Ongoing challenges and trends in the insurance industry that will amplify in 2022

It’s safe to say that 2021 wasn’t easy, especially in the world of insurance. From learning to cope with back-to-back-to-back climate disasters and managing the continuing supply shortage to the rapid development in remote work and the exponential growth in travel, the insurance industry learned to adapt, react and cope accordingly. 

While we might have entered this new year with bright eyes and an eager attitude, here are some ongoing challenges and trends that will impact the insurance industry as the year progresses. 

Rising insurance rates nationwide 

Since 2011, car insurance rates have skyrocketed by 28% nationally, with rates increasing 3% from 2020 to 2021. Within the past year, car insurance rates increased in 38 states (including the District of Columbia) and fell in 13 states. Louisiana saw the largest increase of 42%, which now puts the state at the top spot for most expensive insurance. Maryland had the largest decrease at around 9%.

The Zebra analyzed more than 83 million car insurance rates to examine the latest trends, how dozens of risk factors affect car insurance pricing and where drivers are impacted the most. Learn more about the current state and factors contributing to car insurance rates in our recent State of Insurance Report. 

With the increase in unpredictable weather and natural disasters, the boost in drivers on the road and traffic fatalities, and growing interest in personal travel resulting from more remote working opportunities, auto insurance rates are only going to continue to rise. 

Continued supply shortages across industries

According to a Deloitte report, rapid increases in demand for goods, materials and labor as well as ongoing supply chain disruptions have been raising claims costs for personal and commercial property losses.

As the shortage continues to cause price hikes for construction materials, rental vehicles, semiconductor chips and auto parts, P&C industry experts expect inflation to impact carrier loss costs and insurance prices as the year progresses. Rising claims costs actually reached the highest in 20 years back in Q3 2021 due to the supply shortage as well as riskier driving habits. 

Increased climate commitments

The Swiss Re Institute estimated global insured natural disaster property losses of $105 billion in 2021, ranking the year as the fourth-highest loss since 1970. Extreme weather events like the deep winter freeze, floods and hurricanes, heatwaves and wildfires throughout the year exceeded the previous ten-year average, continuing the trend of an annual 5-6% rise in losses seen in recent decades. The impact of natural disasters highlights the need for more robust planning and investment around mitigating the impact of extreme weather events on carriers as well as the development of relief plans for victims. Here are a few groups ramping up their efforts in addressing climate risk: 

• The European Insurance and Occupational Pensions Authority (EIOPA) stated expectations for insurers to enact more robust and longer-term scenario analyses to account for climate-related risks like fires and floods. 
• The New York Department of Financial Services is also expected to set new guidelines on how insurers should manage financial risks from climate change. 
• The US Treasury Department and Federal Insurance Office issued a call for public comment on climate-related insurance risks, to assess any potential climate-related gaps. 

An uptick in M&A deals and vertical integration

According to financial consultant OPTIS Partners, 2021 saw over 1,000 insurance agency mergers and acquisitions, a 30% increase from the year prior, with P&C sellers accounting for more than half (53%) of these transactions. Insurance finance experts predict even more active M&A strategies this year, with over a third anticipating heightened takeover activity and significant growth on the life insurance side of the market. Experts are also predicting more insurers to acquire more insurtechs as well to beef up their digital toolbelt; many have likely increased their stake in the insurtech ecosystem, as the first three quarters of 2021 saw more money invested than in 2019 and 2020 combined. Deloitte predicts an increase in divestitures as well, with a recent survey revealing 32% of corporate respondents saying they are considering a divestiture this year.

In addition, the industry is seeing carmakers, carriers and tech companies consolidate to offer customers a more holistic car-shopping experience. In 2020, manufacturers like GM, Tesla, Toyota and Ford started to partner with underwriters in certain states to offer coverage on certain car models right from the dealership. 

Carriers are more often teaming up with tech companies to embed data analytics and telematics into their policy programs and insurance offerings as well. Not only is technology being used to enable insurance companies to streamline workflow, offer an efficient and effective customer experience, and leverage data from across the funnel to provide more insight into shopping trends and driving behavior — companies are also using their collected data to lower rates and enhance their claims and roadside assistance processes. 

As we continue to learn how to roll with the punches that 2021 threw at us, flexibility, adaptability and open-mindedness are crucial to how the insurance industry will stay successful in 2022.