1H 2023 P&C Trends Examined

2023 has been an eventful year for P&C carriers – we’ve witnessed the meteoric rise of interest rates decimate profits, massive premium rate hikes as high as 40% in some states, and forever customers rethinking their loyalty and shopping around in record numbers as a response – and it’s only June. 

As we quickly reach the middle of the year, we would like to take a moment to check in and see how some of the topics and themes we were tracking earlier in the year are developing.

1. Sticky Inflation, Sticky Interest Rates, and Sticky Losses

One of the most prominent trends impacting the insurance industry is the persistence of sticky inflation and sticky interest rates. Inflationary pressures have led to increased costs for insurers, affecting their underwriting profitability and investment returns. In Q1 alone, carriers lost a combined $7 billion. With that, there has been a massive refocus on profitability vs. growth recently, and, unfortunately, customers are starting to bear the brunt of it. 

2. Premium Rate Hikes

What do carriers do when faced with mounting costs and growing losses? They hike their rates. The average premium hike over the last 12 months was 17% – with some carriers raising rates as high as 40%! This is far outpacing inflation and, as you can imagine, has led to a huge upswing in customers shopping for newer, cheaper policies. 

3. Customer Shopping Up

What do customers do when faced with mounting costs? They shop around (see “The Great Shop”). Customers are increasingly seeking out the best deals, sacrificing brand loyalty for a cheaper rate. However, as the number of shoppers increases, some carriers are realizing that their digital channels and risk controls are not ready for this drastic demand increase. Balancing Risk with Experience has long been the holy grail of insurance distribution, and during COVID, many carriers were comfortable sacrificing risk measures to improve the digital customer experience. Today, the pendulum has swung aggressively in the other direction, and carriers are willing to sacrifice growth altogether if it means turning a profit again. Success will come to those who can balance both. 

4. Focus on Profitability vs. Growth

As we mentioned above, that narrative has changed in the last 18 months, and carriers are now focused almost exclusively on profitability. Increased digital distribution has led to the unintended consequence of increased Premium Leakage and Nondisclosure. As an immediate response, we’ve seen a surprising slowdown in digital distribution coupled with a huge spike in premium costs. Customers are now paying more for a worse experience, which has led to a deterioration in customer satisfaction. 

5. Less Digital Channels

While the long-term trend has been towards digitalization, the first half of 2023 has seen a major pullback in digital distribution. Many carriers have turned off their digital channels entirely and are instead driving customers back to traditional agent channels. In a similar vein, carriers like Nationwide are intentionally adding friction to the digital quoting process. Coverager summed up their recent announcement like this, “When it comes to new personal lines coverage, pre-quote documentation will be required for some products in select states by the insurer beginning June 14. Some of the required documents include proof of residency (utility bill), photos of the home/vehicle, and more. This move essentially prevents agents from receiving a quote from Nationwide through comparative raters.“ 

6. Worsening Customer Experiences

We expect intentional friction to become more common with carriers as they exhaust all options to return to profitability. While insurers do need to strike a balance between traditional and digital channels moving forward, turning off digital channels entirely is like Netflix turning off streaming services and mailing DVDs again – while simultaneously raising pricing. Not great if you’re a customer. Unfortunately, once customer expectations change, there is no turning back. This two-steps-forward two-steps-back scenario is even more painful when factoring in how much money carriers have sunk into their digital distribution channels these past few years. That said, carriers need to figure out how to balance Risk with Experience and find new ways to ensure that their digital channels are profitable. We’re confident that will be a major H2 trend. 

7. Removing Coverage from Certain States

When the nation’s number 1 (State Farm) and 4 (Allstate) P&C carriers announce they will stop writing home policies in certain states, others might follow suit. Allstate recently announced it will pause new homeowners, condo, and commercial insurance policies in California to protect current customers. State Farm had a similar message, citing inflation, a challenging reinsurance market, and “rapidly growing catastrophe exposure.” California is doing its best Florida impression as carriers realize the risk/return is not worth it to write certain business lines there. In fact, Florida homeowners accounted for 76% of all homeowners insurance lawsuits over claims filed nationwide in 2019. Natural disasters + inflation + regulation = mounting losses for carriers.  

Needless to say, it hasn’t been a boring year for insurance. Heading into the back half of the year, we’re going to keep an eye on the above trends as well as a few others, such as InsurTech investment/consolidation, solutions to balance growth with profitability, new datasets to improve underwriting, and the rise in behavioral data adoption. 

We’ll see you all in January for a full-year recap and some predictions for 2024.