The future of insurance: top trends shaping the industry in 2025

As we approach the mid-point of the decade, the insurance industry is experiencing a significant transformation driven by technological advancements, changing consumer preferences, and evolving regulatory landscapes. These disruptive forces will significantly impact distribution, underwriting, pricing, and claims processing processes, pushing insurers to rethink their traditional ways.

Based on a comprehensive analysis of recent research and forecasts from reputable sources such as Celent, PWC, Gartner, McKinsey, and Accenture, we have identified the top trends that are set to shape the insurance landscape by 2025. These trends encompass a wide range of areas, from artificial intelligence and digitization to advanced analytics and next-level process automation.

In this blog post, we will delve deeper into these trends, discussing their implications for insurers and how they can leverage these developments to drive innovation, enhance customer experience, improve operational efficiency, and ultimately, secure a competitive edge in the market.

Widening protection gap

The challenges to the industry come at a time when the global protection gap (the difference between actual and insured losses), which reached US$1.4tn in 2020, is widening at an accelerating pace, according to PwC research. PwC’s analysis estimates this gap could reach US$1.86tn by 2025, with the Asia-Pacific region accounting for almost half of all uninsured risk.

What does this mean? For insurers, this presents a significant opportunity to expand their market and bridge the protection gap through innovative products and services. At the same time, it also highlights the need for insurers to adapt and evolve in order to effectively reach underinsured customers and provide them with relevant coverage options.

Shift from 'Promise to Pay' to 'Promise to Help'

A significant shift is anticipated from a 'promise to pay' model to a 'promise to help' model, particularly in health and car insurance sectors. This entails evolving from merely compensating for losses to encouraging proactive preventative measures, such as improved exercise, diet, or driving behaviors that reduce carbon footprints.

What does this mean? Insurers will need to collaborate with other industries, such as healthcare and technology, to offer customers personalized solutions that not only protect against potential risks but also promote healthier lifestyles. This shift will require insurers to gather and analyze more data to understand customer behaviors and preferences, as well as invest in new technologies to deliver tailored services.

Digitally-Driven Customer Experience (CX)

The insurance sector is expected to increasingly leverage digital technologies to enhance customer experience. This includes engaging in digital ecosystems, building unique customer intelligence, and designing products and services to meet the demands of a digital world.

What does this mean? To stay competitive, insurers will need to adopt technologies such as artificial intelligence (AI), machine learning, and Internet of Things (IoT) to improve customer service and streamline processes. This can include automating routine tasks, utilizing chatbots for customer inquiries, and developing personalized pricing models based on real-time data.

An increasingly digital and AI-driven world

Technology will continue to play a crucial role, with insurers scaling down legacy systems in favor of emerging no-code technologies. This transition aims to alleviate the resource strain posed by outdated systems and pave the way for modern, tech-driven insurance solutions.

Accelerating technology trends will transform the nature of insurance, with auto insurance risk shifting from drivers to the AI and software behind self-driving cars, and real-time data sets giving insurers unprecedented visibility into risks​.

What does this mean? Insurers will need to adapt to the digital and AI-driven landscape by incorporating new technologies into their operations. This includes phasing out outdated systems and implementing emerging tech solutions such as no-code platforms. In addition, insurers will need to rethink traditional risk assessment methods as technology continues to evolve and impact various industries.

Climate risk and sustainability focus

Insurers are likely to heighten their focus on climate risks and sustainability, embedding Environment, Social, and Governance (ESG) principles at the core of their organizations. This also includes making ESG actions and results transparent, showcasing a commitment to social responsibility alongside business objectives.

Climate risk, along with increased Environmental, Social, and Governance (ESG) demands, is pressing insurers to integrate sustainability principles at the core of their business strategies. A significant portion of global insurers (85%) foresee ESG impacting all functional areas of their business, with climate change mitigation being a primary driver of their ESG pursuits.

What does this mean? Rethinking how insurance companies operate, with a focus on incorporating ESG principles and addressing climate change risks. Phasing out paper and manual processes to reduce the company's carbon footprint and incorporating renewable energy sources into operations are examples of actions that insurers can take to demonstrate their commitment to sustainability.

