The consumer price index rose 2.3% in the last year, while motor vehicle insurance rose on average 6.4% — but we know that many insurers raised rates far more depending on the state and car. If you add other consumer costs and pressures like eggs (up 49%!) and meat (up 7%) and dining out (up 3.9%), then place those common pressures on top of more complex insurance risk and rates — insurers have every reason to wake up and smell the coffee (up 20%).

The level of uncertainty and change continues to fluctuate, sometimes dramatically. Consumers and companies are still moving forward with confidence, hopeful that some stability can come, but understanding that there are some looming threats ahead that may make for a rough walk. Rising risk and catastrophic events are placing extra pressure on insurance risk management, pricing and rating, and profitability. Some insurers are finding that their business models and technology are out of sync with their efforts to adapt to the market demands, let alone predict, prevent in a new world of risk.

The explosion of data and the vast power of analytics, including AI and GenAI, has the power to change the economic equation for insurers by allowing them to rethink the business operating model of insurance. Next-gen intelligent solutions will allow access to all operational data that can be used by the intelligence embedded into insurance business processes and workflows — the entire spectrum of analytics from BI to AI/ML and GenAI. It will reinvent how insurers do business, drive down operational costs that can reduce the expense ratios, evolve the insurance risk landscape, and provide better risk assessments and insights than ever before.

This is necessary, not only for individual insurers, but to customers and communities who are impacted by the uncertainty and impact of climate of risk.

A matter of motives

Are insurers motivated to change? You can look at the many reasons why insurers need to quickly adapt their processes and technologies to fit the realities and risks pervasive in today’s world. But is their motivation to change and define business value, so that it will push the industry to act now? Majesco looked at eight of the most prevalent trends in our 8 Trends Shaping the Future of Insurance in 2025 report. But a couple of those trends and drivers speak specifically to the economic challenges. How can insurers solve the economic equation using all they have at their disposal? Is now even the right time to begin? What if insurers simply wait until some of these issues “shake themselves out?”

Here are three reasons why insurance leaders can be certain that now is the right time. To get a good perspective, we’ll look at the past, today, and the future — all three of which point to motives for change, including:

• A growing protection gap that began with a shrinking middle-class demographic.
• The constraints of traditional insurance operating models and technologies.
• The growth of algorithms that can power intelligent insurance solutions.

Reason 1 — The fifty-year-old protection gap continues to grow.

The roots of the protection gap aren’t an insurance issue. The gap is a result of a demographic trend. In the 1970s, the number of people in the middle class began shrinking. Affluent and working-class groups began to grow and continue to grow. At the same time, especially over the past few years, increased costs for insurance (relative to the overall cost of living) have been placing increased pressure on customers’ financial well-being. Today’s inflation and the rising frequency and severity of natural catastrophes aren’t helping.

Those in the middle and the working class are wrestling with affordability issues that are causing them to stop, decrease, or shop for their insurance for a better offering. As a result, we are seeing a growth in the protection gap for insureds – both consumers and businesses.

Recent tornadoes in St. Louis hit zip codes where 70% of homes are uninsured. California fires uncovered billions of uninsured and underinsured properties. Hurricanes Helene and Milton, in 2024, were some of the worst in the last 10 years.^[i] As many as 95%, in Helene’s case, had no flood insurance, putting victims in a deeper financial hole.^[ii] The large gap of uninsured losses, while financially not impacting insurers, does impact the brand and trust of insurance overall and is picked up by governments which ultimately impact everyone.

Lack of insurance can destabilize a society.

Uninsured losses, as well as insured losses that do not cover the actual loss, reflect a massive societal risk, one that governments and taxpayers, as well as insureds, are burdened with. This highlights the protection gap already in place, and that is now growing due to insurance price increases that are unaffordable. In Majesco’s 2024 Consumer Research we found that 76% of the younger generation (Millennials and Gen Z) and 61% of the older generation (Gen X and Boomers) had to cut back and tighten their budget, highlighting the pressure of price.

