What’s in store for commercial insurance in 2023? This new Deloitte report looks to the future

A new report from Deloitte Insights anticipates the challenges and opportunities facing risk managers in 2023.

Deloitte Insights Insurance outlook for 2023 It provides a comprehensive overview of the issues that the Deloitte Center for Financial Services believes are most likely to reshape the insurance industry over the next year. This includes challenges already facing the insurance industry, threats still looming on the horizon and, fortunately, areas of potential opportunity and growth.

This report is intended to provide guidance to senior-level decision makers in the risk management industry, covering everything from “macroeconomic and geopolitical challenges” to the finer points of building cloud infrastructure. are investigating.

Threats and challenges

Some of the hazards that Deloitte predicts will be a factor in 2023 are all too familiar. Global economic volatility, Russian-Ukrainian conflict and the Impact on supply chainWhen Long-term effects of the COVID-19 pandemicnot to mention climate change and the result Increase in catastrophic weather events.

Other new risks are accelerating. Cybercrime, for example, remains a concern. “Ransomware frequency increased by 235% in 2021 compared to 2019,” and “average ransom payments increased by 370% in two years.” the report said.

Inflation, at its highest level in 30 years, continues to exacerbate some issues (such as labor, operating and other costs), while leaving others (such as more favorable investment yields and pension spreads) largely unaffected. No appeasement.

Markets in Europe and North America are returning to growth as recent non-life premium rate increases shield many insurers from the worst effects of inflation, especially in commercial lines. But inflation is pushing up loss costs and holding back profitability at least as quickly (as of May 2022, “average replacement costs have risen by 16.3%,” the report notes, while consumption (almost double the increase in the CPI).

Additionally, premium growth is likely to slow.

Global life insurance premium growth is actually projected to contract slightly in 2022, consistent with demographic trends, according to the report. As rapidly becoming the norm, buying insurance online with confidence is becoming less likely.

Rising interest rates associated with inflation can make it more difficult for insured persons to obtain or renew coverage, forcing them to cut back on spending, or even cause coverage to expire altogether.

Traditional insurers are embracing the rise of insurtechs (insurtech investments will hit a record $17 billion in 2021, just below the total investment in the last four years), and even “e-tailoring.” may face new competition from non-insurance entities such as and manufacturer. “

Finally, the insurance industry (like many other industries) faces a shortage of experienced talent as its experienced workforce approaches retirement age and its limited talent pipeline struggles to fill the void. facing shortages.

Growth area

As many risk and insurance executives recognize, where there is change, there is opportunity.

Inflation has stiffened the market, but there is still potential for “organic growth,” the report said. “more flexibility in terms, pricing and payments”; and “more comprehensive loss management services” in addition to increased cyber coverage.

Speaking of cyber: NFTs The bubble may have burst, at least as far as expensive digital art is concerned, the potential of crypto and NFTs associated with virtual activities set in the metaverse has not yet been fully realized, and the digital assets that exist are Most are still uninsured.

We don’t yet know how much coverage consumers will expect or demand for their digital assets, but we expect people to want more security as offline activities gradually shift to the digital space. is needed.

Green energy is another area ripe for growth, according to the report. Worldwide, buyers are expected to spend an additional $125 billion on insurance costs related to his green energy transition by 2030.

According to the London & International Insurance Brokers’ Association, “London’s insurance market has a size of 2,000 just covering the global transition to green energy for policyholders aiming for a net zero carbon footprint. It could double.”

Similarly (albeit operating on a longer timetable), self-driving cars will eventually divert billions of dollars in premiums from personal auto insurance to “manufactured and professional liability insurance.” vehicle.

This transition will take time, but insurers will need to plan ahead. Perhaps hybrid insurance should be designed to accommodate vehicles that alternate between autonomous and human-operated modes.

Opportunity for insurers

Some areas where Deloitte projects growth are specific to risk management.

Embedded insurance, i.e. coverage purchased at the point of sale of a product or service, such as travel insurance, car rental insurance or extended product warranty, will grow six-fold by 2030 as more buyers come in, totaling is expected to reach $722 billion. Expect these services as part of a more seamless customer journey. China and North America are projected to account for about two-thirds of that growth.

Mortality and short-term disability rates are still rising as a result of the global pandemic, but are slowly returning toward expected baselines (in contrast, dental claims declined during the pandemic). but is now increasing) ).

As these long-term fluctuations settle into more predictable patterns, a “more inclusive employee benefits package,” possibly in collaboration with third-party vendors, could be a boon for insurers seeking long-term organic growth. It can be attractive. Some states require paid family and medical leave in employee benefit packages.

This means that while some InsurTech platforms will be direct competitors to traditional insurers, others may offer valuable opportunities for collaboration. Especially in developing new services and ways of interacting with customers, or leveraging the data at your disposal.

As the Deloitte report points out, “many carriers still treat data as an infrastructure expense to manage, rather than as a strategic asset that helps them understand their customers’ needs and preferences. ”

Recreating traditional offline infrastructure in the cloud is a wasted opportunity. Instead, moving to the cloud should “be the beginning of an ongoing migration involving more data, systems, and processes.”

Emerging third-party provider of scalable “industry cloud” solutions with pre-configured functionality for user needs, allowing “segment-specific functionality to plug and play into more popular cloud constructs.” increase. In other words, it decentralizes the data architecture and the interface layer allows potential clients to reach new, more user-centric services in new, more function-oriented ways.

household management

Deloitte’s report also includes a more general set of priorities and principles to keep in mind for 2023.

The industry has been remarkably successful in adapting to the pandemic, made possible by investments in technology and talent that were already underway before the pandemic began, simply because the pandemic has proven its worth to stakeholders. Fully realized. resource.

Insurers must continue to invest in more virtualized and decentralized ways to attract consumers to fully capitalize on the “more agile digital infrastructure” needed early in the pandemic. there is. It’s about fully realizing the value and benefits of infrastructure and technology upgrades. “

This need to “prioritize higher levels of experimentation and risk-taking” goes beyond infrastructure to aggressively introduce new customer-focused products, services and sales options, as well as recruiting, (re)training and and retention of top talent.

In fact, the demand for both customers and talent highlights the growing importance of DEI and ESG, says the report. In the battle for talent, investors and market share, companies’ positions on diversity, equity and inclusion, environmental, social and corporate governance are increasingly likely to be deciding factors.

One of the drawbacks of many ESG measures is the difficulty of proving that they work. In particular, these measures tend to be passive, responding to regulatory and other external pressures rather than proactive ways that demonstrate true leadership.

To that end, groups such as the World Economic Forum publish metrics that insurers can use to measure their success against various ESG benchmarks.

Fortunately, risk managers are uniquely positioned to facilitate the transition to low-carbon and carbon-free energy.

As the Deloitte report points out, insurers can reduce their climate impact by encouraging the use of electric vehicles and property renovations. It also has the potential to offer new compensation for both emerging suppliers of renewable energy and traditional producers seeking to reduce their environmental impact to take the risk of moving to more sustainable energy sources. I have. &

David Agnew risk and insurance®.he can be reached at [email protected]

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