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Fall 2022 Insurance Outlook

By Michael Giusti, MBA

As the calendar shifts to fall, the long shadows of both the pandemic and inflation are falling on the insurance industry, all while the property and casualty market in one of the biggest states in the country is facing turmoil.

Still, even as some large questions loom, insurance opportunities abound while the leaves begin to turn colors and promises of cool fronts tease summer-weary consumers.

Inflation

Inflation and supply chain challenges have wreaked havoc on the automotive market for the past couple years, and all signs point to those troubles continuing at least through the end of the year.

Beginning with the shortage of semiconductors sparked by COVID-19 lockdowns across the globe, the production lines for new vehicles grounded to a crawl, and in some cases halted altogether. Without new vehicles rolling off the production line, many car lots stood with a fraction of their normal inventory, giving dealers little incentive to mark down the inventory it did have.

The dearth of options on the dealership floors meant that sales for used vehicles went through the roof, driving down inventory and driving up prices.

For auto insurers, that meant that it cost more to replace vehicles that were totaled. And the supply-chain-sparked shortages in spare parts meant that even repairing vehicles after an accident cost more.

There is a glimmer of hope, according to Cox Automotive. For the year, used vehicle sales are actually projected to decline 12% year over year, meaning the run on used vehicles may be subsiding, potentially leading to lower costs eventually.

But from an insurer’s standpoint, the financial damage has been largely baked in. Many insurers have already approached their state regulators to propose higher premiums to help recover some of those larger expenses they have already incurred. And while they are seeing pushback from insurance commissioners, most industry observers agree that double digit rate increases could be on the horizon.

Higher rates could lead to more consumers shopping around for less expensive auto policies, but according to the most recent Personal Lines Insurance Trends and Perspectives report by TransUnion, shopping for auto insurance by most demographics is still relatively sparce.

Similar to auto insurance, homeowner’s insurance is also facing inflationary pressures, as rising housing costs mean premiums need to also go up to account for the higher valuations, and more expensive building materials and labor shortages mean more expensive repairs after a loss.

Inflation Reduction Act

While economists debate what effect the newly passed Inflation Reduction Act will ultimately have on inflation, one undeniable result is that health insurance is going to be impacted in major ways.

One immediate action of the Inflation Reduction Act was to extend Affordable Care Act subsidies that were otherwise set to expire at the end of this year. Without that extension, more than 13 million people who get their health insurance through Marketplace Plans would have seen rate hikes, some potentially by more than 50%.

The act also granted Medicare permission to begin negotiating prices on 20 prescription drugs — though that process won’t begin until 2023, and even then, they won’t be able to negotiate on all 20 all at once. The ultimate savings from those negotiations will largely hinge on which specific drugs get included in the negotiations.

Also in 2023, the act will cap out-of-pocket insulin costs for Medicare enrollees at $35 per month. It will also require pharmaceutical companies to pay rebates if their drug prices rise faster than inflation.

Also beginning in 2023, the act will end cost sharing for Medicare and Medicaid patients receiving vaccines, which would include things like a shingles or monkey pox vaccine.

Beginning in 2025 the act will cap out-of-pocket prescription costs to $2,000 annually for people with Medicare.

Many of these changes will be rolled out gradually, but in the end, many households could stand to save substantial sums if everything works as intended.

COVID-19

While much of the world has returned to normal amid the tail of the COVID-19 pandemic, its influence on the health insurance market is still being felt.

For one, the federal government announced that it is going to begin the process of shifting the cost burden of COVID vaccines, boosters, and therapeutic treatments to patients and their insurers, rather than the federal government picking up all the costs. That goal of “commercializing” these COVID treatments and vaccines should begin in 2023.

At least for the fall, the recently announced booster vaccine tailored to the omicron variant will be covered by the federal government at no cost to the patients.

Another lingering effect of the pandemic is being felt in health insurance premiums. During the 2020 lockdowns, patient behavior shifted, largely putting off routine care while most health care providers focused all hands on responding to the COVID crisis. A strange side effect of that was that without patients undergoing routine care, most insurers ended up overcharging their customers through their premiums.

Because of a provision in the Affordable Care Act requiring insurers to spend 80% of premiums on patient care, those insurers are now sending 8.2 million customers rebate checks for those premium overruns this fall. Patients on Marketplace Plans and who get their coverage through small employers can expect an average rebate of $155 per person.

