation have indicated publically. The executive director of Consumer Watchdog is on record saying that they will “be exploring every legal option to protect (consumers) from those surcharges” (https://calmatters.org/economy/2025/02/homeowners-insurance-costs-rising-in-california-fair-plan/).
It seems like a safe bet that the FAIR Plan assessment filings will be challenged by the consumer groups, but how successful they will be in limiting or even stopping these FAIR Plan recoupments remains to be seen.

Do Commercial Carriers Understand Their Bill?

It is well known that the assessments are billed to insurers based on market share, but insurers should be mindful of how that market share is determined. This is especially true for commercial insurers who may have received a much larger bill than expected after seeing the commercial side received just 3% of the total assessment. The participation rates for the residential assessments can include allied lines premiums when calculating the participation rates, even though many carriers have premiums in that annual statement line that are exclusively commercial. This has led to situations where an insurer who only writes commercial business receives a much larger-than-expected bill because they are receiving a portion of the residential bill. Companies can send corrections to the FAIR Plan to get their participation rates adjusted, but they are only given 30 days to do so which means as of now, it is likely too late to correct for this most recent bill. Commercial carriers should be sure to make any necessary corrections to participation rates now to prevent overstated bills moving forward.

How Quickly Will Companies be Able to Implement the Temporary Fees?

While debates about the validity of the supplemental fees go on in the background, they will not deter companies from making FAIR Plan assessment filings. For the first billion in assessments, many commercial carriers may have assessment bills so small that it may not warrant the cost of implementing the supplemental fee. We expect that the vast majority of personal lines insurers in the state, however, will make filings to add the supplemental fees to their programs given the heavy weighting of assessments to residential the residential side.

The current rules laid out by the CDI allow supplemental fees to be filed as a pass-through to reinsurers, so even companies with coverage for the assessments will likely make a filing to get as much back as possible for their reinsurance partners. This means that the CDI could be receiving a lot more filings than normal in a relatively short amount of time, with the potential to impact department review times, not only for these filings but for pending filings and/or subsequent filings unrelated to the FAIR Plan. The hope is that the clear filing requirements laid out by the CDI will make the filings easy to review and allow these filings to be reviewed quickly, but until the full scope of the filings is known, that remains only a hope. It is unclear what role public intervention on these filings will play, as well. With all these uncertainties, it is of the utmost importance that any filings submitted for these temporary supplemental fees be clear and complete to help facilitate the quickest possible review. The actuarial consultants at Perr&Knight have already been contacted by multiple companies about doing just that, and is well equipped to get companies on the road to offset the costs of the recent FAIR Plan assessments.

Contact the state filings experts at Perr&Knight today.

Opportunities in the Growing Collector Auto Movement

by Michael Goldman

By: Michael Goldman and Natasha Paz

Classic cars are unique properties for which coverage under a standard auto policy might be insufficient. For insurance companies, pricing these products isn’t as straightforward as traditional auto policies. Whereas traditional auto policies are built around a vehicle’s depreciation over time, collectible car policies consider that the asset’s value potentially appreciates with age.

While classic car ownership was once a specialized market, today’s owner demographics are shifting. Many car collectors are still of the boomer generation, but more and more younger drivers are investing in collector cars as hobbies or as stylish rides around town. This shift is fueled by younger drivers with more disposable income, a heightened interest in classic car restoration, and a rising appreciation for vintage vehicles.

The definition of a “classic car” is changing, too. “Classic” no longer refers solely to chrome-heavy sedans from the 50s and 60s. Now, certain cars from the 1970s – and even the 80s and 90s – are categorized as “modern” classics. As the U.S. vehicle fleet ages and more consumers shift to hybrid or electric, a niche market for classic combustion engine vehicles is emerging, and supplies will continue to shrink over time.

