Reports & Research

The Silent Peril Reshaping Homeowners Insurance

Non-weather water damage rarely makes headlines, but it’s quietly eroding profitability across the country.
It is now the fourth costliest peril in homeowners insurance, and claim severity has increased 80% in the last decade—a trend that’s accelerating even as frequency remains relatively flat.

Traditional risk models struggle to capture the early warning signs behind these losses, leading to mispriced policies, undetected exposure, and rising volatility for carriers.

Want the full analysis? Download the complete “Winning the Fight Against Non-Weather Water Losses” guide.

Why Loss Severity Keeps Rising

Aging homes and overlooked system failures

Many of the most expensive losses stem from aging plumbing, deteriorating materials, and slow-burn failures that often go undetected until damage is significant.

Frequency is flat—severity is not

Loss patterns suggest that while the number of events hasn’t surged, the financial impact of each event has—a signal that traditional models are not capturing the right property-level predictors.

The Property Features Most Predictive of Water Losses

The overlooked attributes that traditional models miss

Standard territory- or age-based assessments often ignore the property-specific details that meaningfully influence water loss risk, including:

• supply line material and age
• plumbing configuration
• occupancy patterns
• system maintenance and upgrades
• moisture exposure and prior loss indicators

These factors vary widely between neighboring homes—yet most models treat them as identical.

Where Traditional Underwriting Falls Short

ZIP-code and age-based proxies mask true risk

Legacy approaches rely heavily on broad territory-level assumptions that overlook structural vulnerabilities and system conditions.

Limited visibility creates mispriced policies

Without property-level insight, high-risk homes are often underpriced while lower-risk homes subsidize them—driving loss ratio volatility over time.

Get deeper insights on the drivers of water loss severity in our full guide → “Winning the Fight Against Non-Weather Water Losses”

How AI and Property-Level Data Are Changing the Landscape

AI models trained on real-world claims data can identify early signals of potential water loss by analyzing the interaction between:

• plumbing systems
• property attributes
• historical patterns
• material degradation
• repair history

This enables carriers to segment risk accurately, adjust pricing, and reduce preventable losses—long before small issues turn into major claims.

What Homeowners Actually Understand About Water Risk

Misconceptions around coverage and prevention

ZestyAI’s research shows that many policyholders:

• misunderstand what is and isn’t covered
• underestimate how much damage water can cause
• rarely take preventive actions unless prompted

This disconnect creates an opportunity for carriers to strengthen education, mitigation, and customer engagement.

Steps Carriers Can Take Today

Improve segmentation and rating accuracy

Property-level signals enable more precise risk tiers and more stable long-term portfolios.

Strengthen mitigation and reduce loss severity

Insights help identify which homes are at elevated risk and where targeted mitigation can reduce exposure.

Enhance underwriting workflows with explainable insights

Transparent, explainable AI helps underwriters understand the key drivers behind elevated risk—supporting both decision-making and regulatory review.

Get the Full Guide

Our new research paper, Winning the Fight Against Non-Weather Water Losses, breaks down the trends reshaping this growing peril—and the strategies carriers can use to get ahead of it.

Access the Guide

ZestyAI's analysis revealed that more than 12.6 million U.S. properties are at high risk of hail-related roof damage, representing $189.5 billion in potential replacement costs.

Powered by ZestyAI’s Z-HAIL™ model, the analysis underscores the growing financial threat of severe convective storms (SCS), including hail, tornadoes, and wind events. In 2024 alone, damages from SCS were estimated at $56 billion—surpassing losses from hurricanes.

Yet many insurers still rely on traditional models designed to estimate portfolio-level exposure, not property-level risk. As hail events increase in severity and frequency, these models often miss the structural and environmental conditions that drive real losses.

Kumar Dhuvur, Co-Founder and Chief Product Officer at ZestyAI said:

“Catastrophe models have helped insurers understand where storms may strike and how losses might add up at a portfolio level. But they weren’t built to assess risk at the individual property level, and they often miss the specific conditions that drive hail damage. By analyzing the interaction between structure-specific features and local storm patterns, we can distinguish risk between neighboring properties—enabling smarter underwriting, more precise pricing, and better protection for policyholders.”

Z-HAIL evaluates hail risk using a proprietary blend of climate, aerial, and property-specific data. By applying advanced machine learning to these inputs, Z-HAIL delivers highly granular predictions that reflect both the physical characteristics of a structure and the storm activity in its immediate surroundings.

Key findings from the analysis:

• 12.6 million U.S. structures flagged as high risk for hail-related roof damage
• $189.5 billion in total potential roof replacement exposure

Top five states by dollar exposure:

• Texas ($68B)
• Colorado ($16.7B)
• Illinois ($10.8B)
• North Carolina ($10.4B)
• Missouri ($9.5B)

States with the lowest dollar exposure:

• Maine ($4.7M)
• Idaho ($12.8M)
• New Hampshire ($18.5M)
• Nevada ($49.3M)
• Vermont ($64.7M)

In recent case studies, Z-HAIL has demonstrated the ability to pinpoint which properties are most susceptible to hail damage—even within the same neighborhood and exposed to the same storm. In one example from Allen, Texas, following a storm with 2.5-inch hailstones, Z-HAIL segmented risk across 483 policies, identifying no losses among properties rated “Very Low” by the model. This level of intra-territory precision gives insurers the ability to refine risk selection with confidence—even in the most hail-prone regions of the country.

