What’s to Come in 2024: Hard Market, AI Expansion, More Catastrophes, Network Consolidation

No one can predict the future, but insurance professionals are likely the best qualified when it comes to predicting risk. For this special report, Insurance Journal asked industry thought leaders their predictions for the property/casualty world in 2024 and what they’d wish for if they could have what they wanted. Here’s what they had to say.

‘Only a Matter of Time’

A look back at the severe weather events in 2023 paints a somewhat unusual picture where many catastrophe events broke records in regions that are not historically prone to such disasters. Heat waves were hotter and longer, flash flooding was more devastating, and wildfires burned more acres than ever before.

Climate professionals maintain that climate change, evidenced by rising temperatures, is one cause of worsening catastrophe trends,” says Jerry Theodorou, policy director, at the free market think tank R Street Institute in Washington, D.C.,

“The implications of the trend of more numerous and more destructive catastrophes should send a message that more frequent, and more powerful catastrophes can be expected,” Theodorou wrote in a December report titled, The Truth About Catastrophes. “The knowledge that climate change is real and that it contributes to disasters means that individuals, communities, counties, states and the country must first recognize the risks, and then act to protect property, and — insofar as possible prevent losses.”

Theodorou, who has held leadership positions in or around the insurance industry since the mid-1980s, says memories are short in property/casualty insurance.

The severe events of 2023 show that tail events are not as rare as they used to be.

“While the focus of natural catastrophes has traditionally been on landfalling hurricanes in Florida and the Southeast United States, in 2023, we witnessed several rare disasters occurring in unexpected locations, including a California hurricane (Hilary) and Vermont flooding,” Theodorou said.

The torrential Sept. 30, 2023, New York flooding event was also a lesson in potential flood magnitude.

“And of course, who’s going to remember 1861, but in 1861 and into early 1862 in California, there was The Great California Flood where it rained for 40 consecutive days and nights,” Theodorou told Insurance Journal. “I mean, it sounds like something out of the Old Testament, The Great Flood,” he said. The event was so significant that it changed the economy of California from ranching to farming. The event covered 70% of the state and was so severe that Governor-elect Leland Stanford traveled to Sacramento in a rowboat to his inauguration.

“Scientists called that storm an ARK storm, ‘A’ for atmospheric, ‘R’ for river and ‘K’ for a thousand because it was thought that such a severe event could only happen once in a thousand years,” Theodorou said. “But we’re seeing more and more atmospheric rivers, and it’s only a matter of time before we have another storm of that kind of magnitude like we had in California.”

This is why Theodorou wishes that in 2024, at least in California and Florida, that there is a slowdown in building in the riskiest regions.

“What we need to see is a cessation of building in places that are catastrophe prone, such as those in the wildlife urban interface in California that’s exacerbated with wildfire losses,” he said. “And in Florida, which is a place that attracts people. Fort Myers, which was hit a couple of years ago by a hurricane, is attracting lots of new people. I mean, it’s lovely to see the ocean from your bedroom, what a beautiful sight it is. But when the ocean is actually in your bedroom or in your living room, it’s not so much fun.”

Playing Defense

According to Tony Caldwell, author, speaker and mentor to independent insurance agencies (and regular columnist in Insurance Journal), 2024 will be a year where agents will need to play defense more than ever before.

Capital markets have changed permanently over the past few years and that has fundamental consequences for what’s going to happen to insurance, Caldwell said.

Insurance companies were dealing with cost pressures before 2020, but those cost pressures dramatically increased in the face of deteriorating balance sheets as carriers were hit with record catastrophe losses in the past three years that they weren’t prepared for, Caldwell added.

Add in inflationary pressure and the end result is something that will take many insurance companies years to “dig out from,” according to Caldwell. “And so, they’ve got to try to control costs while they survive.” That means reductions in agent commissions and compensation will likely continue for the next two or three years, Caldwell predicts.

“Agencies have to be prepared for some of that cost pressure to be taken out on them,” he said.

Caldwell predicts that 2024 will deliver growth opportunities for aggressive agents, and carriers — more than in 2023.

