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2024 Global Insurance Trend



In the face of a rapidly changing operating environment, insurers worldwide are evolving to meet new demands and challenges. The rise of digital transformation, climate change implications, and changing customer needs have all influenced the transition. These players are not just overhauling their core operations and adopting cutting-edge technology, but also reassessing their roles in society. There is a growing recognition that insurers can and should have a greater societal impact. By promoting resilience and risk mitigation, they can contribute to healthier, safer communities, and foster a more sustainable economy.

In this dynamic landscape, insurers are strategically pivoting towards customer-centricity, aligning their services and operations around the needs and expectations of their clientele. More than just offering insurance coverages, they are striving to provide holistic solutions tailored to individual circumstances, lifestyle, and risk profiles. Simultaneously, purpose elevation is becoming a cornerstone of their corporate strategy. Insurers are focusing not just on profit maximization but also on how they can make meaningful contributions to society. By embracing a purpose-driven approach, they are demonstrating a commitment to reducing societal risks, enhancing safety, and promoting overall well-being, thereby redefining their role and identity in the 21st century.

Accelerating Change: A Catalyst for Industry Reinvention

In an era characterized by unprecedented acceleration of change, brought about by climate shifts, technological advancements, workforce evolution and fluctuating societal expectations, enterprises worldwide find themselves in a state of constant adaptation. Additionally, macroeconomic and geopolitical volatility further pressurize these entities to transform their tech infrastructure, products, services, business models, and organizational cultures. These transformations are not merely to fuel profitability, but more importantly, to ensure their relevance and survival in a rapidly evolving world.

The insurance industry is in the eye of this transformative storm. No longer can it remain an exception or an observer. Rather, these colliding forces could potentially act as the catalyst that sparks a significant reinvention within the industry. This reinvention is not limited to the way the industry conducts its business. It extends to a broader scope, reshaping the industry’s overall purpose and role in society. Thus, in the face of accelerating change, the insurance industry is poised to undergo revolutions in its operations and redefine its societal contributions.

Proactive Risk Management: Expanding Insurer’s Role and Societal Impact

Insurers are aptly referred to as the financial safety net of society as they provide a crucial backstop against a broad spectrum of financial losses globally. Their traditional role of risk transfer and indemnification has fostered economic stability, enabling individuals and businesses to undertake risks, thereby stimulating economic growth and innovation. However, the burgeoning number of financially unsustainable risks, coupled with the widening life and non-life protection gaps in global markets, have prompted insurers to rethink their conventional role of merely compensating for losses.

As a result, there is an increasing emphasis on proactive risk management in the insurance industry. Instead of just compensating for losses after their occurrence, insurers are now striving to prevent risk, mitigate loss severity, and close protection gaps. These novel roles go beyond the traditional insurance functions and reflect a shift from a reactive to a proactive approach. In an increasingly uncertain world fraught with numerous challenges, such a shift is not only a strategic necessity but also a social responsibility. It is a testament to insurers’ recognition of their capabilities and responsibilities to contribute to societal welfare beyond their traditional roles.

By harnessing their unique insights into risk, underwriting expertise, and financial resources, insurers can play a pivotal role in fostering resilience in society and driving sustainable development. They can contribute to risk education, promote risk mitigation measures, and facilitate financial inclusion, thereby enhancing societal preparedness against a multitude of risks. This expansion of insurers’ role signifies a transformative leap in their societal impact and reaffirms their position as invaluable pillars supporting the global economy and society. Hence, the evolution of the insurance industry underscores a broader shift in its societal role, defining a new era of proactive and socially responsible insurance.

Insurance at the Forefront of Existential Threats

Today’s societal landscape is fraught with existential threats, including catastrophic climate change, burgeoning cybercrime, and vast uninsured and underinsured populations. These realities are driving many insurers to reimagine their approach to confronting the disruptions caused by our changing environment. Insurers are now focusing their efforts on helping consumers across all segments prevent or mitigate risks before they occur, rather than merely paying to rebuild and recover after the fact.

While the most extreme events may appear unavoidable, the combination of insurance and proactive risk management can significantly minimize the degree of their impact on affected individuals and communities. The insurance industry’s role in this context is increasingly crucial. By offering comprehensive risk management solutions, insurers are not only fostering financial resilience among their clients but also contributing to broader societal readiness against these existential threats.

This shift is represented graphically in Figure 1, which vividly illustrates the industry’s proactive stance towards risk management in the face of existential threats. The diagram serves as a testament to the industry’s commitment to its evolving role and responsibilities towards society, further reinforcing its position as an invaluable pillar of our global economy and community.

