While it is always hard to say for sure what the coming year has in store for the insurance industry, a few trends do stand out, from the impact of the 2022 election to the continuing roles of inflation and COVID-19, and even green energy’s impact.
Election impact
What happens in the voting booth often finds its way into insurance policies down the road.
With the Republicans retaking the House of Representatives, the committee structures in the House are about to shuffle as the gavels change hands. The most consequential House committee for the insurance industry is the House Financial Services Committee.
And even though the Senate stayed in Democratic hands, leadership on the Banking Committee, which has some oversight in the insurance industry, is going to shift because the ranking Republican member is retiring.
The key federal insurance questions likely to come up include the continued federal role in the COVID-19 pandemic response, as well as important questions surrounding flood insurance -- although, with the divided Congress, any new legislation would have to be navigated through a bipartisan majority.
Although federal politics get the biggest spotlight every year, in the realm of insurance most of the policy is made at the state level, and the most consequential state right now is Florida. It is reeling from two major hurricane strikes on top of an already wobbly homeowners insurance market. The state redrew many of its congressional districts for this election, which means that when it comes time to convene its planned special session to tackle insurance issues, there will be a lot of new faces at the table.
In South Dakota, the insurance story coming out of the election is the ballot-driven expansion of Medicaid to cover more low-income residents. And with the re-election of Kansas Democrat Gov. Laura Kelly, she pledged to also make Medicaid expansion a priority in her Republican-led sate.
Arizona also pushed a potentially consequential ballot initiative governing how the state handles medical debt and the interest rates surrounding that.
And abortion access continues to be a state-driven issue that was on many ballots and one that was generally protected in the states where it was up for a vote.
See also: What the Mid-Term Elections Mean
Inflation
Inflation is being felt across so many areas of the economy, and insurance is no different. When it comes to insurance, the main inflationary pressures come from rising costs to repair and replace, whether for a home or an automobile.
Rising mortgage rates have been pushing down home prices in many markets, but shortages in labor and increasing costs of materials mean that after a homeowner’s claim, the costs are still going to be higher, eventually leading to higher homeowners premiums.
In the automobile realm, the same factors of costly labor and parts are in play, but unlike with homes, automobile prices are continuing their upward march, though there are glimmers that used vehicle prices are slowing. The most optimistic analysts are predicting a near-term end to the semiconductor shortages that have been haunting automakers for years now.
Medical inflation continues to outpace general inflation, meaning the continued upward pressure on healthcare premiums is likely to continue for the foreseeable future.
Life insurance
In a bit of contrarian irony, inflation may be helping life insurance — at least, the tools used to fight inflation have the potential of helping life insurance.
Life insurance companies invest premium payments when they aren’t needed for death benefits, and those investments tend to prefer safe havens. When the federal funds rate sat at essentially zero for years, that pushed life insurers into riskier asset classes to find return on those investments.
Now that inflation fighting is pushing rates up on Treasury bills, life insurers are able to rebalance their portfolios, shifting back to government-backed, so-called risk-free investments, lowering their overall risk profile.
Another trend is policies being targeted at younger consumers. While younger people don’t think as much about end-of-life expenses or retirement planning, many advisers are pushing them to strongly consider life insurance — especially if they are intertwining their financial lives with loved ones.
One of those entanglements is in student loans. Even though federal student loans, and even Parent Plus loans, discharge if the student dies, the same isn’t always true of private student loans. If a parent takes on a private student loan on behalf of their child, and the child dies, the parent may be left holding the expense on their own. The same goes for co-signers of other loans, such as car loans, personal loans or mortgages.
While the traditional sales pitch for a life insurance policy is that it provides income to support dependents who rely on their income, these policies for young people may be pitched as the opposite — a term life policy may be an inexpensive way to protect the people who they are relying on for support.
Life insurance tends to be most affordable for young people because they tend to be healthier, and the policy has a longer time to compound in value, so the monthly premiums can be lower.
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COVID-19
Even though COVID-19 continues to circulate in our communities, many of the emergency measures put in place to fight it have been coming to end. That means that the government is now shifting the costs for vaccines and testing onto the private insurers, which could mean higher costs and eventually higher premiums down the road.
For people with insurance policies, this shift is going to be largely in the background because they will continue to get that care at no out-of-pocket cost.
But the biggest impact of that shift is going to be felt in the uninsured communities. Before this shift, the federal funding meant that even uninsured people had access to many COVID-19 treatments and tests at no cost, but now many of those will be felt as out-of-pocket costs for those uninsured.
Green Energy
On the heels of the COP27 summit on climate change, a lot of eyes have turned to green energy solutions. From an insurance perspective, those green energy solutions need to be approached with some consideration.
When it comes to at-home rooftop solar, it is important for prospective buyers to first check with their insurance carrier. Even though rooftop solar is built to withstand much stronger storms and winds than the roofs on which they are built, some insurance companies write specific exclusions saying they won’t be covered by a standard homeowners policy.
Absent a specific exclusion, rooftop solar would be covered as long as it is permanently attached to the home. The same goes for the inverters and other equipment, and even backup batteries that some of the most modern systems are coming with.
That said, adding these features tends to raise the value of the home, which may mean that a homeowner is suddenly underinsured.
On the auto end, while electric vehicles are covered by standard automobile policies, they can be more costly than their internal combustion brethren, and repairs can cost more, as well. That often translates to higher premiums for EVs.
The higher insurance costs also come from the fact that EVs only represent a few percentage points of the vehicles on the road. Because they are relatively scarce still, there aren’t a lot of aftermarket parts available for their repair, and not every auto shop is certified to work on an electric vehicle, driving up costs at the shops that are certified.
As more electric vehicles hit the road, market factors will mean that more spare parts will become available and more shops will specialize in EV repair, but in the short run, those higher costs translate to higher insurance premiums on many electric models.
Given the general consensus that these green energy technologies are a net positive for society, though, there are many industry observers wondering if subsidies to offset these higher insurance costs for these lines should be on the horizon.
