2025 Global Insurance Outlook: Evolving Industry Operating Models
Insurance is a cornerstone of the global economy, providing a vital safety net for individuals and businesses. However, the industry faces a rapidly evolving landscape with new challenges and opportunities. Insurers must adapt their operating models to remain competitive and meet the changing needs of consumers in 2025. This article explores key trends, sector-specific insights, and strategic recommendations for the insurance industry.
Adapting to a Changing World
Insurers have historically operated with a risk-averse mindset, which has resulted in a slower pace of innovation. Economic factors such as inflation, geopolitical tensions, and the increasing frequency and severity of climate-related events are putting pressure on profitability. As risks become more complex and unpredictable, insurers can no longer rely on past data alone. They must embrace technological and operational excellence, innovate product solutions, and broaden their value proposition to remain relevant.
To rebuild goodwill with stakeholders, insurers need to address consumer concerns regarding “sticker shock” from premium increases and fears of surveillance from advanced technologies. Transparency and fairness are critical, especially when using machine learning and AI. Furthermore, partnerships with vendors can provide insurers with the agility required to adapt to dynamic market conditions.
New tax rules, such as the global minimum tax, will also present challenges and opportunities. Insurers should consider changes to pricing, cost optimization, and M&A strategies in light of changing tax benefits.
Sector-Specific Outlooks
Non-Life (Property and Casualty) Sector
The non-life (P&C) insurance sector experienced a significant recovery in 2024, with underwriting gains and increased investment income. While rate increases have helped bolster financial positions, the sector must address escalating loss trends and social inflation. Economic losses from natural catastrophes continue to rise, highlighting the need for effective risk assessment and mitigation strategies.
Insurers are expected to experience improved profitability in 2025. Emerging risks like AI-related liabilities and the growing demand for customer-centric experiences will present opportunities for growth.
Life and Annuity Sector
The life and annuity (L&A) sector is being driven by demand for savings-type products, fueled by elevated interest rates. While annuities sales are experiencing strong growth, insurers may need to transform their operating models to ensure long-term success. Investments in core system modernization, digital distribution channels, and predictive models can help improve competitiveness.
Insurers can also address significant unmet needs in the global market and leverage digital advances to make it easier for consumers to learn about and purchase products.
Group Insurance
Group insurance performance has been supported by high persistency and wage inflation. However, a slower pace of employment growth and potential declines in persistency for 2025 may necessitate alternative avenues for growth.
To differentiate themselves, group carriers could consider strategic alliances and partnerships.
The Impact of Artificial Intelligence
Artificial intelligence (AI) and generative AI are poised to transform the insurance industry. Many insurers are already implementing AI in various business functions, from distribution and risk management to claims handling. According to industry reports, the demand for AI-related insurance could potentially generate annual global premiums of nearly $5 billion by 2032.
Data security, privacy, and quality are critical for AI implementation. AI initiatives should focus on human sustainability, prioritizing employee well-being and skill development.
Elevating Societal Purpose
Insurers can balance profitability with purpose by addressing the need for greater resilience and sustainability. Innovative technologies and alternative data sources can help stem mounting losses. Transparency is key to build trust and be recognized as stewards of purpose.
Insurers can incentivize mitigation strategies, such as offering discounts for construction practices that reduce risk exposure. For climate change-related risks, insurers should collaborate with stakeholders and promote health awareness.
Navigating New Tax Requirements
New global minimum tax rules will impact insurers operating in low-tax jurisdictions. Insurers need to understand the rules, model potential tax impacts, and analyze corporate restructuring considerations to mitigate any adverse effects.
Embracing Change and Preparing for the Future
To thrive in 2025, insurers must embrace change and take the “road less traveled”. This involves:
- Investing in agile operating models.
- Forming strategic alliances.
- Cultivating a future-ready workforce.
- Prioritizing customer needs.
The insurance industry has the tools to help minimize risk and provide financial security. By focusing on agility, innovation, AI, and societal purpose, insurers can position themselves for long-term success and create a more resilient future.
