Artificial intelligence and climate change are top of mind as the insurance industry heads into 2025.
AI continues to create both opportunities and challenges. The use of artificial intelligence could help the industry better assess risk, leading to more accurate underwriting. According to Hanover, 91% of insurance companies are already investing, or plan to invest in AI technology, and one in 10 specialty insurers plan to scale their AI use in 2025.
But Hanover also found 84% of actuaries are concerned about a lack of technical skill when it comes to AI, and only 43% of underwriters trust automated recommendations from predictive AI tools.
Climate change is also a top concern for many insurance professionals. Climate disasters continue to take a toll, and many people lack sufficient coverage. According to Deloitte, economic losses from natural catastrophes were $357 billion in 2023 globally, yet only 35% of those losses were insured. The protection gap amounts to about $234 billion, and it’s largest in countries in the Middle East, Africa and Asia.
Several insurers have dropped coverage for properties in disaster-prone areas, leaving many to rely on the excess and surplus lines market and newer parametric insurance models.
Solutions to these challenges aren't easy. As climate, AI and other risks become more complex, insurers will have to spend more time preparing for what’s ahead rather than reacting to what just happened, according to a Deloitte report.
“It is becoming increasingly important for carriers to elevate technological and operational excellence, innovate product solutions and broaden the insurance value proposition—making the insurance safety net more reliable, accessible, and resilient,” the report said. “By modernizing and streamlining infrastructure, operations, and business models, insurers can develop a more forward-looking approach to risk modeling, assessment, analysis and mitigation.”
As we head into 2025, the slideshow above highlights six key risks for the industry to watch in the New Year.
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