Industry transformation will trend higher

We are in a period of rapid technological advancement, shifting regulatory landscapes, evolving customer expectations and geopolitical uncertainty. These had a significant bearing on the insurance industry in 2024 and will set the stage for what will shape industry in 2025. Macro trends such as high inflation, varying interest rates and investment return expectations have also fueled the emergence of specific industry trends. These present challenges and significant opportunities for the insurance sector.

The coming year will be one where we will see advancements and transformations of the industry.

Six trends

1. AI will continue to be seen as the way to optimise an industry that has historically been fairly slow to transform. A greater understanding of AI, its multiple useful applications will emerge along with a plethora of not-so-useful applications. In particular, companies that have strong foundations in data science approaches and good frameworks will find robust use cases. Those that do not will largely continue to experience AI as a money-pit.
2. Data abundance and availability of computing power will accelerate data becoming a strategic asset, which organisations will put real value on. There will be a rise in data sharing between organisations (with appropriate permissions and security measures) which will increase competitiveness and allow hyperpersonalisation. However, that will also widen to more risks of data security, personal data and cyber breaches.
3. Commercial lines insurers have long been talking about digitalisation, but activities will start to take shape as the market adopts new technologies. This will take the form of increases in portfolio trading, more business flowing to the wholesale markets of London and Bermuda, and Singapore and vastly more straight-through-processing and algorithmically underwritten business. These efficiency and analytical gains will significantly improve the capabilities of brokers and insurers to match risk to capital.
4. Regulatory frameworks will continue to evolve in insurance and make moves to keep pace with the changes taking place. Though this will now take a different direction, less in the financial reporting and capital space, and more towards conduct. Regulators will shift their focus on compliance and rules around data security, cybersecurity, usage of AI, pricing and modelling transparency and traceability. We could see further consolidation across Asia, driven by expectations of interest rates and the practicalities of recent regulatory change (e.g. IFRS17) becoming too costly.
5. Climate change will continue to impact losses with frequency and severity increasing. Coupled with inflation levels that do not seem to be cooling, that will lead to lower profitability and/or costs being passed to the customer. What’s important is to be analytically informed so that pockets of profitable risks can be targeted. Governments, insurance players and regulators will come together more to address climate change and the broader protection gap.
6. The idea of a centralised, consistent and integrated analytics function that drives all decision-making will start to take shape. This will bring capabilities of actuarial, underwriters and data science closer together to activities like pricing, underwriting, claims management and reserving. Winning companies will make the most out of the strengths of each to make quick, market-centric and granular decisions to drive the business.

The above was first published in the December 2024 issue of Asia Insurance Review magazine.

Author

---

Mehul Dave

Asia Pacific P&C Leader, Insurance Consulting & Technoloyg, WTW

email Email

---