AI and Digital Transformation: A Game Changer for the Insurance Sector

0

BEĞENDİM

ABONE OL

News

0

Addressing the Revenue Sustainability Challenge in the Insurance Sector

The insurance industry faces significant challenges concerning long-term revenue sustainability, emerging risk types, access to insurance products, and affordability concerns. These structural issues threaten the viability of companies in the sector. However, AI-driven digital transformation offers a promising solution. By leveraging AI, the industry can potentially enhance revenues by 10-15%, achieve up to 30% operational efficiency, and reduce compensation losses by 30-50%, particularly in property and casualty insurance.

Protection Gaps Expected to Widen by 2030

New research from Bain & Company highlights a concerning trend: protection gaps in the insurance industry are likely to expand across all lines of business by 2030. The root cause is the industry’s reliance on unsustainable growth models heavily dependent on premium increases globally. The report, titled “Closing the Protection Gap: Affordability, Access and Risk Prevention,” emphasizes the sector’s struggle to maintain profitability while aligning pricing with risk profiles. Factors such as the increase in natural disasters and cyber threats, soaring home insurance premiums, and the declining interest in life insurance among younger generations exacerbate these challenges.

Bain’s findings indicate that by 2030, insurance will cover only 25% to 33% of natural disaster losses, and mortality coverage is projected to drop below 50%. This suggests a growing exclusion of individuals and organizations worldwide from essential insurance protection.

Investor Concerns Over Future Profitability

Investors are increasingly cautious about the future profitability of insurance firms. Bain & Company’s report reveals skepticism regarding the growth potential of US insurers, though there is more optimism for life insurers in emerging markets. Valuations of US life insurers show negative “white spaces” for long-term profit growth, indicating possible declining profitability or unrecognized portfolio losses. Property and Casualty (P&C) insurers face similar issues, albeit to a lesser extent, due to uncertainties about the sustainability of recent price hikes and potential increases in compensation claims.

Profitability Management in Turkey’s Insurance Sector

Onur Kayahan, Partner at Bain Istanbul, sheds light on the outlook for Turkey’s insurance sector: “Enhancing insurance penetration remains crucial. Focusing on personal and commercial lines, excluding mandatory insurance, is vital for growth. Managing profitability alongside growth is critical. Embracing smart AI applications to support automation and digitalization, especially in elementary branches, will be a short-term focus. AI-driven risk measurement, pricing strategies, sales support algorithms, and claims management automation will be key areas for value creation.”

Rising Cyber Risks and Global Insurance Demand

The Bain report also identifies the rapidly escalating cyber risks as a significant global threat to the insurance industry. With accelerating digitalization and extraordinary data growth, insurers face a new wave of threats. Bain warns that global ransomware losses could surpass $250 billion within the next six years. The report emphasizes that the efforts of individual insurers alone will be insufficient to tackle this challenge.

AI and Data Growth Reshaping the Insurance Landscape

While challenges abound, the insurance industry also stands at the cusp of new opportunities. Bain’s research indicates that despite the hurdles, technology’s rapid evolution offers immense potential. The proliferation of unstructured data and the rise of artificial intelligence are fundamentally transforming the industry, paving new avenues for growth and efficiency. Accurate data processing provides insurers with significant advantages in accessibility and pricing.

Armando Guastella, Partner at Bain & Company, comments on AI’s transformative power: “AI is more than an automation tool; it’s a strategic asset capable of fundamentally reshaping insurance operations. By leveraging AI to process and interpret largely unstructured data, insurers can enhance accessibility and affordability for customers. These advancements could boost revenues by 10% to 15%, cut operational expenses by up to 30%, and reduce property and casualty claims leakage by up to 50%.”

The report also explores the impact of the climate solutions market’s growth on insurance risk models, the transformative effects of electric and autonomous vehicles on risk and liability balance, and strategies to manage the widening pension income gap.