“We were so busy in 2023 trying to stay alive and trying to keep our customers insured … that a lot of people didn’t have time to go out and aggressively prospect for new business. 2024 could provide good opportunity for that prospecting.”

But he warns both carriers and agents to be cautious in 2024, as well.

“This isn’t the year to go out and make a bunch of investments necessarily, but it is the time to really focus on running the business. Fundamentally, focus on making money from operating income, not from contingencies and controlling expenses,” he said. “Then, continue to take advantage of the opportunity that really was there in 2023 and I think will be even greater in 2024, which is to go out and look for customers who are frustrated and tired of all these increases they’re having to pay.”

That means agents and carriers both need to play really strong defense in 2024, Caldwell suggests.

“The first thing that I think agents should do, and often don’t do, is educate their customers on what’s happening to them in the market so that they have context for it,” he said. “Also reinforce that role of the trusted advisor that independent agents want to foster.”

Second, Caldwell suggests that agents should make sure they are giving their customers choices, which is fundamental to the independent agency value proposition. “If a customer’s going to stay with their insurance carrier in ’24, they need to at least see what their options are because if you don’t provide them (with options) as the incumbent agent, somebody else is going to and you might lose the business.”

Technology Evolution

Connecting with technology vendors and carrier partners more easily and efficiently remains a top concern for independent agencies.

A recent IVANS survey found that 83% of agents reported they would write more business with a carrier if that carrier provided real-time appetite and quoting within their management systems. How fast a carrier turns around a quote directly influences how much business that carrier might receive from an agent, the survey revealed.

The hard insurance market has forced an uptick in remarketing of accounts, at very high volumes, during the last few years. This has been a significant driver in technology innovation and adoption, Taylor Rhodes, CEO of Applied, told Insurance Journal.

“That demand driven by consumers is forcing agencies and carriers to get more digital, and to act more like a modern entity — like something you might experience outside of the insurance industry,” Rhodes said. “Consumers demand that they must move faster.” He sees this continuing in 2024 and beyond.

The use and development of artificial intelligence (AI) tools will also remain a hot topic in 2024, Rhodes predicts, even if it’s a bit of “hype” right now. Rhodes compares the AI focus today to that of early “cloud” technology in the past where suddenly every new tech called their products “cloud.”

“Every company out there will start to ‘AI-wash’ their products just like in early cloud adoption,” Rhodes predicts, who previously served as the CEO of Rackspace, an early cloud pioneer that grew to a $2 billion organization. But he does see AI integration in insurtech maturing this year, with the next wave of insurtech investment focused on the AI lifecycle.

“We will see a lot of startups this year changing their brand to ‘AI’ but in reality the more powerful AI capabilities will start to mature later in 2024 and beyond,” he said.

Ultimately, AI tools for the industry will be a gamechanger. “They will change the way you do sales and marketing. It will change the way you do underwriting and will change the way that you drive productivity internally.”

AI innovation is ideal for the P/C industry, he added, because there is so much data available for AI to build from, he adds. “AI learns off very large data sets and spots patterns to create insights and recommendations and presents new content generated from studying that data,” he said.

Rhodes thinks that the insurance industry has always held the promise of using data to find solutions.

“Yet the industry has done a really poor job harvesting the power of that data,” Rhodes said. “Sometimes it’s because there aren’t data standards, sometimes it’s because it’s very costly with tools to go out and actually structure that data and make sense of it.”

But AI is promising to be the next efficient and a highly effective way to turn data into products, insights and capabilities, he said. “Whether that’s at a point of renewal or it’s at the point of cross-sell and upsell, or account rounding, or what have you, AI offers the promise of doing things in new and exciting ways,” he said.

“I wish I could say I think 2024 is not going to be as interesting a year as the past few,” Rhodes added. “I think it’s going to be another very fraught year, and that creates risk, but it also creates new business opportunities.”

Opportunity Ahead

Despite the past few years of hard market pricing, most agencies continue to grow both on the retention side and the new business side, says Doug Mohr, Vertafore’s vice president, industry relations and partnerships. “What’s really surprising is the volume of new business on personal lines,” he added.

