Proactive—what the insurance industry wants to be more of in 2022. With the lingering impact of the COVID-19 pandemic, last year was a complicated and unpredictable year in insurance. The industry was forced to react and keep up with the ever-changing landscape. So as we prepare for a new year, let’s review the major impacts of 2021 and discuss what changes your clients can expect regarding rates, policies, and more in 2022.
A Look Back at 2021
2021 was a year of uncertainty and economic recovery. The pandemic brought about a never-ending cycle of challenges related to supply chain, labor, and more. Climate change also created the perfect storm for insurers. With climate conditions worsening, unpredictable and catastrophic storms have left billions of dollars in losses, leaving insurance companies to handle the claims while the insured’s face rising premiums. The changing weather hasn’t presented the only risk – cybercrime and ransomware have also posed a threat to businesses and caused an estimated $6 trillion in damages in 2021. As the reliance on remote work and digital processes continues, companies remain vulnerable and need adequate coverage for protection.
The pandemic has proven to be a significant challenge for the retail industry in more ways than one. Rising inflation, supply chain issues, and labor shortages have led to increased prices, empty shelves, and fewer employees. The supply chain constantly faces disruptions as the demand for products rises, product costs increase, and the shortage of materials worsens. Inflation is rising at its fastest rate since 1990, leading to a 6.2 percent increase in prices from November 2020 to November 2021.
Lastly, the workplace transformation has left a devastating impact as people began leaving their jobs searching for better pay, remote work, and a better work-life balance. Coined “The Great Resignation,” these changes have led to the labor shortage that’s also impacted the supply chain and transportation industry. For example, shipping dilemmas initially caused by the pandemic worsened due to a decline in workers. Companies have been unable to ramp up productivity without the employees to help, leading to more product price hikes and business closings.
These trends had a significant impact on the insurance industry last year and will continue playing a huge rule in what’s to come in 2022. Speaking of what’s ahead…
What’s Ahead in 2022
Across all industries, the digital transformation has been instrumental in helping companies keep up with the changes brought on from the pandemic. For insurers, technology will continue to help them adapt to the hybrid workplace and meet the demands of their customers and business operations. The adoption of digital tools will support the modernization of legacy processes while also improving security measures for insurers and agents.
Additionally, the shift to the cloud will offer greater flexibility and improved operations for insurers as remote work becomes the norm. It’s no secret that one of the most significant benefits of innovative technology is the ability to automate workflows. This year, the insurance industry will continue to embrace automation to streamline daily operations like underwriting and document collection to minimize manual processes and expedite claims processing.
As we take a look at major insurance coverage areas, here are a few things that insurers can expect and prepare for in 2022:
1. Casualty—Nuclear claims litigation and jury verdicts have played a critical role in the casualty market for some time, and that’s expected to continue in 2022. From 2010 to 2018, the average size of jury awards increased by almost 1000 percent, according to Verisk, reaching $22 million. In 2019, $20 million or higher verdicts rose by 300 percent. As courts work through the extensive backlog of court cases caused by the pandemic, insurers could stand to benefit from plaintiffs opting to accept settlement offers instead.
2. Commercial Property—Since the start of the pandemic, 69 percent of U.S. businesses have shifted to remote or hybrid work. This has resulted in the closing of some or all of their offices. Despite the rise in office closings and business bankruptcies, A.M. Best & Co. anticipates the commercial property market will stabilize in 2022 due to underwriting disciplines and ongoing rate increases. Business interruption claims are also declining, and courts are expected to rule in favor of insurers in business interruption lawsuits.
3. Commercial Transportation<—Although auto repair and medical treatment costs continue to rise, the commercial transportation industry is expected to fare better in 2022, thanks to improved pricing and working with clients to gain enhanced risk management and loss control. Rate increases will continue, but more slowly. The ability to push rates, particularly in an inflationary economy, will be an important task over the next 12 to 18 months.
4. Personal Lines—As more insurance companies turn to technology to streamline their processes, the personal lines sector should see some improvements in the handling of underwriting, claims, and rate establishment. However, with weather conditions worsening, premiums will likely be impacted in 2022, and carriers could continue to face rising reinsurance costs, which will be passed on to the client.
5. Professional Lines—Rates will continue to climb in 2022 thanks to continued legal action and the skyrocketing rise of cyber crime. The average ransomware payment increased by 82% in 2021 and cybercrime is expected to cost the world $10.5 trillion annually by 2025. One factor slowing rate increases is additional capacity thanks to new players that entered the market last year.
“In 2022, you’re going to see carriers limiting certain areas of the cyber policy that they’ve never sub-limited previously—for example, cyber extortion. It’s never been more important to work with a wholesaler who truly specializes in Professional Lines insurance,” says Deborah Dioguardi, Vice President of Jencap Specialty Insurance Services.
6. Workers’ Compensation—The shift to remote and hybrid work influenced a decline in Workers’ Compensation claims. This major change puts the market in a great place in 2022 as rates are expected to remain flat or possibly decrease.
A new year presents the opportunity to start with a fresh outlook. At Jencap, our number-one priority is to provide our agency partners with customized insurance solutions to suit their clients’ unique needs. Contact us to learn more about what our team of experts has to offer.