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Insurance Trends: 2 Key Trends You Need To Know 🚀

Are You Ready? 2 Key Insurance Trends That Will Impact The Market đź’Ą

August 19, 2024 • Estimated Reading Time: 8 minutes

Property Insurance

As property insurance rates in the USA gradually slow down, the global market finds itself in the midst of a reinvention fueled by a convergence of economic, technological, and environmental forces.  

Now, some might attribute this upheaval to the full moon in Aquarius, urging industry players to release what’s underperforming and embrace the tempest of innovation.  

Astrology enthusiasts might nod sagely and say, “Yep, the stars are aligning!” But for the pragmatic among us, let’s stick to empirical evidence (even though, if you feel curious about astrology signs, watch this). 

The Downward Rate Trend 

Why are property insurance rates easing off?

It’s not cosmic alignment—it’s good old-fashioned business acumen. Insurers flex their underwriting muscles, flaunt impressive financial results, and maintain stability in the reinsurance market. These three factors combine to boost capacity and refine rate and limit offerings. We could imagine it as adding extra lanes to the insurance highway—more room to maneuver. 

Zoom out, and you’ll see organizations playing a high-stakes game. They’re not just dipping their toes; they’re diving in headfirst. How? By taking on more risk through higher retentions. It’s like a financial tightrope walk—balancing risk and reward. And they’re not stopping there. Captives and parametric solutions—fancy terms for creative risk transfer methods—are all the rage. It’s like playing chess with the universe. 

Recently, Marsh released a report emphasizing the importance for property stakeholders to grasp three critical insurance market trends in 2024. These trends are essential for enhancing resilience: 

  1. The Rise of Secondary Perils: Often lurking in the shadows, secondary perils have emerged as significant risk factors. Surprisingly, they contribute more to losses than primary perils. Individual secondary peril events can result in losses exceeding $10 billion (for detailed information, refer to the AM Best report). 

  1. Balancing the Reinsurance Market: After a challenging 2023, characterized by steep price increases (up to 50%), the reinsurance market appears to have stabilized. Median risk-adjusted price increases have now settled into single digits following treaty renewals this year. 

  1. Addressing the Surplus of Uninsured Properties: In a post-pandemic landscape marked by record-high inflation, supply chain disruptions, labor shortages, and rising material costs, approximately 87% of buildings are undervalued. This situation arises when property policies are renewed without reevaluating their value. Shockingly, 68% of properties are underinsured by 25%, and up to 19% are underinsured by a staggering 100%, according to this study by Kroll agency. 

However, the specter of economic inflation remains ever-present. While it exerts pressure on the industry, it also impacts various facets. Higher costs, shifting closure rates, and unpredictable trends all play a role. 

The Digital Constellation: AI, ML, and Customer Centricity

Fast-forward to 2024. The insurance industry is diving into the digital deep end.

Fintech Global reports that a whopping 99% of insurance entities plan to upgrade their tech systems. Artificial intelligence (AI) and machine learning (ML) tools are the cosmic formula reshaping claims handling and processing. Brace yourselves—customer centricity is the rising star. It’s not just about policies; it’s about taking care of policyholders.

AI Technologies Adoption in Insurance Industry 

In this survey, Conning explored how AI is transforming the insurance industry, highlighting both opportunities and challenges. It has been found that while adoption varied, ML/PA and NLP had the highest rates of deployment. Notably, LLMs showed significant potential. 

This year, 77% of respondents reported being in some stage of AI adoption, a 16-point increase from 2023. The survey also revealed that 67% were piloting LLMs, the most tested technology, signaling future adoption of generative AI. 

ML/PA was either in early adoption or fully adopted by 44% of firms, with sales and underwriting leading at 54%. 

According to KPMG, GenAI adoption in the insurance industry offers valuable insights for enhanced decision-making in risk assessment and underwriting, while automation frees up human resources for more complex tasks. Key uses include: 

  • Fraud detection: AI algorithms identify fraud patterns in claims, preventing significant financial losses. 

  • Customer personalization: AI leverages customer data to create tailored products and services. 

  • Faster claims processing: Automating routine inquiries and claims speeds up service delivery. 

  • Legacy system integration: AI extracts logic and data from legacy systems, enabling them to interface with modern solutions. 

  • Learning and Development (L&D): AI-driven L&D promotes ongoing reskilling, making employees more adaptable to industry changes. 

 According to Gartner, Global AI software spending in the insurance market is forecast to increase 17.4% in 2024 to $9.5 billion and reach $15.9 billion by 2027E, with a five-year CAGR of 18.2%. 

Quick Snapshot topic: Reinsurance - The Brave Investor’s Path

Enough fretting about economic inflation! Let’s shift our gaze to the insurance industry’s secret weapon: reinsurance.

The Q1 Revelation

James Vickers, Chairman of Gallagher Re International, drops wisdom: “This Q1 2024 for reinsurers has been almost more fantastic than Q1 2023 and the full-year 2023 results”. Reinsurers are flexing their financial muscles, and this fact makes them stronger than a triple-shot espresso. 

The Cedents’ Bonanza

Gallagher Re spills the beans: If you’ve got a snazzy explanation for underwriting and pricing improvements, you’re golden. More capacity, better prices, and cozy terms await. It’s the secret sauce for successful placements.

Profitability Magic

Reinsurers are minting gold coins. Buyers? They’re dancing through open doors. Efficiency graphs high-fiving financial performance charts—it’s a reinsurance fiesta.

Source: AM Best