Severe convective storms are becoming more frequent and costly, putting pressure on insurers to refine underwriting and risk management strategies. 

On April 2, our experts covered:

• Key drivers behind increasing severe storm losses
• What La Niña means for the 2025 season
• How AI-powered risk models improve risk segmentation
• Live Q&A – Get expert answers to your toughest questions!

Missed the live event? Stream now! 

Severe convective storms (SCS)—including tornadoes, hail, and damaging wind events—resulted in $58 billion in insured losses across the U.S in 2024.

Insurers face a dual challenge: navigating the uncertainty of storm patterns while ensuring their portfolios remain resilient enough to absorb the financial strain from clustered, high-loss events.

Research with IBHS confirms that SCS damage accumulates over time, particularly affecting rooftops after multiple exposures to intense storm activity. As housing stock deteriorates, insurers must reassess their portfolios to ensure underwriting, rating, and loss cost controls align with their risk appetite and maintain premiums that accurately reflect evolving exposure.

Get ahead of rising storm risks with expert insights that help you strengthen underwriting, risk assessment, and claims management.

Get our new report.

A staggering $2.15 trillion worth of U.S. residential property is at high risk of wildfire damage, according to a new AI-powered analysis from ZestyAI, the leader in climate and property risk analytics. The study, which assessed 126 million properties nationwide, found that 4.3 million individual homes face heightened wildfire risk—far beyond traditionally recognized high-risk areas.

Using advanced AI models trained on over 2,000 historical wildfires, ZestyAI mapped wildfire exposure at the property level, integrating satellite and aerial imagery, topography, and structure-specific characteristics. While California leads the nation with $1.16 trillion in wildfire-exposed property, other states such as Colorado ($190.5 billion), Utah ($100.3 billion), and North Carolina ($71.2 billion) also face significant risk.

Wildfire Risk is a Nationwide Challenge

While the Western U.S. has historically seen the most severe wildfire activity, ZestyAI’s findings confirm that high-risk properties exist across the country. States like North Carolina (4.6% of homes at high risk), Kentucky (2.9%), Tennessee (2.3%), and even South Dakota (11.0%) are now seeing increased wildfire exposure.

As more homes and businesses are built in fire-prone landscapes, the Wildland-Urban Interface (WUI) continues to expand. This, combined with intensifying climate conditions, is driving higher insurance costs and growing availability concerns. Today, one in eight U.S. homeowners already lacks adequate insurance coverage, and that number is expected to rise.

AI Expands Insurance Access in High-Risk Areas

Attila Toth, Founder and CEO of ZestyAI said:

"Wildfires are threatening more properties than ever before, with billions of dollars in exposure even in areas many people don’t associate with fire risk. Yet, too many homeowners are finding themselves uninsured or underinsured just as these disasters become more frequent and severe. Insurers have traditionally relied on broad, regional models that don’t account for individual property characteristics."

"That means some homeowners are denied coverage even when their true risk is much lower than their neighbors'.’"

AI-driven risk analytics are reshaping the way insurers assess wildfire exposure. By providing granular, property-specific insights, we’re helping insurers make smarter underwriting decisions—keeping coverage available in high-risk areas while ensuring that homeowners who take mitigation steps are recognized.

Last year, our models helped insurers extend coverage to 511,000 properties that had previously struggled to secure insurance due to outdated risk models. In 2025, we expect that number to reach a million, ensuring that even in high-risk areas, responsible homeowners have access to protection when disaster strikes.

Artificial intelligence is reshaping the P&C insurance industry, offering new ways to streamline underwriting, enhance risk management, and navigate evolving regulations.

But as AI adoption accelerates, insurers must ensure they’re using these technologies effectively—balancing innovation with compliance.

Our latest guide explores the most impactful AI applications in insurance, including:

• AI-powered underwriting and predictive analytics
• How regulators are shaping the future of AI in insurance
• Best practices for integrating AI while ensuring fairness and transparency

As AI-driven tools become the new standard, insurers who adapt early will gain a competitive edge.

Download our free guide to leverage these innovations while staying aligned with evolving regulations.

Beating the Odds in Insurance With ZestyAI

Insurance is not just about playing the odds—it's about beating them. In an industry facing relentless pressure from rising catastrophic losses, inflation, and soaring reinsurance costs, staying ahead of risk is more critical than ever. That’s where ZestyAI comes in.

We built a platform that we believe is a true game-changer, designed to help insurers tackle these challenges head-on. With our ‘Property Insights’ and peril models, we give companies the power to manage risk with unmatched precision.

Delivering a 10X Return on Investment

But at ZestyAI, we don’t stop there—we deliver a promise: a 10X return on investment (ROI) for our customers. In my last post, I shared what makes us stand out. Today, I’m going deeper into how we turn every dollar invested into ten. That’s not just a claim; it’s what we do.

