Key messages:
• Escalating frequency and severity of global risks – from climate change to cybercrime -is intensifying focus on the insurance industry’s capacity and readiness to react as society’s “financial safety nets.”
• Most insurers are realizing that reacting to risks may not be good enough and are undertaking transformation efforts aimed at preventing losses from happening in the first place.
• This shift to a more customer-centric business model will likely require advanced technology adoption and modification of company culture to help minimize siloed interactions, enhance collaboration among employees, and increase accessibility of customer data – but skill sets may need to be augmented.
• Merger and acquisition (M&A) activity has been on a decline since Q2 2022 due mainly to macroeconomic factors. However, as increases in interest rates and inflation ease, pent-up activity may drive an upsurge in deals later in 2023 into 2024. Insurance technology companies (InsurTechs) remain front and center of acquisition activity as carriers increasingly look to these capabilities for point solutions across the value chain to power transformation efforts.
• A fundamental mission underlying much of this change is that the industry’s role is pivoting to that of a sustainability ambassador, influencing and propelling purpose-driven decisions and strategies of clients across industries to create a better workplace, marketplace, and society.
The big titles that dominate the insurance industry in 2024 are:
– Insurers are transforming to achieve customer-centricity and elevate purpose: Existential threats, such as catastrophic climate change, the explosion in cybercrime, and concern over vast uninsured and underinsured populations, are driving many insurers to reimagine how to confront disruptions caused by the changing environment and help consumers across all segments prevent or mitigate risks before they occur, rather than merely paying to rebuild and recover after the fact.
– Non-life insurance: Evolving to strengthen relationships and profitability: On a global basis, non-life premiums increased 0.5% in real terms year over year in 2022, far below the 10-year average of 3.6%. However, premiums are forecast to improve in both 2023 and 2024 to 1.4% and 1.8% year over year, respectively, mostly due to rate hardening in personal and some commercial lines. Non-life insurer profitability is expected to improve through 2024 as higher interest rates strengthen investment returns, premium rate hardening continues, and expectations for slowing inflation lowers claims severity.
– Life and annuity (L&A) insurers: Core system modernization and culture transformation are underway but more should be done.
– Group insurers: Doubling down on digital capabilities, connectivity, and ancillary offerings.
– Tech transformation / AI is opening new avenues to enhance and personalize the customer experience: Insurers should also be cognizant that with advancements in AI technology, they are likely to have more capabilities than what might be permitted within the realm of local and global privacy and consumer protection laws. Therefore, AI and generative AI implementations should include collaboration with the chief risk officer and chief compliance officer to identify possible problem areas and establish guardrails to meet governance standards on how these technologies can be used.
– Human capital: Technology and culture modernization activate focus on workforce transformation
– Sustainability, climate, and equity (SC&E): Insurers may look to reform brand perception through ambassadorship: SC&E, as a concept, is not new to the insurance industry. What is changing are the escalating stakeholder demands and evolving avatars of risks- from the frequency and severity of natural disasters to financial and reputational ramifications from their unique position as investors and underwriters. As regulatory bodies around the globe enhance disclosure expectations, insurers are pivoting to more impactfully incorporate SC&E into their corporate strategy and DNA. However, evolving into stewards of purpose may require internal enhancements both vertically and horizontally across insurance organizations.
– In addition to escalating their own decarbonization goals, insurers should assist clients’ transition to net-zero.
– Governance framework could require restructuring to sensitize and align people, and set enterprise wide controls and processes
– Social equity demands broader product and service outreach and increased representation on executive leadership and the board
– Finance: Accounting and tax rule changes should spur wider-ranging operational innovations
– Merger and acquisition (M&A) activity slowing, but insurers should prepare for a potential uptick.