In 2023, the insurance industry continues to face challenges from a number of directions. Inflation and economic instability, cybercrime, political conflict, weather crisis events and more, are converging on the current market and forcing it to adapt and innovate. 

Those that fail to heed the warnings will suffer losses and liquidation. Equally, those that strive to innovate, still have much opportunity to succeed and scale. We’ve combed the current marketplace and compiled 20 essential trends all industry leaders need to recognise.

1. AI and ChatGPT will become recognised tools for the insurance industry

Insurer Zurich is testing how it can use ChatGPT artificial intelligence technology in areas such as claims and modelling, as it responds to the challenge posed by start-ups and bigger rivals, including China’s Ping An. 

It is the latest example of long-established businesses, from law firm Allen & Overy to newspaper publisher Reach, experimenting with the technology.

Ericson Chan, Zurich’s chief information and digital officer, told the Financial Times that AI could create “a huge amount of efficiency” in jobs such as extracting information from long documents and writing code for statistical models. “You’re not going to replace a developer, it’s a co-pilot. Similarly, for underwriting, for claims, it is not going to replace [people] but it is going to make it a lot more efficient.” 

Thomas Hauschild, CEO of the AI-based Claim Automation for P&C Carriers,  omni:us, also said: “We already solved the mentioned use case for cause of loss identification together with coverage checks relying on our purpose built Deep learning platform for claim automation.”

2. Increased resilience and agility continues to be a priority

The insurance industry is facing a unique and complicated set of risks that span many areas. Circumventing this could require investing in automation technologies and data aggregating solutions that drive down costs for both operations and the customer. Though unpalatable, larger operatives could face a streamlining of their workforce, as has been seen over the past few months from a number of key market operatives, such as Facebook, Meta and most recently, Accenture. 

Managing these risks through ew technologies will be essential in predicting market behaviours, responses and better resilience. EY Global Insurance Leader, Isabelle Santenac, said: “Advancing on their transformation journeys will help them [insurers] to navigate the economic downturn. Those firms that choose the right investments today will strengthen organisational resilience, improve agility and gain a sustainable competitive advantage as the economy inevitably returns to health.” 

3. Funding will continue to be tough

Startups seeking investment will continue to experience challenges as investors naturally gravitate towards longer established and larger incumbents that can bear the brunt of the financial instability and still offer strong ROI. However, companies with innovative offerings that deliver to untapped market demands, will still see interest. Javier Santiso, CEO and general partner of Mundi Ventures, recently said that the need for more disruptors has never been so robust. “The funding environment has cooled off from the 2021 euphoria, but the industry still offers huge opportunities and is waiting for much disruption. “We have seen a strong correction in public market valuations and some degree of pullback also in the private market.” 

He continued: “But in the long term, insurance is still a huge market with very low investment compared to fintech and health. It is great to see Insurtech Gateway launching a new fund to help close the insurtech funding gap.”

4. Climate risk insurers will continue to evolve

As climate and environmental events continue to strike unexpectedly, insurers are developing increasingly innovative ways in which to deal with risk and claims processing. According to Jonathan Jackson, CEO of Previsico, flooding and extreme storms will continue to challenge the insurance industry. “Flood is the most frequently occurring effect of climate change globally, and its severity is only forecast to get worse. According to the UN Intergovernmental Panel on Climate Change (IPCC), “climate change could increase the annual cost of flooding in the UK almost 15-fold by the 2080s under high emission scenarios.”

“More than 50 severe flood events around the world caused combined economic losses of US$82 billion in 2021, while insured losses stood at slightly more than US$20 billion, according to Swiss Re Institute’s sigma report. Clearly, insurers and those who live in areas liable to flooding must take the threat of climate change seriously. Not only are the losses eye-watering, but flood also has an impact across the entire ESG spectrum.” 

5. Crackdowns on greenwashing

ESG continues to be a potent area for every industry. As more stringent regulations are implemented, companies that use greenwashing to boost their Environmental and Social Governance reputations will be called increasingly into question. A greater emphasis will be placed on actually delivering strategies that can categorically prove beneficial to net zero goals.

There will be six key areas for insurers and reinsuerers to work during the next 12 to 18 months. These are: 

• Delivering specific ESG training, education and comms
• Acquiring and using ESG-specific data and metrics
• Building an approach for incorporating ESG into underwriting decisions
• Developing an approach for net-zero
• Going beyond “E” and thinking about social impact
• Identifying new ESG products and opportunities

 Danielle Gurrieri, Vice President Product Management, Broadridge, the New York-based financial services company says: “Environmental, Social and Governance issues will play a significant role in how investors choose to vote on proxies and places an increased emphasis on the corporate governance process at large. 

“This trend will continue to drive the need for technology-led solutions that help all industry participants consider ESG, whether it’s issuers looking to understand their investors views on topics that might appear on their ballot, brokers looking to bring ESG data points to their retail investors to make informed voting decisions, or funds hoping to incorporate ESG voting policy considerations.”

6. Enhancing the customer experience

Insurers that have demonstrated operational flexibility and resilience in recent years will prove advantageous in the tumultuous market to come. Advancements in claims processing and engagement with customers will continue to be a priority – especially as the cost of living crisis forces customers to rethink their budgets. According to Juniper Research’s Lead Analyst Nick Maynard, the current customer-centric movement within the insurtech sector is driven by a few key factors. He explains, “The big reason that customer centricity is being moved towards is that insurance providers have less scope to differentiate themselves on price.

