6 Insurance Trends to Watch in 2023
Insurance firms face multiple headwinds in 2023 as the economy takes a downward turn and industry conditions become more uncertain.
Inflation has been one of the biggest economic challenges for insurers over the past year. S&P Global Market Intelligence predicts the U.S. property and casualty industry will post a full-year (2022) combined ratio above 100% for the first time in five years. This comes despite anticipated direct written premium growth of 9.8%.
The robust premium gains in commercial and homeowner property insurance lines have been offset by higher loss expenses, driven by rising replacement costs, higher claims costs and increased losses from cyber and climate risk.
The outlook for life insurance is slightly better—but macroeconomic volatility and fears of a recession could also offset gains in investment income due to rising interest rates.
However, Swiss Re also forecasts that 2023 global life premium growth will recover to 1.9% in real terms as inflation pressures ease and economic conditions improve.
“We will look back on the great resignation of 2021, the inflation inflection of 2022 and the coming capital crunch of 2023 as the era when the future winners raced ahead of those who did not thrive on the incoming tide,” says Bill Martin, president and CEO of Plymouth Rock Home Assurance.
Resilience and future-proofing operations are keys to insurance industry success in 2023 amid a hardening market. Here are six trends to watch to help insurers future-proof their organizations in 2023:
1. The distribution landscape continues to evolve and shift
The insurance distribution landscape has rapidly changed over the last few years. It started with insurtech firms like Lemonade and Hippo introducing more digital and user-friendly processes for applying for personal lines policies.
With the rise of embedded insurance, manufacturers, retailers and other non-traditional players are seeing opportunities to move into the sector. According to Deloitte, the embedded insurance market will grow to $722 billion by 2030.
For example, Insurify—a U.S.-based, AI-powered insurance comparison site—partnered with Toyota Insurance Management Solutions in early 2022 to reimagine the auto insurance buying process. The partnership offers drivers a seamless way to compare and buy insurance when they purchase or lease a Toyota vehicle.
Similarly, in life insurance, Policygenius—a New York-based online marketplace—teamed up with SEC-registered wealthtech Facet Wealth to enable their network of certified financial planners to sell life insurance.
Against this backdrop, agencies remain a vital channel of distribution. But for traditional agencies—and carriers—to compete effectively, customer experience must be at the center of their strategy as they innovate policy sales and onboarding processes.
2. Digital convenience and security top the consumer agenda
According to research from Transunion, today’s insurance consumer desires digital convenience from their insurance provider, above all else, with 91% willing to use online channels as part of the shopping experience.
This trend has been reflected across all policy lines, even life insurance. Whereas traditionally, only 10% of consumers have conducted their life insurance shopping online, that figure jumped to 40% in 2022.
Accordingly, carriers and agencies should focus on making a consumer’s purchase experience more digital-friendly. One way to do this is by upleveling the application and intake experience across different channels and scenarios. For example, these firms can create outstanding digital intake and application experiences by delivering capabilities like:
- Collecting applicant information via intuitive, self-service forms
- Getting in front of applicants more easily and maintaining momentum by delivering applications and important documents via SMS text
- Embedding policy documents seamlessly within broader web or app-based experiences
Such steps can improve the customer experience and reduce abandonment rates.
Moreover, while security features may conflict with the ability to offer a frictionless customer experience, many insurance consumers are revealing that they would take more comfort in additional authentication and verification measures. A recent survey showed 50% expressed willingness to undergo additional verification to secure an online quote, while 43% would abandon the application if they didn’t think it was safe. To address this need, carriers and agencies should seamlessly embed prudent verification and authentication measures into customer intake and e-signature journeys.
3. Enhancing speed to market with better integrations and low-code tools is a must
Technology integration is another top investment priority for insurance firms in 2023. New customer segments with unique demands are emerging—including gig economy workers, the rise of micro-mobility, and younger generations wanting more holistic services that support financial wellness. In response, insurance companies are feeling pressure to offer new types of products, such as usage-based, parametric or on-demand insurance.
Speed to market is critical, and insurance carriers must build on a modern technology foundation to innovate effectively. This includes adopting cloud-based technology that readily integrates into other software and eliminates data silos and low-code/no-code applications to help bring products to market faster, more efficiently and with fewer IT resources.
