A year in the insurance industry – looking back and looking ahead

2023 was not a remarkable year for insurance companies. That’s good. Insurance companies and their shareholders prefer boring, predictable outcomes to unexpected and volatile shocks. Stocks of non-life insurance companies fared relatively well. S&P Insurance Stocks in 2023 index It rose by 6.4%. The S&P 500 returns less than 24%, but it’s not a great return. Seven, the broader stock market recorded 8% growth. Financial results for the non-life insurance industry were strong. Although the industry posted underwriting losses ($19.2 billion) for a combined ratio of 101.7%, estimated investment income of $75 billion contributed to pretax profits of $55 billion (Berkshire・The difference was 6.5% (not including the surprise by Hathaway). . The margin, excluding federal income taxes of $10.9 billion, was 5.2%.

There were two surprises in the reported 2023 numbers. The first is a lower expense ratio, which now stands at 24.9% for him, which is significantly lower than his recent 27.2% and 27.5% in 2019 and 2020, respectively. The 2023 numbers are notable, as the insurance industry has struggled for decades to bring down stubbornly high expense ratios from around 30%. Lower expense ratios reflect insurers operating more efficiently and not allowing expenses to increase as premiums increase. In 2023, net premiums written increased 8.9% from $746 billion to $813 billion. Premium growth was primarily due to rate increases in our personal lines of business, including personal auto and homeowners lines.

The second surprise in the numbers reported for 2023 is that net realized capital was $49.9 billion. make a profit At National Indemnity Company, a subsidiary of Berkshire Hathaway. While $49.9 billion may seem like a huge capital gain, Berkshire Hathaway is no ordinary company — it has $381 billion in assets. Unlike other insurance companies whose investment holdings are primarily fixed income, Berkshire Hathaway’s investment portfolio is dominated by common stock holdings, totaling $316 billion in 2023.

The double-digit increase in homeowners insurance rates was due to the large number of catastrophes that occurred during the year. Homeowners Insurance results were particularly affected by a record number of natural disasters. catastrophe. In 2023, the number of disasters resulting in at least $1 billion in damages reached a record high of 28, far exceeding the previous record of 22 in 2020. The increase in auto insurance premiums exceeded the increase in auto repair costs due to the soaring costs of auto repair parts and labor. C.P.I.

The insurance industry defended its 2023 balance sheet and shared the pain with increased concessions to reinsurers. In 2023, insurers transferred $100.4 billion to reinsurers, a significant increase from $73 billion in 2019 and $73.5 billion in 2020.

Chicken Little and Dr. Pangloss

The insurance industry’s healthy performance in 2023 is estimated to continue with modest operating profits and a steady surplus of approximately $1 trillion, and the negative impact of those who hold one of two extreme views of the industry. should be wiped out. Meanwhile, the sky is falling and the insurance industry is in decline.in danger The risk of collapse, and the fact that the insurance industry is swimming cash, fat, rich, and greedy. Neither view is supported by facts. Many of America’s insurance companies have been in business for more than a century and do business facing all kinds of risks. They absorb risks and are unlikely to abandon their skills. As known risks become more severe and new risks emerge, insurance companies planning for another 100 years will continue to play the role of risk absorbers. Equally inaccurate is the characterization of wealthy insurance companies like Standard Oil. As we have seen, the insurance industry operates on relatively small profits.

What, are you worried?

The scale of destruction caused by severe thunderstorms in 2023 was one of the most striking developments this year. In the United States, severe convective storms caused economic losses of $66 billion, of which $33 billion were insured. This shows that insurance companies play an important role in helping individuals and businesses recover after a loss. It is also a warning that unexpected and unmodeled losses will occur and test the mettle of insurers. Issues insurers are grappling with in his 2024 include AI, industry image, emerging risks, and tort trends.

AI, like any new technology, can have both positive and negative impacts on insurance companies. To the extent that routine processes can be automated, insurers can become more efficient and potentially lower their historically low expense ratios even further. At the same time, in the wrong hands, AI could be exploited as a tool by criminals to alter photos and voices in order to secure sophisticated high-tech insurance policies. scam.

insurance industry image Improvements could be used.in Ranking Only one insurance company consistently ranks in the top 10 or top 25 of this country’s most admired companies. Berkshire Hathaway is more of a conglomerate than a pure insurance company. ‘Crusader’ Consumer Activists and Billboard Personal Injury Lawyers Make Regular Appearances despise Recruitment to the industry has become a pressing concern for insurance companies.

Insurance companies have been paying close attention to substances that could cause the “next asbestos” for decades, and for asbestos-related respiratory diseases, Fee Insurance companies are close to $100 billion. In addition to researchers and modelers who study the potential for chemicals such as PFAS (permanent chemicals) to cause disease, researchers also study the potential for losses in one sector to metastasize throughout the economy and impact other economic sectors. We are researching the systemic risk outlook that gives rise to. For example, the Great Recession of 2008 began as a subprime mortgage crisis and then transformed into a banking crisis. rout On Wall Street, the Dow Jones Industrial Average fell 54% from its all-time high, and the unemployment rate also fell. spike In 2009, it rose to 10 percent.

Numerous large-scale court decisions in civil litigation.nuclear The “verdict” (more than $10 million) resulted in significant losses for the liability insurance company. Plaintiff law firms use applied human psychology to win large awards in court. If left unchecked, this trend could lock U.S. companies into costly and unfair litigation, raising the cost of goods and services. Litigation abuses need to be fought at the federal and state levels.

AI, reputation, new risks, and tort trends are real, but they don’t necessarily need to cause panic. At a recent insurance conference, a panel of insurance company executives asked what keeps them up at night. None of the insurance companies reported excessive nail-biting on any particular issue. Insurance companies encourage their customers to practice risk management. Insurance companies themselves place great emphasis on risk management. So, as long as both insurance companies and their customers practice sound risk management, insurance companies wear belts and suspenders. It may not be the best fashion look for a staid industry, but it’s good for insurance buyers, insurance providers and the economy.