People who get their coverage through many large employers’ group plans and self-insured policies won’t see those checks directly. Instead, those rebates will go toward offsetting future premium increases.

But of course, there is a catch.

At this point, health care delivery is largely back to normal, and that means costs are back to their normal pattern of going up each year. So, while insurers are sending rebate checks for past overpayments, they are getting ready for higher premiums next year. So far, premiums for 2023 are largely expected to rise — by anywhere from 6% to 8% on average.

Meanwhile, the COVID pandemic continues to circulate, and health care officials are holding their collective breath, hoping yet another variant doesn’t emerge this winter.

Homeowner’s Insurance

The biggest story right now when it comes to homeowner’s insurance is summed up in one word — Florida.

While 2022 has been an unusually mild hurricane season (so far), Florida’s homeowner’s market is facing a potential collapse.

Most analysts attribute the turmoil to so-called roofing fraud claims.

In these cases, fraudulent contractors ask homeowners if they can conduct a free inspection of their roof. They come down the ladder with tales of roofing damage and a promise to file the claim directly with the insurer, and some make promises of “waiving deductibles” if the homeowner signs an assignment of benefits form. That form allows the contractor to act on the homeowner’s behalf with the insurance company, even if the homeowner doesn’t know what the contractor is up to.

When the insurance company sends out its own appraiser, they don’t find the damage the contractor was claiming, or they say the damage is much less severe than is being reported.

With the assignment of benefits in hand, the contractor then takes the insurance company to court to force them to pay for a new roof, prompting many companies to settle the suit and pay for the roof rather than fight the litigation.

Florida legislators have passed a handful of laws to combat this fraud, but in many cases the damage is done, with a half dozen companies already liquidating and many more considering non-renewals of many of their policies.

Thousands of Florida residents are now shopping for new policies, many of whom are forced to rely on the Citizen’s Plan, the state-governed insurer of last resort.

Many of the Florida-based insurers who were forced into liquidation were also insuring homeowners in other states, forcing those policy holders to also shop for a new carrier, and often getting stuck with their states’ insurers of last resort.

Coupled with Florida’s already fraught weather risks, having a teetering homeowner’s insurance market has many people in the Sunshine State sweating.

Flood Insurance

In the flood insurance market, a policy change is also causing turmoil in many coastal communities, even as hurricane season hits its historic peak.

Traditionally, the federally run National Flood Insurance Program relied on maps to determine the risk of each property it insured. The Federal Emergency Management Agency is changing now to a policy dubbed Risk Rating 2.0.

Through the Risk Rating 2.0 system, each home is individually rated through a formula based on the home’s value and unique flood risk. The idea is to prevent the majority of flood policy holders from subsidizing newly built beachfront or luxury homes.

But in practice, many communities in low lying areas are also facing steep increases — including in socio-economically depressed areas and communities of working poor. Many low-lying communities stand to face flood policy rates that are more than double what they were under the previous rating system, forcing some to drop their policies, and some homeowners with mortgages facing possible foreclosure.

Although federal law limits the premium increases to 18% per year on existing policies, the premiums jump to their full price if a home changes hands and is sold, or if a policy is not renewed in time.

Lawmakers in several costal states are fighting this change, but for now, the cost to insure against a flood is going up for many people.

Fall Vacations

If all that news is just too much to process, then a fall vacation may be in order.

Many destinations are back open, but airlines continue to struggle with canceled and delayed flights and lost baggage.

For that, many travelers are turning to travel insurance, with one study projecting that the market for travel insurance is poised to grow tenfold by 2030.

For their part, travel and gaming industry information site Time2Play.com quantified how much avoiding lost luggage is worth to people. As it turns out, making sure they don’t lose their bags was worth $252 to the average traveler.

In their study, Time2Play.com asked travelers about different methods they use to avoid lost luggage, but with their final dollar figure, that would translate to a typical travel insurance policy for a $5,000 trip.

So, with continued airline turmoil and the ever-present fall threat of a hurricane crashing a beach vacation, more people may find travel insurance to be a worthwhile investment.

Conclusion

With the Inflation Reduction Act’s changes to Marketplace Plans and Medicare, and with the storm clouds brewing over parts of the homeowner’s and flood markets, this fall may be a season of change for the insurance industry. Add the turmoil in the auto industry, and there are a lot of outstanding questions left to be answered.

But regardless of what the future holds, consumers who shop around for different options will more often than not get the best rates available.

Michael Giusti, MBA, is a senior writer and analyst for InsuranceQuotes.com