Per Credence Research, the vintage car market is expanding rapidly, expected to double in size¹ over the next decade. Though classic cars still often obtain coverage from standard auto insurance carriers, specialty insurance policies offer benefits to both policyholders and insurance companies. This all adds up to an opportunity for insurance companies to develop products that are appropriately priced to take advantage of this growing market sector.

Here are some insurance product development insights from the actuarial consulting experts at Perr&Knight to keep in mind when writing new classic car programs or re-evaluating your existing programs.

Value of the Vehicle

Unlike standard automobiles, where the value of the vehicle is expected to decrease with usage, the value of collector cars usually rises over time. Establishing the value of a classic car isn’t as straightforward as with a modern vehicle. One of the main challenges is that there is no standard, agreed-upon industry definition of a “classic” or “collectible” car.

Autos that often fall into this category do share some features, such as:

Most (but not all) are at least 25 years old
Exotic cars (e.g. Lotus, Maclaren, Maserati)
Cars with historical value (e.g. Model-T, hot rod)

From there, insurance companies work with policyholders to establish a predetermined “agreed value” of the vehicle. This value can be established based on appraisal data, interviews with the insured, and research on the value of similar vehicles. The agreed value becomes the amount paid in the case of total loss or theft and is used to determine if the vehicle will be repaired or considered a total loss. The “agreed value” also protects the policyholder against vehicle depreciation in the event of a claim.

Discounted Rates

Though drivers of classic cars tend to have many years (potentially decades) of safe driving behavior under their belts, the shift towards a younger demographic means that many collector car drivers have shorter driving histories. That said, collectors of any age tend to be extra careful with these vehicles – both on the road and in storage.

Classic vehicles are usually not driven as often or with the same risk tolerance as a modern daily ride, so these behaviors can play a factor in insurance product development when establishing rates.

Because of this careful driving and increased attention to maintenance, collector vehicles are generally involved in fewer accidents than their modern counterparts. This factor can result in pricing differences when compared with traditional policies and potentially lower rates for classic vehicle owners.

Pricing Classic Car Policies

One of the most useful ways to gain intelligence on pricing is to review competitor filings and look at the kinds of variables used in successful programs. Not all states make filing information public, but for those that do, reviewing market share, checking financial statements for profitability, and looking at the pricing variables in their programs are all solid indicators of how a competing program might function in the same jurisdiction. For states without public records, information from available sources creates a solid foundation, which can then be adjusted based on other known variables for the region.

Actuarial consulting experts like the team at Perr&Knight have extensive experience evaluating multiple factors – some obvious, some less common – to develop profitable pricing strategies for classic car programs.

State-Specific Nuances

As with all insurance product development, regulation varies by state. Our actuarial consulting and product development departments have decades of experience navigating the ins and outs required by individual states. Therefore, consulting with experts throughout product development and filing can save time and increase speed to market by spotting and correcting issues that might be questioned by regulators.

Today, many opportunities exist to augment business with new classic car policies or update existing coverage. The challenges related to pricing these policies also offer opportunities to create unique products. Differences in the definition of “classic” – along with all the expected complexity of developing any insurance policy – mean that classic car product development could benefit from a seasoned actuarial consulting team. Keeping the above in mind will help you steer clear of obstacles when developing or updating your classic/collectible auto program.

Contact Perr&Knight today to chat with our actuarial consulting team or for insurance product development support.

https://www.credenceresearch.com/report/north-america-classic-cars-market ↩︎

Potential Impacts of the LA Fires on California’s Property Insurance Marketplace

by Mitchell Paden

The devastating Palisades, Eaton, and Hughes fires could go down in history as the most economically destructive disaster, with damage estimates reaching $250 billion or higher. The results of these changes will likely have a significant impact on the way P&C insurance is written in the state of California for years to come.

Our actuarial consulting experts have been following this event closely, as have many in the insurance industry. The situation is still fluid, and the potential ramifications of the fires on the California property insurance marketplace are too numerous to touch on in just one blog. This includes one of the biggest potential ramifications: the looming threat of California FAIR Plan assessments on insurers in the state for the first time since 1994 (stay tuned for an upcoming blog on that very topic!).

