Conditions are coalescing for an uptick in carrier M&A after many subdued years..  July 16th 2024

Profitable future for P&C –report

Favorable first-quarter economic and underwriting results for property/casualty insurance align with projections that the industry will see a small underwriting loss in 2024 and achieve profitability in 2025, according to the latest forecasting report from the Insurance Information Institute (Triple-I) and Milliman.

The report, Insurance Economics and Underwriting Projections: A Forward View, highlighted several key findings. Homeowners insurance is expected to continue experiencing underwriting losses through 2024-2025 but is projected to become profitable in 2026. This line will see continued double-digit net written premium growth over the next two years. Meanwhile, the personal auto net combined ratio has improved slightly from prior estimates, with profitability anticipated in 2025.

Outlook and projections

Dale Porfilio, Triple-I’s chief insurance officer, commented on the ongoing performance gap between personal and commercial lines.

“That gap is closing,” he said. “This quarter, we are projecting commercial lines underwriting results to outperform personal lines premium growth by over five points in 2024. The difference in large part illustrates how regulatory scrutiny on personal lines has curbed the ability for insurers to increase prices to reflect the significant amount of inflation that impacted replacement costs through and coming out of COVID.”

Jason B. Kurtz,a principal and consulting actuary at Milliman, pointed out the long-term challenges facing commercial multi-peril insurance.

“While the expected net combined ratio of 106.2 is one point better than 2023, matching the eight-year average, the line has not been profitable since 2015,” Kurtz said. “And with a Q1 direct incurred loss ratio of 52% and premium growth rates continuing to slow, we see some improvement but continuing unprofitability through 2026.”

Report: Insurers Keen on Replacing Legacy Systems Seek More Agility

Insurance companies are replacing or augmenting legacy systems in search of product innovation and technology integration, according to a new Information Services Group (ISG) Provider Lens Insurance Platform Solutions report.

Upgrading systems and adopting advanced technologies to overcome the limitations of decades-old IT platforms are a high priority for insurance companies across the nation, the research report from the global technology research and advisory firm indicated.

The report for North America finds that evolving policyholder demands and rapid changes in practices and methodologies are forcing insurers to replace legacy technologies with new core systems and software-as-a-service (SaaS) platforms.

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Rising reinsurance costs propelling homeowners insurance to new heights

A recent study, which analyzed data from tens of millions of mortgage escrow payments, offers new insights into the challenges of access and affordability in the homeowners markets, as climate change-driven disasters are putting significant pressure on the industry across the West and the broader United States.

The study, which examined a 10-year dataset, revealed that insurance premiums rose by an average of 33% between 2020 and 2023, outpacing inflation. The increases vary significantly by region and are now more closely aligned with the risk of disasters such as hurricanes and wildfires.

“Wildfire risk is front and center when we're thinking about the drivers of increased insurance premiums out West,” lead author Ben Khys said. Khys is also a real estate professor at the University of Pennsylvania's Wharton School.

He referenced research by the First Street Foundation, which projects that wildfire risk, closely linked to climate change, will increase substantially over the next 30 years. A 2023 report by the foundation estimated that the average number of homes and other structures destroyed by wildfires annually will nearly double to 34,000 by 2053.

One factor contributing to the rise in premiums is the increasing cost of reinsurance, which insurers purchase to protect against large claims. These costs are passed on to homeowners through higher insurance premiums.

“If the conditions for the reinsurance shock continue, we estimate that the top 5% of climate risk-exposed homeowners would see increased premiums by 2053 of $700 per policyholder under a conservative climate change estimate,” the study said.

J.D. Power Reports that EV Demand Stalls Even Though Availability and Affordability Improve

J.D. Power’s June E-Vision Intelligence Report found that while the number of electric vehicle models available and total cost of ownership have improved, EV adoption rates have been flat.

Among the key findings of the report:

• EVs More Widely Available and Affordable Than Ever: The majority of premium (70.1%) and mainstream (55.7%) vehicle buyers now have a suitable electric vehicle (EV) option available in the marketplace and the prices for these vehicles has never been lower. The average total cost of ownership (TCO) for a premium EV fell to $62,600 in May and the average TCO for a mainstream EV is now $58,100. In many cases, EVs are now more affordable than their gasoline-powered counterparts.

• EV Consideration and Adoption Stalled: Overall, 59.5% of new-vehicle shoppers say they are either “very likely” or “somewhat likely” to consider buying an EV in the next 12 months, a slight increase from April (58.2%), but down from the highest levels observed in the fourth quarter of 2023. Real-world EV adoption rates have been flat at 8.4% since March 2024.

• Next Several Months Pose Critical Test for Mainstream Consumer Demand: Two major impediments to widespread mass market EV adoption have been a significant price premium vs. comparable gas-powered vehicles and a notable lack of vehicle options in the mainstream market. During the past two months, both of those trends have shifted sharply, with major mainstream launches and trim expansions planned during the next several quarters. Consumer response to these changing market dynamics during the next several months will be a key indicator of future EV demand.