Insurers Poised to Accelerate Growth in 2022

Insurers from around the world remain fairly bullish when it comes to their growth prospects for 2022. That’s despite lingering concerns about the potential impact of COVID-19 variants on overall business recovery and return to workplace strategies.

Those are some of the findings of a global survey among 424 senior insurance executives in finance, talent, technology, and marketing conducted by the Deloitte Center for Financial Services. Respondents, who came from North American, European, and Asia-Pacific (APAC) countries, were about equally split between property-casualty and life and annuity insurers. Most respondents cited plans to increase investments in enabling technologies and evolving talent models to build on the digital and virtual platforms that sustained their operations and maintained their engagement with customers throughout the worst of the pandemic.

Expectations for Better Performance Across the Board

About one-third of executives expect revenues to be “significantly better” in 2022. This positive outlook lines up well with industrywide forecasts for both sides of the industry. The Swiss Re Institute expects rising demand for insurance worldwide (figure 1), with consolidated premiums for all lines rebounding by 3.3% for full-year 2021 and 3.9% in 2022, compared to a drop of 1.3% in 2020.1 China is predicted to lead the way with 9% growth in 2022, followed by emerging markets (excluding China) at 4.9%, while advanced markets are likely to see more moderate gains averaging 3%.2

Breaking down the industry’s two main components, global life insurers, benefitting from heightened consumer risk awareness due to COVID-19, are expected to post above average premium growth rates of 3.8% in 2021 and 4.0% in 2022.3  Global non-life premium growth is forecast at a more modest 2.8% in 2021, jumping to 3.7% in 2022 as more people are likely to return to their workplaces and business recovery is expected to pick up speed.4 Commercial insurance sales should bounce back more robustly than in personal non-life segments, driven by accelerating business activity.5

Growth is also expected to be spurred by having a strong reinsurance market to support primary carriers. Global property-casualty (P&C) reinsurance net premiums written were up 18.5% in the first half of 2021.6 Profitability also improved, as P&C reinsurers monitored by Fitch Ratings had an aggregated combined ratio of 94.5%, an 11.4 point improvement over 2020’s first half—which included $6.1 billion in pandemic-related losses.7 Fitch expects renewal rates to keep rising after two years of growth, but at a slower pace amid more abundant capacity.8

Another growth factor is the impact of increased demand for non-life products on price increases across the board. Premium rates at Lloyd’s were up 9.9% in 2021’s second quarter.9 U.S. P&C price hikes in the same period averaged 5.54% in commercial property, 4.51% in commercial auto, and 4.59% in business owners policies.10 Cyber insurance rates soared 25.5% in the second quarter,11 due in large part to ransomware attacks, as well as increased exposure to breaches after allowing remote access for millions more home-based workers. Only workers’ compensation showed a rate decrease, down an average of 1.74%,12 likely due to the fact that U.S. unemployment remained higher (5.4%) over the summer compared to before the pandemic (3.5%), with about three million people still not back in the workforce to insure.13

On the life insurance side, U.S. application activity was up 7.3% as of the end of June, according to the MIB Life Index.14 A.M. Best reported first half net income for U.S. life insurers soaring to $18 billion compared to just $1 billion in the first six months of 2020,15 when the pandemic put tens of millions out of work—many of whom lost group life insurance coverage. LIMRA updated its sales forecast in August as a result of better-than-expected gains, predicting a U.S. market expansion of 7%-11% for full-year 2021, with growth anticipated for nearly all life product lines.16 

The industry, therefore, appears poised for significant growth and a much stronger financial performance in 2022. Yet multiple challenges remain for leaders in finance, as well as talent, technology, and marketing, as carriers continue to adapt to the pandemic’s aftermath, while simultaneously seeking bigger picture transformation to generate faster growth and secure their long-term future.

Insurers Face Mounting Bottom Line Challenges Beyond Pandemic Resurgence

Besides the potential for new COVID-19 strains to hinder or even derail economic recovery and insurer growth prospects in any number of countries, insurers are likely to grapple with several fundamental bottom line threats in the year ahead.

To start with, rising inflation combined with flat interest rates could turn out to be major obstacles to improving insurer results. 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.17 Corresponding price hikes for construction materials, rental vehicles, and auto parts (including semiconductor and computer chips for smart cars) are among the expenses threatening to drive up insurer loss costs into 2022.18 This factor alone is likely to keep pushing P&C prices higher for buyers.

Interest rates have remained relatively low around the world despite rising price and labor cost trends, as governments look to avoid undermining the recovery’s momentum and perhaps risk their economies slipping into recession. Still, this could undermine investment returns for the industry as a whole, while hindering growth and profitability of interest-rate sensitive L&A products.19

Regulatory costs also will likely keep mounting. For example, global carriers are entering the home stretch in concluding preparations to comply with International Financial Reporting Standards 17, determining how insurance contract assets and liabilities are presented on company balance sheets. Implementation of IFRS 17, due to go into effect in January 2023, could cost global insurers between $15 billion and $20 billion when all is said and done, according to a survey of 312 carriers from 50 countries by Willis Towers Watson.20

Climate Risk and Sustainability Efforts Still a Work in Progress

Financial losses from climate risks are likely to continue to cut into P&C insurer profitability and draw heightened attention from sustainability advocates. The Swiss Re Institute estimated global insured natural disaster property losses of $40 billion through June 2021—the second highest first-half figure in a decade, and well above the prior 10-year average of $33 billion.21  Hurricane Ida in the United States alone likely  added between $31 billion and $44 billion in onshore and offshore insured losses in the second half of 2021.22

Many insurers have been ramping up efforts to quantify and address climate risk in both their underwriting and investment portfolios, spurred on in part by increasing demands for data and evidence of concrete mitigation action from a wide variety of stakeholders.23 The International Association of Insurance Supervisors’ executive committee adopted a paper to help regulators “promote a globally consistent approach to addressing climate-related risks,”24 and a number of regulators have already launched their own initiatives.

However, climate is just one part of a broader industry imperative to tackle a host of pressing environmental, social, and governance (ESG) concerns. About nine of 10 insurance respondents from all regions noted their companies would be increasing investments to:

• Propel ESG efforts in climate sustainability

• Enhance diversity in hiring, development, and leadership

• Bolster the economic well-being of the communities they serve, most likely by making products more available and inclusive

• Promote ethical decision making and reduce conduct risk

Tax Departments Face Upheaval from Legislative Reforms, Operating Model Changes

A little more than one-third of insurance finance executives surveyed say they are very prepared to respond to potential changes in corporate tax rates, cross-border taxation, and taxation of foreign operations, with about the same number feeling at least somewhat prepared. But that left about one in four of those surveyed indicating they are only somewhat or even very unprepared for such tax rule changes.

Meanwhile, 55% of respondents say they have a plan in place to respond to any tax issues arising from shifts in workplace staffing as employees return to the office and/or continue working from home in significant numbers, while 36% are working on such a plan, with virtually no differences among regions.

Nearly all those surveyed said they are committed to changing their tax department’s operating model in some significant way over the next year—for example, by outsourcing more. One in five said these efforts are already complete, while over one-third have such transformations in progress, and about one-third are very likely to begin making changes in 2022.

Ultimately, while the industry faces multiple challenges in the year ahead, industry leaders say the prospects for stronger financial performance look good.

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