Insurance Outlook 2021

May 31, 2021

Recovering from the fallout of COVID-19.

As of May 13, 2021, over 58% of adults in the U.S. have had at least one vaccination. And, as cases continue a downward trend, it appears that we’re easing our way back to some sort of normalcy.

However, the insurance industry is likely to feel the ripple effects of the COVID-19 pandemic in the future.

The first reason is that even though policies already had language pertaining to communicable diseases, dealing with a pandemic is a new experience when writing new policies, explains Micheal Giusti for Insurance Thought Leadership. Additionally, underwriters will be paying extra close attention to potential risks forward, specifically in the following ways;

Business. Typically, pandemics were not included in their policies. As such, they’re going to have to think of practical ways to limit their liability. This may also “bleed over into workers’ compensation,” adds Giusti. And, employers should also keep a close eye on “the fate of state unemployment trust funds.”
Travel insurance. With international travel stalling, the health supplement of travel insurance has also fizzled. We might expect this to return as restrictions ease. And, because COVID-19 is known, the cancellation portion will not be covered unless the illness is explicitly included in the policy.
Event cancellation and contingency. “Like trip cancellation, event cancellation policies can also be found, but they, too, are all but certain to exclude COVID-19, much less any communicable disease. The policies that are available now tend to only cover small-scale events,” says Giusti. For example, it may be easier to obtain coverage for an outdoor event as opposed to an indoor electronic dance show.
Film/TV production. Despite having to navigate a start-stop pattern, the demand for fresh content is in such demand that this may be worth the risk.
Health/life. The pandemic “has thrown a wrench in the normal operations of health and life insurance policies,” states Giusti. “In terms of health insurance, paying for pandemic costs is the least of the worries. The bigger issue is that patients have foregone normal preventative care.” This has made setting rates for 2021 more challenging, with a backlog of procedures, and not taking care of chronic conditions.

Ultimately, it may be up to lawmakers to “step in with a liability shield for businesses,” said Giusti. And, the “courts are going to have to weigh in on whether business interruption policies and event cancellation policies will be forced to pay out despite contractual pandemic exclusions.”

Strap-in, folks. It’s going to be a wild ride.

The impact of climate change.

In addition to COVID-19, the industry also had to face a climate crisis. In fact, natural disasters cost $210 billion worldwide in 2020. For reference, the U.S. accounted for $95 billion of overall losses in 2020 — it was $51 billion in 2019.

“Natural catastrophe losses in 2020 were significantly higher than in the previous year,” Torsten Jeworrek, a member of Munich Re’s board of management, told Investopedia. “Record numbers for many relevant hazards are a cause for concern.”

How can the insurance industry endure this climate crisis? Well, there are three strategies to consider;

Accurate data and disclosure. “The most urgent need is for accurate data,” writes Preston Nanney, CPCU. “Insurers must invest in better weather models incorporating the latest scientific research with a long-term view.”
Adequate pricing and alternative funding. “We cannot afford the hidden costs of climate change anymore,” adds Nanney. “Insurance premiums need to adequately reflect risk, even if it hurts. This will be the hardest reform, but pricing signals are necessary to change attitude and influence actions.”
Changes to underwriting and divestment. “Insurers should halt support — both in underwriting and investment — of the thermal coal value chain, oil and gas producers, and other primary carbon emitters,” advises Nanney.

In short, the industry simply can not afford to ignore this crisis if you want to continue to endure.

Technology is transforming the industry.

No surprise here. Technology is already an integral part of the insurance industry. In particular, the Property & Casualty Industry is going digital. As a result, this has sped up the coverage process and made paper documentation a relic of the past.

As technology continues to advance and become more commonplace, here are the trends that will disrupt the industry;

Predictive analytics can be used for pricing, risk selection, identifying fraud, triaging claims, and anticipating trends.
Artificial intelligence (Al) is delivering more personalized experiences, while solutions like TrustLayer is using AI to automate the management and verification of certificates of insurance.
Machine learning is a subset of AI and is improving claims processing through automation.
Internet of Things (IoT) may be used to mitigate risk, prevent losses, and determine more accurate rates.
Social media data is being leveraged to improve the customer experience, like getting a quote on Facebook, as well as detecting fraud.
Telematics is basically wearable technology for your vehicle. One example is Progressive’s Snapshot that’s being used to determine a policy premium.
Chatbots can provide customers 24/7 service while saving insurance companies time and money.
Low code has made it possible for almost anyone to update their software or offer new products and services.
Drones are being deployed to collect data, like aiding in risk and damage assessment on homes.

Cybersecurity is a concern.

“In the last two years alone, the number of successful cyber attacks has grown dramatically,” states Steven Bowcut for Cybersecurity Guide. “This exponential growth in attacks comes as insurance companies migrate toward digital channels to create sticky customer relationships, offer new products, and expand their share of their customer’s financial portfolios.” It’s even been “estimated that attackers have penetrated this sector to exfiltrate the personally identifiable information (PII) of more than 100 million Americans.”

“The US insurance industry reports net premiums totaling $1.22 trillion written in 2018. Fifty-one percent of those premiums were written by property/casualty insurers, while life/annuity insurers wrote 49 percent. There were 5,965 insurance companies in the US that year.”

Why is this so concerning? Mainly “because of the industry’s size and scope and the vast amounts of data consumed by companies in this sector,” adds Bowcut. After all, customers are required to submit sensitive information like contact, financial, and even health when purchasing a policy.

AI and machine learning, as discussed above, can “help insurance companies protect against malware, ransomware, and advanced persistent threats (APT),” adds Bowcut. However, you also need to implement policies, such as bringing your own device and training employees on security basics.

Insurers must broaden their revenue base.

Not to end on a low note, but insurers should be prepared for hard difficult conditions that will include limited growth and higher premiums. To counter this, you should explore ways to provide value and broaden your revenue base.

One suggestion would be to offer innovative services and products. For example, cyber-threat protection or event-cancellation policies. You may also want to focus on tailored products for specific demographics, like annuities or life insurance for those investing in their retirement.

And, finally, some insurers are opting to venture beyond insurance through interesting partnerships. One example is Attain. It’s a collaboration between Aetna and Apple to provide personalized health goals.