Consumers and businesses alike are facing more risk than ever before.
Inflation, geopolitical tensions, and the climate crisis are defining the current generation.
While consumers are struggling with rising prices and high interest rates, businesses are grappling with credit risk, insolvencies, and supply chain pressures.
Against such a backdrop, there are of course knock-on consequences for the insurance market.
A number of these risks are proliferating across the industry, making the job of insurers even more challenging.
In a world where the stakes are higher than ever, can technology offer both prevention and a cure?
Surveying the future risk landscape
According to the recent FIS Global Innovation Report, 49 per cent of global executives that are concerned about environmental and business transition risk say they have already been impacted by it.
For executives of insurance firms, this number rises to 63 per cent.
Claims from natural disasters, unrest and instability are more and more likely, requiring disaster preparation and recovery strategies, which address secondary losses, infrastructure vulnerabilities, and alternative risk strategies.
Generative AI will be used to improve customer experience and streamline claims.An Axa emerging risks report highlights increasing financial risk, characterised by market vulnerability, low productivity and fiscal policies designed to lift economies out of crisis, with economic uncertainty in China potentially stoking global insecurity.
Adding fuel to the fire is the increasing sophistication of technology and the risk of its misuse.
In the Cyber Security Breaches survey 2023, the UK government estimates there were 2.39mn instances of cybercrime affecting UK businesses and approximately 49,000 instances of fraud resulting from cybercrime in the last year.
With the cybersecurity market expected to exceed $314.28bn by 2028, cyber insurance is among the quickest-growing lines of insurance coverage today.
The role of innovation in combating emerging risk
How the insurance industry responds to turbulence is critical for businesses and the public, and the role of technology is more crucial than ever. As a result, insurance companies are investing in innovation.
One such area of innovation is around predictive and personalised insurance driven by technology and supported by cloud computing.
Last year, 91 per cent of banks and insurance companies had begun their cloud transformation compared to in 2020, when only 37 per cent of firms had started the process.
FIS’ Global Innovation Report found that insurance leaders are using technology to respond to environmental and operational risk.
Featuring prominently in the survey were:
- Regulatory technology, which has been adopted by 56% of firms
- Cloud computing (52%)
- Generative AI (42%).
- 88% of the firms that use or are planning to use these technologies say they will help to mitigate macro risks.
The study also found that regulatory technology, cloud computing, and digital technologies supporting the customer experience will reach the highest levels of adoption by late 2026.
Artificial intelligence and generative AI have the most growth potential, with 45 per cent of the insurance firms in the survey planning to use them within the next year.
In the near term, insurance companies can be successful by improving their digital infrastructure to help manage their exposure to risk.
For decision-making and reporting, they need a clear, real-time view of cash flows and investments, with full confidence in the accuracy of their data.
Without visibility and control of these critical processes, it will become even harder to manage the ever-growing range of risks and comply with regulations.
As a result, we can expect to see more insurers update, digitise, and centralise their payment processes.
The long-term view: proactivity and prevention
Over the long term, insurers face some profound challenges, not least through an ageing population, with those aged 80 and over forecast to increase three-fold between 2017 and 2050 rising to 425mn people.
By 2050, 33 per cent of the world's population will represent the over 50 age group – which is double the 1990 figure.
According to research from CapGemini, ageing populations will require insurance characterised by personalised financial planning, wealth transfer policies and elderly care solutions.
Insurers must promote sustainability and leverage generative AI.Generative AI will be used to improve customer experience and streamline claims, leveraging data and the cloud to create intergenerational products.
Unpredictable economic and environmental conditions will compel insurers to be more proactive to mitigate risk.
In its annual global insurance outlook Deloitte highlights the shift towards a more preventative approach in 2024, marked by the rise of personalised insurance plans.
Again, advanced analytics and AI in underwriting and risk assessment will support individualised offerings.
In challenging conditions, insurers must promote sustainability and leverage generative AI to fuel operational excellence.
While sound governmental policies will enable the economic stability and environmental sustainability on which we all depend at a macro level, technology will play a major role in helping insurers to better protect consumers and businesses every day.
Martin Sarjeant is senior vice-president, solution management, insurance and climate risk, at FIS
