How the Insurance Industry Can Thrive in a Changing World

More than 400 insurance professionals convened in Des Moines, Iowa, at the Global Insurance Symposium for three days of pitches, dialogues, and insights centered on the theme, “Thriving in a Changing World.”

During GIS, teams of students from Drake University, University of Nebraska, and St. Joseph’s University showcased their insurance talents in the second annual Case Study Competition. Open to students in more than 100 Gamma Iota Sigma chapters across the U.S., the three teams earned cash prizes and the opportunity to present at GIS, where attendees voted for the winners.

St. Joseph’s Kevin Nederostek and Mac Castellano delivered “How the Insurance Industry Can Thrive in a Changing World” on stage at GIS. We invited them to share their presentation with you. Enjoy!

An interesting issue to consider is how insurance companies and consumers can blossom in a constantly changing world that affects the property and casualty market. There are myriad ways the world is changing each day, but here are three that can be seen as the most relevant for insurance: climate change, societal unrest, and cyber attacks. These changes present exciting opportunities for the property and casualty insurance industry to make a difference, capitalize on resources we already possess, and lead the way forward as advocates for meeting these challenges. 

Climate change

The climate change crisis is one that’s giving the world complications humans have never experienced before. Since 1970, the number of events documented as natural disasters has increased 325 percent globally. From more hurricanes per year to snowstorms in southern states in the U.S., weather is only becoming more unpredictable. Particularly in the south, numbers related to natural disasters have increased annually, equaling $250 billion since the year 1980. 

Although inflation could be a contributing factor for the increasing costs of these disasters, the growing frequency and severity of storms only adds to the concern that individuals should have regarding recovery and sustainability. In addition to inflation, geographic location also influences climate change’s impacts; for instance, the southern states in the U.S. experience the most “expensive” natural disasters.

In California, the immense climate change issue is wildfires. A total of 7,667 fires just in the year of 2022 is a staggering amount for just one state. In relation to that, since 2000, droughts have increased in frequency and duration globally. This isn’t only a concern for Californians, but also for those across the nation and around the world. 

The increase in temperatures and lack of precipitation are leading factors contributing to climate-related natural disasters and subsequent fatalities. It’s evident that the Earth is getting warmer year by year. People are experiencing more heat waves than ever and the severity of storms continues to rise, as well. These storms contribute to property damage, telecommunication issues, supply chain disruption, and many more losses along the way. We found, with the difficulties climate change causes for the world, its increasing risk provides a market where insurance is becoming a necessity. Thus, the entire P&C insurance industry can thrive because of it. 

One new approach to tackling climate change losses is parametric insurance. As we know, parametric insurance protects a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of that event. 

For insurance consumers, parametric insurance allows funds to reach policyholders much quicker than filing a long claims process. This provides better security and lifts uncertainty and stress away from the insured. For brokers, working with third-party employees with parametric expertise not only expands the knowledge of the broker, but also creates more understanding of this new wave of risk transfer, making life a little bit easier. Carriers benefit from parametric insurance because they pay an amount strictly based on the size of the event rather than on the actual loss incurred. Finally, reinsurers act as a backup to carriers that can profit based on the frequency and severity of the losses within that region. 

Societal unrest

The second major area where the world is changing and P&C insurers can optimize their processes relates to the increasing trend in social and political unrest. Riots have globally increased 282 percent since 2011 — and it just keeps growing. Looking toward the heart and soul of the most recent pandemic, social unrest was more prevalent than ever. Since riots are excluded from most policies, insurance coverage is very limited. With social unrest becoming a higher risk in our world for businesses, it makes risk pooling a more viable solution.

Risk pooling can assist insurance companies and consumers in thriving despite ongoing social unrest. By diversifying the risk of rioting, insurance carriers and reinsurers are presented with the security of not relying on just one entity or company. For consumers, risk pooling guarantees coverage. Lastly, brokers being a part of this strategy can increase their books of business by partnering with other companies in the risk pool. 

Cyber attacks

A third and final disruptive change in the P&C sphere is increasingly seen as a business risk, a geopolitical risk, as well as a risk that we all have to deal with everyday, and that risk is cyber risk. Since the pandemic, cyber crime has skyrocketed 600 percent. This dynamic risk is very unpredictable and it’s sure to remain a top-rated risk the industry must deal with for years to come. 

The P&C industry can tap into this risk via the implementation of encryption methods. This additive makes consumers have more secure data and allows carriers to make a more attractive product that can allow them to increase premium to earn more profit. It gives brokers a new addition for their clients’ data response plans and gives reinsurers the opportunity to diversify their risk.

A second way of managing cyber risk, as well as the other risks mentioned, is through captive insurance. Going forward, insurers and reinsurers should be anticipating changes in the demand for cyber insurance to move to coverage amounts that are similar to stop-loss policies. Cyber risk is an opportunity for insurers and reinsurers to thrive as it is a new and consistent issue in today’s society. With tactics of encryption methods, insurance providers can have the “upper hand” on hackers and online attackers.

How will your company thrive in a changing world?

These solutions can support a safer and quicker insurance industry. The monster issues discussed in this text, such as natural disasters, are almost impossible to completely prevent. Yet we need ways people can come together, within and outside the insurance world, and try to better manage these three intense national problems we face.

Contact AgentSync and learn how your company can thrive in a changing world.