In his role as Partner and Head of Global Insurance at PwC, Jim Pichard (pictured) oversees a team of approximately 15,000 professionals who serve insurance clients in more than 100 countries on a daily basis. A role that helped him develop a unique perspective on how the sector has evolved, where it is today – and what the future holds for the insurance market.

Digging into some of the key vulnerabilities he sees facing insurers, Pichard looked to PwC’s latest report, “Insurance Banana Skins,” and its findings that insurers are exposed to a multitude of macroeconomic and geopolitical risks.

What is pressuring insurance companies today?

Interest rates, inflation and geopolitical conflict are just some of the risks that have first- or second-order impacts on insurers today, he said. At the same time, as part of a regulated sector, insurance companies are grappling with increasing complexity.

“Technological disruption and climate change are risks that continue to move up the register,” he said. “Scenarios such as cyber create risks, and given the scale of data reliance across the insurance market, it is no surprise that data and cyber protection are high on the agenda.

“Climate is a risk that continues to grow and grow in terms of its impact on an insurance company’s operations, its balance sheet, the products it produces and distributes, and the investments it holds. It is very pervasive.”

Another challenge that PwC is championing for greater understanding across the market is the trust gap that exists in today’s insurance ecosystem. A key part of the insurance proposition, he said, is the need for insurers to be reliable, flexible and, most importantly, deliver on the implicit promise of insurance – that it will be there for customers in their hour of need.

“Overall, trust in financial services has reached a really low level during the pandemic. The insurance industry therefore has a lot of work to do to improve trust between the public and its customers. “It is difficult to assess these risks without considering the impact of digital technology and artificial intelligence that It affects all parts of insurance companies’ operations.

“Part of that has to do with customer preferences and the fact that those preferences are changing very quickly. Individuals and business customers are used to being able to access other areas of financial services digitally. They are now also raising questions about why insurance is a one-year product, and about whether Use instead of loss based products, and on why insurance is not turning out to be more precautionary and protective.

Balancing performance while navigating external market conditions

Pichard stressed that all these factors add up to the focus on performance.

He said insurance companies must remain profitable and make sure their premiums exceed their claims, which is no easy feat in today’s environment. Performance across the global sector has been very difficult, certainly up until last year, so these companies are faced with juggling these performance requirements with meeting investor requirements while dealing with macro factors, some of which are emerging now and others about to decline. There will be greater challenges in the future.

“We survey CEOs every year, and one of the most interesting questions is whether they think their business will be viable or sustainable in five to 10 years,” he said. “This year, we got a record response of 45% of CEOs saying they don’t think their business will still be viable in five to 10 years. That’s as high for insurance as it is for any other sector. So what does it look like? Because a fifth Years are not a long time to reinvent your business.”

How have the challenges facing insurance companies evolved?

Having started in the insurance industry in the mid-1990s, Pichard has seen first-hand how the challenges facing the market have evolved – or not – over the years. What is clear, he said, is that the surrounding risk landscape has never been as complex as it is today. It’s hard to say for sure whether that translates into increased risk, but there is certainly more complexity.

A large part of this is due to new risks that have emerged over the past decade – the increasing complexity of the market makes pricing risks accurately more difficult than ever, he said.

“This pace of change is accelerating,” he added. “It reminds us of that quote that says digital has never been this fast, and it will never be this fast again! We’re really only thinking about the fact that we’re experiencing a boom right now, and until that subsides, the industry is only going to be disrupted.” And more.

He said that insurance, in theory, has always been a data-driven industry, because it involves looking at historical performance or loss experiences and using that to price risk, effectively forecasting the future. Computing power and data availability, and as a result, the ability of insurers to develop models and run simulations, are now in a completely different realm, as things that would have taken months or years to do now happen almost instantly.

“Interestingly, this hasn’t made us significantly more profitable,” he said. “The industry, as a result, is not in a situation where it’s never going to have a losing year because the competition is still there. But data and the ability to use analytics, modeling and computing power — and especially how the cloud is already starting to impact that — are important considerations.”