To accommodate this transformation, insurance companies need to incorporate innovative technologies, such as generative AI, into their operations. This shift allows the industry to extrapolate actionable insights from the wealth of data at its disposal, enabling more informed decision-making and risk assessment. In addition, the convergence of industries promises access to a wider range of information sources, products, and services, enriching the ecosystem within which insurers operate. Coupled with this is the growing need for talent equipped with the skill sets and know-how of these emerging capabilities. These individuals are essential for navigating the complexities of this new technological landscape, harnessing its potential, and driving the industry’s transformation. This necessitates a strategic focus on talent acquisition and development within the insurance sector, making it a critical component of this transformative journey. These elements are fast becoming a benchmark, setting the foundation for a proactive and socially responsible insurance industry.

Non-life Insurance: Evolving to Strengthen Relationships and Profitability

The evolution within the non-life insurance sector is increasingly characterized by a shift towards strengthening relationships and enhancing profitability. At the heart of this shift is an increased focus on customer-centricity which, coupled with digital transformation and advanced analytics, enables insurers to deliver personalized services and experiences, thereby deepening customer relationships and loyalty.

Furthermore, innovative product offerings and flexible pricing models, driven by data and insights, are enabling insurers to better manage risk and improve profitability. The use of technology like telematics in auto insurance or drones in property insurance allows for more accurate pricing based on individual risk profiles.

This evolution is not only enhancing insurers’ competitive advantage but also contributing to a more stable, resilient, and profitable non-life insurance sector. This transformation underscores the industry’s commitment to embracing change and innovation to better serve its customers and society at large – a testament to the industry’s proactive and socially responsible approach.

The US non-life insurance sector experienced a challenging year in 2022, marked by a record-breaking net underwriting loss of US$26.9 billion – the highest since 2011 and more than six times that of 2021. This dramatic increase was largely driven by a 14.1% rise in incurred losses and loss adjustment expenses, outpacing the 8.3% growth in earned premiums by a substantial margin. Consequently, net income plunged by one-third to US$41.2 billion, and the combined ratio, a key measure of profitability, slipped into the red at 102.7 – a marked increase from 99.6 in 2021. These figures reflect the mounting challenges faced by the non-life insurance sector, underscoring the urgency for enhanced risk management and innovative strategies to bolster resilience and profitability in the face of rapidly evolving dynamics and escalating risks.

The results for Q1 2023 were not any more encouraging for the US non-life insurance sector. The industry recorded a consolidated net underwriting loss of US$7.34 billion, marking the largest loss experienced in 12 years. It was also a historic low-point for the sector, being the worst Q1 figure on record. This trend further exemplifies the escalating risks and challenges that the industry has been grappling with, and underscores the pressing need for a strategic shift towards risk mitigation and innovative strategies.

As a consequence, the US non-life insurance market is now “facing the hardest market in a generation” as insurers grapple with the challenge of raising rates swiftly enough to offset record increases in expenses. The cost of construction materials for single-family homes has skyrocketed by 33.9% since the onset of the pandemic, while the costs for contractor services have surged 27%. Moreover, 2022 marked the eighth consecutive year with at least 10 US catastrophes resulting in losses exceeding US$1 billion. This has led to a significant surge in property-catastrophe reinsurance costs for primary non-life carriers, with a hike of 30.1% in 2023, which is more than double the increase of 14.8% recorded in the previous year. These factors are exacerbating the hurdles faced by the non-life insurance sector, underscoring the urgent call for robust risk management and innovative strategies.

Reinsurance rates are poised to maintain their elevated stance as reinsurers’ retained earnings continue to fall short of their cost of capital, thus struggling to fortify their balance sheets to cope with the escalating risk landscape. As per industry forecasts, the demand for catastrophe reinsurance in the US alone is predicted to surge by as much as 15% by 2024. This mounting requirement is only likely to apply further upward pressure on prices. This looming scenario underlines the necessity for insurers to recalibrate their strategies to accommodate these evolving market dynamics while continuing their pursuit of profitability and resilience.

The ripple effects of rising insurance rates are clearly evident throughout the broader economy. In a notable instance, commercial property premiums surged by an average of 20.4%—marking the first time that rates have soared beyond the 20% threshold since the year 2001. This inflationary trend in insurance rates continued into 2023, persisting even as general inflation showed signs of abating. However, the steep rise in insurance rates is beginning to moderate somewhat, barring outliers such as property coverage. For instance, average price hikes for cyber insurance have tapered off to 13.3%—a modest respite for buyers compared to the 15% increase in Q4 2022 and the over 20% spike in Q1 2022. This change in the rate of increase signifies a small but meaningful improvement in a landscape that has been grappling with the pressures of rapidly escalating insurance rates.