For now, we are focusing our thoughts on how the aftermath of the fires may converge with recent changes enacted by the California Department of Insurance regarding rate filings.

Wildfire Models Step into the Spotlight

The ink is barely dry on the recent rule changes allowing wildfire models to be used in California property rate filings. Though the implementation of the new rules has not even occurred yet (the California Department of Insurance website estimates they will be included in updated rate filing instructions at some point during the first quarter of 2025), companies are already beginning to strategize on the best path forward for achieving adequate rates.

Ironically, California did not formally approve the use of wildfire models until December 2024, mere weeks before the Los Angeles fires broke out. Prior to this, insurance companies could not use any models regarding potential wildfire losses in their rate filings. Instead, companies were required to show at least twenty years of catastrophe loss experience, that combined wildfire losses with many other catastrophe perils (e.g., severe storms), to support their catastrophe load without the ability to place more emphasis on recent years.

As wildfires in the state have grown in both frequency and intensity, scenarios based on loss experience for the previous two decades often underestimate the current risk. As such, companies have often felt this prevented them from filing what they viewed to be adequate rates. This is one of a variety of reasons so many carriers ceased writing new business in the state.

The new wildfire model rules formally approved in December give companies an option to help bridge the gap between historical ratios and present risk by allowing wildfire catastrophe models to be used in rate filings.

The use of these wildfire models does come with conditions, though. It requires companies to write additional business in the wildfire-prone areas that many carriers ceased writing and are currently being served by California’s FAIR Plan. Though some feel that the requirement to write more wildfire-prone exposure will keep companies from utilizing the models, the ability to file for a rate level more closely aligned with present day wildfire risk may outweigh the risks that come with the increased wildfire exposure for some companies.

Our team of actuarial consulting experts see a few different reasons that some may choose to take this route and accept the conditional requirements for wildfire model use in pursuit of adequate rates.

Rate Filing Data Evaluation Rules: California requires that the evaluation date of data in a filing be a traditional quarter-end (March 31, June 30, September 30, and December 31). Since the Los Angeles fires started the second week of the new year, insurance companies are unable to submit filings – or even begin assembling filings – that include these fire losses until at least April. Use of wildfire models would allow companies to replace all actual wildfire losses with modeled data that could be available sooner and provide a quicker path to submission.
Inclusion of Complete Wildfire Risk: As mentioned earlier, the use of the previously required historical ratios led to catastrophe provisions that were often understated relative to today’s catastrophe risk. The use of wildfire models would allow companies to do a filing now that can support a rate that recognizes a more complete picture of a company’s wildfire risk rather than waiting multiple years for the recent increased fire activity to gain more weight in the historical catastrophe ratios.
Subrogation Uncertainty: There have been multiple lawsuits filed claiming that the Eaton fire in Altadena, CA, was ignited by electrical equipment operated by Edison International and Southern California Edison. Under state law, utility companies, rather than insurance companies, are liable for damages if their equipment starts a wildfire. So, if Edison loses these lawsuits, much of the loss from that fire will need to be included net of subrogation recoveries from the utility company (or proceeds from the sale of subrogation rights). The same could be true for the other fires as the investigations continue into how they started. Wildfire models measure prospective risk rather than prior liability, allowing them to be used without having to potentially wait for legal liability to be determined (though the Department may want to make sure that all models have been adjusted to reflect company exposure after these recent fires).

Our expert actuaries are already fielding calls from insurance companies interested in shifting to wildfire model-based loss scenarios in their rate filings. In addition, wildfire model vendors are submitting models to the state as part of the Department’s Pre-application Required Information Determination (“PRID”) Procedure. Models that are approved via this process will help streamline the rate filing review since the model itself will already have been approved by California regulators.

