Before I get into my predictions for 2023, I would like to reflect briefly on my predictions for 2022 that I shared with PC360. While directionally correct, they did not account for the scale of market and economic disruption now shaping the risk landscape. For example, we expected that 2022 would be a big year for electric vehicle sales, but we did not anticipate the rate of growth would increase as it has.
We also knew that the disruption of supply chains caused by COVID-19 would continue, but we did not anticipate Russia’s invasion of Ukraine, costing lives and creating energy and food shortages. Those events, coupled with the property pricing reckoning forced by Hurricane Ian, now have reinsurers cutting their exposures.
Forecasts include headwinds and tailwinds
The near-term performance of the global insurance industry will likely remain strong. The impact of macroeconomic tailwinds hitting the industry will balance the impact from headwinds, at least from a near-term financial and operating ratio perspective. However, the underlying health of the industry will be under pressure given the more systemic impacts of headwinds.
Headwind: Expect real premium growth to slow
A tentative recovery in 2021 was replaced with increasingly uncertain growth projections as economies displayed lower than expected performance over the course of 2022. Global GDP forecasts were revised downwards multiple times over the last year. Similar revisions have been observed in premium growth projections across life and non-life business.
Real non-life premiums globally are expected to grow by 2.2% in 2023 — down from a 3.3% growth expectation this time last year. This is based mostly on ongoing rate hardening in commercial lines. Non-life premium growth in emerging markets will outstrip that of advanced economies, with estimated real growth of 3% in 2022 and 4.2% in 2023.
Headwind: Talent to become even more scarce
Hiring and retaining talent is a long-term and systemic risk for insurers that will not be mitigated in 2023. Demand for talent in the industry remains high as supply dwindles from a rapidly aging and retiring workforce. Leading insurers will find ways to augment workforce gaps, for example with AI solutions. They will also begin to articulate and activate brand purpose — signaling to younger workers that they share a common vision for a safer and healthier world.
Headwind: Inflation to drive up operating expenses & claims costs
Inflation rates are the highest in decades. While inflation is expected to decline from 2022 to 2023, inflation rates are projected to remain elevated relative to historical averages.
This will impact the whole value chain — from customer acquisition costs to claims expense and indemnity. The pressures from wages, healthcare, energy and social inflation are also likely to persist.
Insurers will need to prepare for the impact of prolonged inflation on general operating expense base and claims cost. Existing claims cost increases created by supply chain delays for auto and property, which ranged up to 40%-60% in 2022, will remain high in the inflationary environment.
Tailwind: Inflationary nominal premium growth from (relatively) high interest rates will embellish key performance indicators
2023 will also have its tailwinds. Insurers’ nominal top-line growth numbers are set to increase across the industry. Both new and renewal business will be repriced by carriers with the business agility to embed rate increases. As a result, premium growth, operating expense ratios and claims ratios will show short-term improvement compared to pre-inflationary metrics. Further increases in interest rates expected in major markets will provide insurers with much-needed investment income to buffer underwriting results.
Tailwind: Heightened risk awareness to drive demand & convergence
Growing concerns during COVID-19 around health and mortality risk, continued impact from extreme weather events, and general economic, societal, and political instability have driven a widespread sense of underinsurance. Both the health and financial well-being of consumers have become less secure. In 2023, there is a growing opportunity for insurers to expand their portfolio across health and wealth protection products, leading to further industry convergence.
Kenneth Saldanha is the global lead for Accenture’s Insurance Industry Group.
Opinions expressed here are the author’s own.