Rising expenses are indeed impacting personal lines insurers in significant ways. Auto carriers, for instance, experienced a surge in motor vehicle repair costs, a staggering 20.2% in April 2023 compared to the same period the year before. This was in contrast to a 15.5% increase in premiums. A considerable part of the issue comes from the added complexity of assisted driving technologies in new vehicles. While these technologies are expected to improve safety and subsequently lower the frequency and severity of accident losses in the long run, the calibration of their sensors and the impact of inflation can considerably raise repair costs. The same trend is also evident in the rise of electric vehicle sales, which are notably more expensive to repair than their gas-driven counterparts. Adding to the complexity is the surge in theft claims for catalytic converters. These devices, which neutralize environmentally harmful gases in engine exhaust, attract thieves due to their valuable metallic components. An alarming increase was noted; claims exploded from 16,600 in 2020 to 64,701 in 2022.

The skyrocketing insurance costs are significantly shaping consumer sentiment and behavior. According to recent surveys, 45% of respondents between the ages of 18 and 34 admit to contemplating discontinuing their auto insurance. More concerning is the fact that 17% of respondents are already driving without insurance. This growing trend towards non-insurance is quite alarming, given that auto insurance is not only a legal requirement in many jurisdictions but also a crucial safety net in the event of accidents. Alongside this, the auto insurance shopping and switching rates have reached an all-time high. This constant searching for better deals is likely a response to escalating premiums and is fostering a highly competitive marketplace. However, it poses further challenges for insurance companies in terms of increasing acquisition and retention costs. The more volatile the customer base becomes, the more insurers have to spend to attract new clients and retain existing ones. Therefore, these dynamics signal a pressing need for insurers to rethink their strategies and adapt to the changing landscape.

Homeowners’ insurers are grappling with the same economic pressures, administering double-digit premium hikes to offset repair and replacement cost challenges. This is further compounded by the increasing frequency and severity of weather-related disasters, such as wildfires, windstorms, and floods. A number of insurers are either scaling back from or exiting catastrophe-prone states completely. Looking into the future, while further significant rate increases in most jurisdictions should bolster strong premium growth in 2023, the uncertainty associated with catastrophe experience and claims severity patterns may hinder a near-term return to underwriting profit.

US homeowners’ insurers are projected to post a statutory underwriting loss this year, with a combined ratio of 105, marking the line’s sixth unprofitable 100-plus ratio in the past seven years. Globally, non-life premiums increased a mere 0.5% in real terms year over year in 2022, significantly below the 10-year average of 3.6%. However, premiums are anticipated to improve for both 2023 and 2024 to 1.4% and 1.8% year over year, respectively. This is primarily attributed to rate hardening in personal and some commercial lines.

Non-life insurer profitability is expected to improve through 2024 as higher interest rates strengthen investment returns, premium rate hardening continues, and expectations for slowing inflation lowers claims severity.

In these challenging times, innovative and proactive non-life insurers have the potential to spur long-term profitable growth by adapting their traditional risk-transfer models and adopting a more protective role for individual policyholders, businesses, and society at large. A significant area of potential disruption lies in the growth of embedded insurance. While the concept is not novel, the rapid rise in the volume of insurance premiums built into various third-party transactions is noteworthy, bypassing traditional sellers like insurance agents and potentially excluding legacy carriers entirely. It is projected that Gross premiums could multiply by as much as six times, reaching up to US$722 billion by 2030, with China and North America accounting for around two-thirds of the global market.

Auto insurers are expected to bear the brunt of the shift towards embedded insurance. It is therefore crucial for these carriers to seek alliances proactively, or devise strategies to compete against those who partner with product or service providers. This convergence can not only benefit consumers through built-in loss-avoidance and detection capabilities but can also enable carriers to play a central role in fostering stronger client relationships.

The growing usage of parametric insurance, where claim triggers and automatic payments are based on an index or specific widespread event, presents another significant opportunity. Coverages have expanded beyond natural disasters to include cyber exposures and operational downtimes due to cloud outages.

The increasing role of AI also presents novel coverage challenges and opportunities. For instance, Munich Re has introduced a policy to cover potential financial losses from underperforming self-developed AI programs, and insurers can utilize AI to aid clients in risk reduction or mitigation.

Moreover, insurers are expanding their policy portfolio to cover renewable energy projects, such as Hiscox’s plan to launch an ESG-focused syndicate at Lloyd’s, to capitalize on growing interest in green technologies. Such sustainability-led initiatives can significantly enhance the industry’s brand.

Finally, persistent hard cycles, InsurTech innovations improving underwriting data and capabilities, and the rising frequency and severity of catastrophes are contributing to the growth of the specialty insurance market, projected to increase from US$81.5 billion in 2022 to an estimated US$130.1 billion in 2027, at a compound annual growth rate of over 9.6%. Embracing innovation in both operations and products, and devising strategies for more frequent client interactions and goodwill could be critical elements driving non-life insurer growth and profitability.