The rise of ecosystems and platforms

The emergence of ecosystems and platforms is a significant trend, with McKinsey anticipating 12 distinctive and massive ecosystems encompassing various human and organizational needs to emerge by 2025. These ecosystems are expected to account for 30% of all global revenues, indicating a substantial shift in how business is conducted and value is created within the insurance sector.

Ecosystems will account for 30 percent of global revenues by 2025 - McKinsey

Consumer ecosystems currently emerging around the world tend to concentrate on needs such as travel, healthcare, or housing. Business-to-business (B2B) ecosystems generally revolve around a certain decision maker—for example, marketing and sales, operations, procurement, or finance professionals.

The industry will embrace customer-centric ecosystems through the creation of networks with trusted partners and alignment of operating models for multi-nodal value creation. This collaborative approach is aimed at reimagining customer value and enhancing service delivery.

This transition necessitates reevaluating traditional roles, enhancing customer engagement, and forming strategic partnerships, especially with tech and analytics startups, to broaden value propositions and improve risk prevention measures. In the long run, embracing ecosystem strategies could enable insurers to expand into new business areas, offer innovative solutions, and leverage analytics for better risk assessments and pricing models, thus adapting to the evolving digital landscape and ensuring sustainable growth.

What does this mean? Insurance companies have the opportunity to create new sources of revenue by rethinking their traditional roles and adopting an ecosystem mind-set.

Talent acquisition and upskilling

The digital transformation wave necessitates a new set of skills within the insurance workforce. Hence, there's a crucial emphasis on talent acquisition and upskilling to ensure that insurers remain competitive and innovative in a rapidly evolving industry landscape.

The changing trends in talent acquisition are shifting towards hiring individuals with a diverse range of skills beyond traditional insurance expertise, such as data analytics, artificial intelligence, and machine learning.

In a bid to stay competitive and innovative, insurers will engage in a race for talent, redefining the future of work, harnessing the power of culture, and upskilling their workforce to meet the demands of a rapidly evolving industry landscape.

What does this mean? Insurers will need to attract and retain top talent, adapt to new work practices, and continuously invest in upskilling their employees to thrive in the insurance ecosystem of the future. This includes developing technical skills such as data analytics and artificial intelligence, as well as soft skills like collaboration and creativity.

Addressing the trust gap

According to the 2022 Edelman Trust Barometer, only 54% of respondents trust the financial services industry, 10 percentage points lower than the average for other industries in the report. 

Expectations are mounting for the industry to play a greater role in environmental, social and governance (ESG) issues, as both investors in and underwriters of other corporations.

What does this mean? Insurers will need to prioritize building trust with their customers and stakeholders by actively addressing ESG concerns and incorporating sustainable practices into their operations. This may include investing in green initiatives, promoting diversity and inclusion, and transparently communicating their impact on society and the environment.

No-code/Low-code development

The increase in IT spending within the insurance sector, projected to reach $271 billion by 2025, further underscores the industry's movement towards a more digitally-driven operational model.

There's a growing momentum towards the adoption of low-code/no-code tools which make the digital transition more accessible to insurers.

What does this mean? This trend allows for faster development and deployment of digital solutions, reducing reliance on traditional IT resources and enabling insurers to quickly respond to changing customer needs. It also promotes collaboration between business and technology teams, allowing for more efficient and effective problem solving. Insurers who embrace low-code/no-code development will have a competitive advantage in the rapidly evolving digital landscape.

The Impact of AI

The world of insurance is on the cusp of a seismic, AI-driven transformation.

The global AI in insurance market size was valued at $2.74 billion in 2021, and is projected to reach $45.74 billion by 2031, growing at a CAGR of 32.56% from 2022 to 2031.

Understanding and adopting AI technologies is not an option but a necessity for insurers. Crafting strategic plans, developing comprehensive data strategies, and building the right talent and technological infrastructure are critical steps towards embracing this change.

