The Conning Commentary: December 2023

December 20, 2023

Navigating uncertainty

Insurers search for growth in 2024

As 2024 begins, insurers will likely find themselves facing an uncertain environment. Feeding that uncertainty are new technologies, growing cyber risks, an expanding regulatory agenda, and a far from settled economy. Despite that uncertainty, the insurance industry continues to adapt and find opportunities for growth and transformation.

New technologies, such as generative AI, hold the promise of mining deeper insights into customer needs, leading to higher profitability. However, these technologies are relatively new, and the full picture of their risks and rewards remains a bit foggy. This uncertainty feeds into the insurance industry’s natural conservatism when it comes to adopting technology. As a result, 2024 will be when many insurers identify how they will develop and pilot these technologies.

Of course, developing and piloting these technologies will require significant investments in management time and resources. This will continue technology’s role in applying upward pressure on expense ratios over the near term. These technologies will continue driving the shifts in the type of staff and positions needed to run a modern insurance company.

While having little impact in 2024, over the medium term, these technologies are likely to become a key part in finding solutions to the insurance industry’s ongoing war for talent.

One area that transformation will accelerate is in the need for higher levels of cyber-security. The insurance industry experienced its share of cyber attacks and data breaches in 2023. The coming year is likely to see that pattern continue, especially as criminal groups and state-sponsored hackers use cybercrime for both revenue and retribution.

With AI and other technologies accelerating the industry’s digital transformation, management teams will need to pay particular attention to the rapid development of new regulations. Governments and regulators are actively playing catch-up to the explosive growth of AI and cybercrime. In 2024, the industry’s legal teams and lobbying groups will likely find both AI and cybercrime moving up on their agenda. Following closely will be ongoing refinements to climate risk reporting requirements and ongoing battles concerning fiduciary responsibilities.

These issues will play out against an economy that, while improving, is by no means robust. Growth remains weak, not helped by continued inflation, global unrest, and political gridlock in Congress. The possibility for recession at some point during 2024 remains, along with additional efforts by the Federal Reserve to reduce inflation by raising rates. At the same time, this environment is not unfavorable for premium growth and, perhaps, M&A.

In this Commentary, we look at these uncertainties and how the insurance industry may respond in 2024. Next month, we will take a close look at where each sector might find growth. 


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