Life and Annuity (L&A) insurers are making pivotal strides in modernizing their core systems and transforming their organizational culture, a move primarily driven by the rapid digitalization of the insurance industry. These insurers are increasingly recognizing the importance of agility, enhanced customer service, and operational efficiency in maintaining competitiveness in the market. As such, they are investing in state-of-the-art technologies and platforms, such as cloud computing, advanced analytics, and artificial intelligence, to overhaul outdated legacy systems and streamline their processes.

However, while these improvements are laudable, further efforts are needed to fully harness the potential of these technological investments. Insurers must ensure a seamless transition from old systems to new, minimizing any disruption to their services. Equally important is the need for a cultural shift within the organization – a shift that fosters innovation, encourages continuous learning, and promotes a customer-centric approach. These elements not only drive digital transformation but also embed a culture that can adapt to the rapidly evolving insurance landscape.

Training and development programs should be implemented to equip employees with the necessary skills to navigate the new technologies. Additionally, fostering a culture of open communication can aid in easing the transformation process, making employees feel valued and involved in the company’s strategic direction. With a more modernized core system and an adaptable culture, L&A insurers would be better positioned to meet the ever-changing needs of their customers, improve their risk management capabilities, and enhance their overall performance.

Due to robust performance in the first quarter of 2022, US life insurance premiums reached a total of US$15.3 billion for the year, matching the record-high premiums witnessed in 2021. Despite the presence of a coverage gap affecting more than 100 million US adults, sales saw a decrease in momentum during the latter half of the year. This slowdown was largely attributed to consumer apprehension over escalating inflation and economic volatility, even as concerns related to COVID-19 began to diminish.

Looking globally, key growth drivers within the Life & Annuity (L&A) sector for 2023–2024 are expected to result in a divergence between developed and emerging markets. In the United States and Europe, increasing inflation and its impact on discretionary consumer expenditure are likely to pose a challenge to individual life insurance sales. Additionally, regulatory obstacles could potentially hinder progress in advanced Asian markets. In contrast, the burgeoning middle class in emerging markets, characterized by increasing aggregate nominal incomes, could provide a significant boost to the savings and protection business.

Across most regions, the growth in life insurance is expected to be spearheaded by a rising demand for protection products among younger, digital-savvy consumers. This demographic appears to exhibit an increasing awareness of the benefits associated with term life products.

On the annuity front, US sales hit a record high in Q1 2023 year over year, despite a 30% decline in variable annuity (VA) transactions. This development was largely driven by a 47% increase in fixed rate deferred annuities and a 42% rise in fixed-indexed annuities, primarily due to higher interest rates. Moreover, in Q2, individual annuity sales increased 12% year over year, surpassing last year’s record despite an 18% drop in VA sales. It’s expected that weakened financial markets and economic indicators will continue to pressure VAs, but will likely benefit sales of annuities that provide more predictable outcomes.

2024 is poised to be a pivotal year for the Life and Annuity (L&A) sector. With the world becoming increasingly digitized, customer and agent expectations for more relevant and holistic product offerings and ease of doing business continue to escalate. To meet these demands and provide a buffer from external market pressures, many L&A carriers are proactively repositioning for more sustained and predictable growth.

This shift may be challenging for many carriers, as they continue to grapple with legacy systems, siloed lines of business, products, processes, and culture. Nevertheless, these obstacles are not insurmountable. Just as with non-life carriers, leveraging cutting-edge technology, including digital tools and advanced analytics, could help empower life insurers and their agents to transition from a transactional role to more relationship-based consumer interactions.

Modernizing systems can potentially facilitate the use of alternative data sources for quicker application underwriting and processing, more seamless cross-selling and customer personalization, and ease of engagement, as well as rapid new-product launches. It could also enable better connectivity and collaboration with industry and non-industry partners across the value chain, to enhance the customer experience and drive more sources of profitable growth.

However, system modernization is not without its challenges. Most respondents to a recent Deloitte survey of 100 US L&A chief information officers or their equivalents said they have begun their core system modernization journey. Still, fewer than one-third have completed some (20%) or all (12%) of their initiatives. Just over two-thirds have projects currently underway or in the planning stage. Moreover, in the last five years, the percentage of L&A carriers intending to upgrade or enhance rather than replace their existing legacy core systems has doubled from 36% in 2017 to 73% in 2022.

More than ever, the L&A insurance sector is looking towards technological investments for growth and resilience. However, carriers’ success in making these transitions may hinge as much on their ability to transform their culture as their operational capabilities. This could involve fostering an environment that encourages innovation, continuous learning, and a customer-centric approach. It’s important for carriers to develop a value-stream orientation that could enable end-to-end delivery of business initiatives, and potentially alter long-standing company culture by breaking down the barriers posed by siloed thinking.

