Every industry is in the midst of change — not just insurance. But insurance is tied to every industry, geography, and nearly every consumer or business, so the pressures insurers face are magnified by the pressures everyone else faces and vice versa. We’re all in this together.
Today’s macro-economic factors are impacting all industries, including insurance. For insurers, this has impacted profitability and growth in particular, creating stress. While stress can be a negative, it can also be a positive because it creates opportunities to overcome business stressors that give us a sense of optimism. We are an innovative industry of quick learners with a track record of resiliency. We can adapt and make substantive improvements for the good of our industry, our companies, and our customers.
For a deep dive into both the stressors and the trends, be sure to read Majesco’s Thought Leadership report, 10 Trends Shaping the Future of Insurance in 2024. For a quick look at how many companies will be dealing with stress in the coming year, keep reading.
What’s stressing us out?
Majesco research has identified twelve top-of-mind issues that come directly from insurance executive surveys in our upcoming annual Strategic Priorities 2024 report. These are points of stress that insurers will be dealing with in the coming year.
- Operational costs
- Cyber risk
- Technology advancements
- Economic issues
- Rising reinsurance costs
- Regulatory changes
- Access to reinsurance capital
- Legacy technology
- Shifting customer expectations
According to the latest projections by the Insurance Information Institute (III) and Milliman, the P&C insurance industry will not return to profitability until at least 2025, with a combined ratio forecast of 102.2 for 2023, following 102.4 in 2022. As a result, many carriers are pulling back in states and lines of business to curb the losses. Increased repair and replacement costs, increased risk and lower than approved rate increases are all contributing to the dilemma.[i]
For the L&AH insurance industry, AM Best’s Market Outlook in March 2023 indicated a stable outlook due to rising interest rates boosting net yields and relieving potential reserving concerns. However, the industry is still working through inflationary headwinds, risks due to recession, and the impact of COVID-19 on mortality rates. High inflation has eroded consumer savings, resulting in lower or nominal premium growth. However, higher interest rates are creating tailwinds for annuities and pension risk transfer opportunities.[ii]
Overall, the economic challenges are lasting longer than expected and the now firmer-for-longer interest rate environment will likely cut into 2024 recovery momentum as noted in the July 2023 Swiss Re Sigma report, World Insurance: Stirred, Not Shaken. The report further notes that persistent inflation remains the top risk for insurers. The economic slowdown will drag on the market, with total global premiums (non-life and life) forecast to grow at a below-trend 1.1% and 1.7% in real terms in 2023 and 2024, respectively.[iii]
Rethinking the business model and technology foundation must be the starting point and focus for dealing with these points of stress.
What can insurers learn (and do) quickly?
Insurers should keep tabs on the trends that are changing and reshaping the future of insurance. If we understand the most pressing issues and points of stress, then it will be easier for us to grab onto the right levers of change.
Let’s look at a quick example — property restoration.
Labor costs and materials costs are rising, which means that contractors and insurers both stand to be stressed. Insurance premiums must rise to meet those increased costs. But P&C insurers have a whole new toolbox, full of tools that can lower and mitigate claims. Claims data, artificial intelligence, machine learning and, over time, improved risk selection, can all be utilized to drive down claims. Prevention is profit. Prevention is a better customer experience. An insurer needs to prioritize using the tools of prevention and any others that support ongoing growth, customer retention, and profit.
This runs counter to some reactive measures, such as leaving unprofitable markets, or selling off unprofitable portions of the business, or shutting down certain products. Product and business change are inevitable, but they don’t always need to be the first line of defense. If insurers understand how technology interacts with trends, they can make wise decisions that won’t cause regret — and will keep them in a competitive position.
Future Trends for 2024 — Analysis and Response
In Majesco’s Future Trends report, we identified 10 trends that should be on your radar for 2024:
- Legacy debt is still deteriorating business operational costs.
- Robust growth is continuing in E&S lines and MGA/MGU.
- Channel expansion and ease of doing business are vital to most growth plans and retaining the best distributors.
- Product innovation will close both the protection gap and customer expectation gap.
- Pricing, rating, and underwriting speed and flexibility are improving to meet new risks.
- Data & analytics are “going supersonic” due to AI and Gen AI adoption and the proven value to the business.
- Risk resilience is taking front and center stage to reduce or avoid risk by working proactively with the customers, giving both greater stability.
- New claims operating and technology models will redefine claims.
- A new era of employees will make or break insurer operational and strategic plans.
