Outlook 2024: Mainstreaming for the Transformative Potential of AI and Automation for Insurance

This article was originally published in The European Financial Review and is shared with the kind permission of the publication. Read the original here

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‘AI’ was named Collins Word of the Year 2023 – a fact that will come as little surprise to many. Considered to be the next great technological revolution, approximately 77% of global devices are already infused with AI technology. And the global AI market is poised for transformational growth, expected to reach US$190.61 billion in value by 2025.

Looking ahead to 2030, and by then AI is forecasted to contribute a staggering US$15.7 trillion to the world’s GDP. This surge is mirrored in the prediction that by 2024, the world will witness a proliferation of 8.4 billion AI-powered digital voice assistant units, surpassing the global population. It is within this context that the insurance industry finds itself at the nexus of transformation.

Incorporating AI technology into the corporate fabric will be a key strategic step for many companies in 2024, and re/insurance is no exception – particularly if the sector wants to remain relevant to clients and business partners.

Challenges for Re/insurers in 2024

Nevertheless, despite real progress on many fronts, the insurance industry still carries too much cost and, in real terms, has been slow to innovate beyond product distribution – in particular personal lines (red telephone, internet, comparison websites) – with very little innovation in the core insurance product provided some 350 years ago which looks very similar to that being provided today.

The slow adoption of innovation is due in many cases to the fact that the high burden of regulation in re/insurance dictates a considered approach to change, and ultimately reinforces a somewhat traditional industry where the opportunity for unencumbered innovation at speed is not commonplace. Nevertheless, this absence of substantial change stands in stark contrast to the rapid pace of advancement in other industries.

Amidst this transformative wave, re/insurers face multifaceted challenges, many of which are long-standing. Mastering data to improve risk insight and pricing, streamlining processes, optimising costs, and enhancing customer experience stand as imperative objectives. The commitment to regulatory compliance and economic modelling is intertwined with fostering positive corporate cultures, and diversity and inclusion initiatives – recognising the intrinsic link between the two.

Legacy issues continue to impede progress. The slow and costly implementation of new technologies, reliance on outdated systems by traditional players, and the encroachment of nimble tech-savvy start-ups pose both a challenge and opportunity that demand strategic and focused responses.

The burden of legacy extends beyond technology to encompass operational inefficiencies. Brokers, for instance, grapple with the ongoing costs of managing accounts in run-off, aged funding, unallocated cash, and retaining knowledgeable staff. The complexity is compounded by outdated and incompatible legacy systems, necessitating costly maintenance or intricate transfers.

This is a feature that plays across the insurance industry and is the constant struggle of those players with long histories and substantive scale, where scale can be an enormous advantage but often a significant constraint if the forces of change require the ability to pivot at pace.

This in part has fuelled the structural shift to the growth in MGAs affording the more entrenched and larger incumbents the ability to secure market access, capability and a more agile and innovative test and learn mode of operation that is otherwise difficult to replicate. As the real transformative power of AI becomes mainstream, the industry will experience more dramatic shifts in the industry’s tectonic plates and as Darwin once said “it will not be the strongest that survive, nor the most intelligent, but those most adaptable to change”.

Solutions in the Digital Tapestry

Mastering the ability to adapt and change at pace will become the new frontier. And in this fast paced and ever changing world, trusted partners emerge as pivotal allies. Expert led technology enabling partners provide the industry with a pathway to integrate the latest technologies without necessitating full-scale enterprise-wide upgrades.

From underwriting and policy administration, specialist claims triaging and management, streamlining technology to bespoke AI-powered process automation – augmented by human experts – implementation timeframes and costs are decreasing. And, with the right partner, the navigation through this digital terrain becomes more manageable, focused and – ultimately – rewarding.

As Lloyd’s and the broader London Market look to harness the power of digital transformation, there is increasing recognition that a trusted partner who can provide high quality onshore delivery of the more complex operational work, provide an effective gateway to management of more transactional offshore support and wrap this with digital enablement, is a key enabler to transformative change.

This partnership construct not only affords an organisation the ability to adapt and adjust its operational effectiveness, it importantly allows an organisation to ‘Fuel its Focus’ on those aspects of its business that are competitive differentiators, generating growth and profit. Today, Pro has some 350 London Market practitioners in the UK and growing, and a further 100 internationally, that coupled with a scaling Digital Services practice offers clients – existing and new – an enabling partner in which it can place its trust not just today but as a bridge to the future.

An inherent component of the insurance market is the inevitably that it throws off legacy business, that quickly becomes the ‘unwanted child’, a distraction to the continuing business, but also necessitates focus if it is not to become value detracting.

Our team has first hand experience in descaling over US$3 billion in liabilities – and it is well-known that there is significant legacy business accumulating in the market with significant value to be unlocked through focussed and proactive management, again an area where a trusted partner can be a real ally.

In 2024, we are expecting a strong increase in demand from brokers and re/insurers seeking strategic solutions to address their legacy blocks of business, freeing up a combination of human capital and economic capital allowing their expert teams to focus on core business activities.

Growth for the MGA sector

At the same time, the Managing General Agent (MGA) structure continues to prove itself as a crucible for innovation in our sector, acting as a bridge between established re/insurers and cutting-edge technologies like AI and automation. We have seen significant growth in the MGA sector, evidenced by the growth in the number of MGAs we support and levels of gross written premium under management, a sector where existing MGAs and new ones coming to market are finding an attractive environment within which to thrive.

Pro’s multi-territorial platform supports incubation of new MGA start ups but also a growing shift towards facilities; supporting brokers, carriers and a growing interest from product providers looking to ‘vertically integrate’ insurance within their product provision. We see these trends accelerating in 2024, with ambitious underwriting teams seeking out platforms that will support compliant and sustainable growth into new territories and classes of business, while embracing available advances in technology to expedite value capture.

Insurance at a crossroads

As we head into 2024, the re/insurance sector finds itself at a crossroads of unprecedented challenges and opportunities – one it must face head-on in order to remain differentiated and relevant. Climate-related perils, the shift to green technologies, the evolving political and economic environment, coupled with the breadth and pace of change afforded by an ever more intelligent range of technologies, demand a re-evaluation of underwriting practices and delivery models.

Fostering diversity, embracing innovation, and fortifying resilience through change are non-negotiable. In the next 12 months, we anticipate a riveting ride where AI redefines intelligence, data steers decisions, and human innovation shapes the future of re/insurance. What will be the word of the year for 2024? If we act as we need to, then ‘Adaptability’ has to feature large in the insurance lexicon!