Industry experts annually examine what outside influences and trends have the greatest impact on the market. This information is important, as it outlines key risks for both insurers and organizations to watch as the year progresses.
In 2017, catastrophic events, new technologies and cyber security were notable forces. While some of these trends spill over into 2018, there are a number of new market developments insurers are monitoring, including the following:
- Protectionism—Protectionism, the idea of shielding a country’s domestic industries from foreign competition by taxing imports, could be on the rise in 2018. In the United States alone, policies have become discriminatory toward G-20 countries, creating the potential for trade issues. The United States has already canceled its participation in the Trans-Pacific Partnership and has threatened to increase tariffs on imports from China and Canada. In addition, the future of the North American Free Trade Agreement is up in the air, creating a lack of confidence and a climate of ambiguity. It should be noted that protectionism isn’t increasing on a global scale.
- Disruptions from quantitative easing (QE) tapering—In response to the global financial crisis of the mid-2000s, the practice of QE was established. QE is a monetary policy where central banks purchase government or similar securities from the market to lower interest rates and increase the money supply. Since the financial crisis, central banks have bought large amounts of government bonds, greatly expanding the size of their balance sheets. In 2018, banks are expected to lower their balance sheets by reducing purchases of maturing assets in what’s called QE tapering. The concern is that this will lead to market disruptions and a less prosperous market if reductions are not done gradually.
- A growing cyber insurance market—The ever-present threat of costly data breaches has led to a rapidly expanding cyber insurance market. With each widespread cyber incident (Equifax, Meltdown, WannaCry, etc.), the demand for tailored insurance solutions becomes more apparent. Net premiums for this type of coverage are expected to rise, potentially reaching $14 billion globally by 2022.
- Rising motor insurance claims—Underwriting results for personal and commercial segments of U.S. motor insurance have deteriorated year over year, which may lead to increased rates in 2018. The higher number of claims is largely due to more frequent and severe motor vehicle accidents caused by speeding, intoxication and distracted driving. For the commercial trucking industry, a lack of experienced drivers, coupled with longer drives, has created accident-heavy conditions.
- Natural disasters—Natural disasters will once again be a significant force in the insurance market. The following events are some of the major catastrophes expected to impact businesses and insurers alike in 2018:
- The 2017 hurricanes had a vast impact on multiple classes of businesses, and a full assessment of losses has not yet concluded. Businesses will have to continue to plan for these large-scale natural disasters, obtain proper coverage and put business continuity plans in place.
- Floods will continue to be one of the most widespread and frequent hazards for organizations in 2018. Urbanization and population booms mean that more people are moving to flood-prone areas, increasing the financial impact of major floods. Despite these factors, flood exposures will likely remain uninsured across major insurance markets on a global scale, creating a serious protection gap. Insurers will have to work with government bodies in order to provide protection for residents and businesses.
In 2017, there was an estimated $100 billion in insured losses from three hurricanes and two earth quakes. Most of the damages to residential and commercial properties came from wind, storm surges and flooding.
The above trends are just a few of the factors anticipated to influence the 2018 insurance market. While things like natural disasters, increasing cyber events and unpredictable increases in claims are volatile and largely out of the hands of underwriters, companies are not powerless.
Organizations are encouraged to keep the above issues in mind when building a comprehensive risk management plan alongside a qualified insurance broker. Remember, implementing policies and preventive measures can go a long way toward managing your organization’s overall risk.