While AI initiatives often promise big results, we consistently show how advanced risk analytics translate into tangible, financial wins for our clients.

While AI initiatives often promise big results, we consistently show how advanced risk analytics translate into tangible, financial wins for our clients.

Property intelligence provided by our platform includes Digital Roof, Roof Age, and Location Insights™. Our peril-specific models include Z-HAIL™, Z-WIND™, Z-STORM™, Z-FIRE™, and Z-WATER™, with many more in the R&D pipeline. Our suite of products provides carriers with the insights they need to strategically adjust premiums, manage risk, and make more profitable decisions—all while keeping those all-important loss and expense ratios under control.

So, how exactly do we turn $1 into $10? Let’s get into the details.

Nailing Premium Strategies with Precision

Growing the Premium Base With Property-Specific Risk Assessments

ZestyAI helps carriers grow their premium base by delivering precise, property-by-property risk assessments. While traditional models rely on broad geographic segmentation, our AI platform digs deeper, assessing risk at an individual property level. This enables carriers to offer competitive, risk-aligned pricing—growing in low-risk segments while strategically managing exposure in higher-risk areas.

Let’s be honest: territory-based segmentation is like spreading peanut butter. It’s imprecise. With ZestyAI, carriers avoid the pitfalls of adverse selection, where "good risks" get undervalued, and "bad risks" take over. Our models allow insurers to price policies based on actual risk, not generalizations, ensuring profitability even in higher risk regions. This is growth that’s smart, targeted, and sustainable.

Capturing Additional Premiums Through Accurate Data

ZestyAI’s insights also help carriers capture additional premiums through more accurate data. We enable insurers to:

• Accurately estimate property square footage
• Identify premium roofing materials (tile, slate, metal)
• Understand roof complexity (facets, pitch, penetrations)
• Locate solar panels and their total area
• Spot swimming pools, trampolines, decks, and skylights
• And more.

These detailed insights ensure premiums reflect the true risk and value of each property, leading to improved loss ratios.

Reducing Loss Ratio: Mitigating Risk With Data-Driven Insights

Predicting Losses

The cornerstone of controlling losses is precise underwriting. Carriers can define threshold levels using our predictive analytics and set clear criteria for the risks they’re willing to accept. Take Z-HAIL, for example: it scores hail claim frequency on a scale of 1 to 10. Milliman’s research paper shows that properties with a Z-HAIL score of 10 have a hail-only loss ratio of 50.4%, compared to just 2.4% for those with a score of 1. That’s a 21X lift—segmentation power that speaks for itself.

But it’s not just about predicting losses.

Proactive Risk Mitigation

ZestyAI helps insurers take proactive steps to mitigate risk before a policy is even issued. With insights like roof condition or surrounding vegetation, carriers can require clients to make repairs or clean up overgrown areas before taking them on. The result? Fewer costly claims, better underwriting, and a healthier bottom line.

Moreover, our platform helps insurers manage losses through more accurate policy adjustments. From adjusting deductibles to offering coverage at actual cost value (ACV) instead of replacement cost value (RCV), we provide carriers the data they need to make smarter decisions. The result? Better policy fit, reduced claims, and healthier loss ratios.

Taking the Hatchet to Expenses

Efficiency is the name of the game when it comes to expense ratios, and ZestyAI’s suite of products helps insurers cut costs while boosting productivity. Our high-speed APIs provide real-time data, allowing for straight-through processing—reducing the need for manual underwriting and saving time.

Take one of our recent success stories: a major national carrier was renewing part of their book, and we helped them identify 7% of their properties as high risk. By integrating our insights into their workflow, their underwriters processed each of these high-risk properties in under 30 seconds, with a 93% agreement rate. This efficiency led to $40 million in savings and a 4-point reduction in their loss ratio for that section of their book.

This efficiency led to $40 million in savings and a 4-point reduction in their loss ratio for that section of their book.

When it comes to inspections, ZestyAI applies the Pareto Principle with laser focus. We help insurers avoid unnecessary inspections for properties that can be confidently underwritten using our data, while targeting the high-risk properties that need deeper evaluation. This approach saves time, money, and resources, and—most importantly—helps carriers manage their expense ratios more effectively.

Securing Superior Reinsurance: Gaining the Competitive Edge

A Competitive Advantage in Reinsurance

In today’s market, the ability to secure favorable reinsurance terms is a serious competitive advantage. ZestyAI equips insurers with the data they need to become industry leaders—the “haves,” favored by reinsurers for their sophistication in managing risk.

Reinsurers increasingly favor carriers who take a property-specific approach, like the one ZestyAI provides. By leveraging AI-driven insights, carriers can demonstrate that they accurately assess risk at an individual property level. This positions them to not only secure more capacity but also negotiate better terms and pricing.

We’ve seen carriers using Z-FIRE, Z-WIND, and Z-HAIL present a more refined risk profile to reinsurers by providing a detailed, property-specific approach that goes beyond traditional portfolio catastrophe (CAT) models. It’s about more than just getting reinsurance—it’s about showing reinsurers that you’ve taken proactive steps to assess, mitigate, and manage risk with precision.

