What 6 key challenges will insurers face in 2024?
Climate change, Artificial Intelligence and ESG top this year's predictions in latest edition of Annual insurance review from international law firm RPC
Extreme weather events, environmental concerns, the rapid rise of Artificial Intelligence (AI) and pressures from the economic climate are just some of the key challenges insurers will face in 2024, according to the latest edition of the Annual insurance review from international law firm RPC.
Annual insurance review scans the horizon for the biggest developments, trends and challenges in store for insurers in 2024, both in the UK and internationally, and teams it with insights from RPC's market-leading lawyers and Global Access partner firms.
Highlights and key considerations from the report include:
1. Confronting climate change and ESG imperatives
In 2024 insurers will grapple with a dual challenge, confronting the aftermath of global extreme weather events, ranging from wildfires to floods, fuelling a surge in claims. Simultaneously, a heightened focus on Environmental, Social, and Governance (ESG) imperatives reshapes the insurance landscape. Stakeholders demand accountability, triggering action against companies and their directors for greenwashing and poor ESG practices. Construction projects and manufacturing face increased scrutiny, necessitating innovative approaches to risk assessment and sustainable underwriting. Embracing change, insurers will explore the shift towards retrofitting buildings, a strategic move to offset carbon emissions amidst the complex interplay of climate change and evolving ESG expectations.
2. Navigating a landscape of triumphs and trials
The construction industry had mixed fortunes in 2023. On the positive side, a strong pipeline of projects has been accompanied by an easing of supply issues, shorter delays in delivery times, and inflation beginning to ease. However, the combination of Brexit, Covid, the war in Ukraine and the high interest rates have impacted contractors, many of whom rely on credit and are now threatened by insolvency. Public debt has soared, endangering infrastructure projects which many governments have committed to, with some projects being delayed or in some cases cancelled in response to cost pressures.
3. RAAC and ruin
Reinforced autoclaved aerated concrete (RAAC) made headlines in 2023, when it was reported that schools, hospitals and other public buildings constructed with RAAC, were at risk of collapse. This year will likely see RAAC being removed and more at-risk buildings identified. Insurers will face questions when considering claim coverage as to whether RAAC-related damage is construed as a sudden and unforeseen event, or whether it is excluded on the basis of wear and tear.
4. Artificial Intelligence
The rapid emergence of AI technology will mark 2024 as a year when its uses and advantages will be explored more widely. For financial institutions, risk management teams are increasingly using AI to help with credit risk assessment, anti-money laundering checks, fraud detection and regulatory compliance. In the art world, AI is set to help insurers verify authenticity to enable easier identification of fraudulent art and fraudulent claims. AI is also expected to play an increasing role for insurers analysing changing regulatory requirements, data they have generated and claims processing. It will also form the cornerstone of cyber resilience and the ability to defend against attacks.
But there is also the potential for risk. Generative AI could also be used to carry out more sophisticated cyber-attacks, fraudulent claims and potentially breaches of confidential data.
5. Cyber security
Record numbers of ransomware incidents and data breaches in 2023 means we can expect cyber insurance underwriters placing a greater focus on assessing the security of prospective insureds before offering appropriate cover.
6. Global economy and D&O claims
The UK has seen surging levels of inflation resulting in the highest interest rates for fifteen years (at 5.25%), while in the US three banks failed due to the volatile economic conditions resulting in a wave of claims arising against their directors. These developments have shaken confidence in the banking system, with the effects still being felt into 2024 and beyond. Corporate insolvencies are also at their highest in over a decade in the UK, with this trend likely to continue into the new year. Insurers are also bracing themselves in the current economic climate for an expected increase in fraudulent insurance claims.
Simon Laird, Partner and Global Head of Insurance at RPC, says: "Climate change and sustainability concerns continue to top the claims challenges faced by the insurance sector, but the last year has also highlighted the lightning speed at which Artificial Intelligence technology is developing, as well as a rise in cyber-related events. The emergence of RAAC and uncertain economic conditions have also presented challenges for insurers to navigate. Managing that level of uncertainty will continue to be a key priority for insurers into 2024, both in terms of handling claims and product development."