![Vertical Garden In Hong Kong](https://www.raconteur.net/wp-content/uploads/2023/06/rsz_istock-1377689560-900x506.jpg)
The world is undergoing a dramatic shift. A collection of powerful, transformative megatrends across the social, political and economic spheres is poised to reshape the risk landscape, creating new and exciting opportunities for insurers.
Megatrends are far from new; forces of change shape the way we live, from the discovery of electricity to the invention of the internet. Today, however, the pace of change and synergy is relentless, with digital innovation, climate change and artificial intelligence transforming our world faster than predicted.
These megatrends will have profound implications across all industries and will drive the insurance markets of the future, creating demand for both traditional and new protection products as well as services that prevent and mitigate risk. For insurers that have tended to view large trends through the lens of risk rather than opportunity, this will require a step change in approach.
“For decades, the insurance industry has relied on descriptive analytics to assess and manage risk. But increasingly, we are seeing insurers recognise that they need to anticipate and respond to these driving forces as they unfold and evolve,” says Wouter Bosschaart, strategic consulting director and ESG and climate change lead at global professional services firm Aon’s Strategy and Technology Group.
“At a time when the value proposition of insurance is under growing pressure, megatrends present an opportunity for the industry to strengthen its relevance. But to do so, insurers will need to become more adept at harnessing advanced technologies, prescriptive analytics and innovation.”
For example, the rapidly growing market for shared mobility is expected to reach almost $1tn by 2030. This will have far-reaching implications for the insurance industry, with the shift to electric, autonomous vehicles set to create an insurance market of $40bn by 2030 across not just motor but also cyber, casualty and aviation.
Product innovation will require adopting a forward-looking view to assess and price risks and create products that meet the evolving needs of customers
Intellectual property poses an equally lucrative opportunity, with the potential to generate gross written premiums in excess of $20bn by 2030. The shift from tangible to intangible assets, with the emergence of digital assets that include non-fungible tokens, virtual real estate and avatars, is driving customer risk, yet the development of new products has so far been slow, leaving room for new entrants and the development of new products and revenue streams.
The metaverse presents a similar opportunity to drive growth for the insurance industry, with an estimated insurance market value in excess of $30bn by 2030. There are few insurance products which serve the metaverse, creating untapped potential for insurers to design solutions to cover virtual assets and cyber attacks in this space.
But, of course, in a rapidly changing world, understanding and quantifying the impact of megatrends can be challenging.
“Not all megatrends have the potential to unleash new opportunities and revenue streams for insurers,” explains Bosschaart. “Some are simply too vast or uncertain. The challenge is to analyse the broad range of megatrends and sub-trends to determine the new and evolving risks and identify the ones that will be most relevant to the insurance industry.”
Aon’s Strategy and Technology Group has analysed more than 80 megatrends to pinpoint those that present the biggest opportunities for the insurance industry, and a series of deep dives to better understand trend drivers, time horizons and the required response. While technology emerges as the biggest driver of megatrend insurance opportunities, environmental trends are also notable, accounting for half of the top 10.
The impacts of global warming are increasing in frequency and intensity, with average temperatures forecast to rise by more than 2 degrees before 2100. Against this backdrop, companies across all industries face increasing regulatory and investor demand for greater transparency and climate change strategies.
According to Bosschaart, the growing pressure on companies to transition to low-carbon technologies will create new forms of risk that insurers must be prepared for. “The physical risks attached to climate change are well known but the transition risk is also huge. Although insurers can continue to offer traditional property and casualty cover, there is significant scope for insurers to address these risks through innovation.”
Carbon capture, decommissioning carbon-intensive assets, biodiversity, resilient infrastructure and electrification are estimated to have a combined premium potential as high as $25bn, according to research by Aon. Carbon capture storage, which involves capturing CO2 in the ground, is attracting particular attention and investment globally, with market expenditure set to reach $180bn by 2030.
But to unlock the full potential requires a systematic and disciplined approach to identify and assess both risks and opportunities. Insurers will need to establish a strong framework to understand the future landscape, using intelligence and insights to anticipate global market trends and foster a culture of cross-team collaboration.
“Customers will expect a single point of entry for a project, replicating the customer journey they experience in the consumer world. Insurers will need to break down silos and work collaboratively both internally and externally to improve information-sharing and decision-making,” says Bosschaart.
Equally important to the success of insurers will be the ability to reskill and upskill talent. The importance of talent can no longer come second place to business strategy; for insurers to keep pace and respond to the onslaught of new and emerging liability risks and new technology, it needs an injection of new technical skills across areas such as data science, analytics and artificial intelligence.
Bosschaart explains: “More than ever, insurers will need people with diverse skills and subject-matter expertise across a range of risks and industries, from biotechnology through to green energy.
“Product innovation will require being comfortable with analysing vast quantities of data, adopting a forward-looking view to assess and price risks and create products that meet the evolving needs of customers.”
He adds: ““The insurance industry is so dynamic that we constantly need to be reviewing how best we can engage with the appropriate talent, skills and resources that together allow us to understand and manage new and evolving risks. It’s not simply about trying to find the right talent to plug the gap, it’s also about evolving, expanding and developing as an industry, with an open mind and desire to learn, creating working cultures that value employee engagement and spur innovation.”
What is clear is that the insurance industry is at an inflection point; rapidly evolving megatrends are shaping the future risk landscape, driving demand for new product solutions. Responding to megatrends will not be without its challenges but fast-moving markets won’t wait for insurers to get comfortable with the risks. To thrive, insurers must get on the front foot and ensure they are positioned to capture the wealth of opportunities ahead.
For more information, please visit aon.com/transformative-trends