Where do insurers stand as they enter 2021?

WHAT a difference a year makes. Or even a few months. The COVID-19 pandemic and resulting economic fallout radically shifted consumer and employee needs, habits, and expectations, while compelling virtualization of insurer operations practically overnight. But while most of those in the industry adapted quickly, insurers are still likely facing lingering obstacles to growth and profitability in the year ahead.

A global outlook survey by Deloitte’s Center for Financial Services found that many insurers know they still have their work cut out for them, even after spending most of 2020 adapting to the outbreak’s impact. Forty-eight percent of 200 responding insurance executives agreed the pandemic “showed how unprepared our business was to weather this economic storm,” while only 25% strongly agreed their carrier had “a clear vision and action plan to maintain operational and financial resilience” during the crisis. (See “Methodology” for details about who was surveyed.)

Pandemic losses hurt the property-casualty bottom line

The pandemic and other catastrophe losses hit many insurers hard in first-half 2020, especially those writing events cancellation and workers’ compensation. To illustrate, North American property-casualty insurers saw first-half annualized GAAP operating return-on-average equity fall to 2.8% from 8.3% the year before, in large part due to US$6.8 billion in incurred losses related to COVID-19 and concurrent drops in premium volume for key lines.1 Overall, the year-to-date total return of S&P’s Insurance Industry Index lagged the broader S&P 500 by 24.6% as of September 30, 2020.2

Given the pandemic’s impact on employment, business activity, and trade, global nonlife premiums are expected to be flat for full-year 2020, including a 1% decline in advanced markets.3 However, despite these challenges, the industry may yet rebound to 3% growth in 2021, led by a potential 7% boost in emerging regions (figure 1).4

The pandemic and its aftermath are expected to continue hitting some property-casualty lines harder than others. Workers’ compensation insurance sales, for example, were undermined by massive job losses,5 and Deloitte’s US premium projection suggests volume may not return to prepandemic levels until after the fourth quarter of 2022.6 In addition, small business premiums, battered by shutdowns and bankruptcies, may also be slow to recover if many more retailers, restaurants, and personal services outlets close down.

On the other hand, while many US auto insurers saw a significant loss in premiums after providing policyholders with rebates and rate cuts to reflect less driving during the pandemic, carriers may see improved profitability with an expected drop in accident frequency.7

View full article: https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/insurance-industry-outlook.html