The wild world of insurance in 2024: Stiffening competition, AI & generation gaps
Can artificial intelligence replace the insurance industry's reliance on historical data?
A lot of industry professionals ask, “What’s changing in the insurance world?” The better question might be, “What’s not?”
These last few years have been a wild ride for insurers, with disruption coming from almost every angle, from a global pandemic to a global recession. In 2024, expect to see even more disruption, but what kind and how will the industry remain competitive?
Insurers should be prioritizing how they move faster. The sector has a great history. Unfortunately, a mindset has emerged. Given that it is a regulated sector and we have a set of individuals who spend their whole lives thinking about risk, it’s very easy for them to say, “Well, we’ll do that later. We’ll do that next.” But what that tends to lead to is underestimating the risk of not moving faster.
For carriers to succeed in this environment, the most important thing for them to do is to find ways to get started sooner. And particularly, as you’d imagine given the many discontinuities we’ve seen in recent years — pandemics, climate change, etc., being able to do so based on data. And more than simply having the ability to analyze that data, how is it that you use the outputs of that data to operationalize innovations in your business?
In 2024, here are several trends I see coming to fruition:
Stiffening competition
We’ve seen a significant price-hardening cycle over the past couple of years. That may not end instantaneously, but I think we’ve seen the end of the cycle’s first phase. From here, we’re likely to see a transition as affordability of the premiums is biting into insurance carriers’ abilities to continue to grow their business, despite much better performance in terms of profitability and combined ratios.
As the pricing challenges decrease, however, the competitive market is becoming saturated and forcing new competitive dynamics. Gone are the days of a few insurers monopolizing the market. With consumers eager to have their insurance shopping experience simplified, third parties are now adding insurance to their products and services, taking competition in the market to a new level.
Underlying access to capital will abate
Whether it’s from external capital markets, bonds, and all the rest of it, or even from reinsurance markets, some of the vast run-up in cost to underlying capital is going to abate — to at least stabilize and probably abate — over the next year. What that means is it’s going to give a chance for insurers in general — carriers, agents, brokers and so on — to turn the page and think about what the next phase of their story looks like. And I anticipate that you’re going to see a real focus this time on growth with profitability.
The industry has been good at doing one of those at a time. It has only episodically been able to combine them. But with some of the new approaches we’re talking about, they should actually be able to get growth and profitability simultaneously. And for a fairly long cycle.
Generational gaps force change
Millennials versus boomers. Gen Z versus Gen X. Each generation has a different approach to driving, including how much, the type of vehicle, where and when. Add in other demographic differences between urban vs. rural transportation environments and infrastructures, and income bracket gaps, and it is clear demographic changes are impacting the industry.
Younger generations that have grown up with technology are more likely to embrace new ones, meaning insurers have more opportunities to create products and packages that are technology-based. Older generations are likely to remain interested in traditional offerings that deprioritize digital offerings.
Either way, gaps are emerging in the consumer base that will force insurers to address each segment accordingly. Addressing these gaps requires insurers to adapt their communication, products, and services based on each. This could involve offering a combination of digital and traditional channels, creating tailored insurance products, and providing educational resources that resonate with each generation’s concerns and values.
AI replacing historical data
Artificial intelligence is already optimizing various aspects of the insurance process — and the use of AI will only continue to grow in the industry. These applications can include underwriting, claims processing, risk assessment, fraud detection, customer service, and more. AI can help insurance companies analyze large volumes of data to more accurately price policies, identify potential risks, streamline claims handling and personalize customer service. Some specific use cases of AI in P&C insurance may involve natural language processing for policy interpretation, machine learning algorithms for risk assessment, computer vision for damage assessment in claims processing and chatbots for customer support.
Precise underwriting is key to insurers’ ability to remain competitive. But with unprecedented catastrophic weather events and the growth of electric vehicles on the road, insurers’ reliance on historical data isn’t relevant. AI replaces historical data, by making insurer data actionable at any given point in time. It is increasingly playing a crucial role in transforming insurance operations by enhancing efficiency, accuracy, and customer experience.
Take advantage of rays of sunlight
Things are turning around, albeit slowly. The economy is improving, inflation is down. Now is the time for insurers to accelerate. The competitive landscape is getting flooded and consumers have options. Take advantage of AI and increased access to capital to create experiences that leave a lasting impact on consumers — regardless of whether they have been a customer for 40 years or are newly insured.
Don’t plan for tomorrow. Act for today and better your tomorrow.
Aaron Wright is director of strategy at Earnix. He has more than 20 years of P&C actuarial experience.
Opinions expressed here are the author’s own.
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