For companies that are looking to get a head-start on a rate filing that utilizes wildfire models, we recommend conducting vendor research and selecting one of these approved models so that when California does formalize the instructions for submissions, companies will have modeled losses that can be quickly included in a rate filing and help expedite that filing’s review from the Department.

Net Cost of Reinsurance in Rate Filings Looms Large

Just days before 2025, California also approved new rules that allow for companies to include the net cost of reinsurance in rate filings for the first time. An industry average net cost of reinsurance could be calculated and included alongside other expenses allowable under Proposition 103.

Like wildfire models, use of the net cost of reinsurance comes with conditions in the form of increased writings in wildfire-prone areas. The increased exposure would also likely lead to increased reinsurance costs in proportion to the new risk and result in playing catch-up in times of rising reinsurance costs, which the fires will likely cause. This would be exacerbated if the industry average is not enough to fully represent company costs being paid for reinsurance.

The proposed rules do include an alternative approach that would allow companies to use their own reinsurance terms in the net cost of reinsurance calculations, but doing so would require the public disclosure of their reinsurance contracts, a condition that most companies feel they are not willing to meet.

Though there is no guarantee that the industry average will be enough to support each individual company, and there are many questions still to be answered on how it may impact proposed rates, including the net cost of reinsurance in a filing could help bridge the gap stemming from currently having no reinsurance consideration at all. The Department’s timeline estimates that the net cost of reinsurance will not be included in the rate filing instructions until the second quarter of 2025, so companies looking to maximize the tools available to file more adequate rates may wait until then to file rates using both the net cost of reinsurance and the wildfire models that upon which company reinsurance rates are often based.

The Importance of a Complete Rate Application

With so many significant changes to the allowable support in a rate filing, it is easy to forget that California also updated the rules about what constitutes a “complete” rate application. These new rules have been implemented into the rate filing instructions, so any company looking to move quickly in the aftermath of the fires should make sure that the filing package is as complete, accurate, and reconciled as possible. Public notice of filings will not take place until the state deems the application complete, so it is crucial that insurance companies carefully review all supporting documentation and model scenarios before submitting their filing to the state. Failure to do so will cause a delayed public notice date and a longer review of the submission.

The best way to speed along the process for everyone is to make the regulator’s job easier by ensuring that forms and supporting documentation are complete and ready to go, something that Perr&Knight routinely works together with the state to help achieve.

Contact the state filing experts at Perr&Knight today.

Factors Impacting Personal Auto Premiums and Claim Costs in 2025

by Dee Dee Mays

According to the Bureau of Labor Statistics, the increases in auto insurance premiums that have exceeded 15% year over year since March 2023 have tempered in 4^th quarter 2024.

Still, the annual change from December 2023 to December 2024 is at 11% – nearly four times the increase in the total CPI during the same period.

What can we expect in the coming year?

Expect Lower Premium Increases

Based on a review of submitted rate filings by Perr&Knight’s actuarial consulting experts, we expect to continue to see lower increases in auto insurance premiums in 2025. Filings available from S&P Market Intelligence as of early January 2025 show that the overall proposed impact of rate changes started decreasing for filings submitted in the fourth quarter of 2023. The declining rate increases continued through third quarter 2023 and stabilized in fourth quarter 2024[1].

Cost Changes Influenced by Multiple Factors

Changes in various CPI indices can give us an idea of the recent changes in the costs underlying auto insurance claims for insurers:

The cost of used cars and trucks has somewhat stabilized, but is lower for all of 2024 compared to 2023. This would lower the costs of total loss claims, but actuaries also need to consider the impact on salvage recoveries when developing historical losses to their ultimate amounts.
Vehicle repair costs continue to increase at a higher rate than average costs, despite the improvement in average repair cycle times[2].
Medical care and hospital services indices have been relatively flat in the second half of the year, which may help control claims costs, including bodily injury.

