According to data from Lending Tree, home insurance rates have increased an average of 37.8% since 2019. (Credit: Yuliia Sydorova/Adobe Stock)
Protection gaps will remain large or worsen moving toward 2030, amid changing risks and unsustainable rate growth, according to a new report from Bain & Company.
By 2030, just 25% to 35% of damage from natural disasters will be covered. For cybersecurity, only 10% to 15% of losses are expected to be covered.
Insurers are struggling to provide coverage for a growing number of natural catastrophes, escalating cyber threats and new vehicle risks and liabilities, such as assisted driving technologies and electric vehicles.
Raising rates has helped, but the strategy will become unsustainable as insurance becomes unaffordable, the report says. Double-digit rate increases in some areas over the last several years have already put insurance out of reach for many. According to data from Lending Tree, home insurance rates alone have increased an average of 37.8% since 2019.
Home insurance now costs an average of $2,242 per year for $300,000 in dwelling coverage, according to Bankrate, but rates vary drastically depending on the property and location. In Florida, for example, the average annual premium for the same amount of coverage is $5,340.
"Bolstered by unsustainable tailwinds, insurance companies find themselves at an inflection point," said Sean O'Neill, head of Bain's global insurance practice, in a statement. "Over the past couple of years, we've seen rate increases in the property and casualty sector and interest-rate-driven annuity sales in the life sector. While capital and balance sheets remain reasonably strong, several challenges have emerged, and profitability has come under pressure for many lines of the insurance business. Insurers will need to be proactive and act now if they wish to navigate these impacts."
The report offers several solutions for how insurers can start moving toward a more sustainable model, including:
- Scale embedded insurance models. Insurers can adapt to changing purchasing habits by making relevant insurance available when a product is sold, like offering travel insurance when booking a flight. The report cites Allianz as an example, which embeds insurance through partnerships with vehicle manufacturers.
- Offer more robust prevention services. Insurers can grow the risk mitigation services they offer customers, like better property maintenance or safe driving help, to reduce claims and losses.
- Harness AI and other emerging technologies. Bain & Company estimates that AI-driven industry improvements could allow insurers to increase revenue by 10% to 15%, save 30% on operating expenses and reduce losses due to errors or inefficiencies by up to 50%.
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