Insurance outlook for 2023

Economic factors are affecting insurance prices.

So first and foremost are economic factors — such as inflation — that are present in the consumer marketplace today. This is news to no one: things are more expensive. And insurance is no exception.

That’s true for a number of reasons. First, car and home repairs will cost more, so claims will be more expensive to fulfill. 

But we can also consider how bigger economic trends in the market affect insurance companies' customer base – i.e. you. The housing market is slowing down as interest rates go up. At the same time, the auto vehicle market is slowing down. Auto prices are decreasing finally, but so is demand. Essentially, an uncertain economy leads to consumers putting off these large expenditures. And it’s these large expenditures that often drive people to review their insurance and potentially change from one insurance company to another.

Rates will continue to go up throughout 2023

There has already been a huge jump in insurance prices from 2022. The average American paid $1,759 for insurance, which was a 15% increase over the previous year.  

In fact, rates have consistently gone up quarter over quarter and are predicted to continue into 2023. There are two reasons for that.

One is something that many insurance customers don’t think about. Insurance is an industry that’s regulated by state governments, and their involvement impacts the rates insurance companies can change. There's a substantial backlog of rate filings, approvals and reviews with many state insurance departments. As an example, California approved its first personal private auto rate increase in November 2022, which was the first increase since June 2021. Then in January, Progressive was approved for a nearly 20% rate increase in California.^[1] When you think of the size of that state and the backlog they have across the top 25 carriers in the country, you've got some pent-up costs that will be rolling out through the better part of 2023. 

The second reason is simply the need for profitability. Thanks to more expensive parts and repairs, insurance companies need to make sure the money they’re taking in is more than they’re paying out. Already, many insurance companies have been decreasing the amount they spend on marketing or having to cut staff to lower operating costs. The only other way to remain profitable is to increase rates.

You may have more opportunities to control your insurance

As prices go up, customers are going to start looking for creative ways to keep their costs affordable. And at the same time, as profitability for insurance companies is tighter, they will be looking for ways to retain customers and keep them happy. Taken together, these factors will mean you may be offered new opportunities to help control your insurance costs. Here are some examples.

There's an interesting trend of wanting to decouple and unbundle products to find the best price. These days, customers are totally fine having their insurance with two or three different companies, if the consolidated cost of all of those is lower. Insurance companies may respond to this by offering better incentives for bundling and making sure you’re being offered the best discounts and programs. 

Another example is telematics programs. This is a way you can take control of your insurance costs by basing them on how you drive. This presents a major opportunity for consumers to control their costs as safe drivers and benefit from their driving habits. 

Connected devices aren’t just a trend in auto insurance, but also home insurance. As claims are more expensive to pay out, insurance companies may offer greater discounts to people who use devices that can help stop damage to their homes before it happens. These include water leak monitors, security cameras, etc. 

More people may be exposing themselves to risk by being underinsured.

Another effect of rising costs in the industry is that some consumers may choose to not get insurance or to not carry enough insurance. 

If you’re in an accident with someone who is uninsured or someone who carries the minimum liability and you don’t have uninsured or underinsured motorist coverage, you're looking at an out-of-pocket cost (or at least a few headaches while your insurance company tries to recoup the losses from the party at fault). And of course, if you’re the one driving uninsured or underinsured, you will be exposing yourself to an even greater risk.

Some geographic areas may have issues accessing coverage

Another issue facing the insurance market is insurance companies leaving certain geographic areas where they no longer see a way forward to profitability. This can be seen in coastal states like Florida and Louisiana, which experience significant weather events like hurricanes that cause substantial insurable losses. 

Carriers have been shifting away from growing business in these places and instead just managing their existing customer population. Insurance carriers can choose to suspend writing new business in disaster-prone areas, and in some cases they can choose to leave the state entirely. For customers, it stops being just a pricing implication but also becomes an issue of availability. In 2022, nine insurance companies left the state of Florida, leading to a crisis in home insurance coverage.