2024 Insurance Outlook for Auto, Home and Health
By Michael Giusti
Rising premiums, questions about reinsurance, and the impact of artificial intelligence all promise to play large roles in the insurance market for 2024.
While many of those drivers emerged in 2023, the coming year has the potential to further define what the long term impact of these factors may be.
Health Insurance Outlook
In the health insurance space, insurers and their customers are both looking at higher prices in the coming year.
Employer-sponsored health insurance costs are expected to increase by between 5% and 7%. That is a steep bill for policies which cost on average around $15,000 per employee.
Labor shortages among health care workers that drove up salaries along with general inflation in the economy combined to help drive much of that increase, according to consulting firm Mercer.
While higher insurance costs seem to be coming for the employers, it is unclear if they will pass on those costs to their employees, eat the increases, or find some other ways to mitigate the increases.
There are several tactics employers seem to be taking to help keep costs down with their health plan, according to an analysis by Willis Towers Watson. One common method to control cost is by adjusting the provider network. The theory is that by identifying preferred doctors and clinics that agree to keep costs down, the total cost for care can be reduced.
Another big trend is to encourage patients to adopt generic and biosimilar prescriptions rather than their brand name counterparts.
Health care navigation programs, which help patients navigate the health care system to ensure they are getting the right care for their health issues early and from the right provider, is yet another tactic some companies are adopting to help potentially reduce costs in the long run.
Employer-sponsored plans aren’t the only ones facing increases. According to an analysis by health care nonprofit KFF, Affordable Care Act premiums will also be up around 5% nationally.
Open enrollment for Affordable Care Act plans stays open until mid-January. And while prices are higher this year, depending on household income, individual families may not end up paying more after they figure in the premium subsidy.
Auto Insurance Outlook
Automobile policyholders saw their rates climb 19.2% for the year ending in 2023, which is up from a 12.8% increase the previous year according to data compiled by the Bureau of Labor Statistics.
Those increases have been driven by higher new car prices, costlier repairs and replacement parts, as well as increased medical costs post-accident. None of those factors look like they are likely to recede in the coming year meaning another year of potentially higher premiums.
In response, many more people have been shopping for auto insurance policies in the final months of 2023 than did in previous quarters, according to a study by Transunion.
Part of the increase in shopping has been driven by a healthy labor market driving a corresponding increase in new vehicle sales, which triggers new auto policies.
But according to Stothard Deal, vice president of strategic planning for TransUnion’s insurance business, many of those shoppers are simply chasing lower premiums as their current policies have gotten pricier.
While car sales are up for the year, home sales have been sluggish, meaning fewer people have been shopping for homeowner’s policies than in previous years. Analysts point to mortgage rates as a main driver for the sluggish sales — both because today’s rates are high, but also because so many homeowners refinanced to rates below 3% just a few years ago and may be hesitant to give up those rock-bottom rates.
Less shopping is one of the reasons ratings agency AM Best downgraded the homeowner’s industry rating to “negative,” down from “stable.” But that isn’t the only thing weighing on homeowner’s and renter’s insurers.
Homeowner’s insurance premiums are highly localized, with factors such as exposure to wildfires or coastal communities impacted by hurricanes driving rates.
But regardless of where the policyholder lives, some factors have been driving up underlying costs for all homeowners — namely rising housing prices, costlier building materials, and costlier labor for repairs made post-claim.
Some communities in California, Florida, and Louisiana now have limited access to homeowner’s insurance policies. In communities where insurers aren’t writing policies, homeowners have to either turn to their state insurer of last resort or purchase a pricy and riskier unregulated policy on the surplus market.
One of the narratives driving higher premiums over the past few years has been reinsurance — or catastrophic insurance policies taken out by the insurers themselves.
Reinsurance protects insurers in the case of a major claim — like a huge natural disaster affecting an entire community or catastrophic building damage, for example.
Reinsurers have been hammered in the past year from overarching climate pressures, with things like wildfires, hailstorms, hurricanes, and even earthquakes bringing huge losses that have to be priced into future risk models.
Global conflict is also weighing on the industry, with the Russia-Ukraine war leading to losses for the reinsurance market of more than $2 billion alone.
Reinsurance rates saw a sharp increases in 2023, and they are expected to climb another 10% when policies renew for 2024. A potential silver lining was signaled by ratings agency Fitch in late 2023, though, as they changed their outlook for the reinsurance market to “improving,” up from “neutral,” raising hopes that a more stable reinsurance market will benefit all insurers in the near future.
AI and Insurance
Just as it has been sweeping most other industries, artificial intelligence is changing the landscape for insurers on many fronts.
From a customer-facing perspective, new large language models promise to offer smoother automated customer service than the simple web bots of the past. AI advocates say that as the technology continues to improve, policyholders will be able to use AI for many of the simple tasks that were previously handled by call centers.
