Organizations across the P&C insurance industry faced a slew of uphill battles and challenges throughout 2021. From ongoing industry complications due to the COVID-19 pandemic and a hardening market to newly emerging challenges like the talent shortage (heralded as The Great Resignation), carriers, MGAs, TPAs, and risk pools remained vigilant in overcoming these hurdles. As a result, the industry has learned to adapt proactively.
In review of 2021’s trends, a handful stuck out as spaces to watch going into 2022 that we’ve recapped below.
Climate Change Creates a Need to Reassess Catastrophic Risk
Modeling and pricing around catastrophe risks need adjustments heading into the new year due to climate change. And with the upward trend of worsening natural disasters and longer disaster seasons, this is a challenge we foresee following the industry well into 2022 and beyond. In fact, AIG saw average cat losses for the past five years were up 30% from the 10-year average and 40% from the 15-year average.
COVID-19 Prolongs Continued Uncertainty
According to the latest underwriting projections by actuaries at the Insurance Information Institute and Milliman, the P&C insurance industry will run at an estimated 101 combined ratio for 2021, slightly worse than what was projected three months ago, putting pressure on rates and profitability going into 2022.
“Healthy premium growth is projected for 2021-2023 as a result of economic recovery and a hard market,” Dale Porfilio (FCAS, MAAA), Chief Insurance Officer, Triple-I. However, he also noted that “insureds will continue to face rate pressure from the uncertainty of the pandemic.” As we head into our third year of the pandemic with new variants emerging regularly, we anticipate this uncertainty to continue well into the new year.
Pandemic Lockdown Speeds Insurance Digitization
While technological advances were already underway, the pandemic accelerated the need for digital evolution in an industry that many would argue has fallen behind in terms of digitization and technological adoption. Further acceleration in insurance is expected as start-ups partner with larger, established companies with the biggest obstacle being whether the industry “approach[es] problems with a viewpoint of ‘how do we solve them digitally’, or do we approach them on ‘how we solve them traditionally?’”.
Innovative Responses to Rising Rates
Global commercial rates continued to rise across all lines in 2021. Cyber led the pack with a 96% increase in Q3. The hardening market has prompted both insurers and insureds to seek out creative solutions to cover traditional and emerging risks. E&S providers, for example, have responded with tailored programs at competitive rates. Captives have also drawn greater attention as a response to rising costs. Outside of captives, the hardening market has prompted more fronting carrier-MGA-reinsurers arrangements as a model for launching innovative insurance programs. Expect this model to expand further in 2022 as MGAs continue to expand their market presence.
The Great Talent Crunch
The Great Resignation of 2021 has seen employees quitting in record numbers. Over 8 million resigned from August to September alone. For carriers and MGAs, tech skills will be particularly hard to find as carriers and MGAs are not simply competing for talent with their industry peers, but with virtually every other industry. Market experts believe this trend will continue long after the pandemic ends. Offering a flexible and innovative work environment will be key.
Alternative Capital Breaks Volume Record
Despite the increased frequency and severity of storms and wildfires fueled by climate change, cat bonds and insurance-linked securities (ILS) shattered volume records in the first half of 2021, with $8.5 billion in new issuance. This new capacity entering the market may already be placing downward pressure on rates. Rate increases in the third quarter were lower or flat across most lines except cyber. As rates continue to moderate, insurers can expect increased competition and even greater pressure to innovate.
InsurTech Start-Ups on a Roll
Global investment in InsurTech start-ups hit a new high of $10.5 billion in the first three quarters of 2021, nearly 50% higher than all of 2020. The total number of deals also hit an all-time high of 421. A decade into the InsurTech movement, the well of new insurance ideas hasn’t yet run dry, and technology is at the heart of each new company, whether they go to market as a carrier, MGA, or B2B software provider. Traditional insurers, anxious to “go digital” and spurred in part by the pandemic, are investing and partnering with insuretechs at an increasing pace. One InsurTech CEO, Joseph D’Souza of ProNavigator, sees this trend flipping the insurance industry on its head: “Every insurance organization will become a technology company with an insurance product on top.”
Digital Customer Experience Stalled?
In the realm of customer experience, 2021 was more about what didn’t happen than what did. According to a J.D. Power study, customer satisfaction with insurers’ digital offerings didn’t improve in 2021. Insurers face an uphill challenge going into the new year as customer expectations become a moving target, shaped by their experiences in other industries with a digital-first head start. Could 2022 be the year insurers finally catch up? We expect to see increasing demand for headless rating engines, with carriers and MGAs creating their own unique experience around them in the form of portals and self-service features.