It’s about more than just getting reinsurance—it’s about showing reinsurers that you’ve taken proactive steps to assess, mitigate, and manage risk with precision.

Moreover, using ZestyAI’s insights, brokers can enhance their CAT modeling results with secondary modifiers or complement traditional models with next generation, AI-powered models for a more comprehensive view into risk. This enables brokers to position their clients as “haves” who are not only sophisticated in their risk management but also proactive in securing the best possible reinsurance agreements.

The 10X ROI: Our Promise

At ZestyAI, value isn’t just a buzzword—it’s our promise. Our commitment to delivering a 10X return on investment drives everything we do. With our advanced data insights, insurers can grow premiums strategically, cut losses, slash costs, and secure better reinsurance terms, turning every $1 into $10.

Each of our predictive analytics models can shave one to two points off a carrier’s combined ratio, and when multiple products are used, the impact multiplies. In one case, we helped reduce a carrier’s combined ratio by seven full points—an outcome that speaks for itself. These savings aren’t just incremental; they’re transformative.

As we continue to innovate, our mission stays the same: to empower insurers to tackle risk with precision and confidence. We’re not just a data vendor—we’re changing the way risk is managed, one dollar at a time, and turning it into ten.

Read more of the ZestyAI Founder Series:

What Sets ZestyAI Apart 

ZestyAI’s Active Role in Shaping Catastrophe Modeling and Ratemaking

We at ZestyAI are proud to have been actively involved in shaping the future of catastrophe modeling and insurance ratemaking through our participation in the California Department of Insurance (CDI)'s public hearing. As climate risk continues to challenge the resilience of California’s communities, it is more important than ever to develop regulatory frameworks that promote innovation while safeguarding consumer interests.

Key Recommendations for Regulatory Improvements

Our Director of Regulatory Affairs, Bryan Rehor, presented key recommendations during the hearing to streamline regulatory processes, reduce unnecessary duplication, and ensure catastrophe models are built on the most reliable scientific data. By working closely with regulatory bodies like the CDI, ZestyAI is dedicated to advancing the use of AI-driven models that improve risk assessment while ensuring fair, efficient, and timely regulatory outcomes.

This dialogue underscores ZestyAI’s commitment to balancing cutting-edge innovation with the consumer protections that are vital in today’s evolving climate landscape.

These are ZestyAI’s remarks in their entirety:

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Dear Commissioner Lara,

Thank you for your continued leadership in addressing the challenges posed by climate risk and catastrophe exposure in California. ZestyAI supports the goals of this regulatory framework, which aims to protect consumers and ensure that insurance remains fair and available, while also promoting innovation in catastrophe modeling. However, we believe there are several areas where improvements can be made to ensure these goals are met effectively.

1. Avoiding Duplicative Work for Models Already Used in Rating Plans

A primary concern involves the treatment of risk models that are already part of approved rating plans. Many of these models have long been used by insurers to segment rates and assess risk, and some have undergone rigorous reviews by the Department and consumer advocates as part of their initial approval. Under the proposed regulation, these models will be required to undergo the PRID process, even though they have already been extensively reviewed and accepted by CDI for use in rating plans.

We strongly recommend that the review of these previously approved models be expedited to avoid duplication of work that has already been performed. Carriers who have filed and received approval to use models that have already been subject to rigorous model reviews should not have to undergo the full PRID process again. This would impose unnecessary delays and create inefficiencies in a process that should encourage innovation and quick adoption of proven tools. We believe CDI should explore an accelerated PRID process for handling these approved models, such as fast-tracked reviews that focus only on elements that have not already been considered by the department.

2. Ensuring Consistency of Standards

Second, there must be clear and consistent standards in place to guide the industry in preparing for PRID model reviews. The CDI already has a robust checklist in place for wildfire risk models, which provides a strong foundation for determining what information is required from modeling companies. Publishing consistent standards based on this checklist will ensure fairness and transparency, while also giving modeling companies the necessary time to prepare for what might be asked of them by the Model Advisor.

Additionally, once a model has been approved and integrated into rate plans, it should not be subject to further scrutiny unless there are substantive changes to the model itself. This approach will prevent confusion and avoid placing undue pressure on insurers and modelers, ensuring a smooth and efficient regulatory process.

CDI should formalize and publish standards using the existing checklist as a baseline, providing clear guidelines that standardize the PRID procedure across all models. It is important that these standards are issued prior to the initiation of a PRID to allow adequate preparation time in order to avoid delays.

3. Clarifying the Use of “Best Available Scientific Information”

An additional concern lies in the use of the term “best available scientific information.” While we agree that models should be grounded in science, this phrase introduces an element of subjectivity that could lead to inconsistent standards over time. Science evolves, and what is considered "best available" today may change tomorrow, leading to uncertainty for modelers and insurers who need stable and predictable regulations.

We believe that the definition of “best available scientific information” should be left to the industry. Modeling companies are the experts in their fields, with a deep understanding of how to incorporate relevant data, emerging technologies, and evolving risk factors into their models. By allowing the industry to define what constitutes the most up-to-date and applicable scientific information, the Department can ensure that models remain at the cutting edge of innovation without being constrained by shifting regulatory interpretations. The role of regulators is to ensure that each component of a model is backed by credible scientific information, not prescribe which scientific information should be adopted.

