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Transformation ahead, but mastering AI is set to be a key differentiator

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Published on:30th May 2024
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The latest Allianz Global Insurance Report highlights the “remarkable” growth of the global insurance industry in 2023. At an estimated +7.5%, last year’s growth is the fastest since 2006, the year before the financial crisis. Across all segments, insurers collected more than EUR 6 trillion in life, P&C and health insurance premiums, though after taking high inflation into account, real premiums have increased by a mere +0.7% since 2020.  Although market penetration lingers at around 7.1%, Allianz reports on significant differences within individual segments, with an increase in health insurance (hardly surprising given the three years dominated by a global health crisis..) and a significant drop in life insurance attributed to “ultra-low interest rates.”

Regionally, the report paints a mixed picture, with varying performance across different markets. Asia has emerged as a significant growth engine, especially in the life insurance sector while North America remained dominant in the P&C and health segments, accounting for 55.2% and 72.4% of absolute premium growth respectively.

Despite these positive growth figures, the report outlines several mounting challenges ahead for insurers.

A new risk landscape

Climate change remains one of the biggest challenges facing our industry in the immediate future. The increase in extreme weather events, such as heatwaves, droughts, storms, and flooding, highlights the tangible impact of our changing climate. At $1,000bn, secondary perils such as hail, floods, storms and wildfires now cost more than primary perils.

We’re seeing more examples of states stepping into the role of “reinsurer of last resort”, acting as a backstop for losses that exceed the sector’s capacity. Though such arrangements can be beneficial and provide a level of added security for clients, Allianz cautions against states overextending their reach into the insurance value chain.

The global economy continues to grow steadily, but despite a largely positive outlook, there are high levels of political and economic volatility and emerging powers looking to assert their global influence. The report cites the deterioration of US-China relations as a particular example of conflict that could destabilise global economies.

Against these challenges, the report reinforces the need for insurers to “defend their relevance”. As prices rise and the world becomes more uncertain, insurers must act now to broaden their value proposition, offering risk mitigation and advising customers how to adapt and build resilience into their operations.

AI: The next frontier

Artifical Intelligence, or AI, is cited as having one of the biggest positive impacts on insurance in the coming years, with the report stating that “the gains in productivity, creative problem-solving and resource management that can be derived from AI can drive societal progress and economic growth on an unprecedented scale.”

Few industries rely on data as heavily as ours, so those companies that can harness AI and use it to their advantage will thrive as AI only continues to improve.

The role of AI in commercial and specialty underwriting is something we’ve been championing for years, and we’ve seen the rich benefits our customers derive from the strategic and targeted implementation of artificial intelligence.

Allianz points to a huge range of processes that can be augmented and improved by AI, from image analysis, predictive analytics and natural language processing (NLP) to risk prevention and mitigation. Crucially, they point to the importance of keeping a human in the loop.

We regularly talk to underwriters about their fears of ‘machines taking over’ and are always quick to point out that there will always be a place for hard-earned expertise, skill and gut feel; the art of underwriting. What today’s AI solutions do is remove the administrative burden from the underwriting process, and augment their data so they can have a better, deeper understanding of the risks crossing their desks. To this end, the report underscores the importance of keeping humans in control and highlights the importance of factoring in broader considerations beyond the AI itself. Successful integration of AI must be complemented by new ways of working, new skills and new governance to ensure it fits seamlessly into the organisation.

It’s clear from this year’s report that despite showing signs of significant growth, underwriters cannot afford to become complacent. Transformation lies ahead in many forms, and the mastery of tools such as AI will be critical to helping them rise to meet these challenges to maintain the strong and sustainable position of our global market.

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