How will environmental, economic, geopolitical, technological and cultural forces combine to impact the insurance industry in 2024, especially in its capacity to serve as a societal safeguard for financial losses? Let’s take a look at some of the influences set to have an effect on the industry this year.
Ongoing climate catastrophes and worry over protection gaps in underinsured communities will continue to influence how insurers approach risk mitigation and prevention in 2024.
For some, this will mean focusing on investments that take a sustainable approach to climate-related risks, particularly those related to underwriting and claims processing. We should also expect to see novel tech advancements impacting risk assessment products (with major contributions from AI, satellite imagery and data science). For example, an expansion of climate-related parametric offerings for underinsured populations, or as an interesting use case for cyber exposures related to business interruption losses from weather-impacted system outages like cloud downtime.
Non-life insurance is still seeing above-average price increases across all business segments, which will continue to impact the bottom line for the insurance industry in 2024. In fact, inflation and rising loss costs are likely to have ongoing influence over the way the sector and its business models evolve, especially because higher rates tend to also mean lower customer satisfaction and loyalty. Tough market conditions like these present a challenge and an opportunity for insurers, who should be looking for ways to offset depleted customer trust with novel value propositions that can help build back strong customer relationships.
With slowing GDP growth, high interest rates, liquidity crunches, and startups facing difficult raises, there’s a fair amount of uncertainty around the overall VC outlook for 2024, however many predict opportunity for the insurtech sector. Large companies will continue to deploy capital with M&A – adding strategic partnerships, new customers and novel distribution channels to their holdings. Generative AI is also expected to impact insurtech in areas like automated underwriting, insurance products personalization, and cyber risk and data protection. Perhaps due in part to these influences, an insurtech rebound in the EMEA region has already been observed, particularly within the startup ecosystems of risk management and operations. However, with continued economic instability a likely reality in 2024, a focus on profit forecasting and product optimization may be prudent for insurers and investors alike.
2023 was undeniably a huge year for AI, and for insurers this was especially apparent in fraud protection, where AI-powered tools were put to work in secure data and risk management. However, while AI has the potential to virtually transform the entire insurance value chain, it remains a sizable challenge for the notoriously slow-to-change industry to embrace emerging tech, build the right teams and talent, and shift its long-held internal cultures. Digital transformation, therefore, will remain an ongoing, industry-wide goal for insurers in 2024, as legacy and analog systems are increasingly moved to cloud platforms and other modernizations like automation and advanced analytics are used to help improve customer experience and employee productivity.
We can expect to see further iterative adoption of advanced technologies this year, particularly in areas touching operational efficiency, with solutions more widely integrated in organizations that have already made sizable investments in their data, analytics and AI capabilities. And, as AI continues to expand its considerable reach, responsible use will be an ongoing concern, as regulators worldwide work to create AI-specific guidelines and legislation.
Other tech advancements will help insurers achieve some of their long held customer-centricity goals in 2024, for example, broadening the availability of personalized coverages, creating richer, more effective customer experiences, and finding novel and efficient ways to reach underserved communities.
Today’s macroeconomic uncertainty combined with breakneck technological advancements promise an interesting year ahead for insurers. Proactive, thoughtful and bold leadership from decision-makers can surely help bolster industry readiness and better align corporate strategy with shifting societal necessity – creating new value propositions, operational improvements, and business innovations for the year (and years) ahead.