Further emphasizing this, J.D. Power’s 2024 U.S. Auto Insurance Study^SM noted that when customers have a high level of trust in their insurer, customer satisfaction and brand advocacy increase considerably, even in the face of rate increases. However, they found that 51% of customers indicated they have little trust – and therefore loyalty, indicating a strong likelihood to shop and replace their insurance.^[iii]

The increased insurance costs across nearly all lines of business are unsustainable for consumers, forcing them to make difficult decisions, such as increasing their deductibles. Deductible shifts can seem innocuous, but can prove to be disastrous to those with a tight budget. It is a tipping point of change, one that insurers must respond to if they want to remain viable and relevant with consumers.

The growing protection gap due to the rising cost of insurance across all lines and segments has a significant societal and fundamental insurance impact resulting in changing buying behaviors, demand for different products, and shifting expectations that will have long-term consequences for all insurers in customer acquisition and retention, growth, profitability, brand loyalty and trust.

All of these — changes in buying behaviors, demand for different products, and shifting expectations — have an “upside.” They are opportunities for insurers to fill expectation gaps with logical and relevant solutions that will build loyalty, create new or improve coverage and ultimately increase profits. They are motives and drivers for changing insurance strategies for emerging risks.

Reason 2 — The constraints of traditional insurance operating models and technologies stifle financial results.

Today’s risk environment is growing and complex rapidly.

Insurers’ long-held business assumptions and operating models were built to support traditional insurance approaches for products, channels, pricing, and customer engagement going back decades. This reflected some stability in the risk environment, but also stability in personal income and stability in an insurer’s assumptions and foundation to secure risk. The industry was remarkably stable in the way it operated.

Today’s customers, competition, the types and severity of risks, and new technologies are different. A new reality has emerged and exposed the challenges of the legacy operating model and technology foundation. The result? Decreasing profitability, higher expense ratios, higher loss ratios, a fight to attract and retain talent, and the challenge of retaining customers, let alone maintaining satisfaction. The old foundation may still exist, but the world is testing it and shaking it to the core.

Most operating models were crafted over decades and now represent a myriad of constraints and business assumptions, and challenges. These include redundant systems, manual workarounds necessitated by legacy technology, and teams locked into their current culture that limits what they can do. The operating model evolved to support this legacy construct by layering in technologies over legacy with the hope of optimizing. But the result is now inefficient and unprofitable. Employees struggle with a layered, complex technology foundation that increases costs. How long can the old equations stand up to the forces of today?

Logical investments as economic course corrections

Insurers need to change to meet the new economics for loss ratios, expense ratios, risk selection, and risk prevention. It requires rethinking the business operating model and processes to employ a wide array of amazing technologies, including Cloud, APIs, AI/ML, GenAI, IoT, and more. This will drive operational optimization and lay a foundation for innovation. It is future-focused, based in the reality of the world in which we live, and it represents smart investing, if smart investing can be defined as “that which will pay off in the future.”

Transitioning to a new operating model is necessary, but it is not without risks that must be addressed. First, legacy processes and business assumptions must not be allowed to leak into the new operating model and subsequently the technology foundation, because of a “that’s the way we always have done it” mentality. This must be countered to meet today’s realities and create operational efficiencies, speed to market, enhanced customer experiences, and more.

Second, insurers must take advantage of ground-breaking technologies that are available, such as IoT, GenAI, next-gen cloud platforms and others to redefine and optimize the business model and processes that break the old ways and offer a new paradigm shift to enable agility, scale, operational optimization, and innovation in a fast-changing market and era of risk.

AM Best’s May 2024 report provides a strong case for change. The financial assessment of insurers with highly correlated innovation assessment scores had significantly higher net premium written growth, lower expense ratios and greater efficiencies. Furthermore, more non-innovators were overrepresented among downgrades.^[iv]

Modern capabilities should match modern risks. Agile transformation, optimization, and innovation in insurance is not a future concept but a present-day necessity to remain competitive in the marketplace. Breaking away from the past and focusing on the future requires leadership and fortitude to challenge the old ways of doing business and embrace next-gen technology to ensure long-term success and market leadership.

