2023 year will be a challenging time for P&C and auto insurers. Property cat rates will need to rise by 50% on renewal in 2023 to offset rising claims costs and help restore profitability.
According to McKinsey, P&C insurance claims landscape is becoming increasingly challenging due to unprecedented claims inflation. There are many underlying causes—among them, the COVID-19 pandemic, the invasion of Ukraine, and global supply chain disruptions. Claims executives have already been dealing with steadily increasing costs over the past few years.
Results are being threatened by growing inflationary pressures and the already razor-thin margins in many markets that further exacerbate the problem.
According to EY, property catastrophe reinsurance rates need to increase by 50% in 2023 to help combat climate change impact and restore profitability. A postpandemic rebound in claims frequency and significant increases in average indemnity per claim in motor and property pose additional problems for the P&C industry. But following a robust action plan can help insurers not only survive this challenging inflationary environment but also thrive and pull out ahead of their competitors.
Home and motor insurers are set for a challenging 2023 as rising interest rates and a weakening economic picture affect pricing and demand.
Although rising interest rates, along with the prospect of falling inflation over 2023 will help insurers’ overall profitability, the wider economic environment of declining household incomes, cost of living pressures and an uncertain housing market is expected to affect demand significantly and negatively across personal insurance lines.
Specialty insurers will need to be highly disciplined to outperform in 2023. Data suggests that climate change is contributing to a greater frequency of natural disasters – especially hurricanes – whilst macro-economic and geo-political circumstances are directly impacting intermediaries, insurers and their customers.
As insurers look to achieve greater profitability next year, a core focus will be maintaining a tight risk appetite across all lines of business, particularly cat, and making the necessary rate adjustments in its 2023 renewals.
Alongside a focus on underwriting discipline and cost management, the market will also need to closely monitor regulatory change and the tax reforms that are expected next year.
In an environment such as this, where household finances are delicately balanced, insurers may need to rein back any prospective price rises to retain business and prevent customers from being under-insured while at the same time carefully balancing claims and other cost inflation.
While next year is certainly not going to be easy, insurers crucially remain in a strong capital position and can continue to help customers through this difficult period.
This challenging situation puts pressure on all players in the market. Yet top performers are addressing the new landscape using a planned, three-step approach that includes transparent tracking as well as various tactical and strategic actions.