Mohr believes a lot of that growth from his agency customers is coming from direct writers. “Because if you think about it, in a hard market when premiums go up, customers want to shop rates, but if you’re with a direct writer, you can’t shop, you’re stuck.”

He said Vertafore “best-in-class agents” are using marketing tools like its Agency Zoom or Orange Partner or solutions like ClientCircle, Agency Revolution, Levitate, or Pathway to stay in touch digitally with their customers.

“Our independent insurance agents build their business on relationships with their policyholders, but it’s the technology that allows them to extend and augment their physical or virtual relationship with that customer,” he said. This will continue because agents need it, he says.

Marketing automation, electronic payments, e-signatures, digital phones, and seamless integration — everything that’s happening in the office should be able to extend to a virtual office environment, he said.

“We saw increased adoption on all four of these areas after the pandemic hit in 2020, but there’s still room for improvement,” he said. His wish for agencies in 2024 is that the adoption of such tech tools will continue and advance even further. His prediction for 2024: The hard market will continue.

Aggregation of Aggregators

Matt Masiello, CEO at SIAA, says this will be a year of transition for some agencies and their agency network partners.

“The market will see (marginal) improvement with the second year of compounding rate increases — this assumes there is not some level of a recession whereby consumers cannot stomach the increases and opt for lower coverage options — premium increases are improving carrier results and the underpricing of the industry in many lines of business,” Masiello said.

“The hardening market has been good (albeit painful) for the health of our industry,” he said. He cautions agents: “We need our carrier partners to be healthy with the ability to invest in innovative product and service capabilities. While we’ll begin to see profitability, agencies, networks, or organizations that haven’t proved they can support carrier profit initiatives will likely take longer to move into a favorable and growth-oriented position with other carriers.”

This will cause a divide between successful and struggling agency networks, according to Masiello. This also means M&A activity should accelerate if inflation isn’t sticky and rate cuts are realized, he added.

He predicts that carriers that were once opposed to doing business with an agency network will be more open to the idea in 2024.

“Local and regional relationships are expanding, and carriers are looking for ways to come out of this hard market on top,” he said. “There are many carriers positioned for growth in 2024, and they are realizing they need to focus on partnering with networks delivering consistent, above average, and profitable organic growth.”

Ashley Wingate, EVP, sales and distribution at Smart Choice, agrees. “From our partners and from a Smart Choice perspective, we worked really hard over the last 18 months to manage our books, work directly with our carrier partners on profile management, book management, to get to a profitable place,” he said. “Once that rate starts coming into their books, and we do feel like the middle part of the year, we will start to see our carrier partners open up in more and more states trending towards a growth mode in 2025.”

Both Wingate and Masiello do see the agency network space continue to consolidate in 2024 as well.

“The hard market of last year was tough on a lot of (network) groups, especially if they were younger or in their infancy of development, so I think you’ll continue to see consolidation in independent agency groups in 2024,” Wingate said.

Masiello believes the same. “There will likely continue to be consolidation of networks,” he said. “Many smaller networks assumed a low barrier to entry and did not invest in services and infrastructure.”

Additionally, market conditions have caused many carriers to take their own actions with networks to improve book profitability. “Networks that have quality control with membership recruiting and managing profitability of books have fared well. However, agents who joined networks not prepared for current market conditions have needed to seek out better affiliations that can deliver on the needs of their members in various market cycles and for the different stages of their member agencies’ life cycle,” Masiello said.

He says with the shrinking inventory of larger premium retail acquisitions, networks are becoming the next place inquisitive investors are exploring. “Many small networks have competitive regional relationships that can be beneficial for their members and investors alike,” he said. Plus, there are many agencies that need the competitive advantages often available through strong networks.

“I do hope to see that throughout the network community that access continues to open up as carriers get the rate they needed to return to profitability and open up for growth,” Wingate said. “I think we’ll see carriers about the middle of 2024, towards the end of 2024, hopefully shift as they get adequate rate and hopefully return to profitability, shift to more of a growth yield” environment.