How Insurers can overcome challenges in the insurance industry

By Thorsten Hein, Principal Product Marketing Manager for Insurance Risk Solutions at SAS.

Insurers, CFOs and actuaries, are facing an overwhelming number of changes and challenges in the year ahead, including technology advances, inflation, climate reporting requirements and ESG issues. These are just a handful of the trends to contend with.

Please note: This piece is written by SAS and published by the Actuaries Institute Australia. The articles aim to stimulate discussion on important, emerging issues related to ICA2023. Opinions expressed in this publication are the opinions of the articles' author and do not represent those of either the Actuaries Institute Australia, the International Actuarial Association or the 2023 International Congress of Actuaries Organising Committee, or its members, directors, officers, employees, agents, or that of the employers of the authors.

Navigating oceans of data

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Let’s start with the most immediate. The significant changes to International Financial Reporting Standards (IFRS 17) from January 2023 means that, after several quarters of preparation, compliance deadlines have arrived. And there will be no time for rest, with version 2.0 of the Insurance Capital Standard (ICS 2.0) following straight after. With these regulatory and solvency standards requiring compliance for international insurers, CFOs have had to adjust oceans of historic and current data, rather than the lakes they were anticipating. If nothing else, this has been the compelling reason for insurance CFOs to modernise, evolve and expand their reporting for 2023.

Understanding the impact to the past, present, and future outcomes is expected to occur concurrently with improvements necessary for insurers to adjust to IFRS 17 standards. Unlocking data-driven insights into profitability and liability valuations will be especially valuable, given macroeconomic, policy and regulatory challenges faced by insurers.

Inflation demands optimised pricing

Pricing is increasingly critical in an industry experiencing rapid change. For actuaries, it is a matter of ensuring that insurance premiums consider inflation, supply chain disruptions and a mixed economic outlook. Raising premiums to shore up capital and liquidity may emerge as a significant consideration, not just in 2023, but longer-term.

To take one subset of insurance as an example–motor vehicle insurance pricing is likely to see a substantial increases in premiums. Hannover Re recently stated that an increase of 10% in premiums is needed to cover the rising cost of parts and repairs – impacted by global supply chain constraints.

Another complication for auto insurers is pricing premiums for a changing vehicle market impacted by consumer choice. Insurance pricing for standard combustion vehicles can be undertaken with more confidence given the decades of historical data available. However, with the rapid uptake of electric vehicles (EVs) offering significantly less data, insurers are required to offer products to EV drivers without the historic data to model and must factor in the higher cost to repair EV’s.

Industry and product sustainability remains top of mind. The market for new and retaining customers is competitive, and insurers, like many products and service providers, must ensure product availability is balanced with profitability. Management of product margins, as well as consumer protection are important considerations in dynamic and challenging economic conditions. These considerations will need to be balanced with insurers striving for the right mix of customers (i.e. profitable customers) and products, while losing low-margin or unprofitable customers and product lines over time – all without compromising the insurer’s brand and overall positioning.

Simply put, this year, the stakes could not be higher. Profitability is front and centre, brand guardianship is of critical importance in a globally competitive industry and key stakeholders will demand consistent market growth. Those insurers that have made investment in new data aggregation, methodologies and solutions to adapt to IFRS 17 will find themselves well-placed to unlock a pricing optimisation edge.

Inflation graph image

The climate of insurance

The insurance sector continues to grapple with how to address climate risk. It is front of mind for all insurers and late in 2022, we saw international agreement for “loss and damage” funding for vulnerable countries at COP27.

Severe weather from climate-change leading to natural disasters are forecast to increase in both power and frequency. This is evidenced by the devastation caused by Cyclone Gabrielle in New Zealand in February 2023, leaving a repair bill in the billions.

What does this mean for insurers? There is an expectation that climate reporting and a focus on ESG issues will continue to increase and result in extra corporate reporting requirements, including financial and non-financial impacts.

ESG: The time is now

Products that consider ESG issues will be expected by consumers, presenting insurers with a challenge of having a compelling product offering in this space. Insurers will need to tread the line between offering affordable insurance for businesses and homeowners, while providing coverage in areas that are at-risk of wildfires, hurricanes or flood. Being able to ensure assets and liabilities are aligned, while not pricing out clientele will be a significant challenge.

There is an upside to all this. Much of this work has already started for insurers. Better still, it can be accessed on a single platform. The hard yards that ensured IFRS 17 compliance can be used to incorporate climate risk into decision-making. And that same platform can also pave the way for implementation of ICS 2.0. Finally, this platform can provide the financial foundation for insurers to optimise their pricing strategies and processes.

This integrated analytical platform can help insurers, CFOs and actuaries, build out their competitive advantage, price product offerings with better visibility of their data, while ensuring they spend less time on data management and more time future-proofing their actuarial skills, their products and their organisation.

How is that possible?

Find out more at or visit us at ICA2023 in Sydney, Australia.