The insurance industry is facing multiple disrupting factors, such as technological advancements, new competition, inflation, and regulatory scrutiny, and a key component in navigating all of this change is trust. That’s according to EY’s 2024 Global Insurance Outlook Report, which found that “the pace of change is not likely to abate any time soon.”
“Trust isn’t an end goal in itself, but rather a means to strengthen customer relationships, collaborate productively with regulators, business partners and other stakeholders, and reframe the industry’s core value proposition,” the report said. “In times of change and uncertainty, individuals, families, businesses and communities look to buy anything that makes them feel safer and more confident about the future. Is there another industry that’s better positioned than insurance to deliver such products and services?”
Insurers can build trust, the report said, through transparency, personalization, and stronger value propositions. This can in turn ensure a larger and more loyal client base, increased profitability, and more productive relationships with partners and regulators.
“Conversely, those firms that don’t improve on today’s historically low levels of customer trust will be vulnerable to rising competition from outside the industry, including firms from the technology, automotive, retail, consumer goods and banking sectors,” the report added. “An insurance industry that lacks trust will struggle to build strong customer relationships or grow its market share.”
The report said this is particularly important in the face of disruptive factors such as generative AI, societal change, and evolving consumer needs. The report highlighted these three areas as likely to have a significant impact on the industry in the coming year.
“This year’s report focuses on the rise of artificial intelligence (AI), opportunities to create societal value and the need for innovation as changing customer needs and behaviors spark competition across traditional industry lines,” the report said. “Pursuing differentiated, purposeful strategies in each of these areas will help insurers achieve sustainable performance gains and reduce the huge protection and savings gaps.”
The report added that within so much change and turbulence, there are indicators of future growth, such as strong demand signals, new business models, and expanding data access that could transform risk assessment and pricing.
“Firms that take bold and creative action will be able to harness the power of these trends and convert it to value for customers, society as a whole and their own bottom lines,” the report said. “Restoring trust holds the key to long-term success.”
When it comes to generative AI, more than half of senior leaders surveyed in EY’s CEO Outlook Pulse global survey, published in July 2023, said they plan significant investments in the technology in the coming year.
However, with so much talk about generative AI, it can be easy for insurers to feel pressured to harness these tools for their business as quickly as possible. EY urged that beyond speed of implementation, senior leaders should prioritize taking time to establish governance models and policies that ensure responsible and ethical use of AI as part of trust-building among their consumer base.
“Identifying the full range of risks — from data breaches to reputational issues — and designing the right framework for managing them are the first priorities,” EY’s 2024 Global Insurance Outlook report said. “Firms that move quickly (in exploring use cases) yet methodically (in standing up governance) will be best positioned to win in the GenAI era.”
EY estimated that when insurers are ready to deploy AI in their business, the most likely use cases could include actuarial and underwriting, claims, and information technology, as well as marketing and customer service. While AI is likely to have considerable benefits for the industry, such as increased operational effectiveness, reduced costs, elevated customer experiences and greater predictive intelligence, insurers need to be aware of the risks – both financial and otherwise, the report cautioned.
Risks of generative AI include the use of sensitive data, transparency issues, and biased outcomes, as well as privacy concerns and cyber threats, the report said.
“Overall, the lack of insight into how AI systems use data and make decisions can erode confidence among customers, especially if outputs are not as expected or override human judgment,” the report said. “To a large degree, future consumer confidence will depend on the ethical deployment of AI and delivery of unbiased results, a challenge that will be faced by many firms, not just insurers.”
To navigate AI responsibly, insurers will need to focus on shaping AI strategies around the highest priority and lowest risk use cases, identifying talent and workforce impacts, promoting collaboration, and closely monitoring regulatory developments.
Delivering Societal Value
Expanding regulatory requirements and new disclosure standards are leading insurers to think more critically about the role they play in societal changes as well, such as pandemics, natural disasters, economic inequality and demographic shifts, according to the report.
“An ever-expanding savings and protection gap, macroeconomic uncertainty and greater awareness of more severe risks have prompted regulators and public authorities to revisit long-standing rules and guidelines for the industry,” the report said. “…the moment calls for more than compliance-driven thinking and expanded philanthropic endeavors. Rather, product innovation, new business models and purposeful investments can help insurers unlock growth even as they strengthen protections against climate risk, promote financial well-being and encourage physical and mental health.”
Indeed, the environmental, social and governance movement raised the bar for all types of businesses to make purposeful commitments, take meaningful action to execute them and report out their results, the report said.
“But this isn’t strictly about compliance. Indeed, there is growing consensus among consumers and investors that insurers can and must deliver societal value,” the report said. “Insurers are in the spotlight because of their deep risk expertise and unique ability to protect people, families and businesses of all shapes and sizes.”
This means providing more understandable, affordable and accessible products and enhanced protection from climate risk, as well as services to facilitate the transition to a greener economy, the report said. It also means providing support for gig workers and others in non-traditional employment, employing hiring practices that promote a more diverse, equitable and inclusive workforce, and increasing engagement with regulators, particularly when it comes to ESG reporting requirements.
Changing Customer Needs
Despite all of the external forces reshaping the insurance industry, the report said, EY sees changing customer bases as the most powerful impetus for innovation, growth, and increased competition from non-traditional insurance players.
In fact, changing customer behavior is affecting every line of business and dissolving industry boundaries, causing direct competition among firms, the report added.
“Ever-evolving customer needs and blurring industry lines If change is the only constant, then changing customer needs can be the strategic ‘north star’ for all types of insurance companies,” the report said. “Achieving true customer-centricity necessitates changes to everything from technology architectures and product portfolios to organizational models and cultural norms.”
Just like with the adoption of AI and societal impact strategies, trust and confidence play a key role, the report said. This comes as consumers are pursuing more value from their insurance products and seeking out tailored products that are easy to purchase and can be personalized. In fact, according to EY’s research in 2023, about 30% of all global insurance transactions will happen in embedded channels by 2028.
With this in mind, insurers will need to find ways to balance cost efficiency and customer experiences, communicate clearly about the use of customer data, and find ways to provide flexible options for a more personalized consumer experience, the report said.
“Trust should be the foundation of the insurance sector, the bedrock of all relationships and the core of every interaction, communication and policy,” the report said. “In that sense, trustworthiness must be an active cultural attribute that guides product development, the automation of customer-facing processes, the evaluation and selection of ecosystem partners and the adoption of enabling technologies.”