“What we are seeing are factors such as the increasing importance of price comparison websites and intensified market competition for vendors, limiting how variable quotes can be provider to provider. Because of this, insurers need to establish their product as more competitive in another way, and the way they are doing that is by offering customers a better user experience.”

7. More company closures will happen

Recessions have historically given rise to long-lasting companies as scarce access to capital compels new entrants to seek out meaningful opportunities with robust unit economics, as opposed to the scattershot approach prevalent during periods of low interest rates and seemingly boundless venture funding. 

In 2023, the wave of firms to “die on the vine” looks set to continue due to a lack of ability to capitalise on product-market fit, compliance challenges, or inability to demonstrate a clear path to profitability. Final dividends are unlikely to be at risk but areas like claims inflation will be a drag on profits industry wide this year after an already bruising 2022.

The outlook for UK  non life insurance in 2023 is just as bad as it was for 2022, according to Ekaterina Ishchenko, a director at Fitch Ratings covering Europe, the Middle East and Africa.

“The margins are very, very thin,” she said. “We expect the combined ratio to be significantly above 100% for 2022 and 2023.”

8. API’s will continue to drive connections in the ecosystem

Every day, new platforms are emerging worldwide, and we are already witnessing the emergence of micro-insurance products that can be integrated into various marketplaces. This will drive product simplicity and promote targeted customer engagement and service.

This trend’s acceleration will persist in 2022, and the insurance industry will assume a more significant role in the broader technology ecosystem. Business leaders’ focus will be on extracting value from the technology, which will necessitate improved API utilisation and the establishment of partnerships with open architecture. A recent report from Covergo stated: “APIs are the only true bottleneck for any industry looking to digitalise its assets, so it’s important to understand how they work. You don’t need to be an engineer to read on, we’ll go over the importance of APIs, use cases with APIs in insurance software, and more.”

9. Crypto payments and DeFi assets insurance solutions

The financial system’s current turmoil means we often fail to see the other movements and innovations occurring. Insurance firms are increasingly embracing and integrating with technology. Some insurance companies are already creating payment mechanisms by utilising crypto solutions. 

Over the next few months, experts anticipate even greater expansion in technologies that enable unconventional payment methods. .

Assaf Tayar, Managing Director, BCG Platinion, predicts: “although it may take some time for a universal cryptocurrency market to materialise, blockchain will persist in generating new opportunities that will impact the insurance sector. Crypto and DeFi insurance is also a developing space.”

In February 2022, the Boston-based insurtech Breach Insurance launched Crypto Shield – the industry’s first insurance product for retail crypto investors. The provider offers parametric solutions, treating crypto as assets – and therefore offering some remuneration should losses be incurred. 

Eyhab Aejaz, CEO and Co-Founder of Breach Insurance, said: “Breach is on a mission to create new insurance capacity and products for the crypto economy, and the release of Crypto Shield is a major milestone in that mission.

10. Embedded products and services will soar 

As embedded insurance becomes more prevalent, carriers may find themselves adopting a defensive stance to counteract the growing loss of insurance customers to external companies in the automotive, real estate, healthcare, banking, and other industries. These industries will likely gain access to better insurance data using technology and may sell it to carriers.

According to the Embedded Property Insurance Report by Cover Genius, Homeowners, Landlords and Tenants will switch to embedded insurance sources in the future (+40%) at the cost of traditional insurers (-18%). This movement is similar on a cross-sector basis. 

11. Cyber insurance will become increasingly effective

In 2022, the extent of cyber insurance coverage was a topic of great interest, as Lloyds of London declared that it would no longer provide coverage for certain state-sponsored cyber attacks from March 2023. In conjunction with this announcement, Lloyds introduced four new Lloyd’s Market Association (LMA) clauses for use in cyber policies. These clauses exclude coverage for losses resulting from war and/or cyber operations initiated during war, retaliation by specific nations, or cyber attacks that cause significant harm to a state’s functioning.

It remains to be seen whether the scope of the new LMA clauses will be tested in 2023. Meanwhile, the market must balance the requirements of the insurance industry in insuring identifiable risks, the demands of the business sector in handling cyber threats, and the mutual desire to keep premiums competitive and manageable.

Innovations are driving progress, as companies such as Coalition pioneer increasingly reliable models through which cyber risks can be measured. Joshua Motta, Chief Executive Officer and co-founder at Coalition, says, “The insurance industry is uniquely positioned and capable of mitigating and protecting organisations from emerging cyber risks, and we are committed to protecting the hundreds of thousands of customers we serve.

12. Digital evolution to attract millennials

Insurers need to work hard to attract Millennials – especially in the Life insurance space In a recent report from Capgemini’s Samantha Chow, the VP and Global LA&H Sector Leader wrote: “Millennials, like an increasing number of us, value self-service purchases where user experience is king. To attract young, tech-savvy customers to life insurance, it must be convenient — available where and when they want it. As we grow more accustomed to digital shopping for just about all purchases, insurance will follow suit. The self-service insurance market’s compound annual growth rate is expected to increase by almost 21% through 2029.”

She added that targeting younger generations properly would go a long way in terms of lessening the protection gap in this marketplace. “While there is no one-fits-all solution to educating millennials on the benefits of life insurance and income protection, if we do it right, we just may be able to break the cycle and influence generations to come on why they should get started today too.”