Extreme weather like the wildfires in California continue to be a challenge for insurance companies … [+] that is only set to increase in the future.
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For most sectors of the economy, the last 12 months have been tumultuous. The lingering Covid-19 pandemic continues to challenge healthcare systems and businesses worldwide, and the effects of climate change have only made matters worse. Despite these challenges, insurers, companies that are employed to protect clients against major risks, have had a good year, especially when it comes to the stock market. Over the last 12 months, iShares U.S. Insurance company ETF has had a total return of 45% versus a robust 32% return for the S&P 500.
“On an absolute basis it’s been a great performance this year,” says Piper Sandler’s senior insurance industry analyst Paul Newsome.
The biggest change brought about by Covid-19, for insurers, has been an increased reliance on digital tools in sales and claims processing, in the absence of face to face interactions as well as a deeper awareness of mortality from consumers who have sat on their couches and watched news coverage of devastating death tolls.
Frank Spencer, vice president of life insurance sales for Nationwide Mutual Insurance Company has seen the massive loss of life translate to the biggest year of life insurance premiums for his company in 2020 with 2021 set to surpass that high watermark.
“Sadly, because of the pandemic the United States population is very much aware of mortality,” Spencer says. A run on life insurance hasn’t been the only major shift during the pandemic as the in person interactions that used to be a major part of the insurance industry have been increasingly replaced by app-based claims, online billing and other virtual replacements that have become a necessity in a time of social distancing.
“We probably got five years worth of digital adoption in 2020,” Spencer adds. That change was less a product of technological innovations by the companies and more so consumers opting to use tools developed well before lockdowns and mask mandates, according to Beth Riczko, president of property and casualty personal lines at Nationwide. “In the industry, there was a strong focus on building digital capabilities, pre-Covid, but adoption was somewhat slow,” she adds.
The growing field of insurtech has also played a role with many legacy firms like Nationwide partnering with these startups to add to their digital suite, according to Riczko.
Some of the technological advancements in the industry have been well suited for the unique circumstances of the last 18 months. For example, Nationwide and some of its competitors make use of telematics, allowing for drivers to share data on their auto usage and driving behavior and insurance providers to in turn tailor policies based on that information. This technology allowed the Columbus, Ohio-based insurer to offer pay per mile programs at a time when much of the population was spending much more time at home, an offering Riczko uses for her own family and one that is actually tied to the firm’s roots.
Nationwide was originally founded in the 1920s as Farm Bureau Mutual Automobile Insurance Company with the idea of offering farmers automobile insurance that was more commensurate with their driving habits at a time when many were being charged similar rates to their counterparts in densely-populated urban areas.
Nationwide is among a handful of firms Forbes is recognizing as a best insurance company across five of the seven categories, including auto, homeowners, renters, term life and permanent life in our inaugural list of America’s Best Insurance Companies.
In order to determine which companies were best serving consumers, Forbes partnered with Statista to survey more than 16,000 customers and get their feedback on these companies’ performance.
Joining Nationwide in recognition across five categories are Alfa Insurance, Allstate, American Family Insurance, Erie Insurance, Farm Bureau Insurance, Liberty Mutual, Progressive, State Farm and USAA. San Antonio, Texas-based USAA got the highest ratings in the survey, finishing first in permanent life, term life, homeowners and renters and behind only Seattle-based PEMCO in auto insurance.
These rankings also looked at some smaller sectors of the industry including the growing field of pet insurance, which recently hit record levels—thanks to pandemic pet adoption— with more than $2 billion in total premiums sold in 2020 according to the North American Pet Health Insurance Association. Twenty firms were also recognized in the category of dental insurance, which faces potential upheaval if provisions proposed under the “Build Back Better” plan to add dental coverage, as well as vision and hearing, to Medicare are passed.
Insurance companies are also paying attention to provisions in the Build Back Better plan that would expand access to long term care services under Medicaid. This policy change being debated in Washington D.C. has already been enacted in some ways across the country in the state of Washington where the state has imposed a mandated income tax on residents who don’t have long term care coverage. Long term care is a major business line for some of these insurance companies and was a major topic of discussion during the worst of the pandemic when assisted living facilities were ravaged by the virus.
While the light at the end of the Covid tunnel takes shape with the development of vaccines and therapeutics and increased immunity across the United States, the industry is focusing on another large-scale global crisis that will alter how it operates: climate change. With extreme weather set to worsen over the next century, the wildfires, floods and hurricanes that scientific consensus says will increase in frequency will come with increases in liability and payouts from insurers. The realities of climate change have already been felt by insurers who have paid out claims and been on the ground to respond to everything from wildfires in California to an active hurricane season in the southeast to the deep freeze in Texas.
“Weather trends and catastrophic events are top of mind for the insurance industry,” Riczko says. “Internally, it’s about making sure that we have adequate capital to meet our customers’ needs and making sure that we are prepared to respond wherever the event occurs.”
Despite the challenges ahead, Morningstar senior equity analyst Brett Horn thinks the outlook for the insurance industry is positive, coming off price increases that were made necessary by inflation and lower interest rates.
America’s Best Insurance Companies 2022