From an M&A perspective, despite a recent decline in activity—largely due to fewer entities to target as interest rates surge—private equity (PE) firms are likely to continue looking towards the L&A sector. Private capital is playing an increasing role in the insurance market as PE firms seek access to insurers’ huge asset pools, and insurers tap into PE asset management skills to help boost returns.

The COVID-19 pandemic has undeniably influenced US employee benefit buying habits, especially in relation to life insurance and supplemental health products enrollment decisions. For instance, in 2022, premiums for coverage on accident, critical illness, cancer care, and hospital indemnity augmented by 12%, summing up to US$2.9 billion year over year. Conversely, new workplace life insurance premiums experienced a 1% drop from 2021 to US$3.9 billion, which is likely due to the comparison with the 14% surge in 2021, marking one of the largest gains in three decades. As the pandemic’s impact begins to wane, Deloitte anticipates the overall market growth rate for group insurers will likely align with the economy, employment, and wages in the coming years. For providers aiming for growth beyond overall market trends, they may face challenges in expanding their product portfolios, including voluntary offerings that could potentially add to the premium and generate higher margins. The growing awareness of long-term care costs has prompted consumers to seek coverage through their employee benefits. This awareness has been partly triggered by the Washington Cares Fund, mandating long-term care insurance for Washington state employees by July 2026. Group insurers are continually seeking innovative ways to enhance client engagement and add value to distinguish their brand. The increased consumer demand for employee benefits focusing on financial health and well-being—likely exacerbated by the pandemic and the “great resignation”—is one such trend. Providers and brokers can consider collaboration with InsurTechs to offer benefits to businesses that promote healthier and more motivated employees, and simultaneously, foster more frequent customer interactions. Likewise, providers, benefits brokers, and employers can make these offerings accessible to employees, thus transforming financial products into a powerful tool for inspiring holistic improvement in mental, physical, and financial well-being. The drive for digitization has led group insurers to improve client experiences on digital portals while enabling self-service capabilities. HR organizations should strive to maintain pace in the competitive labor market. With economic downturn concerns looming, insurers should strategically consider elements such as expected return on investment and competitor focus areas to prioritize connections to their customers’ employee benefit administrative platforms and the most impactful use cases. These use cases may include real-time benefits enrollment, benefit eligibility checks, processes to drive specific product purchases, billing, employee updates, and employee verification of eligibility before claims payment. This increased value placement on benefits and related experiences by employees challenges employers and providers to enhance the customer experience through broader product offerings and digital portals and services, potentially creating an opportunity for year-round benefits engagement.

The advent of artificial intelligence (AI) is revolutionizing customer engagement in the insurance sector, ushering in new possibilities for personalization and efficiency. AI-powered chatbots, for instance, can provide instant and personalized customer service, effectively handling customer queries and offering relevant product recommendations. Predictive analytics, another facet of AI, allows insurers to anticipate customer needs and behaviors, thereby enabling targeted marketing and proactive engagement. Additionally, AI can simplify and accelerate the claims process, ensuring a smoother and more satisfying customer experience. Furthermore, advanced machine learning algorithms can analyze vast datasets to identify patterns and trends, helping insurers to better understand their customer base and tailor their offerings accordingly. These technological transformations underscore the growing importance of AI in enhancing and personalizing the customer experience in the insurance industry.

Human capital, encompassing the knowledge, skills, and abilities of an organization’s workforce, is becoming a focal point for insurers. As the dynamics of the industry rapidly evolve, there is a growing awareness of the need for workforce transformation. Insurers are beginning to appreciate that the traditional methods of talent acquisition, engagement, and development may not serve their future objectives. Instead, they are shifting towards strategies that align with their long-term vision. Technology, while essential in facilitating data flow throughout the value chain, is only part of the equation. The human factor is potentially even more critical to an insurer’s success. Modernizing culture to foster a more agile, innovative, and learning-oriented environment is increasingly seen as a key driver of this transformation. As such, carriers are placing a renewed emphasis on human capital, recognizing that the workforce of the future will need to be equipped with a diverse range of skills and competencies to navigate the complexities of a rapidly changing landscape.

Sustainability, climate, and equity (SC&E) are increasingly becoming central tenets of insurers’ corporate strategies as stakeholder demands intensify and the landscape of risks evolves. The frequency and severity of natural disasters, along with the financial and reputational implications of insurers’ unique positions as investors and underwriters, call for a more dedicated focus on SC&E. Regulators worldwide are elevating disclosure expectations, prompting insurers to more meaningfully integrate SC&E into their organizational ethos and strategy. However, transitioning into purposeful stewards may necessitate internal improvements both vertically, from top management to the front line, and horizontally, across all departments in insurance companies. By embracing SC&E not just as a concept, but as an integral part of their brand DNA, insurers can alter perceptions, emerge as ambassadors of change, and ultimately, drive a more sustainable and equitable future in the face of changing risks.

