Uncertainty, evolution, growth; these are the words that we encounter most frequently on our path to better understanding insurance market trends. These topics are directly related to the trends that according to PwC are already shaping the future of insurance: widening trust gap, rapidly evolving customer needs, growing prominence of digital and AI solutions, climate risks, and convergence. All these trends, however, point also to the common overarching theme of sustainability. People are indeed increasingly aware of the issue of climate change and current affairs are also negatively affecting their trust in the future. Because of this, they want to live the moment: everything should be rapid and easy as well as reflect their personal desires.
But how could this affect the insurance market?
Climate Change, Risk and Companies’ Adaptation
Insurance market executives are particularly concerned about all the insurability issues, profitability pressure and regulatory expenses that are related to climate change and its consequences. In this sense, climate change represents a major risk for insurers, as highlighted by the 2022 Capgemini and Qorus World Property and Casualty Insurance Report, which reports that nearly half of the sampled executives find it as worrying as cyber risk.
This topic, however, offers a unique opportunity for insurers: the substantial enlargement of the P&C risk pool which could derive from climate change may enable the growth of global premiums for P&C by 2 USD trillion over the next two decades, reaching 4.3 trillion by 2040. The incredible spread increase of this topic is also reflected in the number of sustainability-related terms mentioned in insurers reports, with the research by Capgemini noting a fourfold increase between 2015 and 2020.
At first sight this could seem a big opportunity, but this new market approach also needs an important commitment from the world’s financial and insurance companies. The more people become aware of climate change issues, the more they ask for a sustainable model to be pursued, including the adoption of a sustainable underwriting and investment policy.
This will lead Insurers to re-think their business approach, embedding climate strategies into their operating models, introducing extensive changes in their data strategy and in their attitude to risk prevention, and considering options other than exclusions when it comes to underwriting and investments. To achieve this, insurance companies will need to create a resilience ecosystem based on the collaboration between private and public entities and on the qualified support of climate specialists.
While more than half of insurance companies interviewed by Capgemini are aware of the importance of climate resiliency, only 8% of them could be defined as Resilience Champions in light of their sustainable business models and sustainable policies (green investments, disinvesting from unsustainable companies).
When it comes to sustainable investment policies, insurance firms are on average more focused on green investing and embedding ESG scores in their investments choices than on restricting investments or divesting from unsustainable companies. Further commitment should therefore be demonstrated in these last two categories as they represent key opportunity areas which could insurers attract new customers that are more attentive to ESG issues and climate change.
Making ESG a Core Value
As PwC shows, companies increasingly need to meet the requirements and standards expected by their stakeholders in terms of action, authenticity and accountability to embed ESG values into their company culture and business. Insurers still have much progress to make to build their ESG profile and realise their strategy to its full potential. But how can they do it?
According to PwC, the first step that insurers should take to demonstrate ESG tangible impact for clients is to elevate the understanding of ESG values inside insurance companies themselves, demonstrating how company staff can contribute to a sustainable future. This will help management embed ESG in the company’s business strategy, integrating it into core capabilities and adjusting functional strategies. This year’s edition of the Global Insurance Report published by McKinsey also suggests that insurers adopt a transparent and KPI-based approach when it comes to their initiatives and results, making their short- and long-term ESG commitments known and measurable.
ESG and AI
ESG and sustainability efforts can also be supported by the adoption of new technologies such as Artificial Intelligence. As ANITEC-ASSINFORM points out, companies need to collect and deeply analyse data in order to produce tangible results and understand them – and the only way to reach this goal is to adopt a suitable AI solution and to take part in digital innovation processes.
The implementation of AI systems represents the best solution to approach cyber security, agile products and sustainability in the right way. As highlighted by PwC, within 2025 the global market size of frontier technologies is expected to reach 3,200 UDS billions, with slightly less than 50% represented by IoT technologies and about 6% by AI.
Supporting Sustainability through Innovation
Sustainability efforts represent the real challenge of our time, with climate change affecting our lives every day. At RGI, sustainability is one of our core values. We are committed to creating and providing value in a way that is sustainable for our organisation and the context we operate in. Through our digital solutions and our attention to ESG issues, we seek to deliver innovative products to our clients and ensure a sustainable value chain building also strategic partnerships. Thanks to our technology, we help our clients meet the needs of their customers, so that they can offer them an efficient and sustainable insurance service.