What Lies Ahead for Insurance as Extreme Weather, EVs and AVs, and Millennials and Gen-Z Impact the Sector?

How have extreme weather events impacted the insurance sector?

Ed: Extreme weather events such as devastating floods and fires have led insurers to reevaluate their offerings in some U.S. markets. For example, in California, notable insurers have made the decision to leave the market due to heightened wildfire risk exposure. At the same time, the industry has been making inroads to provide solutions. For instance, the Insurance Institute for Business and Home Safety launched a voluntary program in California to allow homeowners to achieve a designation showing they’ve taken the science-based actions required to meaningfully reduce their home’s wildfire risk. Taking this type of action can lower the cost of insurance or at least enable the homeowner to obtain insurance. We also have seen two recent examples of how extreme weather is impacting American’s housing decisions. CNBC reported that a recent study found that Americans are leaving U.S. counties hit by hurricanes and heatwaves and moving towards regions with greater wildfires risks. Americans are unaware that they are moving from a flood and tornado exposure area to a fire and heat exposure area without realizing that this poses a new danger. According to an August 2022 survey, from real estate brokerage Redfin, nearly two-thirds (62%) of U.S. residents who plan to buy or sell a home in the next year are hesitant to move to an area at risk of natural disasters.

The impact of extreme weather has increased the urgency for more resilient infrastructure. Unless we — all stakeholders — create a strategy to strengthen our country’s infrastructure, we may continue to see catastrophic impacts that could have been reduced or avoided.

Will extreme weather events impact reinsurance companies’ approach?

Ed: Extreme weather events have created some uncertainty about what reinsurance companies will do next. I believe reinsurance companies will pull back this year and reduce the amount of coverage they provide because of the greater risk of extreme weather. Also, the converging impacts of the Russian and Ukraine war, natural catastrophes and inflation have put significant pressure on pricing and risk capacity. This will require direct writers to re-consider their pricing and, if they reduce capacity, the insured may have to lean more heavily on their self-insurance programs.  

How can the industry address the life insurance coverage gap among millennials and Gen Z amid inflation?

Ed: Today, inflation, and higher supply chain and labor costs have led to higher insurance rates for consumers. This has pushed millions of consumers into the market, shopping for new insurance. With high inflation, finances are top of mind for millennials and Gen Z, and the COVID-19 pandemic elevated the importance of life insurance for this demographic. First, it is important to provide them with correct information. Younger people believe life insurance is three times more expensive than it is, and that can be changed through education. This presents a major opportunity for the insurtech market, which was valued at 3.7 billion globally in 2021, and is expected to reach 14 billion by 2029 according to Data Bridge Market Research. The key is to help millennials and Gen Z understand the value of life insurance and saving money early. For example, in a few years millennials will be moving into the 40–55 age group, prime earning years where insurance considerations can be a significant part of their planning. They are starting to take steps in their plans. This is the industries opportunity to get it right with easier to understand customer propositions that are more interactive and less complicated. Nearly three-quarters of millennials and Gen Z have purchased one or more life and health insurance products in the past two years. Information and education must be supported by making the buying experience easier. Currently, it can take more than 50 days to buy a life insurance policy. As the millennial population moves through different life phases, it’s incumbent on the industry to be prepared to meet their needs.

What is on the horizon for auto insurance given the rise of electric vehicles and autonomous vehicles?

Ed: Electric vehicles (EVs) and autonomous vehicles (AVs) are paving a new road for the insurance sector. In fact, U.S. executives in the 2022 KPMG Global Automotive Executive Survey (GAES) believe EVs will make up 37% of new car sales in the U.S. by 2030, and 61% believe that AV ride-hailing or delivery service will be commercially available in major U.S. cities by 2030. These trends are driving somewhat contradictory facts. EVs and AVs, with their new technology, may be more expensive to repair yet cars are becoming safer, leading to fewer accidents, which means premium costs and the value of insurance will potentially decrease. However, we aren’t there yet, because insurance companies will need more data to determine what actually is happening. This is true for non-EVs as well. They also have sensor technology. As cars become safer, OEMs are exploring the ability to embed insurance as part of the car sale. Automakers are keen to participate in the insurance industry. The KPMG GAES found that 50% of U.S. auto industry executives believe automakers will participate in the insurance market by selling driver and vehicle data to insurance companies, while 41% say automakers will partner with insurance companies. We are already seeing examples of automakers in the insurance market, including automakers that serve as the insurance provider.

Furthermore, there are still questions to be answered about AVs as the technology advances. For instance, who is at fault if someone hacks into one of these “computers on wheels” and damages the systems or causes an accident. Also, regarding AVs, who owns the technology in the car, and is thus the “owner” for insurance purposes? This is where automobile risk moves from personal lines to commercial lines.

These are just a few of the considerations that insurance companies and other stakeholders will need to address as EVs and AVs roll out. Insurance companies should be thinking and preparing for this evolution now.