2020 Industry Trends: Financial Outlook

2020 Financial Outlook image

Rocked by extreme CAT losses averaging $35 billion in losses1, the 2010s weren’t easy on the insurance industry’s bottom line.

As we settle into 2020, the industry is in a better spot. Although global trade disputes and weather patterns bring uncertainty, optimism remains high. There’s never been a better time to be in insurance as long as you are able to analyze data and make quick decisions.

All Eyes Are on Profitability

Following a strong 2019, the industry is expected to remain stable this year. Investors and leaders are laser-focused on improving profitability through rising premiums to offset large expenses from social inflation and CAT losses, and to allow for more strategic investments like new technology and products. Expect to see steeper rate increases in commercial auto, commercial property, umbrella, and financial and professional lines, and a decrease in workers’ compensation rates.

Weather Isn’t Just Small Talk

Eight of the top 20 most costly insured weather events in U.S. history took place in the last decade2, and in an effort to rebound from recent devastating CAT losses, there’s more pressure than ever to track weather patterns — especially with regard to wildfires and flooding. As a result, carriers will rely on tech and data to do more predictive modeling to determine which risks to take and not take. Here’s what you can expect to see this year:

  • Climate change will be a prominent topic of debate during the 2020 election.
  • The flood insurance market will grow.
  • Drought patterns will get more attention. Previous models designed to look at CAT weather losses weren’t prepared for wildfires, and now it’s important to figure out where and how the next wildfire-like event could occur by marrying demographical and meteorological data.
  • Reinsurance prices will continue to increase. Despite a continued influx of capital, investors are demanding higher returns. As a result, carriers will pay more for coverage, which will directly contribute to the rise in primary insurance rates.

The Small Business Market Faces Uncertainty

Growth in new small businesses has slowed considerably in recent months, compared to trends over the last two years. There are a couple of reasons for this. The first is uncertainty caused by the evolving geo-political landscape, which has produced significant new global trade wars, particularly between the U.S. and China. This impacts the consistent availability of goods — products and merchandise. The second is low unemployment rates. While low unemployment is generally considered a positive economic indicator, it can hinder small business owners because it can drive up wages and lead to difficulty finding high-quality workers.

[1] Property Claims Service, a Verisk Analytics business; Insurance Information Institute.

[2] Hartwig, Robert P. “Why Rate? Factors Driving Rate in the Commercial P/C Insurance Industry” (January 2020).

Filed under Small Business Church Nonprofit Education
Elisabeth Sandersfeld

Elisabeth Sandersfeld

Senior Vice President & Chief Financial Officer

Elisabeth leads finance and accounting, investments, reinsurance, and corporate actuarial for GuideOne. She joined the company in 2015 as AVP, Controller, from Thrivent Financial in Minneapolis, MN, where she served in various finance and strategy roles during her 11-year tenure. Elisabeth is a summa cum laude graduate of Luther College with majors in accounting and management. She also holds a Master of Business Administration in Finance and Strategy from the University of Minnesota. Elisabeth is a Certified Public Accountant (CPA), Chartered Global Management Accountant (CGMA) and is a member of the Iowa Society of CPAs and the American Institute of CPAs.

© 2021 The GuideOne Center for Risk Management, LLC. All rights reserved. This material is for informational purposes only. It is not intended to give specific legal or risk management advice, nor are any suggested checklists or action plans intended to include or address all possible risk management exposures or solutions. You are encouraged to retain your own expert consultants and legal advisors in order to develop a risk management plan specific to your own activities.