The first quarter of the year just ended, and so far 2024 feels a bit different than 2023. U.S. economic indicators are fluctuating month to month, and policymakers feel we are not out of the recessionary woods yet. The insurance industry has struggled to stay profitable under destructive weather events and ballooning costs. Insurers are striving to adapt to the new normal of continuous crisis, continuing digitization and evolving customer expectations.
1. Developing Risk Resilience
In the middle of winter, firefighters raced to contain the Smokehouse Creek Fire, the second-largest wildfire in Texas history, raging in the panhandle. As we witness this early challenge posed by natural disasters, it prompts us to contemplate what lies ahead as we approach other extreme weather seasons, such as hurricane and wildfire seasons. After years of record natural disasters ushering in the era of global warming, the insurance industry is now bracing for further calamities. These unanticipated risks are not the only areas insurers need to watch out for. There is a new breed of non-natural disasters, ranging from cybersecurity to machinery malfunctions (such as Boeing's safety issues), that have prompted insurance companies to look for better ways of managing these exposures and enhancing risk resilience.
To fortify risk management, insurers should combine traditional practices with advanced technology tools. These tools enable insurers to monitor and stay abreast of evolving conditions while efficiently gathering data to identify risks and vulnerabilities. By integrating technology into their risk management strategies, insurers can streamline processes, improve data analysis and address emerging threats, ultimately enhancing their ability to mitigate risks and protect their business and policyholders.
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2. Insurance GPT: AI’s Impact
If 2023 proved anything, it was that large language models (LLM), aka generative AI, are not going anywhere. Insurance companies must understand the numerous use cases AI can have on the industry, specifically on underwriting, insurance product sales and customer service. As in most sectors, gen AI tools are great for freeing up various functions for higher-value tasks like risk mitigation, by automating numerous manual tasks, from summarization of documents to synthesizing large volumes of data.
Adoption of the LLMs is improving workflows, boosting productivity, and unearthing efficiencies. It may be a while until we understand the depth of impact of LLMs on our industry, but insurers will need to integrate them into our daily practices sooner rather than later to stay competitive. Gen AI is in its infancy, where everyone is essentially a beginner, but experts are emerging. This presents a remarkable opportunity for organizations to carve out a niche and become leaders. For instance, Marsh McLennan has become an early adopter and launched a generative AI tool last year to help its 85,000 employees worldwide to streamline their work processes. Moreover, in an industry facing disruption, busy trying to recalibrate its role in society, LLMs could contribute to transforming the customer experience (CX) game.
3. Rate Increases
Premiums have already been increasing for four years, which makes elevating CX much more critical. Both the $32 billion in P&C net underwriting losses in January-September 2023 and P&C net combined ratio of 103.9% are decidedly unpleasant numbers. Fitch Ratings regards 2024’s outlook as “neutral,” and “the market combined ratio is projected at slightly over 100%.” While insurance companies are reinventing themselves with a laser focus on closer customer engagement, they know they need to increase premiums. Insurers are operating in a Catch-22 of sorts. They are feeling the pressure to reduce costs and raise rates in personal and commercial lines within insurance policies – but it’s hard to justify without adding value and becoming more transparent. Leveraging generative AI and other analytics technologies, combined with partnering with insurtechs, may be key to finding operational efficiencies.
4. Managing Social Media
While AI chatbots and other productivity tools are infiltrating every aspect of our lives, social media has not exactly faded into obscurity. In fact, consumers are turning to social media channels and online sources as an information source to dig for details on matters that affect their daily lives. With social media channels remaining as an important touchpoint, insurers still need to provide useful content across all communications channels to guide customers along their buying journey. This can prove problematic, hampering the underwriting process when consumers turn to social media to understand insurance policy pricing. This is a delicate line to walk as insurance companies cannot neglect their social media presence and must ensure their processes are completed properly. Conversely, insurance companies can still glean actionable data from consumers interactions with social media.
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Steering the Year Ahead
Dealing with the unexpected is a routine challenge in the insurance sector, and need to do so is likely to escalate in 2024. To navigate successfully, insurers must prioritize adaptability and adjust their strategies to match the dynamic landscape of the industry. Maintaining an aggressive approach to risk management and embracing innovation and technology will be essential for staying ahead of emerging challenges and seizing new opportunities.