The change in the frequency of claims is combined with the change in claims severity driven by the items above to determine the total change in costs. The National Highway Traffic Safety Administration recently released some positive news regarding the continued decline in traffic fatalities during the first three quarters of 2024[3].

However, the amount of driving is influenced by fuel costs, which are lower in the second half of 2024, based on CPI data. Lower fuel costs typically increase the miles driven, leading to more vehicles on the road and potentially contributing to a higher frequency of accidents.

Some Higher Premiums and More Shopping

Insureds purchasing policies for the minimum required limit will see their premiums increase in California, Virginia, and Utah. The minimum financial responsibility limits in these three states are increasing effective January 1, 2025. As we have noted previously, the increase in California can be significant. See “Are You Prepared for California’s Increase in Minimum Limits?”

Monitoring of auto rate filings in 2024 by our actuarial consulting experts has shown that some companies appear to be driven to grow their market share by implementing overall premium reductions or offering discounts to entice new business.

One example is GEICO’s introduction of a “Welcome Factor” in most states in 2024. This factor provides a 9% discount for new business relative to the rate for renewal business (prior to considering any caps on rate changes). However, this discount gradually erodes to 6% at first renewal, 3% at second renewal, and then disappears for the third and subsequent renewals. Given this, new insureds with GEICO will see their premiums increase at renewal, absent other changes.

Additionally, consumers are increasing their rate of shopping for auto insurance in 2024. According to TransUnion, shopping for auto insurance increased by 19% in 2024Q3[4].

A Hazy Road Ahead

Unlike 2022 and 2023, when we saw almost exclusively rate increases, 2024 saw some companies implement decreases. The path forward for auto insurance rates in 2025 is not clear.

Some underlying costs have been lower, but there is the potential for tariffs to increase costs for auto insurers[5]. Comprehensive claims will be influenced by changes in the frequency and intensity of weather-related claims. The frequency of property damage and collision claims is also impacted by weather if insureds are driving in less ideal conditions.

Insurance companies should continually monitor internal results, external indices, and competitor filings to ensure that they quickly spot trends that will require an update to their rate levels.

Working with actuarial consulting experts like the team at Perr&Knight can help you evaluate your overall rate need as well as provide detailed analyses by rating variable. In addition, our Predictive Analytics department can provide an automated view of experience by rating variable to visually identify what is driving results.

Contact Perr&Knight today for a review of your personal auto program.

[1] Statistics were compiled through data obtained from S&P Market Intelligence.

[2] J.D. Power 2024 U.S. Auto Claims Satisfaction Study.

[3] Traffic Crash Deaths | Early Estimates Jan-Sept 2024 | NHTSA

[4] 2025 Personal and Commercial Lines Annual Insurance Outlook | TransUnion

[5] Auto Insurance Costs Seen Rising Further With Tariffs – Bloomberg

Are Your Rate Levels Stale? Six Questions to Ask When Determining Growth and Profitability Goals

by Steven Rosso

Congratulations! You just got that ever-elusive rate increase approved. And much like the insurance cycle that alternates between a soft market and a hard market, you’re likely now shifting your focus from profitability to growth. However, given the time lags built into filing for rate increases and the challenges associated with recent market conditions, those new rate levels may already be outdated.

You should continuously evaluate your book of business to monitor both macro and micro trends to facilitate your drive toward profitable growth. This blog delves into questions our actuarial consulting team recommends you should be asking yourself immediately after your new rate levels are released to ensure you’re meeting your targets relative to profitability and growth. Though we examine this issue through a homeowners insurance-specific lens, the principles apply to all lines of business.

GROWTH

What are your growth goals?

A growth analysis should start with identifying your target market and evaluating key performance indicators like year-over-year growth and real-time book composition evaluations. More important is to identify how your growth compares relative to competitors and whether you can access untapped markets to grow your customer base.