Additionally, we recommend that any requirements focus on real-world data and statistically significant evidence. Inputs and weighting factors should be based on data collected in the environments where properties are located, not merely theoretical assumptions or untested hypotheses. The industry is best positioned to determine how to integrate this information into models in a way that reflects actual risk.

4. Risks of Centralized Authority with the Model Advisor

The last major improvement opportunity we see involves the substantial authority granted to the Model Advisor under the proposed regulation. The Model Advisor has significant discretion to define "required model information" and control the course of the PRID process. While this centralization of authority can streamline reviews, it also introduces risks of inconsistent and subjective decision-making. This would lead to unpredictable outcomes for risk modelers, as well as the carriers that license their models.

Additionally, the Model Advisor's control over the timing of the PRID process could lead to delays in model approval if the model advisor determines that "good cause" is shown to keep the record open. The Model Advisor’s authority over when PRID can be extended needs to be better defined, which will help keep rate filings to a predictable timeline, something the CDI has agreed is important to an efficient insurance market. In the event that an extension is absolutely necessary, we recommend defining a maximum number and duration of extensions, following the example of Bulletin 2024-7, which allows two extensions of thirty days during the rate application review process. To prevent PRID delays from stalling rate filings we recommend that the scope of the Model Advisor's discretion be more clearly defined, especially around the authority to extend PRID reviews, and that specific criteria be put in place to guide decision-making.

In summary, ZestyAI remains committed to working with the California Department of Insurance to create a regulatory framework that supports innovation while protecting consumers. We encourage the Department to:

1. Expedite the review of models already approved as part of rating plans and explore alternatives to the PRID process for these cases to avoid unnecessary duplication of work.

2. Publish consistent standards based on the CDI model checklist, ensuring predictability, and confirm that new standards will not be retroactively applied to older models already in use.

3. Clarify the meaning of “best available scientific information” to reduce subjectivity and ensure that models are based on solid, quantifiable principles derived from real-world evidence.

4. Limit the discretionary authority of the Model Advisor to ensure predictable, consistent, and timely outcomes, preventing unnecessary delays.

Thank you again, Commissioner Lara, for your commitment to addressing these critical issues. We look forward to continued collaboration and discussion to ensure that these regulations achieve the best possible outcomes for all stakeholders.

Sincerely,

Bryan Rehor
Director of Regulatory Affairs
ZestyAI

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ZestyAI remains steadfast in our mission to drive innovation in catastrophe modeling while maintaining a strong commitment to regulatory integrity and consumer protection. By actively participating in discussions like the CDI hearing, we ensure that our AI-driven solutions not only meet but exceed the evolving needs of the insurance industry. We look forward to continued collaboration with regulatory bodies and industry stakeholders to create a resilient future for California and beyond.

Want to learn more about how ZestyAI supports insurers with regulatory success?

Read "Achieving Regulatory Success With Insurance Innovation"
 

ZestyAI has announced the expansion of its partnership with West Bend Insurance Company.

Building on their successful collaboration, West Bend will now use ZestyAI’s property risk analytics platform, Z-PROPERTY, to enhance the precision of its underwriting and renewal processes for personal lines insurance.

West Bend will now use ZestyAI’s property risk analytics platform, Z-PROPERTY, to enhance the precision of its underwriting and renewal processes for personal lines insurance.

Why Property Condition Insights Matter for Personal Lines Underwriting

As properties age and undergo changes, their risk profiles evolve.

Factors such as roof condition, debris accumulation, and overgrown vegetation can significantly impact the risk associated with a property.

ZestyAI‘s Z-PROPERTY platform uses computer vision and machine learning to analyze aerial and satellite imagery, building permits, and other unique data sources for over 150 million residential and commercial properties.

This continuous monitoring of property conditions, maintenance, and upgrades allows West Bend to proactively manage risks and ensure accurate coverage for policyholders.

How Z-PROPERTY Delivers Accurate, Up-to-Date Property Intelligence

Leveraging verified data from various sources, including historical imagery and building permits, Z-PROPERTY provides West Bend Insurance with comprehensive coverage and precision, enhancing its ability to manage its residential portfolio effectively.

This integration of advanced analytics will streamline West Bend’s underwriting process, allowing for quicker, more informed decision-making while ensuring that trained representatives make all final coverage decisions.

Jonathan Schulz, AVP Personal Lines at West Bend Insurance, said:

“Our partnership with ZestyAI has significantly improved our ability to assess and manage residential property risks. By expanding our use of Z-PROPERTY for our personal lines business, we can gain deeper insights into the properties we insure, allowing us to mitigate risks more proactively and efficiently.”

Attila Toth, Founder and CEO of ZestyAI, said:

“Conducting a thorough review of a portfolio can be a daunting task. Z-PROPERTY simplifies this process, enabling carriers to assess their entire book of business seamlessly, pinpointing the riskiest policies to ensure proper risk mitigation. The platform is easy to deploy, requiring no IT integration, and covers every property in North America.”

