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How European insurers can adapt and thrive in the 2024 landscape
In this episode, EY Leader Phil Vermeulen discusses the outlook for European insurers in 2024 with Zurich Insurance Group’s Alison Martin and Swiss Re's Urs Baertschi.
Related topics
EY EMEIA Insurance Leader Phil Vermeulen speaks to Zurich Insurance Group’s EMEA CEO, Alison Martin, and Swiss Re's Global CEO for Property and Casualty, Urs Baertschi. The leaders discuss the outlook for European insurers in 2024 and beyond.
They explore the impact of artificial intelligence (AI), the industry's role in social issues, including climate change and closing the global protection gap, and how insurers can meet changing customer expectations in a digital world.
Key takeaways:
- The impact of AI on insurers
- Macroeconomic uncertainty, and how to bridge the protection gap
- How providers can meet changing customer expectations in digital world
The podcast is also available to listen to on Spotify.
Watch the podcast video below.
For your convenience, full text transcript of this podcast is also available.
Phil Vermeulen:
The European insurance industry is facing big questions in 2024, questions about how we promote stability and growth, how we harness AI, how we prove our value to society, and how we serve our customers. To help answer these questions,
I'm meeting two leaders in the European insurance industry. Alison Martin, EMEA, CEO at Zurich Insurance Group, and Urs Baertschi, Global CEO for Property and Casualty at Swiss Re. Starting with the macroeconomic environment, so this year I think we're witnessing a continuation of some of the pressures that we saw last year both high inflation rates that are not yet going down, and rising interest rates. We're also starting to see some pressures on economic growth. So, first question to you Urs, how are you seeing this macroeconomic environment for 2024 impacting the insurance sector? What should firms be doing to respond and mitigate that?
Urs Baertschi:
We live in a very uncertain and volatile world, Phil, and it's everywhere. It's about high interest rates, inflation, GDP growth changing. We have several crises at the same time. Energy supply, climate change, and we also have several wars and conflict zones around the world. Some of the things are getting a little bit better. When we look at inflation, for example in Europe here, we're looking at about 2. 3% in 2024, and that's fairly close to the price stability target of 2. 1%. On the other hand, when we think about geopolitics, the risk is to the downside. and just this year, think about this: almost half of the world's population is voting for a new president. and as we've seen in the past, it's not always predictable and can have a very high impact on the environment that we face. for us in the insurance industry, all of this is around us, of course, for our own operations. Volatility, for example, on the asset management side can have a big impact. and then for our customers as well, they might want to buy more protection in an uncertain world or conversely, when inflation is up and affordability and disposable income is down, they might actually have less means to go buy more insurance. So, this is all around us, but our industry overall is very resilient, even in this environment. and we keep coming back to our purpose, which is to provide protection for people around the world when they need us the most, and that's as important as ever.
Vermeulen:
I know Zurich has also been thinking about this issue for a while and you contributed to the Global Risk Report together with the World Economic forum and a number of these issues were also considered as part of that. So, I guess with a focus on the downside risks of that environment, what are some of the things that came out of that report, some of the things that we ought to be thinking about in terms of responding to that environment?
Alison Martin:
So, one of the things that troubles me most actually about the findings of the report is how few people think that actually the world is going to be a settled and calm place. So only 16% of the respondents to the report thought that within the next two years, the world is settled and calm. Why is that important? Well, obviously, for business, the most important thing is actually that you have a calm outlook, whether that is geopolitically, macroeconomic, climate, etc. All the things that Urs talked about. I think even worse, less than 10% think that over ten years. So, my message is: it's going to be troubled, choppy waters ahead. So, as we think about how do businesses position themselves for that, it's got to be in that context that people don't think it's going to be calm, and they certainly don't think it's going to get better. Now, what does that mean for insurance companies? I think it's whether it's non-life and it's thinking about how we're going to tackle inflation but combined with the cost of insurance and therefore affordability. So, are we looking at retention levels? Are we looking at coverage so that we allow customers to choose the level of cover that works for the budget that they have? Or on the life side, are we thinking about what do the high interest rates actually mean in terms of product design?
