Trends to Watch in 2023

January 12, 2023

Insurance experts often examine how outside influences and trends affect the insurance marketplace, and businesses should follow suit to determine what factors may impact their insurance coverage. For 2023, there are a number of sweeping market developments to consider.

Labor Shortages

The last few years have seen widespread labor shortages. According to a recent survey conducted by financial services company Provident Bank, 75% of businesses have been affected by current worker shortages. Although these shortages are impacting businesses across industry lines, data from the U.S. Bureau of Labor Statistics (BLS) confirmed that the industries experiencing the most substantial workforce struggles include transportation, health care, leisure and hospitality. Several factors have contributed to these labor shortages. Primarily, the lasting ramifications of the COVID-19 pandemic has motivated many workers to reevaluate their employment priorities. In particular, a growing number of employees have sought arrangements (e.g., greater work-life balance, higher pay, more expansive benefits, flexible hours and remote capabilities) that allow them to better manage personal caregiving responsibilities, boost professional development, prevent burnout and minimize ongoing health and safety risks.

Supply Chain Disruptions

Since the onset of the pandemic, a range of supply chain disruptions have taken place. The majority of these issues originally stemmed from increased demand for various items and materials amid a slowdown in production and a subsequent lack of availability during pandemic-related closures. However, even though businesses have resumed their normal operations and increased production levels, consumer demand for certain items and materials continues to outweigh inventory. Creating further supply chain bottlenecks, various international disruptions (e.g., congestion at global ports and geopolitical conflict), rising fuel and energy costs, extreme weather events, and an ongoing shortage of warehouse workers and truck drivers have slowed shipment and delivery times for high-demand goods.

Inflation Issues

Over the past few years, the culmination of widespread labor shortages and supply chain issues has largely contributed to rising inflation concerns in the commercial insurance space. Yet, 2022 was a particularly troubling year for inflation, as evidenced by a surging consumer price index (CPI). According to BLS data, the CPI for all urban consumers increased by 9.1% year over year in June 2022, reaching a 40-year high. While the CPI cooled off in the following months, it still remained near record-setting levels, sitting at a 7.7% year-over-year increase in October 2022. Altogether, the elevated CPI has driven up claim costs for several lines of commercial coverage, therefore inflating total loss expenses across the property and casualty markets.

Recession Risks

Some economic experts have forecasted that rising interest rates and prolonged labor market challenges could lead to a potential recession—a prolonged and pervasive reduction in economic activity – throughout the United States in the next six to nine months. Specifically, a recession will become increasingly likely in 2023 if the Fed has to continue raising its terminal policy rate – the level at which it will no longer boost interest rates – higher than initial estimates (5%-5.5%) to adequately mitigate inflation.

Social Inflation Concerns

In general, social inflation refers to societal trends that influence the ever-rising costs of insurance claims and lawsuits above the overall inflation rate. As the commercial insurance market shifts, it’s important to understand what’s currently driving social inflation.

Third-party Litigation Funding
Tort Reform
Plaintiff-friendly Legal Decisions and Large Jury Rewards

Extreme Weather Events

Extreme weather events – such as hurricanes, tornadoes, hailstorms and wildfires – continue to make headlines as they become increasingly devastating and costly. Making matters worse, these events aren’t limited to one geographic area or weather event, impacting businesses across the United States.

Geopolitical Conflicts

This past year saw the emergence of severe international disruptions, particularly those relating to the ongoing Russia-Ukraine conflict. These types of global events have had far-reaching impacts, prompting new tariffs, export restrictions, economic sanctions, and subsequent surging fuel and energy costs in many countries. Further, such events have exacerbated existing inventory backlogs, material shortages and supply chain issues. Considering these developments, it’s no surprise that the latest industry research revealed more than one-fifth (21%) of businesses named war and terror as their top risk in 2022, up from 15% in 2021.