In 2024, insurers will seek stability in the face of uncertainty

Insurers around the world faced a foreboding outlook at the beginning of 2023. Big catastrophe losses, a war in Europe and stubborn inflation spurred insurers to take key actions to ensure profitability, including increasing premiums and cutting expenses.

These pressures arrived with a blockbuster technological innovation, ChatGPT, promising to both revolutionise business and create formidable risks. And now, insurers will be awaiting the impacts on risk and rates from a surprise war in the Middle East.

So what’s ahead for 2024? Insurers will return to greater profitability, even if their hoped-for stability is slower to return, as they continue to pass on higher costs to customers and benefit from rising interest rates. This will lead to moderate tech budget increases as well as more appetite for tech and product innovation. And even though carriers will explore embedded insurance and generative AI, insurers won’t see much impact on their top or bottom lines from either. Climate adaptation, on the other hand, will become very real, as more insurers scale back activities in even more regions affected by climate change and explore new types of heat-linked policies.

Here’s a closer look at a few of Forrester’s 2024 predictions for insurers:

• Half of embedded distributors will struggle to convert consumer interest to sales. Embedded insurance ­– ­where insurers embed their products and services into third-party experiences such as vehicle purchases or mortgages – is hot. When we asked online adults how likely they were to consider an embedded auto insurance product, 41 per cent of those in the US and 38 per cent in France ­– and 59 per cent of US Gen Zers – indicated they would do so when buying or leasing a personal vehicle. But factors such as keeping policies with a single insurer, the role of the agent and lack of trust in both the brand and the ability of the embedded seller to answer customer questions are hindering sales.­­­ 

• Tech spending will see a modest 5 per cent growth to tackle CX and foundational capabilities. Insurers are torn between seemingly competing initiatives: improving CX, growing revenue and reducing costs. In 2024, tech teams will invest in areas that deliver on all three priorities. Meanwhile, projects with uncertain ROI, such as moving towards in-house development and emphasising open-source technologies (at the bottom of insurers’ priority lists) will see cuts. 

• Insurers will drop ambitious climate collaborations and vote with their feet. Launched with much fanfare in 2021, the Net-Zero Insurance Alliance is dead and unlikely to be revived, given the electoral and legal uncertainty and the backlash against ESG in the US. But insurers won’t be able to ignore climate change (and sustainability more broadly) because of the massive sustainability-related financial risks they’re exposed to. In the US, AIG and Allstate have scaled back their business in California, Florida, Louisiana, and now North Carolina, pushing those exposures into the laps of state regulators. Expect others to follow.

Overall, in 2024 insurers shouldn’t expect performance to be stellar, but it should at least be more stable­.

by Ellen Carney, principal analyst, Forrester