- Next-gen architectures will provide a firm foundation for operational effectiveness, growth, and profit.
Each new trend deserves its own analysis and response.
- What does this trend mean to us?
- What is our optimal response to this trend?
- Should we think differently in order to accomplish something new?
- Can we capitalize on an opportunity arising out of this trend?
Signals about what the future holds are in play and intensifying. Inflation, supply chain challenges, rising interest rates, and low unemployment are not abating. Declining profitability, increased catastrophe losses, rising loss ratios, increased claims costs, rising reinsurance prices and tightening capacity, lower disposable incomes, and a growing loss of talent from an acceleration of retirements, are all converging.
These ten trends hint at answers that will meet all those stressors, and in fact, nearly all of them have an accompanying technology component(s) that can be utilized arising out of a next gen architecture. There are certainly operational considerations at every level, but of course, operations and technology are getting closer and closer every day.
The role of AI and Next Gen Architecture in relieving stress
One area of innovation, Artificial intelligence (AI), has risen to the top of insurance leaders’ focus with the launch of GenAI. It is an area of massive opportunity and is at the top of every C-suite.
While AI will require some regulation, it isn’t slowing the pace and potential use of AI to accelerate digitalization to meet the rapidly changing customer, employee, and risk needs in the market. It is already being used in areas where AI and machine learning can revolutionize insurance system architectures.
To meet the digital demands of both today and tomorrow, embracing a next gen architecture is essential. It is a paradigm that signifies a groundbreaking leap in software design, fueled by the pillars of modern innovation: cloud-native, API-first, microservices and containerization, headless, and embedded analytics. Next Gen Architecture includes:
- Cloud-Native Architecture: Insurers can leverage the full potential of cloud computing to enable scalable and containerized application creation and deployment.
- Open API Standards Compliance: Seamlessly integrate any aspect of the system with third-party services using adherence to Open API standards, ensuring superior interoperability and easy collaboration.
- Fully Headless Architecture: Embrace a completely headless approach for enhanced flexibility and adaptability. Respond swiftly to evolving market demands and user preferences, staying ahead of the competition.
- Microservices and Containerization: Benefit from isolated and portable application encapsulation, seamless scalability with microservices, enhanced resource efficiency, rapid deployment and rollbacks, DevOps enablement, infrastructure agnosticism, and improved security through reduced attack surfaces.
- Embedded Analytics in Core: Integrated advanced analytics, including business intelligence, AI/ML models, and Generative AI creates an intelligent core that propels insurers into the future of insurance innovation and customer-centric experiences with an ability to launch new products, value-added services, personalized experiences, and innovative channels.
Next gen intelligent core checks off all of the boxes by addressing insurance’s most problematic issues. It improves security. It improves transparency and compliance. It addresses cyber risk and operational costs. It gives insurers access (quickly) to new channels and data sources — and it analyzes and makes improvements on its own. It even enhances an insurer’s case for talent acquisition and retention by placing insurers in a position to compete in the short and long term.
It’s a new insurance era. Are you ready for a new foundation on which to grow?
Majesco is laser-focused on these top 10 trends with the portfolio of market-leading solutions including Intelligent Core for L&AH and P&C, Intelligent Sales & Underwriting Workbench, Enterprise Rating, Loss Control, Digital Customer and Agent Portals, Data & Analytics, Absence Management, and Distribution Management, helping our customers optimize operations, innovate and drive profitable growth.
Join myself and a panel of industry trend experts on January 31, for the Majesco webinar, 2024 Trends Reshaping the Insurance Business — Are You Ready? and be sure to read more insights on today’s trends in our recent report, 10 Trends Shaping the Future of Insurance in 2024.
[i] “Inflation, High CAT Losses to Lead to 2023 Underwriting Loss for P&C Industry, But Recession Likely Avoided This Year, New Triple-I/Milliman Report Shows,” iii.org, August 3, 2023, https://www.iii.org/press-release/inflation-high-cat-losses-to-lead-to-2023-underwriting-loss-for-pc-industry-but-recession-likely-avoided-this-year-new-triple-i-milliman-report-shows-080323
[ii] Kohlberg, Edward, “Market Segment Outlook: US Life Insurance,” AM Best, March 29, 2023
[iii] Aizpun, Fernando Casanova, et al., “sigma 3/2023 – World insurance: Stirred, and not shaken,” Swiss Re institute, July 10, 2023, https://www.swissre.com/institute/research/sigma-research/sigma-2023-03.html