For many of us, ringing in the new year means setting resolutions for better health and well-being. Whether in business or our personal lives, we must consider the scenarios that may threaten or enable our success. The insurance industry is no different.
This time last year the world was eager for COVID-19 vaccines to end the pandemic and the need for physical distancing and restrictions on travel. While we saw some relief, new variants have emerged, demanding our continued vigilance in controlling the spread of the virus.
Despite the continued uncertainty, the economic recovery also continues with global GDP expected to grow 4.9% in 2022. This GDP growth would suggest that greater demand for insurance products and services lay ahead.
As we stated in our Insurance Revenue Landscape 2025 report, we expect global insurance industry revenues to grow to $7.5 trillion by the end of 2025. Here are five scenarios insurers looking to capture a share of that revenue in 2022 will need to consider.
1. Electric vehicles to emerge as a growth segment for insurers
The global market for electric vehicles is expected to grow from $171 billion in 2020 to $725 billion in 2026—a CAGR of more than 27%. By 2030, we expect there to be 115 million electric fleet vehicles globally. Those cars, trucks, and vans enter the global insurance market just as the rate of growth in existing auto premiums slows in major markets like the U.S., the U.K, Germany, and China.
This is an opportunity for growth—not just a substitution play for declines in traditional auto premium! Customers with electric vehicles will have additional needs, such as home charging capabilities and quick access to charging stations when away from home. Innovative, customer-centric insurers who present these kinds of value-added products and services will have competitive advantage—in a risk sector high on most sustainability and ESG agendas!
2. Sustained supply chain and inventory management risk will accelerate product reinvention
The disruption of supply chains caused by COVID-19 will likely continue well into 2022. But the associated disruptions to businesses and the frustrations they cause may subside with the reinvention of traditional freight and cargo insurance products. The digitization of cross-border trade and the proliferation of sensors and other IoT and connected technologies across supply chains allow for real-time access to risk data. Advanced analytics and AI now enable insurers to offer risk mitigation and management solutions and to automate payment of claims when necessary.
Such insurance offerings accelerated in 2021 as precious shipments of COVID-19 vaccines made their way around the world. In 2022, expect to see more insurers apply these innovations more broadly and go beyond indemnification to help their customers address core operating risk.
3. A property pricing and profitability reckoning is coming
Inflation pressures now compound the more systemic problems of upended risk models and increasing capital requirements that were already driving up property insurance prices. The U.S. annual inflation rate hit 6.8% in November, the highest in four decades. The next two decades are expected to bring steep increases in both premiums and concentration of risk from catastrophic events linked to climate change and greater urbanization in emerging markets. 2022 is the year for pricing and profitability reckoning within the property.
4. Insurance operating models will adjust to seismic shifts
The insurance industry now operates on the fault line of two tectonic plates: COVID-19 and the Great Resignation. In 2022, the pressures and shifts they create will force insurers to disrupt long-standing apprenticeship models that the industry has relied on for skilling in essential functions like claims and underwriting. They also exacerbate ongoing struggles to attract and retain talent in roles critical to insurance workforce transformation like technology, analytics, and actuarial. Insurers will always need humans. But with fewer workers, they increasingly need humans enabled by machines, transforming how work gets done regardless of who’s doing it or where.
5. Resetting the underwriting workflow
Insurers are ready to see their digital transformation and cloud platform investments of the last two years pay off in the form of cost reduction and new business. In 2022, we will see transformation programs aimed at reducing expense ratios and boosting profitability through increased process efficiency and decision effectiveness in underwriting. While efficient and effective underwriting processes and decisions are critical, most insurers’ underwriting platforms cannot handle the volume and complexity of the data required. As my colleague Michael Reilly put it, “We need a third generation of underwriting platforms…essentially an underwriting-tailored big data platform.”
Build resilience in 2022
We greet the year ahead with hope. But hope is not a strategy.
The risk landscape is changing. Specific impacts will vary for insurers based on their book of business and market positioning. But scenario-based planning is essential to making your business strategy resilient in the face of uncertainty in 2022 and beyond.