P&C Insurance Predictions for 2H 2023

As we navigate the dynamic landscape of the insurance industry and continue to explore and analyze the evolving industry trends, here are some P&C insurance predictions for the second half of the year.

“Higher for Longer”

In the second half of 2023, we expect the Federal Reserve to hold interest rates high (currently 5.25-5.50%) as they continue their quest to lower inflation to their target rate of 2%. This should help profitability as investment income will improve, offsetting some of the losses carriers are experiencing due to inflation.

Persistent Inflation

That said, the P&C market will continue to grapple with the negative impact of ongoing inflationary pressures. As we’ve mentioned before, the ripple effects of COVID are pervasive. In auto insurance, supply chain disruptions sent the cost of car parts soaring. Car part delays have dramatically increased the time it takes to repair a car, increasing the amount of time drivers need rental cars. Labor shortages have increased labor costs. The transition to electric vehicles and the growing complexity of safety systems have made repairs even more expensive and increased the number of total losses. Carriers are feeling similar pressure in their Home and Renters departments as the increase in repair & labor costs has compounded the damage resulting from natural disasters. These factors make profitability in certain states elusive. So much so that we’ve seen carriers pull out of states like CA, FL, and TX, and we anticipate more of this in the second half of the year. 

More Premium Rate Hikes

All that to say – we anticipate that carriers will continue to raise rates across various insurance lines. Auto carriers have hiked rates on average by 17% so far this year, and we see this trend continuing in the second half. Similarly, reinsurance premiums for Home policies in problematic states have risen on average 33% for June 1 renewals and 50% for renewals at the start of the year. If we see more hurricanes or wildfires, we guess that we’ll see even more Home insurance premium hikes. These rate increases reflect the need to align premiums with the evolving cost of claims and the higher cost of capital. The follow on effect is that we will have even more customers shopping around for new policies.

Climate Change Resilience

P&C insurers will focus on enhancing their risk assessment models to account for changing weather patterns, natural disasters, and rising sea levels. Increased investment in advanced data analytics and modeling will enable insurers to better evaluate risk exposure and develop resilient solutions to protect policyholders and mitigate losses. Regardless, we expect more carriers to follow in the footsteps of Allstate, State Farm, and, more recently, Farmers in pulling out of high-risk states like Florida, California, and Texas.

Technological Advancements Driving Operational Efficiency

The P&C insurance sector will witness an accelerated adoption of emerging technologies such as artificial intelligence (AI), machine learning (ML), and automation. Carriers are engaging companies like Snapsheet to leverage AI for claims automation, CAPE Analytics to leverage computer vision to underwrite property insurance more accurately, and Insurmi to deliver personalized customer service with an AI assistant. Insurers will continue leveraging these innovations to enhance underwriting processes, claims management, and risk assessment. By streamlining operations, insurers can offer faster, more accurate services, improving the customer experience and reducing costs. Oh, and we wouldn’t be surprised if we started hearing ChatGPT and other Large Language Models (LLM) brought up on earnings calls, though any impact on P&Ls from LLMs will likely be felt a few years down the road.

Increasing Focus on Personalization and Customer-centricity

In the second half of 2023, carriers will continue prioritizing customer-centric approaches. The market will continue to shift towards personalized policies tailored to individual customer needs, allowing for more flexible coverage options. Insurers will invest in customer analytics and data-driven insights to better understand policyholders, leading to improved customer retention and satisfaction. We will see increased adoption of real-time behavioral analysis to predict customer shopping intent and risk profiles and create dynamic experiences tailored to the end user.

Return of the Digital Bind

As we mentioned in our last post, many carriers slowed down or turned off their digital bind capability in the first half of the year. In the second half, however, we expect carriers to relaunch their digital channels as they reprioritize growth. Alongside this expansion, insurers will implement additional risk measures to protect against risk, fraud, and premium leakage. Behavioral analytics and intent data will play a critical role in detecting anomalies and identifying potential risks. Moreover, new solutions such as Behavioral Intent Data will continue to see rapid adoption to identify and reduce premium leakage.

Wrapping Up our P&C Insurance Predictions 

To sum up our P&C insurance predictions for 2H 2023, we predict that P&C carriers will have a stronger second half of the year as they continue prioritizing profitability, increasing their rates, and adopting cutting-edge solutions to improve their underwriting, claims, and customer experiences. We will revisit these P&C insurance predictions at the end of the year and see how we did!