Insurance outlook for 2024 is positive, despite uncertain environment

Despite an overall positive outlook, four factors will contribute to an uncertain environment for the insurance industry in 2024, according to a pair of Conning researchers.

Those factors are:

1. Insurance technology. Tech will continue to reshape the industry, with artificial intelligence remaining the top-of-mind tech issue for insurers, said Scott Hawkins, head of insurance research at Conning.
2. Cyber security. An outgrowth of technology’s role in the industry will be a greater focus on cyber security and cyber risk in 2024.
3. Regulatory pressures. Conning predicted insurers will see greater federal and state regulatory activity in 2024.
4. Economic uncertainty. The economy is the perennial issue affecting growth and profitability, Hawkins said.

Insurance technology

Insurers’ continuing investment in tech means carriers are not managing data across multiple platforms and operating systems in addition to a flood of new data sources, Hawkins said during a recent webinar. Insurers look to AI to manage all this data.

The industry has made a significant investment in tech over the past decade, he said. In 2022, the life/annuity sector spent $5.5 billion on tech, up from $1.4 billion spent in 2002. The property/casualty sector spent $7 billion on tech in 2022, which was an increase from its 2002 spending of less than $3 billion.

“From our view, this is about industry transformation and platform modernization,” he said.

Cyber security

Insurer exposure to cyber risk continues to increase, Hawkins said, with AI’s development increasing the industry’s cyber risk exposure. The use of generative AI and the development of cyberattack weapons could make AI a significant security issue for the industry.

Hawkins said Conning expects insurers will likely increase their focus on cyber security in 2024 and over the coming decade.

Regulation

The growing focus on regulating AI is one example of regulation that will impact the industry this year, Hawkins said.

“What insurers need to understand is that some of these regulations – especially at the state level – focus on the types of data and information that insurers’ AI systems can access and then use in decision making,” he said.

Economy's impact on insurance

The broader economy and its performance continue to drive insurers’ revenue and expenses, Hawkins said, with inflation being one economic driver impacting the industry.

For life/annuity carriers, high inflation can shift consumers toward variable products and it also plays a role in lapse and surrender rates as policyholders must balance paying ongoing premiums against higher personal costs, he said.

Continued strong employment rates mean a stronger market for group products and benefits, Hawkins said.

The Federal Reserve’s interest rate increases have been positive for life/annuity carriers, he said, as they have relieved pressure on investment spreads. In addition, higher yields are supporting higher crediting rates on fixed annuities.

The commercial real estate industry has been challenged since the onset of COVID-19, Hawkins said, and predicted those challenges will continue in 2024.  For insurers, commercial real estate has been both a source of premiums and investment. Another year of struggle for this economic sector will continue to put pressure on some of those insurers.

Uncertainty can create growth for P/C insurance

The current economic uncertainty can create stronger growth opportunities for insurers, and that’s what Conning predicts for 2024, said Alan Dobbins, director of insurance research with Conning.

Conning foresees continued strong growth for the P/C sector, predicting a 7.8% growth in direct premium in 2024. Dobbins said that predicted growth is not as strong as the sector saw over the past two years, “but healthy growth nonetheless.”

Personal lines will see some of the strongest growth rates, followed by commercial property, he said. Poor underwriting results and ongoing inflation concerns are driving premium pricing. In addition, average catastrophe activity so far this year and elevated interest rates will lead to favorable growth in net income.

The P/C industry has experienced well above average catastrophe years in six of the past seven years, Dobbins said. Increases in wildfires and active storms have had an adverse effect on P/C insurers and is causing carriers to rethink the way they underwrite property risks.

Homeowners insurance is experiencing what Conning calls an emerging crisis. Last year was a well-above-average year for catastrophes, resulting in insurers’ increasing rates and implementing underwriting restrictions. Some carriers have stopped writing new coverage in certain areas.

This year presents insurers with an opportunity to address the emerging property insurance crisis, focused on insurance and risk management-based solutions, Dobbins said. “The industry will need to move quickly and effectively before regulatory and legislative solutions are imposed, which is already underway,” he added.

“The fundamental question for 2024 is, how will the industry respond to this crisis?” Dobbins said. “The immediate response has been to pull back capacity. But the answer can’t be to simply let the homeowners insurance market evaporate. It will be important for the industry to come up with risk-managed based solutions. Let unaddressed by insurers, legislators will step in. Based on history, the solutions are unlikely to be friendly to the industry.”

Opportunities for life/annuity carriers

Conning forecasts positive net operating results for both life and annuities through 2025, Hawkins said. Higher reserves and increased benefits are the main factors leading to lower net operating results for life and annuity carriers through 2025. Life insurer operating results also benefited from improved mortality claims.

Two factors impacting life/annuity carriers in 2024 will be improving excess mortality rates, as well as opportunities to serve a growing population of older Americans.

Excess mortality rates have been affecting the life insurance industry since 2020, but are likely to improve in 2024, he said. Total deaths in 2023 were 3% higher than average of 2018-2019. Given the increase in population, this is a return to a more normal mortality rate. “This is a positive for the life insurance sector because they are no longer paying the elevated death claims,” he said.

The senior market “represents a tremendous growth opportunity that we think will be developing over the coming decade,” Hawkins said. With the U.S. population expected to his “Peak 65” this year, “we believe L/A industry will develop and offer more products to this growing senior market.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].