PwC ranks climate risk & sustainability among top 5 trends shaping insurance

A new report from PWC has outlined five trends it sees affecting the future of insurance.

The firm, in its Insurance Reimagined: Spotlight on Trust, Convergence, and Transformation report, says that the five trends are a widening trust gap in an uncertain world; rapidly evolving consumer needs and preferences; an increasingly digital and AI-driven world; climate risk and sustainability; and convergence, collaboration, and competition.

Writing in the report, PWC said: “Insurers came through the tests posed by COVID-19 remarkably well. The industry not only met its escalating obligations to policyholders, including increased life and health claims, but also went above and beyond by offering free insurance to first responders, premium forgiveness and refunds. Insurers dealt with unprecedented interruptions to their business by accelerating its urgently needed digital transformation. And they proved their relevance in a time of extreme crisis, not only as an essential economic player but also as a provider of protection and peace of mind for businesses and individuals around the world.”

However, it said that the industry was facing challenges in those five areas.

It wrote: “The challenges to the industry come at a time when the global protection gap (the difference between actual and insured losses), which reached $1.4tn in 2020, is forecast by PwC to widen at an accelerating pace. With a growing need to find long-term solutions to address social and economic disparities and business resilience, insurers must go beyond their traditional mandate.”

There were also expectations, said the professional services firm, around ESG, both with investors and in underwriters of other corporations. 45% of insurance firm, said PWC, believe ESG is important to their underwriting, according to its own research.

It added: “Continued rapid advancements in digital and analytics capabilities, from inside and outside the industry, have put many players under pressure. We’ve seen a sharp increase in digital efforts and adoption in areas like distribution, operations and claims. However, insurers still lack speed and agility due to inherent complexities such as legacy systems and traditionally siloed operations. A fresh approach to digital is needed to drive a competitive advantage that can be sustained.”

Around the trust gap, PWC said that the financial services firms often score much lower among the public in this area.

It wrote: “This erosion of trust, combined with lack of access and poor financial education, has made customers less likely to buy insurance and has led to wider protection gaps and higher economic losses. Since about 2000, the global protection gap has drastically widened across all sectors, reaching $1.4tn in 2020. Our analysis estimates this gap could reach $1.86tn by 2025, with the Asia-Pacific region accounting for almost half of all uninsured risk.”

Modern-day consumers are also looking, said the firm, beyond financial protection and are instead in the market for more personalised solutions ‘presented in the context of their day-to-day lives’.

“To remain competitive,” it wrote, “insurers must reimagine how they serve customers, provide advice, and capitalise on new partnerships and innovative engagements in order to create sustainable business models that drive growth and enhance the customer experience.”

Digital innovation is also a trend.

Wrote PWC: “Insurers must fully embrace the digital future by leveraging the power of digital technologies, data and responsible AI4 for product offerings, pricing and customer engagement. The digital world will reward those who can innovate and adapt quickly, and insurers need to be on the offense with the right strategy, capabilities and urgency needed to win.”

There were also issues around ESG and the role this will play in the market.

Wrote the authors: “Because of their inherent expertise in risk management, insurers and reinsurers have a clear opportunity and societal obligation to lead the way in fighting the global climate crisis. Setting a long-term ambition that’s supported by tangible near-term commitments is the right first step to expand their relevance beyond risk transfer and to take an active role in changing outcomes on a broader scale.”

What is more, organisations are now able to collaborate and communicate within and across industry boundaries in ways that can create better value for consumers, said the firm.

It said: “To connect with customers in a way that is relevant to them, insurers need to rethink their partnerships and collaborations to go beyond traditional industry and competitive boundaries, and engage in ecosystems in which insurance is only a part of the customer value chain. Successful business models will drive increased collaboration with traditional competitors, emerging insurtechs, big tech companies and adjacent industries like manufacturing, retail , and healthcare.”

It concluded: “There’s also an expectation that insurers will need to play a larger role in making up for government shortfalls in climate change, elder care and healthcare. Collaboration will be crucial for the industry as it tries to solve for bigger systemic risks through public–private partnerships and build industry-level solutions.”

Source: Reinsurance News, PwC outlines five trends impacting the insurance industry - Reinsurance News