The transformation of the insurance industry
In today’s fast-paced and uncertain business landscape, the insurance industry must transform and adapt to survive. In response to this wave of change, we’re launching a specialist insurance practice to support our clients across the following areas: Technology, Product, Finance and Operations. As part of our launch, we wanted to showcase some of the transformation we’re seeing in the insurance industry. Read on to find out more.
The macro-environment
AI will touch every single part of people’s lives and is beginning to do so right now. As we adapt to the sweeping technological and societal changes taking place, our expectations as consumers will change and cause a knock-on effect to the insurance industry in the products created and the way in which the industry is regulated for consumer protection. We’ll be looking in more detail at the AI revolution in our next blog.
Macro-events like climate change will play their part in risk assessment and new product development, with sustainability being a major focus for the insurance industry in 2024 and 2025. Climate change creates a myriad of new considerations and opportunities for the insurer of today. From dataset acquisition to analyse new or enhanced climate risks more accurately, to the Transition Plan Taskforce (TPT) that is guiding firms to developing low-carbon strategies, every insurance company must develop and integrate sustainability and ESG criteria into their processes to remain competitive.
As has happened in the past, the insurance industry must navigate economic volatility, including potential recessions and inflation fluctuations. Scenario planning and agile management of portfolios and supplier ecosystems are essential for insurers to remain resilient. Transparency in cost management and customer communication is critical to maintaining consumer trust and loyalty in uncertain times.
Data, data, data
A laser focus on data is fast becoming the single most important factor in sustainable business health and success. Unique sets of data and the quality of that data will become a critical component of a business’s competitive advantage. This is a particularly important consideration, given the rise of Insurtech organisations that have been built from scratch and are not hampered by legacy systems. These challengers are nipping at the heels of incumbents in the race to enhance operational efficiencies and create consumer-centric models, all at a faster pace due to low and no-code systems.
More data, more risk, but more opportunity
With increased reliance on data comes increased risk to cyber-security threats and the wrong data creating biased, inaccurate models that work against your customers. On the plus side, personalisation through data will take the industry into levels of customisation never seen before, providing more flexibility and choice to customers and market-leading advantages to those firms who get things right.
The reinsurance market faced significant challenges during January 2023 renewals. High inflation, reinsurer equity erosion and limited retrocession capacity, drove up prices and created more restrictive terms. To combat this, companies are revisiting their approach to risk, revising capital requirements and updating policy wordings to adapt new reinsurance terms.
A shifting regulatory landscape
For financial insurance, evolving regulations, transparency requirements, and technological advancements are causing seismic change. So, insurers not only need to provide forward-looking management information and reduce costs, but also deliver regulatory compliance and become fairer to consumers. Having a strong strategic outlook will help build resilience and ensure successful and enduring transformation to both individual companies and the industry itself. The upcoming January 2025 implementation of the Digital Operational Resilience Act (DORA) in Europe highlights the growing focus on digital and operational resilience within regulatory requirements.
Digital transformation
To keep up with technological advancements, as with all industries, insurance companies must transform digitally. They must adopt telematics, IoT and smart data analytics to further drive the evolution of the insurance landscape. To combat legacy systems and to enhance security, insurers must also develop scalable, flexible IT systems that can integrate AI operations and blockchain technology.
People and processes
Attracting and retaining talent has always been a fundamental success factor in running any business, and hiring for the future is no different. New skills across the board are required with a lot of automated processes coming in that need to be managed alongside data science skills for managing AI systems. As the regulatory landscape changes, transparency, technological advancement, consumer protection and compliance will have structural and financial implications.
Conclusion
All the trends we’ve covered here are important considerations for success in the future insurance industry. In the next three blogs, we’ll focus on three important and specific themes that the insurance industry will have to face as part of the AI revolution to come.
The follow-on posts in this series will focus on:
- The changes to the product and service landscape in the AI insurance industry and its associated risks.
- How AI is revolutionising operational efficiencies within the insurance industry
- The impact of AI on enduring markets like Lloyd’s of London, and how these markets are set to evolve
The companies that face up to the challenges and embrace AI will reap the benefits and create new opportunities – the others will almost certainly struggle. There’s no doubt that the right leadership, strategic planning and understanding will be the difference between success and failure in the insurance industry.
At The Siena Partnership, we work with our clients to recruit Insurance specialists and help their organisations innovate and deliver business success.
If you’d like to continue the conversation with our insurance expert, Tom Goodyear, contact him here: tom@thesienapartnership.com