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Insurance Industry Trends 2023: The Impact of Inflation and Interest Rates

By 02.22.23
Reading time: 5 minutes

The insurance sector is not for the faint of heart. The massive insurance landscape is a fast-changing world of ebbs and flows, and the industry is continually influenced by trends that are beyond its control but that organizations need to overcome in order to succeed. 

Here we’ll dive into some of those insurance trends around inflation and interest rates, how they can impact your business, and what your organization can do to continue to thrive in today’s challenging environment.  

But before we look at those trends, I wanted to congratulate my colleague, Danielle Laffey, on being named a Salesforce MVP for the fourth year! Danielle is one of only 112 global MVPs, who are selected from over 2400 nominations for their product expertise, leadership, and generosity in helping others learn Salesforce and connect to the Trailblazer Community. 

As Silverline’s Principal Consultant for Insurance, Danielle has been instrumental in helping our clients get the most value out of the Salesforce platform, empowering them with innovative solutions tailored to industry needs. We’re incredibly proud of all that she has accomplished for our organization, clients, and the larger Salesforce ecosystem, and she’s uniquely equipped to help insurance companies handle whatever challenges come their way. 

Everyone will feel the pinch from inflation

Insurance tends to be more insulated from the impacts of inflation than other industries. For example, the entertainment and restaurant industries are feeling the effects of consumers cutting back on discretionary spending. 

But insurance is typically not considered a discretionary spend. Putting a car on the road or running a business is necessary. However, that doesn’t mean that insurance won’t take a hit from inflation. 

We expect inflation to hit property casualty carriers the hardest because the claim costs for things like collision repair services are going up. The claim costs will put tremendous pressure on insurance companies because they will be taking a lot of costs and expenses out of the industry, which will reduce the ability to have as much capacity. 

In the life space, people are not buying as much individual life insurance but are looking at what they can get from a return on investment with insurance products. That scenario will play a pivotal role in how agents and insurers go to market because the costs will be much higher to run an organization. 

So, what should insurers be focused on to help with inflation? The priority should be improving client retention. 

No matter the segment of business you are working in, you should have a strong understanding of your client by leveraging Salesforce Industries for Insurance. The platform puts the customer at the center of everything, and having a 360-degree view of a client means identifying who they are and, more importantly, responding to their needs. Showing empathy for clients is a significant factor for winning in today’s industry because it garners customer loyalty and reduces potential churn.

These are three areas where insurers are improving efficiencies to help with inflation challenges: 

  • Claims: As mentioned earlier, inflation will impact claims costs much more pointedly in the next several months, especially in the property casualty space. Claims efficiency will be the focus as insurers look to improve how they manage claims, identify how they can keep claims costs lower, and determine how to respond to clients’ needs effectively without impacting the bottom line. Achieving efficiency will involve a combination of processes and the Salesforce systems used to manage and monitor claims. 
  • Risk management: Anything that can be done to reduce or prevent claims will impact loss costs. We are seeing this trend from all segments, whether it’s from the life insurance side of the business or helping people avoid risk in their daily way of doing business. By bringing risk management practices to the forefront for your clients, you’re showing value over more than just the cost of your premium. 
  • Processing: A lot of insurers are still using inefficient and manual processes. They are looking for ways to automate where possible and bring people in where they can to better service customers. The thinking is to use automation like chatbots for questions but switch to human interaction for more complex situations, such as answering in-depth questions. This approach makes customers feel like they’re genuinely being taken care of and the insurer is responsive to their needs.

Interest rate hikes will hit the insurance industry

The need for insurance is driven by economic activity, and efforts to cool the economy and manage inflation have increased the desire for insurance. These are the trends we are seeing:

  • Policy churn is likely: In both property casualty and life insurance, clients will be looking for products that offer better terms and pricing to reduce their overall cost. Insurers should be aware of this expected shift and proactively try to keep clients on board.
  • Property casualty organic premium growth will stall: Business loans and housing starts will slow, and insurance growth will be through competition on existing business. This is likely a result of limited economic advancement. 
  • Interest rates will impact life product offerings: If interest rate increases continue as planned, life insurers could reverse course and offer revamped products with improved returns. Insurers will need to refresh their product mix quickly and effectively to reduce churn.

During the last economic downturn, when the economy almost crashed, many life insurers were caught flat-footed because people were returning to more traditional products. It took insurers a long time to dust off those traditional products and get them back in the marketplace. Many insurers learned from that and have invested in swiftly bringing new or updated products to market, a critical capability in today’s marketplace. 

Let’s look at what’s happening because mortgage rates are increasing and impacting homeowners, rental, title, and life insurance products. If people can’t afford the mortgage cost, they might stay renters or remain in their houses longer than they had planned. Plus, housing starts are down, which means the buying frenzy has simmered, and we’re not seeing as many new houses coming on the market.

  • 131 bps is the largest three-month change in mortgage rates since 1994. 30-year fixed mortgage rates rose from 1.31% o 4.42% in Q1 2022. 
  • -2.4% is the year-over-year change in existing home sales. New home sales are down 6.2% year-over-year. 
  • -$1.4T is the estimated 2022 decrease in mortgage origination volume from last year’s high of around $4T.

Title insurance is going to get hit big time, mainly because there are going to be fewer people buying new homes. In prior years when the number of house sales decreased, the interest rates were often low and people were refinancing, which usually meant a new title search. Now title insurance can’t rely upon refinancing to generate much interest, likely leading to a downturn in title insurance premiums over the next year or two.

Overcome ever-increasing insurance challenges with Salesforce

With an industry facing higher interest rates, inflation, competition, and product changes, the time is now for insurers to concentrate on bettering their capabilities. The best solution to dealing with these trends is to know who your client is. 

When we say customer 360, we don’t just mean having an account level view of the client. That’s table stakes and something that almost every insurer can easily manage. The new definition of customer 360 is having complete insight into your customers. 

With Salesforce Industries for Insurance, insurers can know the customer with Agent 360, manage channels with Distribution Management, and roll out new products effectively. Salesforce makes it easy for customers to do business with you with collaboration tools and streamlined processes for a better digital experience. Learn how Silverline’s experience and expertise can help you find the right Salesforce solution for your insurance organization.

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