Insurers, chief financial officers (CFOs) and actuaries will face overwhelming changes and challenges in the year ahead. These include compliance with new regulatory and solvency standards, pricing insurance premiums in line with inflation and other economic factors, addressing climate risk and ESG concerns, and adapting to new technologies.

The impact of regulatory standards on insurers

The arrival of International Financial Reporting Standards (IFRS) 17 in January, followed closely by Insurance Capital Standard (ICS) 2.0, has brought regulatory and solvency standards that require compliance to the forefront for insurers across the globe. CFOs, in particular, are overwhelmed by the vast amount of historical and existing data they need to access.

Insurers must adjust their data analysis methods to gain a complete view of past, present and future data. They’ll also need to modernize, evolve and expand reporting efforts. The ability to unlock data-driven insights into profitability and liability valuations will be especially valuable, given insurers' macroeconomic and social challenges.

Keep reading into the significant changes and challenges that insurers, CFOs and actuaries face in the year ahead. In the end, I hope you have a comprehensive view of the state of the insurance industry and the trends and issues shaping its future.

Navigating pricing complexity amid inflation

Pricing is increasingly critical in an industry experiencing rapid change. Actuaries must ensure that insurance premiums are priced in line with inflation, supply chain disruptions and a mixed economic outlook. As a result, raising premiums to shore up capital and liquidity will emerge as a top-line priority, not just in 2023 but longer term.

Motor vehicle insurance – a sector likely to see the most substantial premium increases – reflects pricing complexity. Hannover Re, for example, recently said a 10% increase in premiums was needed to cover the rising cost of parts and repairs.

Electric vehicles (EVs) present further complications for insurers. With decades of historical data, insurers can confidently charge price rates for standard gas-powered vehicles. But there are less data available for EVs. Insurers must determine how to offer compelling products to EV drivers while considering the generally more expensive repairs EVs can require.

At the same time, regulators have instructed insurers to refrain from offering discounts to win or retain customers. In keeping with this guidance, insurers must balance considerations of profitable versus unprofitable customers and product lines without compromising their overall brand positioning.

Profitability, brand guardianship and consistent market growth are critical for insurers – now more than ever. The insurers who have invested in new data aggregation, methodologies and solutions to adapt to IFRS 17 will find themselves well-placed to unlock a pricing optimization edge.

The climate of insurance

The insurance sector is still struggling to find ways to address climate risk. Late in 2022, an international climate insurance fund was launched at COP27 to address this issue.

With climate change-related weather and natural disasters projected to increase in intensity and frequency, recent events like Cyclone Gabrielle in New Zealand have left behind a repair bill in the billions.

The need for insurers to engage in climate reporting and pay closer attention to environmental, social and governance (ESG) will become even sharper this year.

Balancing ESG considerations and affordability

As ESG considerations become increasingly important to customers, insurers will be expected to offer products that align with these values while still being affordable and providing sufficient coverage in areas prone to natural disasters.

The same measures insurers took to meet IRFS 17 compliance can be followed to incorporate climate risk into decision making. The same approach – with an integrated analytics platform – can pave the way for implementing ICS 2.0 and help insurers optimize their pricing strategies and processes.

Ultimately, this will help insurers meet the demands of customers and regulators while positioning themselves for long-term success in a rapidly changing industry.

Are you an insurer looking to navigate the changing landscape and capitalize on new opportunities? Learn more about SAS® Insurance Analytics 


About Author

Thorsten Hein

Principal Product Marketing Manager

Thorsten Hein is a Principal Product Marketing Manager in the Risk Research and Quantitative Solutions Division at SAS Institute. He specialises in global risk management operations insights in both banking and insurance, focusing on risk and finance integration, IFRS, Solvency regulations and regulatory reporting. He helps risk management stakeholders to go beyond pure regulatory compliance and drive value-based management to maximise business performance, using his wide experience to deliver both business relevance and technical coherence.

1 Comment

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