Global insurance premiums are predicted to reach $10 trillion by 2030, according to Bain & Company’s report,
The research also highlights the evolving role of the insurance industry related to risk and incentivization. Despite death rates related to motor vehicle accidents in the U.S. declining, the report suggests climate change will increase economic losses by tenfold over the next three decades.
Andrew Schwedel, partner at Bain & Company and head of the Macro Trends and Bain Futures programs, said that the macro view of the data suggests the world is becoming riskier.
“The nature of risk is changing,” Schwedel said. “And new risks have barely started to be covered, like cybersecurity and climate and other emerging social needs. The economics of the industry are set to change in a way that will accelerate growth and improve profitability. Driven by technology and data analytics there is more opportunity for insurers to proactively manage and reduce claims’ costs before they happen.”
The role of the insurer is changing from reimbursement to loss mitigation and prevention in partnership with the policyholder, Schwedel added.
“Insurance clients that are good risks and proactive, thoughtful, will benefit from better pricing and more services,” Schwedel said. “Those that are bad risks, out of favor like heavy carbon-emitting industries, will find it harder to get coverage at a responsible price.”
The research shows that technology like automation and the internet of things can help policyholders prevent potential events. Technologies can reduce operational costs by as much as 50% through increased efficiency and reduce claims payouts by 20% by mitigating risk, according to the data.
The increased use of technology and data will also keep prices lower, Schwedel said.
“The ability to drive down operating costs will be essential to compete,” he said. “We are in the early data of insurance companies accepting automation. We are moving toward full end-to-end process automation with machine learning.”
The report highlights that as risk mitigation gains in popularity it will increase pressure on bad risks. For example,
The report includes five strategic questions for insurers to consider:
- How should we interact with customers to prevent and mitigate risk?
- Should we participate in embedded insurance?
- Do we need direct customer distribution?
- Do we need to be in China? If so, how? If not, where else should we focus growth?
- How aggressively should we explore alternative capital options?
