Dec 28, 2022Industry Forecast 2023: The Coming Year in Insurance
Our experts discuss market trends in the insurance industry and look ahead to 2023 in this year's edition of the Industry Forecast 2023.
From grappling with instability in commercial and personal lines to addressing evolving cyber risks and the trends in healthcare and employee benefits, our dedicated teams at Morris & Garritano are at the forefront. With proactive communication, advocacy efforts, and a commitment to market stability, we stand poised to tackle the coming year, ensuring our clients are well-prepared for whatever lies ahead.
As we have done since 1885, Morris & Garritano remains dedicated to providing peace of mind for generations to come, actively participating in conversations and advocating for reform with cautious optimism to restore competitiveness and foster a healthier marketplace.
At Morris & Garritano, proactive communication is our cornerstone as we navigate the complex landscape of insurance challenges. Our commitment extends beyond client interactions, leveraging robust carrier partnerships and actively participating in conversations that seek positive action for the marketplace.
From rate instability to the evolving nature of cyber risks and the profound shifts in employee benefits, we acknowledge an awareness of industry dynamics. As advocates for stability and champions of proactive communication, Morris & Garritano stands poised to tackle the upcoming challenges, ensuring our clients are well-prepared for whatever lies ahead, providing insights and strategies that echo our commitment to providing peace of mind for generations to come.
The property market has faced another difficult year with the continued tightening of underwriting guidelines, rising rates, and continued capacity limitations. Excess and umbrella coverage, along with liability insurance, is seeing strains as well, due to increased litigation and bureaucratic challenges.
Carriers have been increasing rates due to catastrophic losses of the past. They are tightening underwriting guidelines because only a portion of their requested rate increases will be approved by the California Department of Insurance or exiting the marketplace completely due to their inability to get their rate increase filings approved in a timely manner. Daniel Gilman, Commercial Risk Advisor, cites all of those factors when he says, “Carriers are leaning out, especially on new opportunities to them, as opposed to leaning in. Ten carriers used to quote an account, and five of them would be within 5% of one another… today eight of those ten carriers are declining, with two issuing quote terms. That lean-out mentality does not produce the healthy carrier competition we like to see.”
Consumer markets such as property, auto, and other industries are facing continued difficulties, similar or worse to this time last year. Challenges in the auto market include increased repair costs, material shortages, and rising labor expenses, compounded by recent minimum wage hikes. Familiar difficulties are faced by other niche industries we work closely in at M&G. Rising costs in the wine industry are making costs high for business owners and insurance carriers, but this does not seem to have deterred the consumer market at least, as observed by Mark Anelli, Sr. Risk Advisor, Regional VP of Southern CA.
Property continues to be especially difficult in CA. “Several large carriers have exited the market and remaining carriers have reduced the number of allowable placements, as well as changing underwriting guidelines that make placements more challenging,” Erin Powers, Personal Lines Manager, explains. With an air of sincerity and determination, she underscores the agency’s own efforts in dealing with these challenges and communicating with clients as new trends arise. “We are keeping our clients apprised of new developments and hiring staff to handle the influx of non-renewals; we’re adding new markets as available, and proactively reaching out to affected clients to ensure there are viable markets for replacement coverage. We are also making sure that our clients are informed of additional exposures that can affect CA property owners such as earthquakes and floods.”
In navigating the challenges presented by the current landscape, Powers emphasizes our proactive approach. “We’re not just reacting; we’re actively engaging with our clients,” she explains. “We’re taking deliberate steps to advocate for our clients.”
Gilman agrees, adding on a call for greater rate stability and regulatory changes. “There are some regulatory changes that may take effect in 2025 that would alleviate some of the market pressure.” These changes, if realized, could reshape how carriers set rates by incorporating forecasting data with the goal of stabilization and restoring healthy competition within the marketplace.
Ongoing efforts by the agency include collaboration with the IIABCAL, increasing dialogues with carrier partners, and underscoring a commitment to client education. Furthermore, our very own Martine Domingues, Property & Casualty Director, has been inducted as president of the group, deepening our ability to create positive impacts and stand at the forefront of the conversation. This continued work allows us to collaborate with industry partners on unique ways to find insurance solutions for our clients.
In the meantime, the team expresses the agency’s dedicated proactive stance in the face of challenges, ensuring we are at the forefront of emerging opportunities. “It’s not just about navigating the challenges of 2024 and keeping pace,” says Powers, “But anticipating and developing robust strategies for the future. We are in this together.”
Our goal is to expand our market roster for enhanced client benefits and proactive solutions. We are doubling down on efforts to swiftly deliver replacement policies for non-renewals, providing continuity and confidence in coverage. “Communication as far out as possible is key, not just with our clients but with our underwriters as well,” adds Gilman. “Our long-standing carrier relationships and strong reputation for being trusted advisors bring comfort to underwriters, which yields value back to our clients.”
Looking ahead to the new year, Anelli expresses cautious optimism, citing the absence of major wildfires in the past year and anticipating a decent rain season. He identifies potential opportunities for new carriers or expanded carrier appetites suggesting that new laws under consideration could create opportunities for carriers to modify rate structures and potentially open doors for them to quote on less desirable risks.
As the new year approaches, we’re exercising a determination, understanding the need for awareness regarding the challenging nature of the turbulent market, and actively participating in the conversation to advocate for better days ahead.
Cybersecurity continues to be a top concern for businesses as attacks persist against businesses of all sizes. Despite this, Nick Sullivan, Marketing Manager and Risk Management Director points out a two-year trend of easing premiums and our ongoing advocacy for clients.