In response to the mounting demands for a sustainable future, insurers should escalate their own decarbonization goals and play an active role in supporting their clients’ transition to net-zero. With their expertise in assessing and managing risks, insurers are uniquely poised to function as ambassadors for sustainability. They have the power to clearly communicate both risks and opportunities, thereby influencing executive decisions and strategies across various industries to foster a healthier workplace, marketplace, and societal impact. Although the insurance industry’s scope 1 and 2 carbon emissions from their own operations are relatively low (ranging from 10% to 25%), there is still room for improvement. Insurers can potentially further reduce carbon emissions by investing in greener buildings and vehicles and enhancing waste management programs. This proactive approach towards sustainability not only aligns with the growing global emphasis on climate change but also paves the way for a more sustainable and inclusive future.

The insurance industry’s scope 3 emissions, which account for 75% to 90% of total emissions, may necessitate a comprehensive reevaluation of underwriting and investment portfolios. A number of European insurers are already taking the lead on this front, actively promoting the importance of sustainability in their underwriting and investment decisions. For instance, Chubb, a global insurance provider, recently introduced an insurance package in the United Kingdom, specifically designed to support the expansion of small to medium-sized alternative and renewable energy projects. The company plans to roll out this initiative globally in the near future. As investors and underwriters, insurers are not only adjusting their own asset liability portfolios to anticipate the potential devaluation of fossil fuel-based assets, but they are also advising clients as they formulate their decarbonization strategies. However, such decisions are not devoid of challenges. This year, several large global insurance providers with substantial US operations and membership in the Net Zero Insurance Alliance (NZIA) encountered opposition from United States attorneys. The lawyers voiced potential legal concerns regarding the insurers’ decarbonization plans, arguing that collective pursuit of decarbonization objectives could give rise to significant antitrust risks. As a result, a number of insurance companies withdrew their memberships, which could possibly lead to the dissolution of the NZIA.

Transparency in companies’ intentions and actions concerning climate pledges, social equity initiatives, and reporting is increasingly critical as stakeholders, including regulators, investors, employees, customers, and litigators, are closely monitoring potential acts of greenwashing. In such cases, companies may resort to selective disclosure and a filtered focus on sustainability efforts. Regulators, meanwhile, are increasingly expecting the insurance industry to finance the transition to net-zero by 2050. Current estimates suggest that the annual public climate finance flows, amounting to US$1.25 trillion, will likely cover only a quarter of the funding requirement. To bridge the 75% gap, a mobilization of at least US$3.75 trillion in annual private climate finance flows is necessary. This considerable financing challenge suggests a need for robust public-private partnerships. A compelling example of this is the group of 11 private insurers providing reinsurance to facilitate the largest debt conversion for marine conservation in the Galápagos Islands. This initiative will allow Ecuador to save over US$1.126 billion in reduced debt service costs and is expected to generate US$323 million for marine conservation in the Galápagos Islands over the next 18.5 years. This example underscores the potential positive impact sustainable finance solutions can have in addressing the funding gap for biodiversity conservation.

In order to effectively address sustainability, climate, and equity (SC&E) issues, governance frameworks may require restructuring. This would involve sensitizing and aligning stakeholders and setting enterprise-wide controls and processes. A recent Deloitte survey of U.S. sustainability executive-level insurance respondents has revealed several major hindrances to the adherence of climate risk governance-related tasks. The survey highlighted that the lack of a clear regulatory framework, insufficient data, and inadequate resources are among the top challenges faced by insurers when it comes to climate risk governance. To overcome these barriers, insurers could consider adopting a more holistic approach to risk management, which integrates SC&E considerations into all aspects of their operations, from underwriting and investments to talent management and product development. By doing so, insurers will not only be better positioned to manage emerging risks, but also seize new market opportunities driven by the transition to a more sustainable, low-carbon economy.

As regulators worldwide are stepping up their initiatives in defining metrics for insured emissions calculations, insurers need to respond promptly and effectively. The International Sustainability Standards Board (ISSB), for instance, has issued its inaugural IFRS S1 and S2 disclosure standards, providing a framework for companies to disclose their sustainability and emissions data. In Europe, target-setting protocols have been introduced, and in Canada, the Office of the Superintendent of Financial Services has finalized climate risk management guidelines. Meanwhile, in the United States, the Securities and Exchange Commission is developing guidelines for emission reporting. Looking ahead, further developments are anticipated from regulators, along with the establishment of federal and state requirements for the insurance industry through 2024.