Facing Unprecedented Climate Challenges

The insurance industry is facing unprecedented challenges as natural catastrophic events like convective storms and wildfires become more frequent and severe. Traditional risk models, which often rely on broad territory-based segmentation, are struggling to keep up with these dynamic environmental threats. This has led to significant financial losses for insurers, who are now seeking more accurate and proactive methods to predict and manage climate risk.

AI Adoption in Property and Casualty Insurance

To shed light on the adoption of these cutting-edge techniques, ZestyAI conducted a survey of over 200 executives in the Property and Casualty (P&C) insurance sector. The survey reveals which AI-based models are gaining traction, what features insurers prioritize, and how transparency and regulatory concerns are shaping the industry. It also highlights the specific risks that are top of mind for carriers today.

AI Transforming Risk Assessment Models

The industry is turning to AI-based risk assessment models that offer a new level of precision. Companies like ZestyAI are leading the charge, providing tools that enable insurers to assess risk on a property-by-property basis, considering both individual property features and their interaction with surrounding environmental factors. These advanced models are transforming the way insurers underwrite policies, optimize portfolios, and align coverage with actual needs.

Dive deeper into our findings and explore the full report by clicking below.

Access the Report
 

The insurance industry, by its very nature, is risk-averse and prioritizes stability. For over 600 years it has served as a cornerstone of financial security for individuals and businesses. However, this inherent risk aversion can stifle progress in an era defined by rapid change.

Embracing innovation is crucial for any industry to thrive, and the insurance sector faces a unique challenge: how to champion new ideas and technologies while safeguarding the very stability that underpins its core function.

To explore this dichotomy, we sat down with seasoned product leader Carol Anderson, who has led successful innovation initiatives at both MetLife and Farmers.

We'll delve into the challenges of leading change efforts, the importance of data-driven decision-making, strategies for navigating the risk-reward equation, and the surprisingly important role middle managers play. Ultimately, we'll discover how insurance professionals can become catalysts for progress, propelling their companies and the industry as a whole toward a brighter future.

Want to share the full version of this article with your team? Download the PDF.

The Peril of Playing It Safe: Why Inaction Is the Real Risk

While the initial challenges associated with implementing change can appear significant, the true risk often lies in inaction.

The fear of missing out (FOMO) can be superseded by a more substantial concern: the fear of messing up (FOMU).

Carol highlighted the most fulfilling moments in her career as those where she pushed boundaries and explored possibilities. In her own words: “The days I was thinking about what is possible versus why we can’t do something, those days were the most fun. Asking, what’s the risk if we don’t do something? Pushing people to think differently about the business.”

“The days I was thinking about what is possible versus why we can’t do something, those days were the most fun."

By shifting the focus from reasons for inaction to potential benefits, Carol fostered a culture of innovation. This included exploring questions such as:

• Improved Customer Experience - Could technology streamline processes and personalize services, leading to happier customers?
• Enhanced Risk Management - Could data analytics provide deeper risk insights, enabling more accurate pricing and proactive risk mitigation strategies?
• Increased Operational Efficiency - Can automation free up employee time and resources, leading to a leaner and more efficient operation?

The Risk-Reward Equation: Aiming for Progress, Not Perfection

The pursuit of innovation within the insurance industry requires a careful balancing act. Carol highlights the industry's tendency to view success as a "grand slam" – a massive technological investment with immediate and flawless implementation. However, Carol proposes a more nuanced approach, advocating for a "small ball" strategy. In her words: "Success comes base-by-base-by-base. A single is easier to achieve than the home run, and the momentum gained from these smaller victories can ultimately lead to a string of successes."

"Success comes base-by-base-by-base. A single is easier to achieve than the home run, and the momentum gained from these smaller victories can ultimately lead to a string of successes."

Building a Culture of Calculated Risk-Taking

This shift in perspective encourages a culture of calculated risk-taking. By embracing smaller-scale implementations and pilot programs, insurance companies can validate the potential of a new idea before committing significant resources to a full-blown rollout.

Data analytics plays a crucial role in this process, providing an objective basis for assessing risks and potential returns on investment.

Furthermore, fostering a growth mindset within the organization is key. Challenges should be viewed as opportunities for learning and iterative improvement, encouraging experimentation and a willingness to adapt.

This approach allows insurance companies to reap the benefits of innovation while remaining true to their core value of risk management. By taking calculated risks and aiming for steady progress, not immediate perfection, the industry can unlock a future of sustainable success.

Navigating the Hurdles: From Obstacles to Stepping Stones

While the potential rewards of innovation in insurance are undeniable, the path to successful implementation is rarely obstacle-free. Carol acknowledges the common hurdles, including budgetary constraints, limitations of internal IT resources, and the ever-present challenge of navigating regulatory requirements.

Beyond these general challenges, project-specific risks can also derail even the most promising initiatives. These include ensuring the quality and accuracy of underlying data sets and models and avoiding the allure of "silver bullet" solutions without critically evaluating a technology's true potential and limitations.

