AndOur premiums are likely to go up in 2022 – if they haven’t already. Amidst the COVID-19 pandemic, many insurance companies have seen high claims activity. Extreme weather events, pandemic claims, civil unrest, and inflationary pressures have put pressure on insurance companies’ profitability.
However, experts believe that insurance companies will bounce back as demand increases and companies adjust to get back to their profitable ways. Here are three things to watch in the industry as 2022 approaches.
Image source: Getty Images.
1. Global demand for insurance will rise
According to the global insurance provider Swiss Re group, premium growth worldwide will be higher than the industry average compared to the historical average. Growth will increase as businesses and consumers become more aware of the risks posed by the COVID-19 pandemic.
The company expects global premium growth to be 3.3% in 2022 and 3.1% in 2023, outpacing the long-term trend in the industry. The insurance companies agree. According to consulting and financial services firm Deloitte, a third of the 424 insurers surveyed expect revenue to be “significantly better” next year.
Specifically, business insurance sales are expected to rebound better than personal lines. High demand, specifically in commercial lines, benefits companies that rely more on premium generation and commercial insurance policies. like (NYSE: CB) And Cincinnati Finance (NASDAQ: CINF) Two examples of two companies that could benefit from higher demand are withdrawing 43% and 62% of their premiums, respectively, from commercial policies.
2. The profitability of insurance companies will recover after a difficult year
Insurers were hit in 2020 and 2021 for a number of reasons. For example, COVID-19 claims are hurting many insurance companies, especially those with life insurance companies or pandemic-related cancellation policies.
And if those claims weren’t enough, companies have also been hit by significant disaster losses due to weather-related damage, exacerbated by inflationary pressures. for example, Allstate And gradual Claims surged during the third quarter of this year due to huge claims related to damages from Hurricane Ida. The companies also suffered losses earlier in the year related to the Texas freeze.
For Progressive, losses for the first nine months of this year are up 67% from a year ago, coming to nearly $1.3 billion. The company faced pressures from inflation and increased leadership activity. Allstate’s losses in the first nine months totaled $2.8 billion, up 18% from a year ago due to similar factors.
Insurers on Swiss Re Group projects will rebound in 2022 and see improved profitability. In addition to rising demand, he expects underwriting profit to recover quickly as insurers react to higher claims and inflationary pressure.
Image source: Getty Images.
3. Your premiums will go up
The companies will raise premiums because of the higher claims they’ve seen in the past two years. This is a continuation of a trend in the insurance industry for what experts call a “hardening” of the insurance market. This happens when there is high claims activity and it is difficult to obtain policies. We’ve been in a tough market since 2019 because of these issues. As a result, insurance companies have the flexibility to raise rates without losing much business.
Already started rate increase. It’s going to shift where policies are warranted, eliminating states with greater numbers of disasters, Progress CEO Tricia Griffiths told analysts during the quarterly earnings call. As the company filed for price increases for personal cars across the United States through the end of the third quarter, higher rates took effect in 20 states and rose 6% on average.
Allstate’s head of personal lines, Glenn Shapiro, said the company is taking similar measures in response to inflationary pressures. The company raised interest rates in eight states by about 7% on average during the third quarter. It has plans to increase rates in 12 more states by the end of the year.
Insurance companies’ flexibility to raise rates is one reason why it’s one of Warren Buffett’s favorite industries to invest in. These companies should see improved profitability as insurance premiums increase – great news for investors – but not so great for consumers and companies that buy these insurance policies.
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Courtney Carlsen owns Progressive. Motley Fool recommends applying. Motley Fool has a disclosure policy.
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