Insurers face a critical crossroads. While they’ve made significant strides in navigating the turbulent regulatory and economic environment in recent years, they’re confronting continued uncertainty.
The proliferation of advanced technologies such as artificial intelligence (AI), evolving customer demands and emerging risks are reshaping the industry. Adapting to the evolving regulatory landscape alone, including the implementation of IFRS 17, Insurance contracts, has been a monumental undertaking across the industry. While it didn’t hold insurers back from functioning, implementation certainly moved other priorities to the back burner. Now these complexities are reemerging.
To name a few?
- Legacy modernization and cloud migration
- Environmental, social and governance (ESG) priorities
- Product innovation
- Service enhancements
- Digital transformation
With most of the implementation efforts of the new financial reporting standards behind us, the industry is now striving to ensure stakeholders understand the results and consider whether any changes are needed to make the comparisons more meaningful.
But the broader operating environment isn’t static. Everywhere we look, emerging risks — and attractive opportunities — abound. Insurers must now shift their focus or risk falling behind their peers, new market entrants and industry disruptors.
In this year’s Canadian Insurance Outlook, we focus on pivotal topics that are defining the strategic discussions across property and casualty (P&C) and life and health (L&H) insurers. These strategic focus areas are evolving against a backdrop of continued economic uncertainty. The spotlight this year is on how insurers are differentiating themselves through societal value creation; the indispensable role of data, analytics and AI; and how insurers can capitalize on strengths to drive profitable, near-term growth.
How is the insurance industry changing?
Canadian insurers are contending with a barrage of evolving customer demands, technological disruptions, an increasing regulatory burden and other emerging risks. Below we paint a picture of just some of the risks that are shaping the industry’s future:
Evolving customer expectations
- Customers are demanding personalized insurance products and services, including savings and life products, tailored to their unique needs and preferences. Given the challenges posed by increasing mortgage rates, Gen X customers are particularly focused on life insurance as a means of financial protection for their families in the event of unexpected circumstances.
- There’s an increasing desire for transparency and accessibility, with customers seeking online self-service options and digital platforms for policy management and claims processing.
- We’re seeing shifts towards usage-based insurance models and on-demand coverage, driven by a desire for flexibility, affordability and customized solutions.
Technological advancements
- Rapid advancements in data analytics are enabling insurers to better understand customer behaviours, enhance risk assessment, and personalize products and pricing.
- Integration of artificial intelligence and machine learning algorithms in underwriting, claims management and customer service are leading to improved efficiency and accuracy.
- Use of digital platforms, including mobile apps and online portals, are enhancing customer experiences, streamlining processes and facilitating faster claims settlement.
- Cloud migration is enhancing insurer agility, scalability and cost effectiveness, enabling rapid service deployment, improving disaster recovery and reducing hardware costs. Keep in mind: this comes with a significant investment and upfront cost. A significant challenge persists in the form of legacy systems, which might be more pervasive in life insurance than P&C.
Regulatory reforms
Canada’s insurance industry is taking on a heavier burden of regulatory reforms and requirements. These include a myriad of guidelines and requirements set up by the Office of the Superintendent of Financial Institutions (OSFI) around:
- Guidelines for assurance on capital to promote reliability and transparency in capital calculations, financial stability and risk management.
- Climate risk guidelines aimed at addressing the potential impacts of climate change on insurers.
- Culture and conduct guidelines to promote ethical practices and consumer protection.
- Third-party risk management standards to ensure effective oversight of outsourcing arrangements.
- Cybersecurity measures to safeguard sensitive information.
These regulations necessitate increased compliance obligations and reporting standards, as well as investments in technology, resources and expertise to uphold regulatory compliance and mitigate operational and financial risks.
Additionally, regulatory changes aimed at promoting consumer protection, data privacy and transparency necessitate increased compliance measures and operational adjustments.
At the same time, potential changes in insurance distribution regulations to allow for new market entrants, alternative distribution channels and innovation in sales and service models are looming.
That’s to say nothing of the evolving tax landscape insurers face in Canada today. Several significant legislative changes have been introduced, including a global minimum tax requirement set at 15% for large multinational enterprise (MNE) groups, a digital services tax (DST), excessive interest and financing expenses limitation rules (EIFEL), enhanced mandatory disclosure rules and denial of dividend-received deductions for financial institutions, including insurers.
These changes come alongside an increasing number of tax audits in the insurance sector.
Put simply: tax regulatory and policy changes are happening at record speed, challenging insurers’ tax departments to keep pace and pushing businesses to reexamine operating models across the entire enterprise, including the tax and finance functions.
Emerging risks
- Growing “protection gap” challenges reflect a perfect storm brewing, in which supply-side constrictions driven by underwriting and pricing challenges are leaving more people uninsured or underinsured for their needs.
- Demographic shifts demand innovative solutions for life and health insurers.
- Inflation-driven increases in claim costs — and regulators turning down rate increases in certain provinces — are creating a strategic dilemma over whether to pass along rate hikes to customers or scale back increases.
- Geopolitical uncertainty and its downstream impacts to the Canadian market are affecting global supply chains and have led to persistently high costs for insurers.
- Intensifying climate-related events are leading to increased claims costs.
- Cybersecurity threats now require pioneering coverage solutions and risk management strategies.
- Evolving liability risks from new technologies require proactive development of insurance products.
- Upticks in car theft pose significant new threats to personal and commercial auto insurers.
Are you prepared to seize industry opportunities and set your insurance business apart? Read more now.
