Now is the time to assess what long-term changes are needed for the insurance industry to serve a fast changing and uncertain world

By William Skapof, CEO N2G | July 2022

As we look to the future: increased demands regarding climate risk and social purpose, new forms of competition, exponential growth in digital innovation, changes in regulation and government oversight, workforce issues will remain a priority as the industry adopts new ways of working and builds new capabilities. Despite increasing efforts to digitize, automate and adopt new ways of working in areas like distribution, operations, and claims, insurers still lack speed and agility due to inherent complexities such as legacy systems and traditionally siloed operations.

All of this is happening in a global macroeconomic landscape increasingly defined by a new geopolitical world order, supply chain disruptions, interest rate hikes, impact from inflation, fear of recession, labor market pressures, and the withdrawal of COVID-19–related stimulus. Concerns of persistent inflation have become real in most economies. As a result, carriers are facing increasing claims costs, and volatility in their investment portfolios leading to potential asset–liability mismatches and the resulting implications for surplus capitals.

Now is the time to assess where the industry is heading and determine what long-term changes are needed for the insurance industry to serve a fast changing and uncertain world.

  1. The boom in frontier technologies is expected to continue through 2025

    1. Technology is ever increasing; we are a more digital world than ever, and digital innovation will fundamentally reshape the risk landscape. From developments of self-driving cars, robotic factories, embedded sensors, the internet of things (IOT), and crypto assets the insurable risk is arriving at a furious pace. According to PwC Market Research Centre: Deployment of technology and Robotic Process Automation (RPA) will lead to better efficiency, compliance and increase underwriting profitability. The United Nations conference on Trade and Development estimate that the size of frontier technologies will multiply by a factor of 9 by the year 2025. According to Deloitte’s 2022 Insurance Industry Outlook, next year 74% of insurance companies expect to increase spending on AI, 72% on cloud computing and storage, 67% on data analytics, and 63% on mobile technology. This is because the return on investment on digital technology is truly consequential.

  2. Trust gap in an uncertain world

    1. We sell a promise. A promise to pay when an occurrence happens. But according to the 2022 Edelman Trust Barometer, only 54% of respondents trust the financial services industry, 10 percentage points lower than the average for other industries in the report. The global protection gap has drastically widened across all sectors; over $1.4 trillion in the past 20 years and is estimated to reach $1.86 trillion by 2025. The Asia-Pacific region accounts for almost half of all uninsured risk.

    2. How to respond? Offer focused and strategic leadership, accountability, and responsiveness during the claims process, have transparency with environmental, social and governance issues, and include customer satisfaction metrics in long term corporate strategy.

  3. Rapidly changing customer needs and preferences

    1. Offer end to end solutions, reinforce services with digital and data capabilities, build up nontraditional distribution models, homogenous transactional insurance purchases are moving faster than the large corporate risk segments, build a network of trusted partners

  4. Sustainability and Climate Risk

    1. The growing threat of climate change poses systemic physical and transition risks, with direct implications for the insurance industry. The reinsurer Swiss Re estimates that up to $183 billion of premiums could be generated globally by 2040 because of climate change, mostly in the property insurance segment, given the threat of exposure to catastrophes such as floods, earthquakes, and extreme weather events like storms and wildfires.

      1. Develop a deeper understanding of climate risk
      2. Rebuild their risk models and pricing assumptions
      3. Create a new climate related products and services
      4. Work with organization to help them mitigate climate risks

  5. Competition, convergence, and collaboration

    1. A PWC survey of financial services professionals reinforced the notion that collaboration doesn’t mean competition will be diminished, as evidenced by:

      1. $10 billion of investment by venture capital funds in insurtechs in 2021
      2. new entrants are constantly trying to disrupt the industry.
      3. incumbents are flexing their scale advantage and the strength of their balance sheets while entering partnerships with insurtechs to reinvent themselves.