The insurance industry is facing a rapidly evolving risk landscape, driven by climate change, technological advancements, economic shifts, and increasing regulatory pressures. During the 2024 American Property Casualty Insurance Association (APCIA) conference, industry leaders identified five key risk themes that insurers must address to remain resilient.
1. Climate Change and Uninsurable Properties
As severe weather events like hurricanes and floods become more frequent due to climate change, insurers are grappling with increasing losses. Ann Chai, chief risk officer at Zurich North America, emphasized the growing “climate protection gap,” urging insurers to educate consumers about coverage gaps for underinsured risks like floods and earthquakes. The unpredictability of where climate events will strike has caught many unprepared, highlighting the need for industry-wide collaboration to close these gaps.
2. Environmental Hazards and Litigation
The emergence of environmental hazards, such as “forever chemicals” like PFAS, is leading to increased litigation risks. Stephen Marohn from The Hanover Insurance Group warned of significant liability issues linked to industrial chemicals, which are only now being understood. Insurers are encouraged to proactively address these environmental risks by adjusting terms, conditions, and pricing based on new information.
3. Technological Risks and AI Disruption
As the insurance sector continues to integrate artificial intelligence (AI) and machine learning, technological risks are becoming more prominent. AI poses a potential disruption to non-manual labor roles, and the industry must prepare for its societal and economic consequences. Insurance companies are also tasked with managing cybersecurity threats while leveraging technology to improve underwriting and pricing strategies.
4. Macroeconomic Volatility
The global economic outlook remains uncertain, with inflation, rising interest rates, and supply chain issues tightening profit margins. Insurers are adjusting their pricing models to accommodate rising costs in construction materials and vehicles. Additionally, a $30 trillion real estate mortgage bubble looms, raising concerns about its impact on financial markets. Demographic changes, including an aging population, add further complexity to these economic pressures.
5. Social and Regulatory Pressures
Rapid regulatory changes, especially in climate policy and data privacy laws, are forcing insurers to rethink traditional pricing and underwriting practices. Former NAIC CEO Terri Vaughan noted that political motivations can sometimes lead to counterintuitive regulatory actions, especially in states like Florida and California. However, organizations like the NAIC are working to bring balanced solutions that can support a functional insurance marketplace.
The panel stressed that insurers must stay ahead of these emerging risks through proactive preparedness, collaboration, and innovation. By doing so, they can navigate an increasingly complex and interconnected risk environment.
Photo courtesy: APCI