Leading From the Middle: Collaborative Strategies for Overcoming Challenges

Despite these obstacles, Carol highlights the critical role of middle management in driving change. They act as the bridge between senior leadership and operational teams, translating broad visions into actionable steps. Her approach includes these key strategies:

Building a Business Case for Progress

Instead of focusing solely on a large, potentially unattainable ROI, Carol advocates for incremental wins. By identifying smaller, readily achievable goals that contribute to the larger vision, the business case becomes more realistic and persuasive

Data-Driven Education

Equipping both senior leadership and middle management teams with the knowledge they need to understand the potential benefits of change is crucial. Arming cross-functional teams (e.g. claims, actuarial, product, operations) with data-driven insights fosters buy-in and facilitates informed decision-making.

Finding Iterative Solutions

Not every innovation requires a massive technological overhaul. Carol champions an iterative approach, seeking "workable solutions that don't require massive tech integration." This could involve piloting new technologies with limited data sets or implementing a nightly data transfer process instead of a full API integration at the outset of a project.

Remembering the Noble Purpose: Protecting People and Assets

In the whirlwind of innovation and navigating change, it's easy to lose sight of the fundamental purpose that drives the insurance industry. As Carol reminds us, it's not just about collecting premiums, paying claims, or even occasionally raising rates. At its core, the noble mission of insurance is to empower people to protect their assets and safeguard their loved ones. By keeping this guiding principle at the forefront, insurance professionals can make informed decisions that prioritize customer well-being.

Beyond Transactions: Building Positive Interactions

Carol emphasizes the importance of constantly asking: "How can we create a more positive interaction with the customer?" This extends beyond simply streamlining processes. It signifies a commitment to fostering trust and reinforcing the value proposition of insurance.

Carol suggests circling back to this core purpose every day. It serves as a compass, guiding decision-making and ensuring that innovation ultimately serves the greater good. Whether it's developing new products, streamlining processes, or simply interacting with a customer, remembering the noble purpose ensures that insurance remains a force for good in the lives of individuals and families.

The Path to Progress

Here are the key takeaways from our conversation with Carol and a playbook for innovation in the insurance industry:

1. Embrace Calculated Risks - Don't fear failure; view challenges as stepping stones. Aim for progress, not perfection, celebrating smaller wins that pave the way for bigger successes.
2. Think Long Term - While the initial hurdles of change may seem daunting, the true cost lies in inaction. Don't be afraid to champion innovation and explore the potential benefits for your company and its customers.
3. Build a Business Case for Progress - Focus on achieving smaller, readily achievable goals within the larger vision. Quantify the potential benefits and build a compelling case for investment.
4. Educate and Empower - Equip both leadership and middle management teams with the data and insights needed to understand the value of change. Foster collaboration across departments to turn hurdles into opportunities.
5. Remember the Why - Never lose sight of the noble purpose of insurance: protecting assets and safeguarding loved ones. Let this principle guide your innovation efforts, ensuring technology serves a higher purpose.

By following these steps and embracing the principles outlined in this article, insurance professionals can lead the charge in shaping a brighter future for the industry – a future where innovation fosters progress, protects customers, and ensures the long-term viability of the insurance industry.

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The insurance landscape is being reshaped by the twin forces of technological advancement and regulatory evolution. As climate change accelerates the frequency of natural disasters and heightens uncertainty, insurers face increasing pressure to adopt more precise, data-driven risk assessments.

At the same time, regulators are calling for solutions that prioritize consumer protection, transparency, and fairness. In this rapidly changing environment, ZestyAI is at the forefront, providing cutting-edge AI-powered models that not only meet the evolving needs of insurers but also help navigate the complexities of regulatory compliance.

Our approach goes beyond offering advanced technology—we deliver the strategic regulatory support needed to ensure that AI innovation translates seamlessly into real-world applications.

Our approach goes beyond offering advanced technology—we deliver the strategic regulatory support needed to ensure that AI innovation translates seamlessly into real-world applications.

From pre-filing models with state Departments of Insurance to guiding carriers through regulatory hurdles, ZestyAI is committed to accelerating the insurance industry’s transition into the AI era while maintaining the highest standards of compliance and transparency.

Streamlining Regulatory Approval with Proactive AI Solutions

When customers choose ZestyAI products, they gain more than just advanced AI models—they receive comprehensive regulatory support designed to streamline the approval process and ensure a smooth transition from agreement to implementation.

One of the key advantages we offer is pre-filing our models in many states. By filing in advance, we ensure that Departments of Insurance are familiar with our products and that the models comply with state laws and department policies. This proactive engagement helps address questions early on, reducing roadblocks during the filing process.

One of the key advantages we offer is pre-filing our models in many states.

In addition to pre-filing, we provide ongoing support and guidance with carrier filings. This includes actuarial support to ensure carriers have the data they need to back up their rate filings. We also assist with responding to objections from regulators, taking much of the administrative burden off the carrier's plate.

Case Study: California Department of Insurance

A recent example of our success is our role in the approval of a major national carrier’s rate filing in California. The carrier chose to license Z-FIRE, our AI-powered wildfire risk model, to rate and underwrite for wildfire risk. The California Department of Insurance (CDI) was already familiar with the model and focused their review on the carrier's application of it. However, a consumer advocacy group intervened in the filing process, a provision granted under Proposition 103 that allows for consumer participation in the insurance rate application process.

