Matthew Britten, partner, PwC Bermuda
A new report from PwC identifies five trends that will affect the future of insurance: a widening trust gap in an uncertain world; rapidly evolving customer needs and preferences; an increasingly digital and AI-driven world; climate risk and a focus on sustainability; convergence, collaboration and competition.
Insurers and reinsurers came through the challenges posed by COVID-19 “remarkably well”, PwC said, and dealt with unprecedented interruptions to their business by accelerating urgently needed digital transformation. They also “proved their relevance” in a time of extreme crisis, as an essential economic player and provider of protection and peace of mind for businesses and individuals around the world.
But in its report, Insurance in 2025 and beyond, PwC describes new challenges, including: macroeconomic and structural headwinds; increased ESG demands around climate risk and social purpose; new forms of competition; changes in reporting and accounting standards; and the exponential growth in digital innovation.
The challenges to the industry come at a time when the global protection gap - the difference between actual and insured losses - which reached $1.4 trillion in 2020, is widening at an accelerating pace, according to PwC research. PwC’s analysis estimates this gap could reach $1.86 trillion by 2025, with the Asia-Pacific region accounting for almost half of all uninsured risk.
Expectations are mounting, PwC said, for the industry to play a greater role in environmental, social and governance (ESG) issues, as both investors in and underwriters of other corporations.
Matthew Britten, partner for insurance at PwC Bermuda, explained: “Insurers and reinsurers must harness the momentum they’ve gained to reassess the future and determine what long-term changes are needed for their industry to serve a higher purpose in an uncertain world. One of the main economic lessons from the pandemic has been the importance of innovation, diversification and strategic agility in sustaining business resilience. And this has been heightened by a perfect storm of geopolitical instability, pressure on costs, competition for talent and changes in approaches to taxation globally.”
Currently, only 45% of insurers believe ESG is a very important factor in their underwriting activities, according to analysis by the PwC Market Research Centre. A separate survey by insurance asset management firm Conning suggested that almost 80% of insurers in the US have incorporated ESG factors into their investment strategies.
PwC’s Global Insurance ESG Strategy Survey 2022 finds that even though most insurers strive to reduce climate change impact, they have not taken significant actions on the environment aspects of ESG. Some 12% of insurers globally have taken no action and 64% only meet the minimum requirements, compared to 32% of re/insurers in Bermuda who have taken no action and 54% who meet the minimum.
“Trust is fundamental for insurance, and insurers clearly have a much bigger role to play in our society and economy than just protecting risks,” PwC said, citing the 2022 Edelman Trust Barometer, according to which only 54% of respondents trust the financial services industry, 10 percentage points lower than the average for other industries in the report.
This erosion of trust, combined with lack of access and poor financial education, has made customers less likely to buy insurance and has led to wider protection gaps and higher economic losses, PwC said.
“Though the scope of the change is broad and complex,” PwC said it has defined five “interconnected and mutually reinforcing” strategic imperatives for all insurers to consider as they embark on their next phase of growth: go on the offensive with digital; embrace customer-centric ecosystems to create new value; embed ESG in your organisation’s core; win the race for talent; and put a premium on execution.
PwC, protection gap