Geopolitical tensions and greater vulnerability, as well as cyberattacks, data breaches, and climate change, will make it difficult for insurance businesses to forecast, measure, and handle every financial and operational consequence that may arise.
As the year 2024 approaches, insurers can bet on one thing: Expect the unexpected.
As a result, insurers who stay agile and embrace uncertainty will continue to succeed—one unexpected incident at a time. However, these successes will be heavily reliant on an insurer’s ability to proactively exploit new technologies, consumer interactions, product design improvements, and coordinated business goals.
Here are five major trends that insurance leaders should monitor in 2024 to stay ahead of the curve and react to the industry’s ever-changing risk environment:
Artificial Intelligence (AI) Matures
Generative AI and other innovative tools will continue to provide insurers with significant opportunities to enhance their performance through improved operational efficiency, new analytical insights into potential risk exposures and underwriting opportunities, and more flexible and responsive product development and customer interactions. Concurrently, watch for industry regulators to continue to voice concerns over insurer use of these advanced technologies given trust issues that have defined early deployments of AI by businesses of all types, including the potential for unintended bias to result against legislatively protected classes.
What to Watch: AI, machine learning, large learning models and derivative applications will continue to mature and revolutionize insurance marketing and sales, rating and pricing, underwriting, claims processing, fraud management and other functions. At the same time, expect insurance regulators to closely monitor and tighten controls on AI usage within these functions and others — all of which will create considerable operational challenges, as well as legal, reputational, organizational and financial risks for non-compliance.
Consumer Expectations Change
The direct-to-consumer distribution trend will continue to affect many industries, forcing insurers to reconsider their current operating structures, products, and services. Younger insurance customers are increasingly preferring convenient internet goods from recognised carriers.1 As a result, established providers will continue to transfer their operations to new online facilities that will improve access, speed, and end-to-end customer service, allowing them to compete more effectively with digital-first companies. Furthermore, the market for embedded insurance, i.e., coverage provided in conjunction with the purchase of items or services such as extended warranties and travel policies, is predicted to expand in 2024.2
What to Watch: According to global insurer Munich Re, embedded property and casualty insurance “is expected to grow at CAGR 25% until 2030 and could account for over US$ 500 billion in gross written premiums globally by 2030, or 20% of the total market worldwide.”3 Reaching younger consumers on social media through advertising and other creative marketing tactics also will remain important, as will cross-sector collaborations that facilitate marketing to customers at the point of sale. Increased use of Internet-enabled home appliances and infrastructure-focused sensors also will present material business opportunities for insurance carriers to provide additional value and protection against expensive risks such as water leaks, high wind losses and other climate-related damages.
Cyber Insurance Demand Rises
The risk and cost of cyber breaches and ransomware attacks are expected to grow geometrically. According to IBM, the average cost of a single data breach in 2023 was about $4.5 million.4 Increased adoption of new technology, such as AI, will only increase these threats in 2024 and drive up demand for cyber insurance protection products. In response, insurers will be challenged to deliver needed coverage at a reasonable cost, especially given the reality that the nature and scale of potential losses are still difficult to predict.
The proliferation of cyber threats and attacks will continue to challenge the insurance industry to develop new and effective protection products. But as the industry has realized with the National Flood Insurance Program, a comprehensive solution for cyber will require a broad public-private partnership.
What to Watch: To meet market demand, insurance companies will continue to hone their cyber insurance prediction capabilities, coverage limitations and related pricing models. Moreover, the cooperation of private insurers and public entities — i.e., federal government, state or local officials — will provide a more holistic solution in combating cyber threats.
Emerging Economies Continue to Grow
In the past decade, economic growth and an emerging middle class in Latin America, Asia and Africa have driven demand for more consumer goods and services.5 These developments will continue to provide insurance companies with new opportunities to deliver life and personal property protection products and services. Even more, rapid technology adoption in these fast-growing markets means consumers in these regions can access convenient, digital direct-to-consumer offerings.
What to Watch: According to Microinsurance Network, health microinsurance was the largest product line in Africa and Asia in 2021, covering 104 million people. In emerging markets, there is significant growth potential for microinsurance products in 2024 for firms that can successfully address underwriting risks related to climate change and geopolitics while also overcoming operational challenges such as consumer education, dispersed populations, and high delivery costs.
Climate Change and ESG Compliance Evolve
In December 2023, the Biden administration announced several initiatives to “accelerate climate action” ahead of the 28th U.N. Climate Change Conference (“COP28”) in Dubai, including the expansion of parametric insurance to help “vulnerable countries respond to climate impacts.”7 Given the increasing frequency, unpredictability and severity of natural disasters in disaster-prone areas, these pledges underscore the ongoing challenges that insurers globally will continue to face this year in calibrating their risk models around climate change.
What to Watch: In 2024, we may anticipate growing regulatory and investor pressures, particularly from activist stakeholders, that will continue to test insurance companies. Furthermore, new reporting standards will place further pressure on insureds’ finance and internal audit teams to appropriately disclose risks and meet compliance obligations. As a result, carriers that work with regulators to effectively predict, evaluate, and monitor the appropriate environmental risks will succeed in developing climate change solutions.
Conclusion
As the trends mentioned above continue to play out in 2024, many insurers will use both internal resources and independent expertise to reconfigure operating models, plan for and execute robust remediation efforts, develop new products, improve existing customer interaction capabilities, and strengthen regimes for ever-changing compliance requirements. At the same time, advances in data mining and analytics decision-support tools, combined with cloud-based technologies, will allow them to more efficiently and effectively assess and price customer risk exposures, process claims, manage fraud, and perform other critical functions — all of which will be used to pursue their growth strategies and other key business objectives.
In short, today’s insurance executives are confronted with market disruptors at unprecedented rates. Stakeholders will rely on them to properly address these difficulties by identifying and implementing appropriate solutions as they adjust to the changing business environment.
