Consumers and businesses alike are facing more risk than ever before.
Inflation, geopolitical tensions, and the climate crisis are defining the current generation.
While consumers are struggling with rising prices and high interest rates, businesses are grappling with credit risk, insolvencies, and supply chain pressures.
Against such a backdrop, there are of course knock-on consequences for the insurance market.
A number of these risks are proliferating across the industry, making the job of insurers even more challenging.
In a world where the stakes are higher than ever, can technology offer both prevention and a cure?
Surveying the future risk landscape
According to the recent FIS Global Innovation Report, 49 per cent of global executives that are concerned about environmental and business transition risk say they have already been impacted by it.
For executives of insurance firms, this number rises to 63 per cent.
Claims from natural disasters, unrest and instability are more and more likely, requiring disaster preparation and recovery strategies, which address secondary losses, infrastructure vulnerabilities, and alternative risk strategies.
An Axa emerging risks report highlights increasing financial risk, characterised by market vulnerability, low productivity and fiscal policies designed to lift economies out of crisis, with economic uncertainty in China potentially stoking global insecurity.
Adding fuel to the fire is the increasing sophistication of technology and the risk of its misuse.
In the Cyber Security Breaches survey 2023, the UK government estimates there were 2.39mn instances of cybercrime affecting UK businesses and approximately 49,000 instances of fraud resulting from cybercrime in the last year.
With the cybersecurity market expected to exceed $314.28bn by 2028, cyber insurance is among the quickest-growing lines of insurance coverage today.
The role of innovation in combating emerging risk
How the insurance industry responds to turbulence is critical for businesses and the public, and the role of technology is more crucial than ever. As a result, insurance companies are investing in innovation.
One such area of innovation is around predictive and personalised insurance driven by technology and supported by cloud computing.
Last year, 91 per cent of banks and insurance companies had begun their cloud transformation compared to in 2020, when only 37 per cent of firms had started the process.
FIS’ Global Innovation Report found that insurance leaders are using technology to respond to environmental and operational risk.
Featuring prominently in the survey were:
- Regulatory technology, which has been adopted by 56% of firms
- Cloud computing (52%)
- Generative AI (42%).
- 88% of the firms that use or are planning to use these technologies say they will help to mitigate macro risks.
The study also found that regulatory technology, cloud computing, and digital technologies supporting the customer experience will reach the highest levels of adoption by late 2026.
Artificial intelligence and generative AI have the most growth potential, with 45 per cent of the insurance firms in the survey planning to use them within the next year.
In the near term, insurance companies can be successful by improving their digital infrastructure to help manage their exposure to risk.
For decision-making and reporting, they need a clear, real-time view of cash flows and investments, with full confidence in the accuracy of their data.
