Insurance 2030: The Tipping Point

If you have worked in the insurance industry long enough, you have probably heard these words mentioned once or twice, "it's just insurance...." But is it? A former CEO of AIG once described insurance in a compelling way: "[Insurance] is the financial oxygen we breathe...." And in many ways, this rings true. Without insurance, there would be no safety net for the capital and investments needed to enrich our world and lives. So where does insurance go from here? What will 2030 look like for the insurance industry?

A former CEO of AIG once described insurance in a compelling way: "[Insurance] is the financial oxygen we breathe...."

By 2030, I predict that insurance will come to a crucial tipping point...one that will catch fire at the crossroads of innovation, infrastructure and intellect. Dating back to 1347, when it is believed the first insurance policy was written in Genoa, Italy, the world of insurance hasn't evolved that much over the last 650 years. The concept of insurance hasn't changed; it remains a legally binding promise to pay for risks defined under a contract. But the new risks we can cover and the new ways to service the customer are becoming more exciting and disrupting the way we think about insurance today.

...the new risks we can cover and the new ways to service the customer are becoming more exciting and disrupting the way we think about insurance today.

The last two decades brought significant technological change in how we finance our everyday lives. Our purchasing and consumption power accelerated rapidly due to the internet. Banks and retailers have benefitted most from this technology and Maslow's Hierarchy of Needs. In reaching the ultimate level of "self-actualization" we are naturally inclined to seek out ways where money can help us achieve the best versions of ourselves. I would venture to guess that most would value education and social experiences as key to reaching the best versions of themselves, hence why banks and retailers have benefitted the most. Insurance is not something that satisfies our needs as easily. But if we go back to the concept of "financial oxygen", insurance is that critical element for life that we need but we don't ultimately see. We breathe it in everyday without realizing it.

Insurance is not something that satisfies our needs as easily. But if we go back to the concept of "financial oxygen", insurance is that critical element for life that we need but we don't ultimately see. We breathe it in everyday without realizing it.

If insurance is oxygen, what spark will cause it to catch fire? This is where our advances in technology come in. The insurance industry has been slower to adopt the newest technologies, primarily because most insurers have been saddled with expensive legacy systems needed to power their operations. Investing in more nimble and cloud-based technologies of today is a no-brainer, but it's not as easy as turning on a switch. Insurers in business for many years have massive amounts of data to migrate and make sure it doesn't all get scrambled in the process.

If insurance is oxygen, what spark will cause it to catch fire?

I believe there are a few sparks that have started to ignite the insurance tipping point, namely:

1. The rapid evolution of companies focused on insurance technology: the insurtechs. According to Grand View Research, the global insurtech market size is expected to reach?152.43 US billion?by 2030.
2. The advances in machine learning and artificial intelligence. We are witnessing a "Cambrian explosion" of this technology right now. Artificial intelligence can devise sophisticated programs, write screenplays, create art, and autopilot our cars. Policy design and pricing, claims investigation, and other complex insurance processes will be aided by this technology.
3. Big wholesalers and retailers using their scale and digital presence to sell insurance and even get into the insurance business. They haven't figured it out just yet (Amazon, Alibaba, Walmart, Apple) but they are getting closer. To compete with the big wholesalers, new e-commerce players are growing rapidly to attract traditional insurers.
4. The metaverse or at least the promise of the metaverse. The concept of insurance to cover virtual risks may not follow the natural laws of physics, but anyone who has a child who plays Roblox knows that virtual property is a big thing and the risk of losing virtual property is real. Other applications for the metaverse include the ability to buy and service real world insurance in the virtual world. Interacting with agents in the metaverse to help with purchasing decisions or claims is coming soon....

We are witnessing a "Cambrian explosion" of this technology right now. Artificial intelligence can devise sophisticated programs, write screenplays, create art, and autopilot our cars.

What will this ultimately mean for all of us by 2030?

1. We will continue to be challenged by the puzzle of "who owns the customer"? Is it the employer, the agent, the wholesaler, the insurance company, or someone else? Customers today do not like to be defined by "who owns them", so the lens at which we look at the customer has to dramatically shift in order to keep the customer engaged. This means that insurers will need to find new ways to market to their customers. "A one shop fits all" approach is no longer practical with the number of insurance options available to the customer today. The concept of embedded insurance is just beginning, but by 2030 it will be everywhere. We will see offers for insurance online and in the physical world for just about everything that carries risk.
2. A big wholesaler or retailer will eventually get it right and become a major threat to the big insurance players. They will use their scale and lower expense ratios to compete effectively.
3. Agents will still be thriving in 2030 in most markets around the world. The most successful and productive agents will be leveraging the latest technology to help them acquire and retain customers.
4. Group insurance will get more competitive in mature markets with the largest employers demanding more as medical inflation rises. More group insurers will exit or be acquired due to the competitive pressures.
5. In a move to compete with the insurtechs, more insurers will acquire or develop their own tech divisions to support their business and create new revenue streams. Some insurtechs with deeper pockets will merge with or acquire smaller insurers.
6. The market demand for highly technical skills (actuarial, claims, underwriting) will continue to rise despite the advances in artificial intelligence. Supply will not be able to keep up with demand as younger generations become attracted to other jobs outside the insurance industry. The first actuary will land on the Forbes 100 Wealthiest list....
7. We will be insuring metaverse risks as the demand for virtual property grows. It is likely (unless there is a crypto market implosion) that some insurers will allow customers to purchase policies and get their claims reimbursed using cryptocurrency.
8. Combined ratios will remain challenged from competitive pressure to invest in more technology. Those with better combined ratios will have invested earlier, and have greater scale and distribution.
9. The insurance M&A market will bring fewer deals in the next few years due to economic stagnation, but start to heat up in the years leading to 2030 with 2030 being the tipping point.

The concept of embedded insurance is just beginning, but by 2030 it will be everywhere. We will see offers for insurance online and in the physical world for just about everything that carries risk.

What we are seeing today at the crossroads of innovation, infrastructure and intellect will have a significant impact on the insurance industry in 2030. The investments in technology that larger insurers make today will pay off by 2030 with smaller insurers struggling if they cannot invest now. The competition to acquire the customer will get tougher with the growing number of options to purchase insurance, so those with the innovation (technology), infrastructure (distribution and scale) and intellect (human skills) will benefit the most at the tipping point.

...those with the innovation (technology), infrastructure (distribution and scale) and intellect (human skills) will benefit the most at the tipping point.