Future of Insurance: Navigating 2040's Risks & Innovations

The rise of EVs, ambitious climate goals and shifting global dynamics are reshaping the insurance industry's future.

Sponsored by SAS and conducted by Economist Impact, a recent study, 'Revealing the Paths to 2040: Four Possible Scenarios for Insurance', explores how global politics and technological advances could shape the insurance sector by 2040.

With four potential outcomes, the report envisions risks and opportunities for insurers amid evolving environmental, technological and regulatory landscapes, helping them navigate an uncertain future that promises both challenges and transformative possibilities.

Scenarios explore diverse futures, not predictions

Edwin Saliba, Senior Analyst at Economist Impact, says the study's primary goal is to offer foresight rather than forecasts.

"Our scenarios are not intended to predict the future," he explains. "Instead, they explore possible futures for the insurance industry, helping insurers better position themselves to respond effectively to emerging challenges and seize new opportunities."

Each scenario considers the roles of global cooperation and technological change, key factors that could determine the industry's success or failure in addressing urgent policy issues like climate resilience and consumer protection.

Scenario 1: Isolationism and unchecked innovation lead to missed climate goals

The first scenario envisions a world where isolationist politics and unregulated technological advancement hinder global climate action.

In this scenario, the lack of international coordination results in only the wealthiest nations being able to adopt green technologies like renewable energy, leaving other regions vulnerable to worsening climate impacts.

As private insurers withdraw from high-risk areas, a hyper-regionalised market forms, creating wide disparities in pricing and access.

The growing "protection gap" leaves many vulnerable populations without coverage in disaster-prone regions, exacerbating the divide between wealthy and developing nations.

Scenario 2: Customer-centric innovation drives climate action

In contrast, the second scenario imagines a future in which global cooperation on regulation and data privacy fosters a preventative approach to insurance.

With enhanced technology democratisation, insurers can provide personalised, prevention-focused products to a broader customer base, enabling them to manage individual risk profiles effectively.

The customer-centric model could enable insurers to help clients protect assets proactively rather than reactively, especially as new technologies allow real-time environmental monitoring.

"Insurers can and should invest in responsible innovation for a more climate-resilient and prosperous future," urges Franklin Manchester, Principal Global Insurance Advisor at SAS.

He notes that a proactive stance can reinforce insurance's foundational purpose: protecting people.

Scenario 3: Climate resilience emerges selectively across economies

In the third scenario, a more targeted climate-resilience approach develops, with higher-income nations investing heavily in corporate sustainability and disaster response policies.

For example, banks begin incorporating climate risk into mortgage rates and insurers lower premiums for properties adapted to withstand climate shocks. Meanwhile, developing nations focus on immediate disaster relief to protect lives.

Where insurers withdraw from high-risk zones, governments introduce stricter safety regulations and climate-resilient building codes. Insurers, in turn, leverage predictive analytics and historical data to better gauge risks.

The scenario highlights the industry's potential to actively use data to address climate challenges.

Scenario 4: Insufficient innovation and cooperation strain the industry

The fourth scenario foresees a breakdown in collaboration between governments and businesses, leading to stunted technological growth and inadequate climate action.

Without sufficient regulation and support, AI's full potential remains unrealised, leaving the insurance sector ill-prepared for escalating climate-related disasters.

As the insurance industry struggles, the protection gap reaches unprecedented levels, especially in emerging markets, which lack resources for broad coverage.

The breakdown could spur localised risk-sharing groups in communities, a grassroots response to increasingly severe climate events.

Preparing for 2040: A call to action

Thorsten Hein, SAS's Insurance Lead in Risk, Fraud and Compliance Solutions, comments: "Even the boldest actuaries could hardly have imagined the skyrocketing frequency and severity of loss events we've experienced in recent years."

With technology like AI poised to play a crucial role, Thorsten emphasises the importance of using AI responsibly, in alignment with human expertise, to protect customers and meet evolving challenges.

SAS and Economist Impact plan to release a second report in 2025, delving deeper into strategies insurers can adopt to prepare for 2040. 

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