Can there be innovation around how we think about, again, what's the coverage that somebody needs that they can afford? and of course, it's an interesting environment when you're competing with government bonds instead of competing with our usual competitors.
Vermeulen:
Of course, I think we've seen that 2023 was a challenging year too on the macroeconomic front, but actually the insurance sector weathered that particularly well. So, I think it’s how the industry continues to be resilient, and these periods of high volatility also present a lot of opportunity for the sector.
Let's perhaps move on to the next topic, which is around AI, I think there's been a lot of hype about AI in the last few months, particularly through GenAI. But this looks to be a technology which is truly trans formative for many industries, but also the insurance sector. That said, it comes with a significant amount of risk which we all need to be aware of and learn how to manage. Maybe I'll start this one with you Urs. how are you seeing at Swiss Re the opportunity of AI and particularly GenAI?
Where do you think this can actually transform the customer experience and the nature of the insurance value chain?
Baertschi:
Phil, you mentioned the hype. It certainly feels like we're at the peak of that hype cycle right now when it comes around GenAI. I think some of that has to do with the fundamental understandings of what it can do and what it cannot do and also where we come from. Machine learning has been around since the 1980s, and different levels of artificial intelligence and algorithms that keep getting better are part of our business today. The difference with large language models and GenAI is that they can use unstructured data and then it's fundamentally a blank-fill technology. It's a tool that gives you the most probable next item in a sequence. and between that and the unstructured data, think like reading a PDF, it's remarkable how well it can understand context. And with that, of course, it opens up great possibilities. We see it in two categories. and the question around the first one is automation, and this is about how we can replace something that exists today with a technology. and the second one is about augmentation. How do we do certain things better, faster, cheaper? And it's probably going to be more in the second category where we see most of the applications for our industry. Having said that, even around automation, think about a call center, for example.
I personally, I do not like talking to chat bots. I prefer a person, but I've talked to one insurance company in the industry, and they said the average time that their call center agents had before was five minutes and now it's one minute. That's a massive reduction and at the same time customer experience is going up. So, my hope is the next time I call in, I actually get a better customer experience as a result of that. The other thing that you said, there are opportunities. There are also threats. and the bad things that we're going to get fraud, deepfakes, false positives, false negatives, they're going to get a lot better. and so, a big part around the industry's focus around GenAI also has to be on defense, not just playing offense.
Vermeulen:
I think that's great. I think a lot of the customer service use cases are the ones that we're really seeing being tested at the moment are on call centers and helping enable agents and those in the front lines. I guess one question that I would have if I think about the industry use cases is when it comes to underwriting, whether we start to see potential for AI in the future, really helping us underwrite in a different way and be smarter about risk selection that would be whether you see that as a positive in terms of the ability to better price risk and maybe provide cover much more broadly than we've done in the past as an industry or whether that can potentially increase the protection gap by excluding a lot of people who get covered today? What are your thoughts on that, the use of AI in that particular context?
Baertschi:
We're actually much more focused initially at Swiss Re on the operational aspects, thinking about contracts thinking about claims and so on. I think that's where we see a lot of potential. When it comes to the underwriting side, on the one hand, you can think about maybe this technology allows us to get to cover more people around the world in ways that we haven't been able to do. That would be the positive spin. There's certainly also elements around risk management where you can see application, but there is also a potential dark side of applying this technology where it could introduce bias and therefore actually increase exclusion rather than shrinking the protection gap. So, on the underwriting side, we're really going to have to think this through and balance both the positive aspects of it where we can reach more people and insure and protect more people versus maybe the unintended consequences.
Vermeulen:
Exp anding on this idea of risk, Alison, I think there's clearly a balance to be had here where the speed of adoption of this technology, which I think you risk being left behind. I think we can move on from GenAI, if we don't adopt it as an industry and of course everyone's experimenting, but of course there's a risk you can adopt it too fast and suffer some of the unintended consequences that Urs mentioned.