Carriers also need to consider how they optimize technology and processes for their agencies. According to research from the 2022 Agency Universe Study, 41% of agencies cite dealing with multiple carrier interfaces as a challenge, while 51% seek greater operational efficiencies to help customers.
4. AI adoption and data analytics grow across the enterprise
The deployment of advanced analytics and cognitive technologies is proliferating across the insurance industry. Popular use cases include:
- Acceleration of underwriting and pricing risk assessments
- Progressing toward touchless claims with the support of AI-powered drones for damage assessments and robotic imagery self-inspections and appraisals
- Growing use of chatbots for claim support and risk mitigation
For example, Lemonade uses its proprietary chatbot, “AI Jim,” to handle claims from start to finish, allowing them to be settled virtually instantly.
In the life and health segment, providers are using AI to focus on proactive care by introducing IoT-driven health apps and medical-grade sensors, empowering policyholders to maintain healthy lifestyles, thereby reducing future claims.
AI can also benefit teams in the back office, including legal teams looking to expedite reviews and identify risks in vendor contracts or claims litigation through investments in contract AI solutions.
Industry watchers predict that these investments in automation and analytics technologies like AI, RPA and machine learning, along with connected insurance (via the IoT) will increase throughout 2023 and peak in 2024, resulting in more targeted offerings, lower risk and better efficiency.
5. Focus on ESG and sustainability reporting heats up
Continuing the trend of the past few years, environmental, social and governance (ESG) initiatives remain a strategic and compliance focus for insurers, offering both a significant challenge and opportunity to make a positive impact.
As economic losses from climate-driven catastrophic events have risen by 250% over the past three decades, ESG—and mitigating risks from climate catastrophes—are becoming more integral to the mission and underwriting practices of property and casualty carriers.
According to research from CapGemini, 85% of global insurers believe ESG will impact all functions of their business, led by investments (91%) and followed closely by risk and internal audit (90%) and underwriting (88%).
In addition, insurers are increasingly subject to new sustainability reporting standards within the industry, as indicated by the National Association of Insurance Commissioners’ (NAIC) climate risk disclosure survey released in April 2022. The survey questions align with the Task Force on Climate-Related Financial Disclosures (TCFD) framework, which encourages firms to consider climate change impacts across numerous business areas. The NAIC is reportedly meeting in 2023 to potentially revise its reporting requirements, with implications for carriers in how they analyze, capture and disclose their ESG impact.
Insurers also gain significant benefits by adopting strategic ESG practices, including reputational enhancement, potential loss mitigation and being part of creating a more resilient planet. But challenges to such adoption remain, as 25% of respondents to CapGemini’s survey of global insurers cited “understanding ESG-related regulations and guidelines” as their primary challenge in implementing their ESG agenda, followed by “understanding how best to take action on ESG” (17%) and “matching ESG initiatives with customer needs” (15%).
As the industry’s ESG stance and disclosure requirements mature, carriers must work closely with their vendors and across functions to assess their ESG impact and ensure compliance.
6. Security and fraud mitigation stay top of mind
As guardians of sensitive financial information, financial institutions continue to cite security as an ever-growing concern. According to the FTC, fraud losses increased by 70% for financial institutions broadly in 2022, with cyber risks heightened by geopolitical tensions. These concerns are likely to persist into 2023.
Looking specifically at insurance, a 2022 report from cyber risk monitoring firm Black Kite showed that 82% of the largest insurers worldwide lacked sufficient expertise and tools to respond adequately to phishing attacks.
The NAIC has established a long-standing Data Security Model Law with recommendations for implementing sound information security practices. Their guidance includes utilizing effective controls—such as multifactor authentication and more sophisticated forms of identity verification—and regularly monitoring systems to detect potential attacks.
Firms need to select vendors that demonstrate value for trust and security by meeting and exceeding high security standards and continuously working on expanding their scope of certifications. Firms should additionally invest in a better security posture via access controls, authentication and continuous monitoring of core activities with detailed visibility into the telemetry of the transaction.
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