A new survey has revealed that uncertainty around long-term earnings sustainability, emerging risks and affordability pose new challenges for insurers through 2030.
Bain & Company’s report, “Bridging the Protection Gap: Affordability, Access, and Risk Prevention”, shows that protection gaps are expected to worsen across all lines of the insurance business through 2030 as insurers worldwide contend with rate-driven growth that is unsustainable.
The challenges facing the insurance industry lie in matching price-to-risk profitably. This is in part due to changing risks such as the rise in natural disasters and cyber attacks, unaffordable property premiums, and the declining relevance of life insurance—especially among younger generations. Only one-quarter to one-third of the damage from natural disasters will be covered by insurance by 2030; for mortality, it could be less than half, Bain found.
Bain’s global insurance practice head Sean O’Neill said that, bolstered by unsustainable tailwinds, insurance companies find themselves at an inflection point. “Over the past couple of years, we’ve seen rate increases in the property and casualty sector and interest-rate–driven annuity sales in the life sector. While capital and balance sheets remain reasonably strong, several challenges have emerged, and profitability has come under pressure for many lines of the insurance business. Insurers will need to be proactive and act now if they wish to navigate these impacts,” he said.
The report shows that investors are skeptical about US insurers’ prospects for future growth but are more bullish on life insurers in emerging markets. Valuations of US life players include negative “white space” from long-term earnings growth, suggesting either declining profitability or hidden losses yet to emerge from today’s in-force blocks. P&C insurers face the same problem, albeit on a smaller scale, due to concerns around the sustainability of recent price increases alongside potentially increasing claims.
Rising cyber risks
Another challenge facing insurers worldwide is the threat of rapidly increasing cyber risks in a much more digitally enabled and data-rich world. Costs from global ransomware damage are expected to climb to more than $250bn within the next six years, and actions by individual carriers will not be sufficient to address future risks, Bain warns.
The Bain survey also reveals that despite several challenges, insurers face a rich set of opportunities, including recent technology advancements. The rapid proliferation of unstructured data and the rise of AI are reshaping the industry landscape and harnessing data presents insurers with a unique opportunity to enhance affordability and access. Bain anticipates that AI-driven industry improvements will allow insurers to realise a 10%–15% revenue uplift, up to 30% operating expense savings, and a 30%–50% reduction in P&C.