Martin:
How are you thinking about balancing the risks of this technology at Zurich? So, we think about AI - as you say it’s a fantastic opportunity, but we are very cognizant of the risk it poses. So, five years ago, we introduced our AI Assurance Framework, which really is looking at how do we risk manage the use of it internally? and which essentially means you always have to have a human in the loop and we are very reticent about touching our customers with artificial intelligence. Now I think you said it, Phil, in your introductory remarks around the use of it for enabling agents to serve customers, we think there's lots of fantastic ways that AI can support agents to give customers better advice. We can look at giving more risk insights. However, having AI speak to our customers, we are very, very nervous about that. When we think about use cases for AI. One of the things we think about is what's the potential for negative consequence to our customers? and it's a very high bar that any technology would have to get over for us to put it in front of our customers.
Vermeulen:
And I think we can move on from AI, this is also a useful segue into the next topic of our report, which is around societal value and the protection gap. I think the protection gap has been a topic for some time, but I think also the macroeconomic environment that we're seeing this year combined with some of the climate change impacts, is certainly leading us to believe that the protection gap is growing. and I mean protection gap in the broadest sense. So, protection from natural disasters, that gap is clearly growing due to both increases in exposures, but also an increase in the frequency of natural disaster events, the economic environment, the volatility and high inflation is also leading to savings gaps for retirement increasing dramatically. So latest studies have suggested that the global protection gap is over a trillion dollars. So, the question then comes up the role that the insurance sector has to play in providing societal value starts to go far beyond just philanthropic endeavors and far more into leaning into closing that protection gap. Alison, can you share a little bit about how you're thinking about this question at Zurich driving this increase in the societal value of the sector?
Martin:
Yes, our ambition is to be one of the most responsible and impactful businesses in the world. and whilst that doesn't mean we don't want to do philanthropic ventures through the Z Zurich Foundation, which I'm very proud of, absolutely it means your core business needs to deliver value to all stakeholders, and that does mean we need to do everything we can to close protection gaps. So whether it's thinking about how we use technology and risk insights to grow protection pies rather than seek to narrow them, I think our role is to seek to insure as many as we can rather than continue to select the few, whether they be the wealthy few in the case of savings business, or whether they be the few who happen to live in areas which are less prone to climate change. We've seen over the last five years such a significant rise in the frequency and severity of climate impacts. and at long last, the insurance industry, we've started to be able to actually put together our traditional CAT models, which, as everyone knows, are backward looking with the GCM model. So, the circulatory models which actually look at climate to be able to say what's going to happen into the future. You put on top of that what happens with artificial intelligence and the ability to look at how can we give customers insight into what they can do to help reduce the probability and the impact when these events happen. And you start to be able to imagine a different world of insurance, a world where it’s actually it’s not just about providing a risk transfer, but it's about actually supporting resilience.
Vermeulen:
So, it's a really interesting point because we talk about climate change. I think a lot of what you hear in the press seems to focus much more on what the sector is not doing. So, areas where the sector is withdrawing cover. because the risks are too high, and the prices are not adequate to cover them. I guess specifically on that point about climate, how do you see the role of prevention within that and how do you see the role of price signaling, which I think is also something that's important for the sector to continue to play a role in?
Martin:
So, for insurance, there has to be a possibility that you're not going to have a claim. So, I think I put that as a baseline standard. But insurance also has to be affordable. So, we can't have a situation where the cost of insurance rises so great that no one can actually afford to buy it. It's not in our industry's interests. So, then it becomes about how do you use risk insights to inform. So, whether that's in forming a business or whether it's in forming a local authority or national authorities about options that are available to build, whether it's flood defenses for individual businesses, whether it be for rivers, for broader communities, whether it's to look for ways to address heat or drought. I mean, for every peril, there are opportunities to actually mitigate and enable businesses and citizens to continue to thrive. But you need the risk insights. and that's why things like AI and technology can be so exciting because they can help speed up the process by which we can get those insights where they're needed to businesses and to local authorities.
