10 Insurance Trends That Will Influence the Insurance Industry in 2023
Earnix Team
19. January 2023
- Pricing
- Rating
- Customer Centricity
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The last three years have been unprecedented and presented so many challenges to insurers and virtually every business around the world. COVID-19 shutdowns. Supply chain disruptions. Global inflation and record-high cost of living. The ongoing Russian-Ukraine war and its impact on energy costs. All of these conditions completely disrupted “business as usual” for insurers and made it difficult–if not impossible–to achieve the same results as they had in the past.
While some of these issues seem to already be easing, many will continue to impact insurers well into 2023 and beyond. Additionally, new trends will inevitably pop up, raising new questions and forcing insurers to react in ways they may not have predicted. For example, economists now place a 70% chance that the U.S. will sink into a recession in 2023, which could be part of a global recession.
If so, insurance carriers will need to implement better pricing strategies, find new ways to engage and retain customers, and change old ways of thinking to remain competitive during such a period of financial turbulence.
To help, we offer a closer look at 10 trends we believe will have the most impact on the insurance industry in 2023.
Trend 1: Inflation and Recession Concerns Linger
Supply chain disruptions, high interest rates, energy shortages, rising wages, government borrowing and spending, and current events such as the Russia-Ukraine war continue to contribute to high inflation and may also trigger a global recession sometime in 2023.
According to a recent report by the World Bank, unless these issues subside, the subsequent interest rate increases could lead to a global interest rate increase of approximately 5%, which is almost double the five-year average. This outcome would require even more interest rate increases, which could slow global GDP growth to 0.5% in 2023. This would meet one of the technical definitions of a global recession: a decline in economic activity spread across the global economy lasting more than a few months.
While inflation rates have stabilized recently–after reaching a high of 9.1% in the U.S. in June 2022, they were down to 7.1% for November–many economists still believe the impact will linger well into 2023. Many other countries are expected to see record-high inflation in 2023, such as Argentina, which experienced annual inflation of 88% in 2022 and is expected to surpass 100% in the coming months.
We believe consumers will still view insurance as an essential product and will continue to purchase insurance even in light of significant cost-of-living increases. Yet insurers would still be wise to use this time to reduce costs, create new efficiencies, and do all they can to win and retain more profitable customers.
Trend 2: A New Focus on ESG
In 2023, a growing number of insurance carriers will look to operationalize environmental, social, and governance (ESG) factors. This is becoming a new imperative to respond to increased scrutiny and pressure from regulators, investors, and customers as well as to better understand and calculate insurers’ total risk. According to PWC, 80% of global investors say how a company manages ESG risks, is an important factor in investment decision-making.
New updates to existing regulations are forcing the issue even more. For example, the National Association of Insurance Commissioners (NAIC) Task Force on Climate-Related Financial Disclosures (TCFD) framework is already changing the way insurers think about and report on climate change.
Yet the concept of understanding ESG-related risk and how to calculate and manage it effectively is still an early and emerging trend. Insurers realize they need to focus on ESG, but many admit they don’t know how to get started. The same PWC research found that only 24% of insurers believe that they are ready to develop mature environment-related capabilities. All of this will make ESG an important trend in 2023.
Trend 3: Increased Use of Telematics
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We also predict that insurers and consumers will continue to embrace the use of embedded telematics. Today, the global telematics market is valued at $64.2 billion but is expected to grow at a 15.8% compound annual growth rate to reach a total value of $154.8 billion by 2028.
Telematics have already delivered real change in the auto insurance industry. For example, insurers can use data collected by telematic devices to develop innovative products and offers such as usage-based insurance (UBI) that reflects customers’ actual driving behaviors and risk profiles.
Pricing premiums based on telematics data is already leading to safer driving scores. Research from Driver’s Alert shows that telematics has resulted in 45% fewer vehicle accidents, a 75% reduction in speeding events, and an 80% reduction in aggressive driving.
These results will continue to improve as insurers will have access to more telematics data as well as IoT data. We will begin to see an evolution beyond using telematics as an (important) risk predictor to where it can influence new use cases, such as increased safety. For example, in fleet management, users can monitor driver behavior, vehicle systems, and other data-driven reports to maximize safety.
Technology vendors will continue to provide new advancements such as real-time engine diagnostics, GPS tracking, fatigue alerts, and other use cases to calculate risk more accurately and give consumers more personalized offers.
Trend 4: The Growing Popularity of Embedded Insurance
Embedded insurance is any type of insurance that can be purchased within the commercial transaction of another product or service. Embedded insurance is the real-time bundling of insurance coverage while they’re making a purchase and delivers the coverage directly to the consumer when at the point of sale.
While embedded insurance is not a new concept – consider the examples of car rental companies offering additional coverage or extended warranties for appliances or electronics – it is growing in popularity. Recent research shows that the embedded insurance market, especially for general insurance, is predicted to grow to $722 billion in gross written premiums by 2030.
Embedded insurance is so appealing because it offers a win-win for consumers and insurance carriers. From the consumers’ perspective, embedded insurance is fast, easy, and can be purchased in just a few clicks and gives them the right coverage, exactly when they need it. For insurers, embedded insurance is a significant opportunity to expand their reach since third-parties can add insurance offerings into their own products and services while helping reduce distribution costs.
