Trends that will shape insurance in 2023

In our VUCA world, the future cannot be predicted with certainty. The same applies to the insurance industry. Nevertheless, trends and developments are emerging that could shape the coming year.

In addition, employers will likely continue to be required to allow employees to work from home for as long as Covid infections remain high. And Covid aside, recent surveys have repeatedly shown that employees prefer more flexible work models - regardless of the potential problems this presents for corporate IT (in particular, cybersecurity and the resilience of the infrastructure).

In addition to these general developments, trends are also emerging which specifically have an influence on business models and technology.

Trends and developments in business models

• Increased awareness of usage-based rates: Just like insurance companies, policyholders are also affected by the difficult economic situation. As inflation rises, policyholders will pay more and more attention to benefits and rates. And this provides the perfect landscape for usage-based rates to become more widespread than in the past.
• Expansion of digital channels: The digitization of private and business life is continuing at lightning speed. In recent years, older target groups (in particular) have increasingly recognized the benefits of digital devices and tools. And with the "metaverse," a new technological revolution is dawning that will change our previous understanding of the "cloud" and the "Internet." While it's still unclear what the "metaverse" will look like, insurers would be well advised to monitor this development and include it in their omnichannel plans and strategies. After all, omnichannel marketing is becoming more and more essential. For example, Amazon recently opened its own insurance marketplace in the UK, and experts believe Apple will enter the insurance business shortly. Amazon and Apple are, of course, pioneers in the targeting of customers digitally. In this context, "embedded Insurance" models and strategies will continue to make sense. InsurTechs like Element show how quickly products can be put together.
• InsurTechs in difficulty: In 2022, FinTechs and InsurTechs have found it increasingly difficult to raise the capital they need to grow. In the FinTech sector, spectacular business upheavals have been accompanied by sharp decreases in the value of companies. Unit costs in the InsurTech world are also getting smaller. This provides for potentially ripe conditions for acquiring technology through strategic investments or takeovers.
• Climate change: The effects of climate change will be of even greater concern to companies in the coming year. And not only with regard to their policyholders. As some of the largest institutional investors in the world, insurance companies must become even more committed to impact investing and decarbonization to preserve their image and business. Moreover, insurance companies are increasingly called upon to mitigate damages resulting directly and indirectly from climate change. Example: Parametric insurance that covers damaging events such as storms, drought, fires, and floods.

Trends in technology and IT

Trends in business models and frameworks will bring changes in technology and accelerate innovations that have already been launched by players in the insurance industry:

• Cloud, cloud, cloud: New business models, collaborations, and products - as well as increasingly rapid innovation cycles - require agile and flexible structures and processes, and above all modern IT. In this respect, cloud computing will continue to be a driver and enabler of digitization and innovation. "Digital" must be part of the insurance industry's DNA. In 2023, cloud solutions will play an important role in successfully driving the digital transformation. In particular, SaaS and cloud-based infrastructure services are the best choices here.
• Continued rise of predictive analytics: Climate change and its effects are a good example of risks that are difficult to assess. This also includes determining the probability of occurrences that are covered by parametric insurance. Humans alone will be unable to calculate the likelihood of such events. Predictive analytics (in the form of artificial intelligence) will therefore play an increasingly important role.
• IoT needs Edge solutions and data streaming: Usage-based rate models and the creation of ecosystems by means of value-added services will only be possible in the home, industrial, health, and mobility sectors via the use of sensors and IoT devices. Among other things, this will involve a further increase in volumes of data. Real-time processing will require that some analysis and data preparation already be completed on the network edge. Even with the widespread use of 5G, which creates new possibilities in terms of data throughput and latency, it will not be possible to transfer all data into the data center at once.
• No-code/Low-code: This trend, which is already playing a major role in other industries, will soon have a greater impact on the world of insurance. "No-code" or "low-code" platforms allow companies to develop customized solutions more quickly, without having to devote substantial time and resources to architectural and developmental issues first. The FinTech industry can serve as a blueprint here, as more and more FinTech startups receiving large amounts of funding are working on such platforms in varying degrees.
• Ready for AI: Data centers must also be prepared in the best possible way to cater to the growing reliance on artificial intelligence. On the one hand, this concerns connections to the network edge and the streaming of data in applications. In particular, the growing threat to critical infrastructures from cybercriminals must not be neglected. In addition, data volumes will also continue to rise. This of course will affect storage and capacity, and thereby once again the consumption of energy. In short, CIOs and CTOs must determine the best way to prepare their data centers for AI applications.

We'd be happy to discuss in greater detail how modern insurance software can help make innovative insurance a reality. Our expert Karsten Schmitt, Head of Business Development, looks forward to hearing from you.