2023 was a particularly challenging year for the insurance industry as carriers experienced a perfect storm created by macroeconomic forces following the COVID-19 pandemic, high economic inflation, and the ever-increasing frequency and severity of losses due to extreme weather. As we step into the new year, we are looking ahead to what the industry will face in 2024 and what insurance carriers need to do to stay ahead of the curve in the coming months.
1. The combined ratio struggles that emerged in 2023 will persist in 2024
Catastrophic losses, exemplified by a staggering $50 billion in storm-related damages and 16 individual billion-dollar loss events, will continue to persist in 2024 and beyond. This multi-decade severe weather trend poses a formidable challenge, demanding a proactive approach from insurance carriers to weather the storm.
2. Inflationary pressures will ease
Amidst the challenge of rising catastrophe challenges, one positive note is the expected easing of inflationary pressures on traditional losses. This reduction in pressure will allow insurance carriers more room to maneuver in the face of other obstacles.
3. Carriers will get rate in 2024
We foresee a positive shift in insurance rates, as rate filings continue to gain approval. In the first 3 quarters of 2023, homeowners' multiperil insurance DWP increased 12.4% according to S&P Global Market Intelligence, and a trend that is expected to continue. Over time, rates will start to better align with risk, especially in high-risk areas like California.
4. The challenges in reinsurance will persist in 2024
In the realm of reinsurance, it will be a tight market in 2024. Access to reinsurance will present a challenge, primarily driven by secondary perils like storms, hail, and wildfires. Attachment points will increase. This will place the onus on carriers to exercise prudent underwriting and rating practices to profitably navigate this challenging landscape.
5. Insurance carrier product development velocity will accelerate
We’re going to start seeing fruit from the multi-year investment into modernizing insurance carrier IT infrastructure, such as modern policy management systems. As more of these projects come online, product development will become easier and cycles will accelerate. Additionally, with more modern infrastructure in place, carriers can adopt more best-of-breed solutions versus relying on homegrown options.
While challenges will persist, the industry's proactive embrace of technology and innovative solutions promises to pave the way for sustainable growth and resilience in 2024 and beyond. As carriers navigate the complexities of the insurance market, those who leverage AI, prudent underwriting, and modern systems are poised to thrive in the evolving landscape. The coming year holds both challenges and opportunities, and the industry's response will undoubtedly shape its trajectory in the years to come.