Trend 5: More Focus on Automation
The current phase of intelligent automation has evolved beyond the important benefits of automating manual tasks. It is now automating the decision-making process itself.
In 2023, we predict intelligent automation will drive faster, better decision-making in underwriting systems, claims, and other important parts of the operation. Underwriting analytics are especially in need of automation–the Earnix 2022 Market Industry Trends Report, found that 86% of respondents reported a high need for automation with their underwriting analytics processes.
This type of automation will not only speed up operations and reduce costs, but it will also enable insurers to offer better customer experiences–faster processing and more rapid deployment of targeted insurance products.
Trend 6: Doing More with Artificial Intelligence and Machine Learning
There is an astronomical amount of data at insurers’ disposal. But without AI and ML technology, insurers would have a hard time processing all of this data.
In 2023, AI and ML will continue to provide valuable new ways to help insurers mine vast amounts of data and gain detailed insights into extremely valuable information and trends. Examples will include new approaches to marketing and lead management, personalization, customer service, customer retention, fraud detection, and risk management. AI and ML workloads will not only make these use cases more effective, but they can do it at scale, saving significant time, energy, and resources.
Trend 7: Talent Shortfalls
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Low unemployment rates have made it difficult for virtually any company to find, hire, and retain key talent, but for insurers, it may be a double-edged sword. For example, chances are good that they already have a hard time hiring employees capable of managing new technology such as advanced analytics, artificial intelligence, and machine learning. Yet they may also find it difficult to keep employees able to manage their existing systems.
It all adds up to a potentially concerning scenario: If insurers can’t find the employees they need to manage the systems they have in place now as well as those who can help implement and use more innovative solutions in the future, they may be hard pressed to meet their business goals.
Trend 8: Increased Competition
The entire insurance industry was once perceived as being too big, too complex, and even too cost-prohibitive for new firms looking to enter the market and establish a competitive foothold. Yet today, a growing number of competitors are springing up–ranging from small, aggressive start-ups to larger, more traditional companies with a new offering or approach–all threatening to disrupt the entire market.
As more competitors enter the insurance industry, incumbent insurers will be placed under pressure to forge partnerships within the digital ecosystem. This will enable them to provide new opportunities for innovative newcomers while addressing their own technology and innovation challenges.
These new market entrants now see new opportunities to use new technologies and innovations to give consumers what they’ve been looking for: faster offers, more competitive pricing, and seamless, personalized experiences. Consumers are already familiar with this type of service and are increasingly demanding it from the companies they do business with. Insurance carriers have to pivot to provide this level of service–or risk losing business to new competitors who can.
Trend 9: Insurers will Continue to Invest in Product Personalization
The future of insurance demands personalized product offers and customized product bundles as well as in other specific areas such as usage-based insurance (UBI), telematics, and making the customer’s overall journey easier and more effective. Insurers recognize this—and realize that the current systems aren’t getting the job done. They know they need to do more with personalization, especially add-ons.
In our 2022 Market Industry Trends Report, 97% of respondents reported that they wish they could do more to develop and deploy highly effective add-ons. Innovative new personalization use cases will continue to emerge, including the need to gain a 360-degree view of the customer, video/image analysis, and even home IoT-based personalization. Insurers should consider doing all they can to take advantage of these new personalization opportunities now–before their competitors beat them to it.
Trend 10: Climate Change Modeling
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Extreme weather events are becoming much more frequent and more severe. Between 1980 and 2021, the United States suffered from an average of seven to eight natural disasters each year. There were more than 15 severe storms in the first 10 months of 2022.
It’s becoming extremely expensive. The cumulative costs of natural disasters in the last five years have added up to $788 billion. And it’s only going to get worse. According to research from McKinsey, the total value at stake from climate-induced hazards is estimated to double from two percent of the global GDP today to more than four percent of the global GDP in 2050.
One thing is clear: changing conditions could disrupt the entire insurance industry and could even potentially put some companies out of business. We’re already seeing the case where insurance carriers are already raising premiums and deductibles, refusing new policies, or denying coverage completely.
It’s an extremely complex, evolving situation but insurance companies can’t afford to underestimate the true threat of climate change. Future insurance solutions will have to evolve beyond traditional risk transfer and reshape existing business models.
The Role Technology Can Play
While this is not necessarily a complete trend, we also see the need for insurers to adopt and use the best-in-class technologies in order to facilitate agility, performance, and innovation. Increasingly this will consist of microservices-based composable architectures that allow insurers to build new systems that are more flexible, scalable, and adaptable to change.
Transform Insurance Challenges into Opportunities in 2023
2023 could be a challenging year, but at the same time, it also presents significant new opportunities for insurance carriers who can successfully transform their businesses and do it faster than the competition.
Earnix is ready to help. Our intelligent technologies can help insurers develop new strategies, accelerate the pace of change, and connect with customers in more meaningful ways. To see how Earnix is delivering the next generation of insurance operations today, visit www.earnix.com.