Vermeulen:
Urs, anything you'd like to add around the role of the reinsurance sector, in particular in helping to address. some of these questions of protection gap and lack of coverage.
Baertschi:
Reinsurers are fundamentally global and we get a lot of data from all the markets. and as a result of that, what we can contribute back into our industry and then as a result of that into society is around risk awareness, risk management, and then ultimately risk protection as well. So, when we take all of this data, we can actually play back to the various societies around the world what is happening at an aggregated level and that actually offers great insights. Out of that can come risk management. and whether this is for individuals who learn more about their health, whether this is for companies who know more about what they need to do to protect themselves better, or the public sector as well of how they can actually use preventative measures to improve societal resilience at a local level. At the end, of course, there is risk protection or risk transfer as well, where we can insure and reinsure some of these risks. and here around very much like what Alison said as well about growing the pie, we're very passionate about shrinking the protection gap and innovating in new products. for example, the parametric space together with the public sector has been an interesting area where because they have already paid out in some instances been able to reach a lot of people who otherwise actually would not have gotten anything.
Vermeulen:
We talked at the start about this kind of protection and retirement savings gap for life insurance, which I think is a really important challenge as well. and we are starting to see regulation in Europe moving down the direction of trying to open up options to address that gap with the retail investment strategy. How are you thinking about that theme at Zurich, working together within that regulatory environment to provide solutions to customers for bridging that gap.
Martin:
I think things like the retail investment strategy are super important for Europe on multiple levels, not least for EU citizens to improve the potential they have for their savings, but also to improve European competitiveness, which against markets like the U. S. the last ten years of trajectory has not been good for Europe. So, encouraging more individual citizen participation in the capital markets is really critical. and what RIS does is enables that through a number of different means. We're very big supporters of the significant push for digitization because I think that fits with trying to enable customers to actually do more self-serve, have more transparency. There's a lot of questions around what's the role of distribution in the retail investment strategy. But I think at the moment we're in a situation where the EU citizens don't have the financial literacy to wake up every day thinking “I must save my retirement.” So, whilst that's the case, the role of distribution is critical. To help customers to get the advice they need to address the risks they face. and then have some tailored propositions that actually work for them. Now, digitization and transparency, that all helps give an overview of what are the options and what's going to work best for them. So, we are very much in favor.
Vermeulen:
Maybe the last topic that we cover during the2024 outlook is about the changing needs of the customer, and digitization is certainly one aspect of it, but certainly we are starting to see an increasing trend where customers are much more demanding they demand personalized service, attention, they dem and, the ability to interact with both physical agents, but also online channels in a seamless way. They're looking at easier ways to buy their insurance, be that through bundling with other goods and services. So embedded insurance looks to be an important trend for the next decade. So, customer needs are changing and the industry does need to respond to that. Alison, when you think about this trend at Zurich, how are you perceiving this and how are you responding?
Martin:
I think you need to be where the customers want to meet you. So, wherever customers are is where we need to be. To the embedded insurance question, I think insurance because it is sold not bought, is a context moment. So having opportunities where there are relevant contexts where a customer would think an insurance proposition would be appropriate is really important. If you think to the reason why bank assurance is so successful, that's it. Because the banks have context moments with customers. Embedded insurance is simply trying to widen out the situations where those contexts occur. Now we do see them in, you can debate about the future of automotive; at the moment, depending on the jurisdiction, but a lot of insurance is sold through the dealerships when people buy their car because the context exists for wanting to buy an insurance policy. But it doesn't have to be that way. It can be embedded within the vehicle itself. Now, it's going to depend on what the OEMs believe is the most appropriate strategy for them. and fundamentally, it's how do the customers want to buy their insurance? Do they want to have it simple, quick, easy? Do they want to have a lot of optionality and choice? Bells, whistles? and I think that's going to depend on the complexity of the product. Context moments and simple bundling works best for very simple products, be it device protection, be it travel, etc. Complex purchases like saving for your retirement needs, you are unlikely to want to embed that.