What does this mean? Insurers who view these disruptive technologies as opportunities rather than threats stand to gain the most. By 2030, the face of the insurance industry is expected to drastically change, and those who adapt will be at the forefront of this revolution.

Real-time data and advanced analytics

The use of real-time data sets, facilitated by satellites, drones, IoT devices and other data collection technologies, will provide insurers with unprecedented visibility into risks, enhancing the accuracy of underwriting and pricing models.

What does this mean? It's time to say goodbye to relying only on historical data, as real-time data becomes the new standard for insurers. By analyzing vast amounts of data in real-time, insurers can gain a deeper understanding of their customers, identify emerging trends, and make more informed business decisions.

Consumer-centric models and embedded insurance

The transformation towards more consumer-centric models is evident, with embedded insurance being highlighted as a notable trend. This entails integrating insurance services within other consumer-oriented platforms or services, enhancing the accessibility and relevance of insurance offerings.

According to Chubb, 81% of financial executives that make decisions about insurance products believe that embedded insurance will turn from a nice-to-have to a must-have. This trend will also enable insurers to offer more personalized and tailored insurance products based on a consumer's individual needs and behaviors.

What does it mean? Insurers must shift their focus from traditional distribution channels and take advantage of digital platforms and partnerships to embed insurance into everyday consumer experiences. This allows insurers to tap into a wider market, provide more relevant products, and ultimately increase customer satisfaction.

Regulatory evolution

The evolving regulatory landscape poses both challenges and opportunities for insurers. This necessitates agile operational models capable of adapting to changing regulatory and market conditions.

Furthermore, the rise of new technologies such as blockchain and smart contracts has resulted in regulatory uncertainty, requiring insurers to collaborate closely with regulators to establish clear guidelines.

What does this mean? Adapting to these changes can also lead to significant opportunities for insurers. With the increasing use of digital platforms and data analytics, insurers can gain real-time insights into their operations and customer behaviors, allowing for more efficient risk assessment, pricing, and underwriting.

Customer-centricity

The rise of digital platforms has also resulted in a significant shift towards customer-centricity within the insurance industry. With increasing competition and consumer expectations for seamless and personalized experiences, insurers are now focusing on enhancing their customer engagement strategies.

This includes leveraging data analytics to gain insights into customer behaviors and preferences, providing more flexible and personalized insurance products, and improving customer service through digital channels.

• Remote Interactions and Digital Sales: The pandemic has accelerated the shift towards remote interactions and digital sales, enabling insurers to reach and serve customers through digital channels effectively. Now this is a mainstay in the industry, with digital platforms and sales channels becoming a crucial part of an insurer's customer engagement strategy.
• Real-Time Customer Engagement: The use of data analytics allows insurers to gain real-time insights into their customers, allowing for more personalized and relevant interactions. This includes targeted marketing campaigns, proactive risk management advice, and tailored insurance products based on individual needs.
• Improved Customer Service: With the use of digital platforms, insurers can now offer more efficient and convenient customer service, such as chatbots for quick assistance, online self-service portals for policy management, and mobile apps for easy claims filing.

What does it mean? This shift towards customer-centricity and digital engagement means that customers can now expect a more personalized and seamless insurance experience.

Strategic imperatives

These trends highlight an era of notable transformation within the insurance industry. The focus is heavily on digital advancement, sustainability, customer orientation, and organizational flexibility. Each trend carries the potential to drastically influence the operation of insurers, their customer engagement, and their contribution to wider societal objectives.

So how can insurers stay ahead? Here are some strategic imperatives that can help insurance companies thrive in the age of digital transformation:

1. Modernize core technology
2. Optimize operations
3. Differentiate through ecosystems and partnership
4. Go on the offensive with digital
5. Embrace customer-centric ecosystems to create new value
6. Embed ESG (Environmental, Social, and Governance) in your organization’s core
7. Win the race for talent
8. Put a premium on execution

In the face of rapid digital transformation, insurance companies that prioritize customer-centricity, modernize their technology, and cultivate valuable partnerships will be most poised to thrive in this evolving landscape.

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