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The Second of our Three Megatrends concluding our #InsuranceMap Series
In the course of this content series we have taken you the length and breadth of our inaugural Insurance Nexus Global Trend Map, covering the broad industry sea-changes, the technological and functional developments and the regional trends active across today’s rapidly evolving insurance ecosystem. In our previous post, we introduced our concluding Three Megatrends, which synthesise the stand-out trends we have highlighted over the previous weeks and months:
- MEGATREND 1: Worldwide low interest rates coupled with soft market conditions
- MEGATREND 2: The complexification of risk in today’s increasingly globalised societies
- MEGATREND 3: Distribution disruption and insurance’s customer-centric ‘turn’
- AFTERWORD: Insurtech - Reinventing the Spokes, Not the Wheel
In our previous post, we tackled Megatrend 1: Worldwide low interest rates and soft market conditions... Before we consider what is perhaps the defining megatrend that has emerged time and time again across this report – the customer-centric turn in today’s insurance – we today look at Megatrend 2, another major evolution outside of the long-established Insurance Cycle: the complexification of risk in today's increasingly globalised societies.
Access all Three Megatrends, and much more besides, as part of the full Insurance Nexus Global Trend Map here ...
The world is moving fast, both for people and for businesses, both on a micro and on a macro level. Here are a few key measures on the macro level, all of which potentially point to a more turbulent, less predictable future...
There are currently 29 megacities (cities with populations exceeding 10 million people), and this figure is expected to reach above 40 by 2030. Global population continues to rise, with the UN predicting back in 2015 that by 2030 we would be looking at a population of 8.5 billion people. This is likely to lead, on balance, to higher pollution levels, increased political instability and greater movement of people (sources are given in the full Insurance Nexus Global Trend Map – download your complimentary copy here).
Worldwide, there are currently 29 megacities (cities with populations exceeding 10 million people), and this figure is expected to exceed 40 by 2030.
Allianz Megacities Report
These stats don't provide any immediate and concrete takeaways for insurers – rather they point to a future in which existing liability classes become more problematic, with greater accumulation risk. Take, for instance, health portfolios in polluted city centres or property portfolios in sprawling wood-built suburbs. This consideration applies equally to commercial lines in our steadily more interconnected and globalised world economy. More and more of the world’s trade is dependent in some way or another on a select few super-hubs; insuring a supply chain is hard enough, but the future is one of multi-jurisdictional supply webs exposed, like so many dominoes, to events and catastrophes at these global points of failure.
More and more of the world’s trade is dependent in some way or another on a select few super-hubs ...
On the micro level, there is hardly a single insurance product line where the difficulties faced by insurers aren’t increasing. It is perhaps in commercial lines that the changing face of risk is most apparent, with more and more business concerns edging into uninsurable territory.
Protecting businesses against disaster is getting harder and harder, with cybercrime and hacks being two of the biggest cases in point. Cyber incidents continue to rise year on year (take last year’s high-profile Wanna Decryptor and Petya ransomware attacks), despite the efforts of most large corporations – efforts often emanating from the C-suite – to see off the threat.
This is terrain that insurers are venturing upon – and must venture upon – but it is hard to approach like a conventional risk. While the laws of nature will prevent tornados from exceeding a certain size or outlasting a certain time limit, insurers do not even have this most paltry of safeguards when modelling cyberthreats.
One of the problems insurers will face here, as well as with other complex commercial risks, is that the data required to understand them may be housed deep within client organisations – and those client organisations may want to keep it this way! Without access to this granular data, insurers will find it more difficult to offer the required coverage at competitive prices.
This will likely fuel the growth of captive insurers for the more specialised aspects of commercial insurance, something we are already seeing among multinationals for cyber and benefits risks. Further areas in which captives are gaining ground are medical stop-loss insurance, political risk and supply chain (sources are given in the full Insurance Nexus Global Trend Map – download your complimentary copy here).
We are seeing greater adoption of captive insurance solutions among multinationals for cyber and benefits risks.
For many types of personal-lines insurance we now have Insurtechs coming into operation (take Oscar for Health, Jetty and Hippo for renters and even Laka for bicycles!), so it won't be long before we can gauge the extent to which new entrants can make real the threat they pose to incumbents.
Commercial has shown itself a relative innovation laggard at various points across this content series (see our earlier instalments on Internet of Things and Product Development, for instance), so it is hard to form any firm views on whether the worldwide complexification of risk should be viewed as a boon for insurers (higher demand for risk experts) or a bane (even more ground to be made up by incumbents).
Technology – specifically connected devices and IoT – has enormous potential to transform commercial-lines insurance, vaulting over the complexity by embedding visibility and understanding into all processes from the ground up. Obviously, it will be a long time before we have seamless IoT adoption in many of these areas; but in many of them, take supply chain for instance, knowing where your assets are, and in what state, more or less in real time, is no longer beyond the realms of possibility.
This widespread adoption of IoT will ride on open standards, which means that information relating to specialty risks can in theory be made available in a universally comprehensible form rather than as insider know-how. If, through technology, they can move in on the advantages enjoyed by captives (being ‘close to the ground’ for one), while bringing to bear their enormous scale and capitalisation, then the expanding category of fiendish-level specialty risks need not represent a dead zone for the commercial insurers of tomorrow.
In our next post, we move on to our third and final Megatrend: Distribution disruption and insurance’s customer-centric ‘turn’. And, if you'd like to access all Three Megatrends + our Afterword straight away, as well as much more, then you are free to download the full Insurance Nexus Global Trend Map here whenever you like.
For any inquiries relating to the Insurance Nexus Global Trend Map, this on-going content series or next year's edition, please contact:
Alexander Cherry, Head of Research & Content at Insurance Nexus (firstname.lastname@example.org)