For example, demographic changes or quote activity may highlight that certain areas have an increasing percentage of new construction homes. Similarly, underserved markets, such as secondary/seasonal homes or properties with prior claims that have been fully mitigated, may be easily won given the limited competition stemming from recent market constriction. Either situation offers the opportunity to target customers unidentified by your competitors.

How do you measure whether you are meeting your growth goals?

Impacts to conversion rates and retention rates stemming from rate increases can be predicted by evaluating the elasticity of the market. While changes to policy counts may appear extreme, changes to premium tie better to profitability and could make rate proposals more palatable.

Also, monitoring rate change implementations ensures that rates released to a production environment align with those presented in an approved rate filing. Strategies like these ensure that rate adjustments drive long-term growth as expected and in a compliant and profitable manner.

How can you act to better meet your growth goals in the future?

Once you understand your target market and your competitors’ performance, you’re well-suited to identify customers to fuel growth. There may be distribution-specific nuances to consider to ensure your rate levels don’t appear artificially high or low, such as when and how you default to actual cash value or replacement cost coverage on a roof.

Analyses of the insurance market, competitor quoting platforms, and demographic data can help you identify how you can tailor your product offering to better grow and serve your customer base. Working with actuarial consulting experts like the team at Perr&Knight can help.

PROFITABILITY

What are your profitability goals?

A profitability analysis should start with a review of key performance indicators like loss ratios, expense ratios, and combined ratios. Even better is to benchmark these metrics against competitors to place your performance in an industry context. Once you understand how others in your same distribution channel, target market, and geographic footprint perform, you can better understand where you want to fit within the market and what profits are attainable.

How are you measuring whether you’re meeting your profitability objectives?

Actuarial indications should be supplemented with items like inflation indices and industry net trends to gauge how profitable the program is within the market. For example, replacement cost recalculations at renewal accurately recognize cost inflation of labor and materials for repairs. You can also segment your book of business to identify problem areas, such as exposure to homes with older roofs or significant fencing in wind-prone areas. Once identified, you can address these problems through improved pricing or underwriting to improve profitability.

How can you act to better generate more profits going forward?

You are not the only one taking action in this challenging market. Your company may be nonrenewing homes with prior water claims, while another is declining homes partially covered by trees.

Identifying competitor actions, anticipating the evolving customer base, and adjusting pricing or underwriting are vital to avoid scenarios of adverse selection that could undermine your profitability goals.

Consistent evaluation is key

Profitability and growth are metrics that must be placed within the context of the market and evaluated consistently, especially after the release of a product change. By identifying your goals and implementing data-based solutions to meet those goals, you can increase confidence in your performance, even in a challenging market like the current homeowners insurance industry.

Though this blog focused on homeowners insurance, the principles apply to all lines of business. The actuarial consulting experts at Perr&Knight can help you identify what questions you need to be asking, how to find answers to those questions, and how to act on those answers to ensure your rate levels are consistently up-to-date and to facilitate your drive toward profitable growth.

Contact Perr&Knight today to discuss how our experts can help your company achieve your growth and profitability goals.

Opening Doors: My Summer Internship at Perr&Knight

by Zach Ferdico

This past summer, as I stepped into the offices of Perr&Knight in Jersey City, I couldn’t help but feel a wave of excitement and anticipation. Securing an internship here was a dream come true—a chance to immerse myself in the professional world I was eager to join.

As a Business Marketing student at Northeastern University, I’ve always sought opportunities that would not only challenge me but also enhance my personal and professional growth. My internship at Perr&Knight did just that. Situated in the bustling environment of their Jersey City office, I found myself right in the heart of corporate dynamics, surrounded by professionals who were masters of their craft.

One of the unique aspects of my internship was the office culture. The casual office lunches were not just meals; they were my window into the lives and experiences of my colleagues. These gatherings, along with a memorable crew event for the Northeast region—complete with a competitive game of bingo and delicious catered food—helped me connect with team members not just in my office but across the region. Although I missed winning at bingo by just one number, the laughter and camaraderie made it a winning experience in every other way.