Our ZestyAI team met directly with the consumer advocates to provide an in-depth overview of the model and answered extensive questions about how it was built and validated over subsequent weeks.

By addressing their concerns transparently and thoroughly, we were able to alleviate any reservations they had about the model's use. Ultimately, the consumer advocacy group withdrew their petition, and the CDI was able to approve the filing immediately.

Ultimately, the consumer advocacy group withdrew their petition, and the CDI was able to approve the filing immediately.

This collaboration not only fast-tracked the approval process but also underscored the power of our comprehensive regulatory strategy. By expertly navigating the complexities of the filing landscape and proactively addressing stakeholder concerns, we minimize friction for our carrier partners. As a result, they can focus on driving growth and innovation, while we ensure their AI models enter the market efficiently and with full regulatory confidence.

Proactive Partnerships for Regulatory Success

This recent example wasn’t an isolated achievement—it’s the result of a deliberate, proactive approach to regulatory engagement. Building strong relationships with insurance regulators is a cornerstone of our strategy at ZestyAI, ensuring that open dialogue and collaboration allow us to consistently meet and exceed regulatory expectations. By anticipating changes and addressing concerns before they arise, we ensure our AI models are always in step with the highest standards.

Building strong relationships with insurance regulators is a cornerstone of our strategy.

We maintain robust relationships at multiple levels, including state Departments of Insurance, national organizations like the National Association of Insurance Commissioners (NAIC), and regional and national advocacy groups. Our proactive strategy includes maintaining in-house Rating and Advisory organizations across many states. By filing our models through these organizations, we ensure they are thoroughly vetted and comply with regulatory standards before reaching the market.

This process allows insurers to adopt pre-approved models, significantly reducing review times and improving speed-to-market. With models already approved in over a dozen states and more pending approval, we've established ourselves as a trusted partner for both insurers and regulators.

Building Trust Through Transparency and Compliance

Transparency is key to building trust with both regulators and consumers. We provide regulators with clear and understandable explanations of how our AI models work, what data is used, how outcomes are generated, and validation statistics that demonstrate that they accurately predict risk. This openness fosters confidence in the use of AI for insurance risk assessments.

We empower insurance carriers to offer consumers clear insights into their property's risk scores and the factors driving them. For example, in wildfire-prone states, homeowners can mitigate their risk by taking preventive actions such as clearing vegetation around their homes. Our models enable insurers to run scenario-based analyses, helping homeowners forecast which mitigation efforts will have the most impact.

We empower insurance carriers to offer consumers clear insights into their property's risk scores and the factors driving them.

These insights allow homeowners to lower their risk scores, which could result in reduced premiums or even the reversal of a non-renewal decision. Multiple Departments of Insurance have recognized our commitment to transparency. This recognition underscores our dedication to fostering trust and delivering solutions that benefit both insurers and policyholders alike.

Shaping the Future: Driving Standards for AI in Insurance

As a leading AI-based risk analytics platform, we actively engage in advancing insurance risk assessment through advocacy and public engagement. A notable example is our involvement in several public workshops on Catastrophe Modeling in Insurance in California in 2023 and 2024. These forums provide us with opportunities to advocate for standards that not only enhance the health of the California insurance market but also promote standardization of modeling disclosure and practices.

We actively engage in advancing insurance risk assessment through advocacy and public engagement.

We're strong proponents of establishing and adopting industry-wide standards for the use of AI in insurance. By collaborating with industry bodies and regulators, we aim to help shape policies that encourage innovation while protecting consumers. Our commitment to driving industry standards ensures that AI continues to enhance risk assessment, fostering a more resilient and transparent insurance landscape for all.

Dedicated Regulatory Affairs Team

Mastering regulatory complexities is essential to advancing innovation and ensuring compliance in the insurance industry. Under the leadership of Bryan Rehor, our Regulatory Affairs team has become a driving force in aligning AI innovation with regulatory demands. With nearly a decade of product management experience at industry giants like Travelers and Progressive, Bryan has a proven track record of managing complex regulatory landscapes.

Our Regulatory Affairs team has become a driving force in aligning AI innovation with regulatory demands.

Bryan's extensive background gave him first-hand experience in dealing with complex regulatory environments and working closely with regulators. His deep understanding of California’s wildfire risks provides critical insights that sharpen our AI models, ensuring they meet the unique regulatory and environmental challenges of high-risk regions. Our team not only ensures compliance but also champions the responsible integration of AI in the insurance sector, setting new benchmarks for industry best practices.

Forging the Future of Insurance with AI and Regulatory Leadership

ZestyAI is dedicated to redefining what’s possible in the insurance industry by continuously balancing innovation and compliance. As we expand our partnerships with insurers and regulators nationwide, our mission remains clear: to drive AI-powered insights that transform insurance processes, enhance risk assessments, and build safer, more resilient communities. By leading with transparency and collaboration, we’re shaping an insurance landscape where technology and trust go hand in hand, ensuring a stronger future for all stakeholders.

Ready to learn more about how ZestyAI can help your company stay ahead of regulatory changes?

Contact us today

See how our AI-driven solutions can transform your risk assessments and compliance efforts.