One place where AI is being newly introduced is in underwriting. With an AI underwriter, customers could conceivably get near-instant pricing and coverage decisions based on publicly available datasets.
Meanwhile, critics worry that an increasing reliance on AI in the underwriting process could lead to claims of illegal bias and discrimination unless those factors are somehow controlled in the models.
AI could also be useful in the near future with claims processing and coverage decisions.
An AI could predict costs immediately after a claim using sensors and uploaded images paired with historical and real-time market data.
AI is also uniquely capable when it comes to mundane or repetitive paperwork, such as processing renewals and issuing certificates of insurance. However, unlike their human counterparts, AI isn’t subject to fatigue, and may even find patters in that paperwork that could help root out fraud and abuse.
Some companies are even issuing policies protecting businesses in case their AI model makes a material error, or even just doesn’t live up to its potential.
The Ozempic Effect
The blockbuster drugs this year are the diabetes/weight loss medications Ozempic and Wegovy.
These drugs act on a hormone to slow the emptying of the stomach and make the patient feel full faster. They have been a game changer in the field of weight loss drugs, but they also come with a steep price tag — with the cash price approaching $1,000 per month.
Most private health plans won’t cover weight loss drugs – but some cover Ozempic as a diabetes treatment. And Medicare has been prohibited from covering weight loss drugs since 2003.
A study published in the New England Journal of Medicine estimated that if Medicare were to fully cover Ozempic and similar weight loss drugs, it could cost the federal program upwards of $26 billion a year.
But proponents claim that simply looking at the price tag is missing a bigger point. They claim that if patients drop pounds, they also will become less likely to come down with costly and chronic conditions. A study by Novo Nordisk bore that out, at least in part, when it showed that Ozempic’s main ingredient reduced the risk of major cardiac events by 20%.
Another study showed that the price insurers actually pay is likely going to be significantly lower than the sticker price after negotiations and pharmacy benefits managers do their part — with discounts of up to 79% for some of the drugs in this class.
It is still unclear whether insurers will buy into that logic and cover this class of diabetes and weight loss drug, and even whether the manufacturers could keep up with demand if they did.
Travel Insurance Trends
In 2023, the State Department issued worldwide caution to U.S. travelers because of the “potential for terrorist attacks, demonstrations or violent actions against U.S. citizens and interests.”
With that backdrop, travelers might look closely at a travel insurance policy if overseas travel is in their plans.
Travel insurance is meant to reimburse a policyholder for the non-refundable upfront costs of the trip.
Travel policies can be crucial in the case of a flight delay, or lost luggage. But they are also crucial if the travel takes the policyholder outside their home health insurance coverage network.
And if a travel destination were to be affected by a natural disaster, civil disturbance, or something else that makes it unsafe to complete the trip, the travel insurance would make sure the policyholder gets home safe and gets their money back.
One important caveat is that travel insurance only covers unknown risks, so policies purchased today wouldn’t likely offer protection from any existing conflict. So, it might behoove travelers to monitor the Global Conflict Tracker produced by the Council on Foreign Relations, along with the State Department Travel Advisories before they plan their trip.
Since 2024 is a federal election year, several issues stand to be affected by the results of the ballot box.
When it comes to the Affordable Care Act, at least two candidates have spoken up to say that they intend to replace it — though Congressional leaders have said no such plans are on the legislative agenda.
At the state level, 10 states remain that have not yet expanded coverage, so gubernatorial and statehouse elections might carry repercussions there.
For its part, Medicare is staring down a deadline of about five years before it faces insolvency, so something is going to have to be done about it soon, and the choice at the ballot box could weigh in on what tactics and approaches are used to save that program. Some candidates, for example say that a higher retirement age should be implements, while others say that such a change should be off the table. No candidates are outwardly calling for an end to the popular federal program.
One of the biggest issues facing the insurance industry is the impending retirement of thousands of Baby Boomers, and their replacement in the work force largely by Millennials.
On the one hand, a younger cohort in the industry could help speed transition of many insuretech products. But on the other hand, with so many retirees leaving the industry, there is a wealth of institutional knowledge that needs to be protected and retained.
When it comes to winning new customers, insurance companies are continuing to fight over the same pool of policyholders, meaning that they will also try to find ways to compete beyond simply cutting premiums. Some are looking to value-added services, such as identity theft protection wrapped into homeowner’s policies, or risk mitigation services wrapped into business owner’s policies.
As premiums continue to be high, customers will likely continue to put pressure on the insurers by aggressively shopping around.
But customers are also likely to consider other cost-saving techniques, like higher deductibles and usage-based coverage for auto insurance.
Michael Giusti, MBA, is senior writer and analyst for InsuranceQuotes.com