Professionally, I was positioned under the guidance of Kyle Hales in Perr&Knight’s Risk Strategies & Solutions practice area. This placement allowed me to collaborate across multiple departments, tackling a variety of tasks that broadened my understanding of our industry. A significant project for the state of Arkansas taught me a valuable lesson: most business problems in the actuarial consulting industry require creative, nuanced solutions. This project, like others, pushed me to refine my technical skills, particularly in PowerPoint and Excel. The need to produce client-ready deliverables accelerated my learning, turning initial struggles into skills on which I now pride myself.

The interaction didn’t stop at internal meetings. I frequently communicated with clients—ranging from newcomers with fresh insurance product ideas to seasoned clients requiring regular updates. These interactions were not just transactions; they were real relationships being built, providing me with invaluable experience in professional communication.

Reflecting on these three months, the lessons I’ve learned extend beyond technical skills. The nuances of professional life—such as the importance of detail in every deliverable and how one presents oneself in the workplace—were underscored daily. At Perr&Knight, I learned that professionalism isn’t just about how you dress or how much you know about your work; it’s about embodying confidence and competence in every interaction, truly taking the extra initiative to fully understand and address a client’s needs.

As I look back, I realize that my internship was not just about learning to navigate the corporate world; it was about discovering how to open doors to future opportunities through hard work, creativity, and a genuine commitment to excellence. At Perr&Knight, I didn’t just observe; I participated, grew, and left with a blueprint for my future career.

A Day in the Life of a Perr&Knight Intern

by Natalie Galvez

Michael Jordan once said, “You miss 100% of the shots you never take.” Taking on a role as an intern at Perr&Knight would not have been possible without taking that leap of faith. From exciting work events that I helped organize to interesting project work, my internship has provided me with valuable opportunities to evolve and develop both personally and professionally in a very short amount of time.

The Interview

I researched Perr&Knight before I considered applying, learning about the types of work the actuarial consulting firm does, and getting a sense of the company’s values. I admired their strong commitment to their clients and the high level of service and expertise provided. On the day of my interview, I was even more impressed by how professional the people that I met in person were. I could see myself working with this team! When Perr&Knight contacted me later, I was thrilled to be chosen for the role.

Day in the Life

My daily activities include maintaining the digital signage in all offices, as well as working directly with managers and directors on both short-term and long-term projects related to marketing, administration, accounting as well as human resources. I have also been involved in assisting with onboarding and employee promotions.

Contributing to different projects in a variety of departments also tested my skillset in real-time situations. For example, I organized an Italian cooking class for the team, which involved reaching out to multiple businesses to find a suitable host and setting up the date, time, and form of payment. The event itself was a lot of fun, with everyone making gourmet pizza and focaccia, as well as sampling different appetizers and wine. Everyone left with goodies to eat later at home! Additionally, I handled the research portion for an actuarial department in-person meeting, which involved calculating airfare, hotel, and other additional costs to discover the best possible location. It will be exciting to hear how the meeting went later this year!

My day concludes by checking in with my supervisor and asking any outstanding questions. I have been lucky to have had a great supervisor who was also a great mentor.

What I Learned

First and foremost, I gained valuable insights into business-to-business interactions in the insurance space, which was completely new to me. Being part of an actuarial consulting firm has allowed me to build my understanding of crucial topics such as state filings, regulatory compliance, and accounting. It provided a firsthand perspective on roles from actuaries to billing coordinators. I am surrounded by people who inspire and motivate me to work even harder towards my goals.

And no great story is complete without a great ending. I’m excited to share that I have been offered a full-time position with Perr&Knight as an Administrative Assistant! I know this outcome was unique, but I am happy that the feeling was mutual and that I’ll be able to start my career at a great company, where I already feel at home.