Expect the unexpected.

From geopolitical tensions and increased vulnerability to cyberattacks, data breaches and climate change, insurance companies will continue to be hard-pressed to predict, quantify and address every financial and operational consequence that’s likely to occur.

As a result, insurers that remain nimble and embrace uncertainty will continue to find success — one unanticipated event at a time. That said, these wins will depend largely on an insurer’s ability to proactively leverage new technology, customer interactions, product design innovations and aligned business strategies.

Here are five key trends that insurance leaders should keep an eye on in 2024 to stay ahead of the curve and adapt to the ever-changing risk environment that defines the industry:

Trend No. 1: Artificial Intelligence (“AI”) Matures

Generative AI and other innovative tools will continue to provide insurers with significant opportunities to enhance their performance through improved operational efficiency, new analytical insights into potential risk exposures and underwriting opportunities, and more flexible and responsive product development and customer interactions. Concurrently, watch for industry regulators to continue to voice concerns over insurer use of these advanced technologies given trust issues that have defined early deployments of AI by businesses of all types, including the potential for unintended bias to result against legislatively protected classes.

What to Watch: AI, machine learning, large learning models and derivative applications will continue to mature and revolutionize insurance marketing and sales, rating and pricing, underwriting, claims processing, fraud management and other functions. At the same time, expect insurance regulators to closely monitor and tighten controls on AI usage within these functions and others — all of which will create considerable operational challenges, as well as legal, reputational, organizational and financial risks for non-compliance.

Trend No. 2: Consumer Expectations Change

The direct-to-consumer distribution trend will continue to impact all industries, compelling insurers to rethink existing operating models, products and services. More and more, younger insurance purchasers are demanding convenient online products from established carriers.¹ As a result, traditional providers will continue to migrate their operations to new online facilities that will increase access, speed and end-to-end customer service — and better position them to compete with digital-first startups. Additionally, the market for embedded insurance, i.e., coverage offered concurrent with the purchase of products or services, such as extended warranty and travel policies, is expected to continue to grow in 2024.²

What to Watch: According to global insurer Munich Re, embedded property and casualty insurance “is expected to grow at CAGR 25% until 2030 and could account for over US$ 500 billion in gross written premiums globally by 2030, or 20% of the total market worldwide.”³ Reaching younger consumers on social media through advertising and other creative marketing tactics also will remain important, as will cross-sector collaborations that facilitate marketing to customers at the point of sale. Increased use of Internet-enabled home appliances and infrastructure-focused sensors also will present material business opportunities for insurance carriers to provide additional value and protection against expensive risks such as water leaks, high wind losses and other climate-related damages.

Trend No. 3: Cyber Insurance Demand Rises

The risk and cost of cyber breaches and ransomware attacks are expected to grow geometrically. According to IBM, the average cost of a single data breach in 2023 was about $4.5 million.⁴ Increased adoption of new technology, such as AI, will only increase these threats in 2024 and drive-up demand for cyber insurance protection products. In response, insurers will be challenged to deliver needed coverage at a reasonable cost, especially given the reality that the nature and scale of potential losses are still difficult to predict.

The proliferation of cyber threats and attacks will continue to challenge the insurance industry to develop new and effective protection products. But as the industry has realized with the National Flood Insurance Program, a comprehensive solution for cyber will require a broad public-private partnership.

What to Watch: To meet market demand, insurance companies will continue to hone their cyber insurance prediction capabilities, coverage limitations and related pricing models. Moreover, the joint cooperation of private insurers and public entities — i.e., federal government, state or local officials — will provide a more holistic solution in combating cyber threats.

Trend No. 4: Emerging Economies Continue to Grow

In the past decade, economic growth and an emerging middle class in Latin America, Asia and Africa have driven demand for more consumer goods and services.⁵ These developments will continue to provide insurance companies with new opportunities to deliver life and personal property protection products and services. Even more, rapid technology adoption in these fast-growing markets means consumers in these regions will be able to access convenient, digital direct-to-consumer offerings.

What to Watch: According to Microinsurance Network, health microinsurance was the largest product line in Africa and Asia in 2021, reaching 104 million people.⁶ In emerging markets, considerable growth potential for microinsurance products will continue in 2024 for firms that can successfully address underwriting risks related to climate change and geopolitics, as well as overcome operational challenges such as consumer education, dispersed populations and high delivery costs.

Trend No. 5: Climate Change and ESG Compliance Evolves

In December 2023, the Biden administration announced several initiatives to “accelerate climate action” ahead of the 28th U.N. Climate Change Conference (“COP28”) in Dubai, including the expansion of parametric insurance to help “vulnerable countries respond to climate impacts.”⁷ Given the increasing frequency, unpredictability and severity of natural disasters in disaster-prone areas, these pledges underscore the ongoing challenges that insurers globally will continue to face this year in calibrating their risk models around climate change.

What to Watch: In 2024, we can expect to see increased regulatory and investor pressures — particularly by activist stakeholders — that will continue to challenge insurance carriers. Even more, new reporting mandates will also put pressure on the finance and internal audits teams of insureds to accurately disclose risks and meet their compliance obligations. As a result, carriers that align with regulators to accurately model, measure and monitor the right environmental risks will find success designing climate change solutions.

As the trends above continue to play out in 2024, many insurers will leverage both internal resources and independent expertise to reconfigure operating models, plan for and execute robust remediation efforts, undertake new product development, enhance existing customer interaction capabilities, and strengthen regimes for ever-evolving compliance requirements. At the same time, innovations in data mining and analytics decision-support tools coupled with cloud-based technologies will enable them to more efficiently and effectively assess and price customer risk exposures, process claims, manage fraud and perform other critical functions — all of the above to be exercised in pursuit of their growth strategies and other key business objectives.

In short, today’s insurance executives are being confronted by market disruptors at an unprecedented pace. Stakeholders are going to depend on them to effectively respond to these challenges by identifying and executing appropriate solutions as they adapt to the evolving business environment.