Viewpoint: 5 Global Insurance Trends You Need to Know About in 2024

In the insurance world, 2024 brings forth many challenges and transformative trends. From the escalating global risks, such as climate change and cyber threats, to the evolving role of insurers as societal safety nets, the industry is on the brink of significant change. Here are five global insurance trends you must watch out for in the new year.

1. Investing in Proactive Risk Management

Insurers are pivoting towards proactive risk management, recognizing the increasing severity of global risks. It is no longer sufficient to look to reactive measures to reduce loss costs, instead the industry has turned its attention to the prevention of losses before they occur.

Embracing cutting-edge technologies, insurers are leveraging AI and analytics to detect potential threats early on. A prime example is the integration of sensors and automatic-activation devices which provide early identification and mitigation of looming disasters. This shift underscores the industry’s commitment to being more than just a financial safety net, emerging as a proactive guardian dedicated to minimizing risks and ensuring a secure future for insureds.

Moreover, this proactive stance positions insurers at the forefront of innovation. By staying ahead of potential risks, insurers not only protect policyholders but also contribute to the industry’s overall stability.

This strategic approach fosters a culture of anticipation and preparedness, transforming insurers into proactive risk prevention advocates. As technology evolves, insurers explore novel ways to harness data, artificial intelligence, and advanced analytics, reinforcing their role as vigilant custodians of financial security and societal well-being.

2. Customer-Centric Evolution: Tech-Infused Transformation

A seismic shift towards a customer-centric model is redefining the insurance landscape. This evolution requires insurers to embrace advanced technologies and undergo a cultural transformation. Exploring the potential of AI and generative AI tools for risk assessment, the industry aims to fine-tune large language models for specific roles.

By leveraging these advanced technologies, insurers seek to create intricate and highly specialized language models tailored for specific roles within their organizations. It involves a nuanced approach where AI algorithms are not just deployed broadly but are precisely calibrated to fulfill distinct functions, enhancing the precision and relevance of risk assessment processes.

Fine-tuning large language models signifies a departure from one-size-fits-all solutions. Insurers recognize the need for a more nuanced and role-specific application of AI, allowing these models to adapt to the unique requirements of various facets of the insurance sector.

This approach ensures that the benefits of AI go beyond generalization, providing targeted and practical solutions that address the intricacies of risk management in a rapidly evolving landscape. As insurers navigate this technological frontier, the emphasis is on adopting AI and its strategic and tailored integration to enhance overall efficiency and decision-making.

While this customer-centric approach promises enhanced experiences, it also introduces challenges. Insurers must carefully navigate the delicate balance between technology adoption, regulatory considerations, and the reliability of AI-generated decisions.

3. M&A Dynamics in Flux: Adapting to Economic Headwinds

Mergers and acquisitions (M&A) within the insurance sector have experienced a slowdown driven by macroeconomic factors. While the decline since the second quarter of 2022 is evident, signs of change loom on the horizon.

As interest rates and inflation show signs of easing, a potential upswing in M&A deals in 2024 becomes plausible. Notably, insurance technology companies (insurtechs) remain pivotal in acquisition activity. Traditional carriers recognize insurtechs as instrumental in implementing transformative solutions across the value chain, signaling a broader industry acknowledgment of the critical role technology will play in its future.

Moreover, this shift in M&A dynamics is not just a reaction to economic headwinds but a strategic alignment with the changing landscape. Insurers are increasingly viewing insurtechs as tools for overcoming challenges and as partners in shaping the industry’s future.

This collaboration signifies a forward-looking approach, where innovation and technology become the driving forces behind staying competitive and agile. The industry’s resilience is evident as it navigates economic uncertainties through strategic partnerships, preparing for a future defined by technological advancements and transformative endeavors.

4. Sustainability as a Driving Force: Shaping Tomorrow

Beyond financial transactions, insurers are assuming the mantle of sustainability ambassadors. Despite waning Wall Street support for ESG, insurers have the burden of insuring catastrophic risks and as such have a heightened focus on societal and environmental impacts. Many insurers are leveraging their role as business advisors, to guide their customers towards decarbonization initiatives.

Setting decarbonization goals and aiding clients in transitioning to net zero, some insurers are leveraging their risk assessment and management expertise to influence executive decisions and strategies across industries. It reflects a commitment to sustainability and acknowledges the interconnectedness of risks in our globalized world.

Moreover, the industry’s scope extends beyond traditional risk coverage. Insurers actively evaluate and reshape underwriting and investment portfolios to align with sustainability goals. This strategic realignment is not just a trend; it’s a fundamental repositioning of the insurance sector as a catalyst for positive change. Insurers contribute to a better workplace, marketplace, and society by integrating sustainability into their core missions.

As the world grapples with climate change and social equity challenges, insurers are at the forefront of catalyzing positive transformations. The industry’s commitment to sustainability goes beyond rhetoric; it’s a proactive effort to shape a future where insurance mitigates risks and actively contributes to a more sustainable and resilient global ecosystem.

5. Regulatory Changes and Enhanced Reporting Requirements

In 2023, insurers had to change their accounting disclosures for long duration contracts and to reflect the global change in the acceptability of benchmarked reference rates. The effective date for accounting rules on long term insurance and annuity contracts (US GAAP LDTI and IFRS 17) which required publicly traded insurers (other than smaller reporting companies) to adopt the guidance for fiscal years beginning after 15 December 2022 (i.e., 2023 for calendar-year insurers) and for interim periods therein and for privately held and mutual companies to comply by 2025. The rule changes how insurers account for and make disclosures about long-duration contracts and how insurers recognize and measure insurance liabilities and deferred acquisition costs.

In addition, insurers are adapting to the effects of reference rate reform on financial reporting (ASU 2020-04, 2021-01 and ASC 848) which tracks to the global transition away from the London Interbank Offered Rate (LIBOR) as the acceptable reference rate and a move towards new reference rates, such as the Secured Overnight Financing Rate (SOFR), which is the preferred alternative reference rate for US companies.

While these rules have gone into effect, insurers still have work to do to effectively communicate the meaning of financial results under the new standards to users of their financial statements. Additionally, insurers should seek to capitalize on the anticipated benefits of the LDTI changes which according to a recent study by Deloitte, is expected to have a positive impact in claims management, underwriting and pricing.

On the horizon are tax developments for multinational corporations with the anticipation of impacts from the Organization for Economic Cooperation and Development’s Pillar 2 which would change how global companies are taxed. The rule which has already been signed by 138 countries, would introduce a minimum tax by jurisdiction based on book income. According to a recent paper on the topic by Deloitte, the reform aim to level the playing field between countries by discouraging them from reducing their corporate income taxes to attract foreign business investment. Tax departments will need to be proactive in understanding how these rules will impact their effective tax rates, and engage in planning or restructuring to help mitigate against negative impacts.

Conclusion

Stepping into 2024, the global insurance industry finds itself at a crossroads. From proactive risk management to transformative customer-centricity, evolving M&A dynamics, and a commitment to sustainability, insurers are not merely reacting to external forces but actively shaping their destiny. The industry is poised not only to adapt to change but to be a driving force in defining the future of insurance.

Grimes, CPA, is chief financial officer at Acadia Insurance (a W.R. Berkley Company). The view expressed are those of Simone Grimes, CPA, and do not necessarily represent the views of Acadia insurance, W.R. Berkley Corporation or its affiliates.