Reason 3 — The growth of algorithms will power intelligent insurance solutions.

It would be ideal if the global economy could course correct and bring some aspects of consumer expenditures and income back into line with where we expect them to be. In the absence of that course correction, the “algorithm economy” may have the answers to help re-establish insurer technology foundations. The algorithm economy is defined as the increasing influence and economic value of algorithms in modern business and digital society.

The explosion of data and the power of analytics, including AI and GenAI, is accelerating a rethink of the business of insurance by employing the algorithms that can do more for us than ever before. These algorithms will change how we do business, change the products and services we provide, and provide far more timely risk assessments and more relevant insights than ever before.

Historically, the analytics spectrum was a cadre of different “add-on” solutions with limited access to operational data. Today, next-gen intelligent solutions allow access to all operational data that can be used by the intelligence embedded into insurance business processes and workflows – the entire spectrum of analytics from BI to AI/ML and GenAI. This is transforming every aspect of the insurance value chain, creating new insights and improved effectiveness and efficiencies for the industry. It is a key part of empowering the algorithm economy.

Embedded intelligence is part of the new “algorithmic economy” and is the innovation catalyst needed to help insurers stay ahead of market trends and technological shifts, ultimately giving them the confidence to navigate complexities with ease and significantly improve business operations in every area.

The motivation to move now

The breakneck pace of change, particularly customer demographics and expectations, growing risk, and advancing technology, is challenging the long-term strategies and plans of insurers, making many of their operations and plans irrelevant or out of touch.

Markets can be unpredictable and change rapidly as customers’ wants and needs change over time. To stay relevant and connect with their target audience, insurance leaders must work to stay ahead of the curve as much as possible. Here are three suggestions of how execute it.

• Push boundaries – Experiment and innovate, recognizing that change, business models, and technology are never done, requiring continuous innovation by pushing boundaries and taking an outside-in view. At Majesco, we are helping insurers push their own boundaries and grow comfortable with experimentation and innovation, empowering their business users through our Digital1st Platform and Digital 360 Solutions.
• Adopt and accelerate use of next-gen technology – Investment in next-gen technology, including native cloud solutions, rich API libraries, advanced data and analytics, including GenAI, telematics, and so much more, is crucially important to drive profitable growth and competitive market differentiation. Majesco’s Next-Gen Core is an investment in your next-gen business, where constraints are replaced by opportunities and teams are energized by their ability to create and innovate with speed.
• Build synergies and enhance competitive advantage – Keep a constant, sharp focus on operations, technology, and strategy to identify synergies and areas of advantage to drive optimization, growth, and long-term business innovation.

Today’s future isn’t just what we make of it; it’s what the future will make for us if we let it. Let Majesco be your partner in putting the future to work for you with our Intelligent Solutions – including embedded GenAI. Contact us today.

By Denise Garth

[i] “Helene, Milton losses expected to surpass ‘truly historic’ $50 billion each,” CBS News Moneywatch, October 17, 2024, https://www.cbsnews.com/news/helene-milton-losses-50-billion-each-hurricanes-rare/

[ii] Gibson, Kate, “Most U.S. homeowners hit by Hurricane Helene don’t have flood insurance,” CBS News Moneywatch, October 4, 2024, https://www.cbsnews.com/news/insurance-hurricane-helene-florida-north-carolina-fema-flood-homeowners/

[iii] “Trust Emerges as Top Driver of Customer Satisfaction with Auto Insurance as Prices Continue to Surge, J.D. Power Finds,” J.D. Power, June 11, 2024, https://www.jdpower.com/business/press-releases/2024-us-auto-insurance-study

[iv] Andersen, Helen, “Highly Innovative Personal Auto Carriers Have a Significant competitive Edge,” AM Best, May 2, 2024