Inflation bites: Forrester picks out 2023 insurance trends

Research and advisory firm Forrester has published a series of insurance-related trends it expects to see come to prominence during the next 12 months.

The organisation expects the broader economy to have a significant impact on the insurance sector, leading to consumers and businesses increasingly deprioritising certain lines of insurance as well as further consolidation within the insurtech market as weaker players are squeezed out.

Separate research already shows that one in 10 customers are cancelling pet insurance or travel insurance to save money, and there have been warnings about small and medium-sized companies being priced out of cyber insurance cover.

Here are some of Forrester’s predictions for 2023 in more detail:

• High inflation plus weather-related losses will push carriers to pass higher costs on to consumers. Forrester expects to see more customers pushing back against rising premiums and for policy lapses to rise next year, perhaps by as much as 20%. Smart carriers will look to right-size coverage with subscription-based, on-demand, by-the-bite, and buy-now-pay-later premium programmes.
  
• Carriers will curtail increases in their IT spending in an effort to reduce costs. The cuts will not be uniform, however, Forrester says. There will still be some investment in areas likely to create useful efficiencies such as smart automation and robotics.
• Carriers will get some competitive relief as insurtechs exit a tough market, either through a sale to their more established competitors or through a wind-down. Though insurtech investment reached an all-time high in 2021, due largely to the digital transformation of insurance during the pandemic, that funding is now drying up. In 2023, strong and well-funded players might be minded to buy out the weakest.
  

Ellen Carney, Principal Analyst at Forrester, says: “By the end of 2021, it seemed that a return to normalcy was in sight for insurers – then 2022 took everyone by surprise. Russia’s invasion of Ukraine and its impact on energy prices, extreme drought in food-producing regions around the world, and inflation are seemingly creating a return to 1970s-style stagflation that will ultimately hit consumer decisions about insurance. On top of this, we’ve seen a dramatic end to a slow-to-get-started hurricane season.

“In 2023, insurance leaders will navigate turbulence unseen since the financial crisis of 2008. Insurance cover will shrink or disappear as consumers and small businesses face cash-flow pressures. Tech teams will batten down with less fulsome budgets and greater regulatory scrutiny of the very technology that is most likely to help them thrive through 2023: AI. Meanwhile, recession reality will come home to roost in an evaporating IPO market, with many insurtechs exiting the market through wind-downs, roll-ups, or carrier acquisitions.”