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Insurers urged to transform to face challenges of the future

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Purposeful change: EY Global Insurance Outlooks for 2023 warns insurers of the coming changes and how they can stay ahead of the game (Graphic submitted)

The value of absent insurance is so high, insurance companies are leaving a trillion dollars worth of business on the table that could be worth tens of billions of new profit, an industry report has determined.

EY Global Insurance Outlooks are annual reports that reflect a perspective based on the thinking of EY’s entire insurance team.

Greater uncertainty: Isabelle Santenac, EY global insurance leader (File photograph)

A message from the EY Insurance leadership team, led by Isabelle Santenac, states: “Barely recovered from the powerful effects of a global pandemic, the insurance industry now finds itself confronted with greater macroeconomic uncertainty and geopolitical volatility than it has seen in decades.”

And they see a growing worldwide protection gap incorporating climate and cyber protection, as well as retirement savings and life and health insurance.

The Insurance Protection Gap measures the difference between optimal insurance coverage and actual coverage in any country. It describes uninsured losses for a country, the difference between the total economic losses and that which is insured.

The report said that In the wake of the pandemic, social unrest and more natural disasters, consumers and companies have never been more aware of their need for insurance protection.

And the protection gap represents an opportunity to reap as much as $1 trillion more in premium, and to gain billions in profits.

The EY team cited a 2021 quote that placed the global insurance protection gap at $1.4 trillion. And it quoted Swiss Re estimates that the potential increase in annual industry profits, should the industry narrow the protection gap, was $60 billion to $80 billion.

The report pointed out the recession is making the gap worse and enabling some of man’s most troubling issues.

It states: “Closing the gap will require insurers to think and act differently – new products and services delivered in new ways, with new underwriting models and via new distribution channels.

“In other words, insurers that continue to focus exclusively on the risks they’ve always written profitably, will not only miss out on the huge potential upside, but also contribute to the expanding gap.

“For insurers to seize the opportunity, they must address long standing barriers on both sides of the business:

•Demand: affordability, awareness, appeal, trust

•Supply: transaction costs, adverse selection, insurability limits

“Further, insurers must assess individual opportunities relative to several large key risk pools, representing two of the three pillars of ESG: environmental catastrophes and climate risk; and, social risks, including healthcare and mortality.

“Along with cyber-risk, these are all issues too large and complex for the insurance industry to address on its own. Though public-private partnerships will be necessary where insurability is too expensive or impossible, insurers should develop solutions proactively.

“Taking action now, can help insurers prepare for the unlikely event that government authorities will ask them to take on more responsibility for covering cyber or climate risks in the future.”

The report urges insurers facing huge challenges ahead, to seek opportunities to improve the customer experience, develop more sophisticated pricing models and increase operational resilience in order to return to growth sooner, rather than later.

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Published February 24, 2023 at 8:02 am (Updated February 24, 2023 at 8:02 am)

Insurers urged to transform to face challenges of the future

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