Insurance Industry's Path to 2040: Four Scenarios Explored
The insurance landscape is undergoing a transformation, driven by the emergence of electric vehicles (EVs), sweeping climate objectives, and shifting geopolitics. A pivotal study titled 'Revealing the Paths to 2040: Four Possible Scenarios for Insurance' provides a deep dive into these changes.
Sponsored by SAS and conducted by Economist Impact, the research examines the potential futures of the insurance sector in the face of evolving environmental, technological, and regulatory environments.
Exploring Varying Futures Through Scenarios
Edwin Saliba, Senior Analyst at Economist Impact, clarifies the purpose behind these scenarios. "Our scenarios are not intended to predict the future," he states. Rather, they explore possible futures for the insurance industry.
This explorative approach aids insurers in positioning themselves adeptly to face upcoming challenges and harness emerging opportunities. Each scenario scrutinises the roles of global cooperation and technological advancements, pivotal elements that will likely determine the industry's capacity to tackle critical policy issues such as climate resilience and consumer protection.
Four Divergent Scenarios for 2040
The first scenario paints a picture of a world restricted by isolationist politics, where unchecked tech progression stifles global climate initiatives. This results in a scenario where only affluent countries manage to adopt and implement green technologies like renewable energy, causing less wealthy areas to struggle against intensifying climate consequences.
Private insurers pull out from high-risk regions, leading to a segmented market with stark disparities in coverage affordability and accessibility. This scene escalates the 'protection gap', leaving vulnerable populations lacking adequate disaster coverage, especially in developing regions.
In stark contrast, the second scenario envisages an optimistic future where global cooperation around regulation and data privacy ushers a preventive insurance model. Increased technology accessibility allows insurers to offer personalised, prevention-oriented products across a wider demographic, enabling effective individual risk management.
Franklin Manchester, Principal Global Insurance Advisor at SAS, advocates for this proactive stance. "Insurers can and should invest in responsible innovation for a more climate-resilient and prosperous future," he insists, highlighting the fundamental aim of insurance to protect individuals.
The third scenario sees selective climate resilience, with wealthier nations investing in sustainable corporate practices and disaster response policies. Meanwhile, less affluent countries focus on immediate disaster response. Insurance companies, capitalising on advanced predictive analytics and extensive historical data, recalibrate their risk assessment strategies, setting the stage for informed policy-making and pricing.
"There is a non-zero chance the insurance industry will collapse by 2040 – and that should prompt all insurers to take stock of growing risks and their overall resilience."
However, the fourth scenario spells potential trouble, depicting a breakdown in cooperation between governments and industries leading to stunted technological advances and insufficient climate actions. Without robust support and adequate regulation, the full potential of technologies like artificial intelligence remains unrealised, leaving the industry unprepared for increasing climate-induced calamities. This scenario could trigger localised risk-sharing initiatives as grassroots responses to escalating climate events.
A Call to Action
Thorsten Hein, SAS's Insurance Lead in Risk, Fraud and Compliance Solutions, reflects on the escalating frequency and intensity of loss events witnessed in recent years. Emphasising technology's crucial role, particularly AI, Thorsten underscores the importance of deploying AI in harmony with human expertise to safeguard customers and adapt to evolving industry demands.
As part of their ongoing commitment to shaping the insurance industry's future, SAS and Economist Impact anticipate releasing a subsequent report in 2025. This future publication will delve deeper into strategic approaches that insurers could adopt to ready themselves for 2040.
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