Insurance Industry Predictions for 2022

This post is part of a series sponsored by CoreLogic.

As if 2020 didn’t test the insurance industry enough, 2021 has proved to be yet another challenging year for property & casualty insurers. We saw significant variations in reconstruction costs, growing threats to property from natural catastrophes, and the continued impact of the global pandemic. As the new year dawns on us, we asked the CoreLogic Protect team to share some predictions for what’s to come for the insurance industry. Here are the top four predictions:

Parametric insurance programs will gain increased adoption and incorporate the full spectrum of hazard modeling tools.

Parametric insurance, enabled by developments in Internet of Things (IoT), is proving to be a valuable supplement to traditional indemnity insurance. These IoT technologies are perfectly suited to provide insights into the high-gradient perils which are most impacted by climate change, such as flood and wildfire. Insurers will adopt hazard modeling tools into parametric insurance to avoid adverse selection and set rates at a level associated with the risk levels. This will allow them to write business previously out of reach while also providing policyholders with fair and transparent pricing of their insurance needs.

Climate change will necessitate the implementation of climate-adapted catastrophe risk models.

Climate change is an insurance industry wildcard. For example, winter storm Uri highlighted the fragility of insured assets to simultaneous events, which in this case were the deep cold combined with an extended power outage. Hurricane Ida’s losses in the U.S. Northeast reminded insurers of an existing vulnerability to flood losses. Insurers will need to adopt the next generation of climate-adapted catastrophe risk models to project losses into the future, which will influence the insurance market for years to come. Artificial intelligence (AI)- and machine learning (ML)-enabled tools will continue to learn from past natural catastrophe events to ensure the underlying science is up to date with current conditions. This will increase the ability to create measurements in the form of probabilities for various natural hazard and climate outcomes.

Insurers will roll out new P&C insurance pricing incentives like mitigation-based policyholder credits.

As insurers apply more sophisticated risk modeling to underwriting, they’ll be able to develop pricing incentives that better protect policyholders and reduce losses. Insurance premium credits for policyholders that take part in mitigation efforts is a good example of this. Insurers will need to educate property owners on what kinds of actions they can take to help protect their property—storm shutters, vegetation clearing, plumbing insulation, etc. This will require a new communication strategy that educates policyholders on how to get involved.

Niche-oriented insurance startups will reach new heights.

Niche-oriented insurance startups are serving a narrow customer base while improving business efficiency through technology. Insurance startups can quickly build client-focused solutions by taking advantage of interoperable data standards or tapping into ecosystems of open API-enabled technology solutions. New imagery technology is also powering this movement, with AI and ML stretching what’s possible with analyzing property imagery and digital records. Insurance startups can now build the most complete property record possible, making niche markets a viable growth business.

As the world continues to adapt to the pandemic and the changing climate, insurers need to be equipped with the latest insights to stay competitive and provide their policyholders with the best service possible. Ultimately, insurers who can provide the fairest pricing to policyholders while protecting against big losses and incentivizing risk mitigation participation will build the most resilient businesses.

Topics Trends Market