Studies and reports continue to show that user education and cyber “hygiene” are the most effective ways to prevent cyber attacks. We are continuing our efforts to educate and equip clients to stay vigilant about their digital security.
Looking ahead, Sullivan warns of the ever-evolving nature of cyber risks and highlights a resurgence in ransomware activity, a trend observed in the past year. “While we’ve seen some improvements in cybersecurity hygiene, the resurgence of ransomware and the potential impact of AI highlights the need for continued adaptation.” This cautionary note suggests a need for diligence in the face of emerging threats, including the increasing role of AI in powering future ransomware attacks.
Trending with the rest of the insurance industry, costs in the medical realm are facing increases as well, but less dramatically so. “Overall, we are still seeing consistent trend increases in line with years past with less drastic impacts compared to what inflation has done to other items,” Ben Hoover, Sr. Employee Benefits Advisor and Practice Leader, explains. “While we are a point or two higher than normal, we are not experiencing the impacts that other commodities have seen, yet unfortunately, healthcare has historically always seen an annual trend increase in the high single digits to low double digits.” Decreases are not expected in the coming year, but emerging trends such as virtual care access and “biosimilar” pharmaceuticals are helping reduce expenses.
Last year, due to the pandemic, many people postponed medical services, causing a flat trend in claims and costs. As expected, in 2023 and going into 2024, there’s a noticeable increase in healthcare utilization as deferred services are now sought. This “backlog” is causing a short-term trend that will have to work its way through before stabilization is felt again.
Dan Troy, Principal, explains how inflation, affecting goods and services, also hits the healthcare sector, causing rising wages and higher costs due to workforce shortages in the medical field. “Employers are grappling with a spike in healthcare costs in 2024 due to these compounding factors,” he says.
Despite the short-term challenges, there’s optimism backed by economists that normal trends will resume as circumstances return to pre-pandemic normalcy. “The Bureau of Labor Statistics expects the cost trends to stabilize as the backlog of deferred services works through the system,” Troy notes.
Telemedicine, like Live Health Online and others, has seen increased utilization, providing accessible and cost-effective care. Virtual care is less costly than traditional in-person visits and emerging as a new and impactful resource for primary, chronic, and behavioral health services.
The shift to virtual care and outpatient services is reducing overall long-term cost trends. Telemedicine options not only accelerate access to care but also contribute to reducing longer-term cost trends and employees’ out-of-pocket expenses. For employers, the challenge lies in ongoing education—communicating the value of these new opportunities to both new hires and longstanding plan members.
These cost-saving measures are especially important as healthcare costs are anticipated to see higher trend increases in 2024. Driven by inflation, rising wages, and clinical workforce shortages, healthcare providers and health plans face intensified financial challenges.
The inflationary impact extends to pharmaceuticals, Hoover shares, with the median annual price for new FDA-approved drugs reaching $222,000, and nearly 47% exceeding $150,000—a stark contrast to trends from ten years ago. Notably, concerns arise regarding the use of diabetes drugs like Wegovy, Ozempic, and Mounjaro for weight loss, potentially leading to increased costs and prolonged pharmaceutical use.
As a countermeasure, the introduction of biosimilars, cost-effective alternatives to complex biologic drugs, offers a promising solution, already demonstrating substantial savings and long-term benefits for health plans. One biosimilar that has entered the market to rival Humira, one of the most expensive drugs available, is already generating substantial savings for health plans, promising long-term benefits.
As healthcare costs see relief with new, more affordable medications, employers are stepping up. They’re not just focusing on current staff by educating them about health benefits but also adapting to new hiring trends to ensure they attract and retain the best talent in a comprehensive approach to caring for the well-being of both current and potential employees.
The past year has seen a stabilizing in pay rates after a striking period of increases across the board in the years during and following the pandemic when salaries were surging to remain competitive. Susan Appel discusses how the evolving financial aspect of hiring sets the stage for employers to navigate and strategize based on these observed trends. She explains, “This leveling-off is providing an increased stability and a more balanced relationship between employee needs and employer offerings.” Candidates continue to look for workplaces that can provide mobility and flexibility.
When it comes to recruiting, it’s still a candidate’s market. Appel emphasizes the critical role of timely communication in the hiring process. She points out that candidates are increasingly averse to prolonged waiting periods after submitting their applications. Acknowledging applications promptly is deemed a crucial courtesy, underscoring the need for efficient and responsive communication practices to engage and attract top talent.
Furthermore, a growing challenge in hiring, as noted by Appel, is the phenomenon of candidate “ghosting.” Candidates, she explains, are becoming less responsive at various stages of the hiring process. This trend necessitates a proactive approach from employers to mitigate candidate non-responsiveness and maintain a positive candidate experience.
In the dynamic realm of the insurance landscape, we are committed to navigating complexities with a proactive approach. Our dedicated team actively engages with clients and tirelessly seeks short-term solutions for stability. Acknowledging unique challenges across sectors, from property and auto to evolving cyber risks and employee benefits, our advocacy extends beyond client interactions to collaborative initiatives with industry organizations, emphasizing our commitment to positive change.
Since 1885, Morris & Garritano has prioritized the care and well-being of our clients. Our mission remains steadfast: providing peace of mind for generations to come. Despite formidable challenges, our resolve is stronger, and we stand poised to meet the future with determination and resilience, unwaveringly committed to our clients and the communities we serve.