Four main sources of influence and uncertainty are set to cause long-term disruption in the insurance market, according to global management consulting firm Kearney’s report titled: The State of Africa’s Insurance Industry 2024.
The report identified four major trends shaping the insurance market - the environment, politics and economy, society, and technology.
Kearney associate director, Joar-Ann Pohl, said the insurance industry stood at a pivotal juncture marked by prominent shifts in these landscapes.
"These transformations highlight both challenges and opportunities that demand careful consideration and a strategic response. To adapt to the current circumstances and secure the longevity of their businesses, insurers must move beyond being resilient to being disruptive".
According to the report, in the environment segment, there are two major trends affecting insurers. "Beyond extreme weather events, changes in environmental conditions have kickstarted a pivotal race to climate change adaptation, as businesses seek to maintain their competitiveness and resilience to disruption.
"Related to this, there is continued uncertainty on the path to clean energy. Along with presenting a new risk profile in terms of new technologies, property, and infrastructure, it remains unclear how or when the transition will happen.“
The report found that although global investment in renewables reached a record high of nearly $500 billion in 2022, this was less than a third of what was needed each year.
"In parallel, global disruptions in energy markets, from skyrocketing prices to supply chain challenges and geopolitical conflicts, have placed both clean energy goals and economic stability in question," the report added.
The report also pinpointed the implications for insurers, stating: "The main challenge here is securing the technical balance in underwriting. As the need for coverage grows, spurred on by local regulators, this presents a big opportunity for insurers.
"However, the growing frequency, uncertainty, and severity of catastrophic events put overall business sustainability into question. New risk models are needed, as is a more tenable distribution of risk and value across insurers, re-insurers, and alternative risk transfer systems.“
The report found that in terms of political and economic influences, a plethora of economic crises had intensified global poverty and inequality in recent years.
"These stranded sections of society are not insignificant: for instance, about 9 percent of working people in Europe now live below the poverty line, while low-skilled workers face additional difficulties due to other trends including outsourcing, automation, and lack of job security.
Elsewhere, ongoing economic stagnation has caused growth to slow to an expected 2.9 percent in 2024.
"Coupled with rising inflation, this has tightened monetary policies, making it more difficult for businesses to remain competitive.
The report said, “Other global influences causing continuing uncertainty include geopolitical tensions such as the Russia-Ukraine and Israel-Hamas wars, which are prompting superpowers to define political blocs and expand their national self-sufficiency. While companies might benefit from local investment, they must equally navigate new risks.”
The implications for insurers were maintaining growth and profitability. "The immediate impact of inflation on the cost of claims is far outstripping the rate at which average premiums are adapting, while consumer and business spending rates remain low.
"In parallel, rising interest rates have driven solvency capital requirements down, creating competition with alternative investment solutions such as government bonds, raising the cost of capital for life businesses," it said.
Changing demographics, most notably from an ageing population, were also leaving their mark. "With the trend skewing older (almost 10 percent of the global population was aged 65 or above in 2020, compared with around 5 percent in 1960) and people living longer, businesses will have to cater to an older customer base and contribute to a broader rethink of social support.“
On the impact for the insurer, the report said the customer base was rapidly evolving, and traditional offerings weren’t able to cover certain segments, such as the elderly, because of the high complexity in risk underwriting.
"It’s a similar situation with global migration, which is introducing unfamiliar needs and risk profiles, while the advent of synthetic media has raised the likelihood of more fraudulent activity along with stronger international regulations and requirements to manage this," it said.
On technology, the report said advances in technology were ripe with uncertainty for all organisations. “However, for insurers, the race for quantum computing, which is expected to be a $6.53 billion market by 2030, could result in extraordinary efficiency gains, thanks to the technology’s ability to perform complex calculations at speeds far beyond traditional computers and enable crucial real-time decisions.
"Effective integration and effective partnerships are the keys to success when it comes to new technologies, which hold great potential to supercharge insurers’ organizational structures, processes, and ways of working, making them more efficient in their day-to-day operations," the report concluded.
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