Presently, there is more clarity on the accounting treatment of financed emissions for insurance companies. However, stakeholders and regulators are seeking more transparency on underwriting emissions. As a result, the scope of data collection, measurement, and reporting work is expected to increase significantly. Most insurers, therefore, should consider reconstituting an overarching sustainability, climate, and equity (SC&E) governance strategy. Such a strategy could help facilitate more effective controls, improve stakeholder management, and achieve greater sustainability across various functions and lines of business.

Moreover, insurers need to weigh the cost of SC&E compliance, particularly in the current operating environment. To find efficiencies in compliance, insurers could work in tandem with data warehousing and reporting initiatives, like data or finance transformation. In many cases, SC&E compliance and reporting are integrated into the finance organization, suggesting a natural path towards reducing the cost of compliance. This integrated approach is not only cost-effective, but it also ensures a more cohesive and comprehensive SC&E strategy.

Combatting systemic social inequity requires an expansive approach to product and service outreach, as well as increased representation in executive leadership and board positions. Following the tragic death of George Floyd in 2020, societal and corporate commitment to Diversity, Equity, and Inclusion (DEI) saw a significant uptick. Insurers were prompted to devise DEI-specific objectives, benchmarks, training, and recruitment initiatives. However, challenges persist, as evidenced by interviews conducted by Marsh McLennan and the National African American Insurance Association’s (NAAIA) of more than 650 Black/African American risk and insurance professionals. A staggering 84% of respondents reported career advancement challenges due to conscious or unconscious racial bias, with lack of promotions (75%), growth opportunities (70%), and mentorship (68%) cited as primary concerns.

For sustainable transformation, insurers must evolve beyond “treating DEI as an initiative” and instead cultivate an inclusive ecosystem that engenders a sense of belonging. Enhancing diversity and inclusion at management, executive leadership, and board levels can create growth opportunities for diverse groups. Research suggests a positive correlation between adding women in the C-suite and the number of women in senior leadership just below the C-suite. To facilitate such change, insurers may wish to consider forming network groups, and introducing learning and development programs focused on unconscious bias, allyship, and inclusive leadership.

Beyond internal organizational measures, insurers should also advance their financial inclusion initiatives with improved offerings in products and services to meet social goals. For instance, a study by the Wharton Climate Center found that low- to moderate-income households and communities of color lack adequate insurance coverage against climate-related disasters. Insurers could respond by increasing accessibility and affordability of coverage for unserved or underserved segments and regions, collaborating with governments and other industries to improve access to long-term savings and health insurance, and diversifying their workforce to better cater to various demographics.

International governing entities, such as the World Economic Forum, recommend reporting employee demographics by age group, ethnicity, gender, etc., as well as talent benchmarks. Additionally, the SEC has established several “human capital” disclosure requirements, with further discussion underway. However, insurers’ approach should be driven by more than just compliance; it should be a reflection of excellent corporate citizenship.

While the implementation of new accounting rules like Long-Duration Targeted Improvements (LDTI) and International Financial Reporting Standard 17 (IFRS 17) presents challenges, it also offers insurance companies an opportunity to innovate operationally. These transformations are not limited to finance or actuarial departments but can extend to other areas like claims management, underwriting, and pricing.

The benefits of these regulations, as perceived by more than half of the respondents (57%) in a December 2022 survey conducted by Economist Impact for Deloitte Global, are expected to outweigh the costs. This is an encouraging increase from previous surveys, where only 40% of respondents in 2018 and 21% in 2013 felt the same way.

As for the challenges, insurers are faced with the task of communicating the context and meaning of financial results under these new accounting standards to external stakeholders, including equity analysts, rating agencies, and institutional investors. This task requires a comprehensive understanding of the new standards and a clear communication strategy.

Looking forward, these new accounting standards could impact insurers’ product choices as they offer more clarity on profitability by product. This kind of clarity can inform long-term forecasting for expenses and budget needs, which is crucial for strategic planning.

Lastly, it’s important to note that while the new LDTI rules currently apply only to publicly traded insurers in the United States, privately held and mutual companies must also comply by 2025. These carriers can learn from the experiences of public companies in their IFRS/LDTI implementations and potentially avoid some of the pitfalls encountered during early adoption.

In the changing landscape of the insurance sector, tax leaders must remain proactive, particularly in light of international legislative developments such as the Organization for Economic Cooperation and Development’s Pillar 2. This policy introduces a jurisdiction-based global minimum tax, derived from book income with multiple adjustments. A number of jurisdictions have already sanctioned corresponding legislation, while others have circulated draft legislation and taken preliminary steps towards its adoption.

