In a recent interview, Sergio Ermotti, chairman of global insurer Swiss Re, commented that the macro trends currently supporting the insurance industry are ‘very strong’. In spite of a challenging few years, Ermotti believes that the global economic recovery from the COVID-19 pandemic and the potential for steady GDP growth in years to come means that the future of the industry is looking bright.

Ermotti said: “The world has become even riskier than we thought only a few years ago and in that sense I do see the need for many people to take on insurance. People are more risk-aware at an individual level but also companies.”

He continued: “And as we see in the next 10, 20 years GDP will continue to grow. We are quite positive that once we get out of this phase, GDP will continue to grow at 4-5% a year. Therefore, you will see the insurance sector benefiting from that.”

Challenges remain

Encouraging though these positive signals may be, one would have had to be living under a rock in recent months to not be aware of the troubling political and economic times we are currently living through. Soaring inflation and the resulting cost of living crisis in countries around the world is a “big issue”, according to Ermotti, as is the wider fallout of Russia’s ongoing invasion of Ukraine.

So, the question is: How can insurance leverage the positive trends currently shaping the industry, mitigate the negative ones, and move forward into a buoyant future?

It is a question that has been asked – and answered – by numerous household names in the financial and insurance sectors in recent months, including McKinsey, Deloitte, Forbes, Hitachi and PWC. From their research, two broad themes have emerged which should help insurers better understand how they can remain competitive and customer-focused while navigating the uncertainty ahead.

• Artificial intelligence

The rise of automation and digitisation across the insurance industry truly took off during the pandemic, with successive lockdowns and stay-at-home orders requiring businesses to adapt at lightning speed to a rapidly changing environment. As we emerge into a post-pandemic world, experts are all in agreement that AI is set to continue transforming the insurance industry for many years to come.

McKinsey’s report, entitled Insurance 2023 – The impact of AI on the future of insurance, points to a future in which the data collected from millions of integrated devices, including smart cars, fitness trackers, smartphones, home assistants and more, will be leveraged by insurers to better understand their customers, resulting in more personalised premiums, tailored products and new product categories. Advanced AI technologies could even be used to create ‘active’ insurance products, also known as ‘connected insurance’, with prices and cover tied to an individual’s real-time behaviour and activities. For example, if a driver decides to take a route that has a higher risk of car accidents, this could lead to their motor insurance premiums going up.

Hitachi also predicts that connected insurance will become standard practice in the future, as does Forbes, commenting that “global consumers are becoming increasingly comfortable with sharing their data, especially when it means they can receive discounts.” Forbes also predicts the increasing use of digital technologies to monitor clients and “issue warnings about risky behaviour”.

PwC’s report entitled Insurance reimagined: Spotlight on trust, convergence and transformation, similarly highlights the potential for the proliferation of data available from smart devices and the increasing pace of digital innovation and adoption to “create new opportunities for those insurers that can innovate at pace.” Again, it points to the ability of AI and advanced analytics to unlock new opportunities and processes that will better serve customers, such as event-based or use-based ‘on-demand’ insurance, real-time pricing and claims processing.

• A better customer experience

New technologies are also being leveraged to improve the customer experience, with many insurance customers now expecting simplicity, adjustability, personalisation and the ability to manage their policies, for example via intuitive online portals or mobile apps.

Indeed, Deloitte’s study, The future of home and motor insurance: What do UK customers want?, highlights customer demand for simple, flexible and non-invasive insurance solutions that offer a high degree of personalisation to each person’s individual requirements and circumstances. The report explains that the modern insurance customer favours an easy-to-understand policy with a simple claims process offering speedy and transparent payments following a claim. Its recommendations for insurers going forwards include allowing customers to choose their channel of choice (mobile app, online portal or over the telephone, for example), simplifying policy documents and other client-facing text, and making pricing simpler and more transparent.

Similarly, PwC emphasises the importance of personalised insurance solutions and advice, in addition to fully digital ‘insurance-as-a-service’ platforms, in meeting modern customers’ demands and bolstering their eroding trust in the financial services industry. Insurance-as-a-service platforms are developed by Insurtech (insurance technology) companies such as Outshared to provide insurance businesses with a ready-to-use, fully digital insurance platform that they can white-label in order to quickly launch their own digital insurance offering to their customers.

Meanwhile, Hitachi expects ‘value-added services’ to become the norm, with insurance providers eschewing traditional insurance products in favour of a more rounded offering that may include interactive risk reduction tools, educational content, personalised advice based on customer behaviour, custom-configured product bundles, and more.

The agency of the future

Looking to the future, insurance brokers (just like professionals across a broad range of sectors) must embrace artificial intelligence, advanced digital solutions and new ways of targeting and reaching customers in order to remain competitive. We are facing one of the most exciting and transformative times in the history of the insurance industry and at Focus, we are looking forward to keeping our brokers updated with new developments right here on our blog in the months and years to come.