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Emerging challenges and opportunities in the insurance industry

Written by Roger Peverelli and Reggy de Feniks - Founders The DIA Community on May 30, 2023

Global digital business and IT services leader NTT DATA has published its Insurtech Global Outlook 2023, highlighting major emerging risks and opportunities for the insurance sector. According to NTT DATA, the insurance industry is being pushed to an unprecedented level of change where tech innovation is inevitable. Energy transition, digitisation and climate crisis are creating opportunities to transform the traditional industry. Is it finally game over for the legacy-driven insurance industry? According to NTT DATA, Climate Change, Cybersecurity, Embedded Insurance, Corporate Care and Connected Underwriting are among the top challenges for insurers in 2023.

Emerging risks

After the pandemic, insurance investors adapted their strategies because of changing customer habits and its challenges. Insurers mainly focused on protecting businesses and their employees, checking in on trends such as cybersecurity, climate risks or employee well-being. On the other hand, global crises and economic uncertainty have affected investors’ priorities, resulting in a significant fall in insurtechs’ valuations. This, while insurtechs can actually help insurers turn these top challenges into opportunities. In this editorial, we will dive deeper into the emerging risks and their opportunities of (1) climate change, (2) employee well-being and (3) Digital security.

1. Sustainable World

According to the AXA Future Risk Report 2022 climate change is the Top risk among the global top 10 emerging risks. It causes an increase in the frequency and severity of catastrophic events. Hurricane Ian in the US and Cuba, floods in Germany, Australia and West Africa, droughts in China and Brazil, wildfires in California and Chile: climate change is everywhere, happening on every continent. Two-thirds of extreme climate events are uninsured, while losses due to these events total $316 billion annually. These numbers can increase significantly: a 3°C rise in global temperature will result in expected losses of $20 Trillion every year.

Climate change may have an impact on underwriting assumptions and coverage. At the same time it can offer new opportunities: according to McKinsey & Company, the growth in decarbonization technologies and renewables represents a significant growth opportunity. Insurers have opportunities to identify and develop climate-focused solutions in three major areas: Insuring the net-zero transition, creating new risk transfer solutions for rising physical risks and providing adaptation and resilience services.

Since 2016, investment in insurtechs focused on climate change has increased. Especially in the last three years, climate-focused insurtechs have gained increasing traction. Descartes Underwriting, leader of climate insurtechs, raised a total funding amount of $140 Million this year. Other insurtechs standing out regarding funding are Understory, Kettle, FloodFlash and Arbol. But there are so much more insurtechs tackling climate change. Curious about what strategy insurtechs and insurers such as Generali, AXA and Ping An apply to tackle the climate change challenge and what phases you need to cover to implement a strategy to build net-zero insurance?

2. Companies that Care

Accelerated Digitisation creates new challenges and opportunities for health insurance. The global health insurance market is expected to grow at a CAGR of 7.6% from 2021 to 2030 and reach $3.9 trillion by 2030. New opportunities include:

  • Healthcare quality can now be improved under the new paradigms enabled by digitization
  • Digital and data-driven can now be made truly effective and evolve forms of care
  • Hybrid patient-professional experience and engagement can be improved significantly
  • Financial pressure on both providers and payers now increases the need for efficiency and prevention

Thanks to the development of digital health and the further integration of medical care resources, more and more players, including insurers, insurtechs, tech giants, medical institutes and labs, are moving to the prevention model. The shift from the attention model to the prevention model has generated opportunities in corporate health. Companies are starting to pay more attention to employee care as it is an important job attribute to attract talent and prevent employees from missing work days. Consumer digital health adoption also continues to rise, as does the preference for personalization. This gives insurers more data to work with, monitoring and helping to guide consumers to improve their health.

Corporate Health Insurtech Leaders in 2022 include Alan ($558M), Surest ($237M) and YuLife ($206M). Alan is a digital health insurance platform that offers insurance services by focusing on a price-quality ratio health plan. Curious about all other highlighted insurtechs paving the way in (corporate) health? And curious about the strategies of other players in corporate health such as Amazon, Roche, Enovacom and Vitality?

3. Digital Risks

According to the AXA Future Risk Report 2022, Cybersecurity is the third risk among the global top 10 emerging risks, after climate change and geopolitical instability. In 2021, there were 50% more cyber attacks observed per week on corporate networks compared to 2020. The global cyber insurance market thrives in the post-pandemic era and remote work environment. The market was worth $7 Billion in gross written premiums (GWP) in 2020 and will reach $20.6 Billion by 2025. Factors that will likely influence the cybersecurity environment the most:

  • Rise of remote and hybrid work
  • The transition from Virtual Private Networks (VPN) to Zero Trust Network Access (ZTNA)
  • The shift to cloud-based delivery models

Many governments are considering new laws and regulations around cybersecurity. Regulation brings opportunities: with more public info about attacks, insurers can optimize product design, risk evaluation, risk transfer and pricing. This is necessary, according to Corvus Insurance, as cyber attack cost is high. The average total cost of a data breach is $4.35 Million.

Business models increasingly rely on digitization and the awareness of associated threats is high. Digital transformation brings in new cybersecurity challenges; ensuring data security, emerging new tech, hybrid working and the general number of available targets as the use of all kinds of appliances and devices increases. But the fact is that, according to Munich Re, 83% of all C-Levels globally report that their company is not adequately protected against cyber threats.

The top 5 Cybersecurity insurtechs with the most funding all come from the US, with Coalition leading the way. Coalition is a cyber insurance and security company that helps businesses manage and mitigate cyber risks. Curious about Coalition and other insurtechs in this field, and what acquisition and partnership strategies insurers such as Munich Re and Hiscox apply to tackle digital risks?

ITC DIA Europe 2023

ITC DIA Europe’s platinum partner NTT DATA (Tokyo) helps clients move confidently into the digital future through consulting, industry solutions, business process services, IT modernization and managed services. Would you like to learn more about any of the topics discussed in the report, and how insurtechs can help tackle these issues? Download the report here or get your tickets now to ITC DIA Europe to see Richard Calvo López, Head Insurtech at NTT Data EMEAL present the report.

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