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Insurance sector in 2023: Expect the unexpected

Only one in ten travel and pet insurance consumers completed their policy

A record increase in global inflation and the resultant cost-of-living crisis are impacting people and businesses alike. However, for insurers, these effects will be more noticeable than others.

A belt-tightening effort in the United Kingdom has already led to people choosing to terminate discretionary insurance coverage to cut costs.

For example, only one in ten travel and pet insurance consumers completed their policy. Another 10.2% were considering doing the same in 2023, according to GlobalData’s 2022 UK Insurance Consumer Survey of over 4,000 insured individuals. Home and life insurance, as well as other optional products, are also under attack.

Insurers will see a decline in revenues, apart from experiencing problems with their resilience as operations and claims costs surge. The most suffering will be seen by carriers specializing in non-compulsory lines. Financial adequacy problems will likely hurt monoline carriers because some of their business models will no longer work.

According to Ecclesiastical research, inflation is now a greater danger for high-net-worth insured individuals. Around 75% of UK brokers think underinsurance is a result of irregular valuations rather than inflation. Supply-related problems have increased commodity costs.

Over 93% of brokers consider underinsurance as a substantial risk to United Kingdom businesses during the current economic slump, which has produced a significant shift in how insurance is marketed and purchased. Over 30% of brokers consider personal accident insurance the most reduced or adjusted form of protection, according to RSA. Legal protection, product liability, and lone proprietor insurance follow at 25%.

Over 40% of company claims to have some underinsurance, which will only grow worse as inflation soars in 2023.

As the prospects for the hospitality industry look better, businesses in the field have been told to think about building reinstatement values. Lockton’s analysis shows that global shortages of shipping containers, metals, plastics, steel, and timber affect property damage claims when labor prices grow. Since both the operational environment and risk are always changing, building reinstatement values must be carefully reviewed.

As 2023 approaches, high inflation will reduce insurers’ profit margins. In July 2022, Europe’s inflation rate reached 8.9%, a 25-year high. GlobalData expects this would diminish general insurers’ profits through 2024 as average cost-per-claim rises and premium growth slows. Again, property, motor, and specialty lines will be most affected.

Premiums will rise by 5.6% in 2022, but property insurance claims will increase by 6.4%. In the automotive industry, claims growth is expected to grow from 1.6% in 2021 to 4% in 2022, while premium growth will fall from 6.4% to 4.3%.

Due to rising replacement, third-party, litigation, and wage costs, auto insurance claims may increase in 2022. GlobalData warns that rising claim costs will affect insurers’ claim reserves, which cover unpaid claims from previous years.

Insurers will have to consider their risks and raise prices, apart from balancing profitability, premium growth, and client retention.

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