Factors Affecting the Current Insurance Market

The higher the risk, the higher the premiums; insurers need to safeguard their companies from high claim amounts and protect their profitability. In the current corporate climate, there are many risk areas for which insurers have not had to previously account, including the ramifications of COVID-19, the implications of Hurricane Ian, the continued concerns over climate change, the Russian/Ukrainian conflict, rising inflation, the looming recession, and cyber security risks. All of these play a huge role in determining insurance premiums, but for many insurance companies, there are too many unknowns. This has resulted in increased underwriting scrutiny and accelerated premium rates. Below are the risks that are plaguing 2023:

Inflation and Recession

Rising inflation from the aftermath of Covid-19 and the looming threat of a global recession will be the biggest concern for insurance companies in 2023. With inflation impacting everything from distribution, replacement, and property damage costs, carriers and underwriters are struggling to create competitive products and pricing structures that also protect profitability and efficiency. Although the majority of COVID-19 restrictions have been lifted and life is more or less resuming it’s normal pace, insurance markets have not escaped it’s impact. Global insurance markets will continue to be negatively affected by volatility in capital markets and weaker growth, meaning insurance markets are likely to shrink as a result of the economic slowdown. Adding to the unpredictability of insurance industry trends is the potential for class action lawsuits from Business Interruption claims. Trends in the insurance industry remain unpredictable and all of these factors could put upward pressure on premiums.

Catastrophes/Climate Change

The damage and loss created by Hurricane Ian will have a significant impact on the global insurance industry in 2023 with some publications estimating a total of $74 billion in total damages. Additionally, the National Flood Insurance Program could see an additional $10 billion in losses from storm surge and inland flooding. In Canada, 2022 was the third worst year for insurance damage in the country’s history. Weather related catastrophes reached almost $3 billion, with the top two events being the Derecho storm in Ontario and Quebec at $1 billion and

Hurricane Fiona estimated at $800 million. In British Columbia, insured losses for the winter storm and king tide in December 2022 will reach $80 million. A combination of high claims values, additional living expenses related to massive evacuation efforts, prolonged reconstruction and prevalent higherthan-average construction costs will contribute to a increased pressure on rating.

Russian/Ukrainian Conflict

Unfortunately, the final consequences and impact of the Russian/Ukrainian war is still unknown. However it’s safe to say that the effects of the conflict will be felt in a myriad of ways throughout the global insurance market. Already, we have seen properties being destroyed, even further disruptions to the supply chain, and inflationary prices on everything from food and shelter to gas and energy. Since the financial repercussions of war generally have devastating consequences on the global economy, companies and organizations should be vigilant in their business activities in 2023. Even if the Russian/Ukrainian conflict were to resolve in 2023, significant direct and indirect losses have already been felt and have manifested themselves throughout the globe, which could have a ripple effect on insurance premiums.

The Takeaway

The uncertainty (ie: risk) factors that are expected to plague the insurance space will make 2023 a very challenging year for some lines of coverage. However, as insurance companies tweak their offerings to adapt to the changing environment, most coverage lines could still overcome the predicted hard market resulting in smaller than expected rate increases. Though some lines will struggle more than others, if insurers remain competitive and innovative with their products and polices, implement virtual and/or cloudbased solutions to procedures and operations, the commercial insurance space should recover well. If most uncertainty factors such as inflation, residual impacts of COVID-19, and threat of a global recession wane significantly by the third quarter of 2023, more stable insurance pricing is likely.

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