During the intense week at InsureTech Connect 2023 in Las Vegas, I have been reflecting on big themes. Many thought leaders have shared their own thoughts on ITC, with generative AI dominating much of the conversation. However, my big takeaway veers off in a different direction. More than anything, I sense that we are in a time of great uncertainty for the insurance industry. This can be illustrated through a series of four pairs of observations. Imagine each of these balanced on a scale, with one side having positive implications and the other side negative. And characterizing these as “balanced” is probably the wrong visual—in reality, the scale will tip more to one side or the other. The uncertainty lies in which way the scales will tip over the next few years. Here are the four areas for contemplation.
1. How AI Will Affect the Insurance Industry
Optimism about AI, particularly generative AI for insurance, was oozing out of almost every booth on the floor and in many of the sessions. There is certainly cause for the optimistic view. There are some powerful solutions available and high-value AI use cases in the insurance industry. However, there is a great deal of anxiety about how AI will affect the insurance industry as well. Issues around governance, bias, ethics, regulatory, and legal concerns are front and center in the discussion. In addition, there is a palpable uncertainty over how roles may change due to AI.
2. Hard Market but Rate Inadequacy
Rates have risen significantly—yay! Regulators and customers alike are recognizing that inflation has changed the game and that premium increases are warranted. But despite historic increases, many are having profitability issues. Insurer costs, especially claim costs, are increasing at a faster pace than inflation in general. The wave of layoffs and market withdrawals are the results of these challenges. The market will self-adjust over time, but for now, it is creating new uncertainties for the industry. At ITC, the question was how tech, and especially AI, could contribute to better risk selection, claims optimization, and ultimately profitability.
3. Insurtech Winners and Losers
There are always winners and losers in the startup world. However, the pandemic and challenges in the industry environment and capital market today place greater pressure on insurtechs. Some have momentum and have used sound business judgment to chart a successful growth trajectory. Others have over-hired, burned through cash, and are seeing their companies teetering on the edge of failure. Many of the stressed companies have great innovative products but are overly optimistic about continuing on a fast growth path.
4. Agency Mergers and Acquisitions: Opportunities and Challenges
The distribution world has been undergoing an amazing period of mergers and acquisitions, with rapid growth stories left and right. The low-interest rates that fueled many of these acquisitions are gone, with predictions that high rates may remain for some time. On the one hand, this stifles acquisitions—not just in distribution but in the tech/insurtech world. On the other hand, the challenges and environment of the last couple of years have resulted in companies that are on the market at more attractive multiples. These are times that yield very focused and strategic acquisitions for those with a strong financial position and a vision.
I have no idea where we as an industry will end up in these areas and how they will shape and reshape the industry. (Ok, I do have some ideas—at least some opinions). For now, it is useful to tackle the challenges and opportunities in each of these areas as companies across the ecosystem look for winning, long-term strategies.