Insurance tax departments with multinational operations are thus encouraged to familiarize themselves with the rules, model tax impacts, and explore potential restructuring strategies to minimize adverse tax effects. Understanding the data requirements for accurate implementation of the new rules and associated reporting is paramount. Due to the complexity and prominence of these worldwide changes, reliable tax models will require the collection and aggregation of detailed data, much of which may not currently be available.

While the United States has not drafted legislation specific to Pillar 2, U.S. based multinationals and foreign-owned U.S. companies are likely to be subject to Pillar 2 in various forms, independent of U.S. legislation. Consequently, tax departments should monitor legislative developments both domestically and internationally and plan accordingly.

In addition to Pillar 2, insurance tax departments should assess whether the new book-minimum tax is applicable to their business. This tax, effective for taxable years beginning after December 31, 2022, targets corporations with significant book income, such as those with average annual adjusted financial statement income exceeding US$1 billion either individually or with a group of related companies.

Finally, insurance tax departments should maintain close connections with their business and investment units to promptly respond to changing market landscapes. For instance, changes in interest rates should be closely monitored, and the tax department should be involved in discussions related to matters such as investment planning and hedging strategies. This inclusion ensures the tax impacts are well-understood and estimated prior to executing trades.

Global M&A activity in the insurance sector slowed down in 2022, but insurers should prepare for a potential uptick. A total of 449 M&A deals were completed in 2022, which was the highest in a decade. However, the second half of the year saw a decrease in activity, with 242 deals in the first half and 207 in the second. This slowdown coincides with rising inflation and interest rates. Despite this, the Asia-Pacific region experienced an increase in M&A activity, with the number of transactions growing from 42 to 60 year over year.

Economists predict that the worst parts of the global economic downturn are behind us, and while M&A activity is expected to increase, the volume may decline from the highs of the recent years. This is evident in the shifting strategies of many insurers in the United States and Europe, who are exiting mature markets and exploring higher potential growth regions such as the emerging Asia-Pacific, given the relatively low insurance penetration rates in comparison with more developed countries.

In the United States, the Life & Annuity sector’s activity fell by 33% to 16 transactions with an aggregate value of $160 million in 2022, from 24 transactions totaling $24.5 billion in 2021. This was primarily due to interest rate hikes that narrowed the supply of attractive acquisition targets.

However, the upward trajectory of interest rates is expected to continue to inhibit Private Equity activity in the sector. If rate hikes and inflation cool toward the latter part of 2023 and into 2024, PE firms may reenter the market with pent-up demand and begin aggressively seeking deals, likely focusing on distribution networks and finding synergies.

The P&C activity in the US also slowed in 2022, with 38 deals at a total aggregate value of $13.5 billion compared to 43 deals announced with a total aggregate value of $22.0 billion in 2021. The impact of inflation on claims continues to drive up combined ratios, fueling expectations for a prolonged hard market.

Insurance broker M&A activity in the United States and Canada declined by 24% to 359 deals in the first half of 2023 compared to the same period in 2022. This decline began in the second half of 2022, when some of the sector’s most active purchasers saw their activity slow dramatically due to an increase in the cost of capital.

The global InsurTech market, however, may see more activity in the near term. Following the stock-market downturn in 2022, there was a sharp decline in InsurTech valuations and potential IPOs. As a result, investors and founders may look to alternative solutions for growth, such as acquisitions to build scale, which could lead to sector consolidation.

Looking ahead to 2024, several triggers may signal a rise in M&A activity. A shift in macroeconomic indicators, such as lower interest rates and inflation, could impede organic growth and drive more M&A. Carriers seeking digital modernization will likely increasingly align with InsurTechs for the entirety of the customer journey, rather than just point solutions. Furthermore, as carriers focus more on expense reduction, they could look to consolidate their operations and streamline processes by divesting noncore business.

In this context, insurers should focus on benefiting from any possible synergies, particularly those seeking to increase scale with M&A activity, especially in a recovering economy. While merging organizations’ infrastructure generally requires capital investment, it could accelerate the elimination of unnecessary expenses by avoiding the need for redundant resources once the companies are on a single platform. Insurers may also consider updating a potential target list for acquisitions according to their stated growth strategies, and work with their corporate development and trusted advisors to identify opportunities for shedding unprofitable or noncore businesses. In a quiet M&A market setting, early preparation for a potential uptick in activity could be a differentiating factor in securing deals.

The 2024 Global Insurance Outlook encapsulates a world of opportunities juxtaposed with imminent challenges. It beckons insurance professionals, risk managers, and stakeholders to embrace the changing tides with resilience and foresight. Only through the confluence of innovation, adaptability, and strategic vision will the insurance landscape not only endure but also thrive amidst the unfolding nuances of the global arena.