Vermeulen:
how do you see that Urs, this emergence of these different channels, perhaps different providers of insurance to customers, how do you see that potentially changing the whole value chain of insurance over time?
Baertschi:
We're actually quite optimistic around the further emergence and prominence of embedded insurance in general. We see it by 2032growing to about 1. 5 trillion in premiums globally, and that's about 16% of all premiums sold at that time. So, we see potential and a trend in that direction. There's a number of things that happen in the background; Alison touched a little bit on this topic of automotive. Mobility is actually an area where we could see where a product is changing to a service and as a result of that, what we're insuring today goes from personal liability to product liability. and so, in that the bundling changes completely the way that also the insurance industry engages with the customer and the end customer, it's a different value proposition. As a result of that, we have to build digital ecosystems that are insufficient today to support that environment. But over time we're thinking that they will emerge.
Vermeulen:
So, I think digital ecosystems, I think that's a really interesting point. Part of it is about being able to reach the customers in these moments of important context and sell digitally to them through that. But of course, another aspect of those is ecosystems that bundle prevention services. We talked about that in the earlier section as well, about societal value, perhaps Alison can you share a little bit of how Zurich is thinking about ecosystems and service as opposed to risk transfer and the distribution of products?
Martin:
Yes, I think ecosystem is an oft used word, I like to think of it more as we have a broader role to play, which is not just about transferring risk from someone else's balance sheet to ours; that actually we have a fundamental role to play in supporting prevention activities. So, I think that's how I frame it. One of the things that we've been very successful in the last five years is in Zurich Resilient Services, which is looking at how do you support customers with their climate resilience, recognizing that we need to adopt a two-pronged approach. So, one is supporting customers with their transition to a net zero economy. So how are they thinking about reducing their own emissions and transitioning their business models? But importantly, we see the effects of climate change here today. So, what are we doing to actually support customers, whether they're making project decisions for manufacturing plants for the next 30 years – so where are they going to locate them? What are the biggest perils they're concerned about? Are they concerned about their actual physical location or are they concerned about their employees? Are they concerned about the infrastructure availability to that location? There are so many different ways that a business could be impacted. So then being able to give advice to a customer about how they can bundle all of that together and think about their investment decisions that they're making for the long term, recognizing the impacts today of climate, it really helps to build resilience into communities and importantly I say community deliberately because there's no point one business being resilient in isolation, if the community where the employees are and the infrastructure that that business relies on is not resilient. So, it has got to be community-level resilience.
Vermeulen:
So, I think that covers the four topics that we wanted to talk about today. But just to close, I wanted to think a little bit further beyond 2024. So, looking at insurance, the sector as a whole over the next decade, if you like, and perhaps get some reflections from each of you on what do you see as the biggest threats and opportunities for the sector over that longer term horizon? What should we be thinking about beyond 2024?
Martin:
Perhaps we’ll start with you, Alison. There's a huge pillar of technology. It will continue to advance significantly, exponentially even over the next decade. So how we are using that, how we are thinking about that to benefit customer experience and distribution experience as well as our own simplification, I think is really important. how we think about the nature of work. So that clearly has a knock on impact into actually the nature of jobs that people are going to have and aligned to that, then what are they, how are they going to think about savings needs for the future? Who's providing their pensions? how are they thinking about healthcare? So, I think there's a whole piece around what does the future of work look like? and then finally, we've talked about it a lot already. Climate - we have to address climate change, the impacts of it, the transition of our business models to a net zero by 2050 economy and dealing with the impacts that we already see of the physical risks. I think that's something we can all step up and play a really important role in. It's stopping thinking about what I'm going to stop insuring and how am I going to find a way to insuring more. How am I going to maintain insurability by actually using the risk insights that we have to help manage that risk of physical emergence of climate change? I think on the broader topic of inclusion into societal savings or more on the life side, I would probably say two things. So, one is a bit of a plea for some more gender equality. and I think we find that when you look at gender health gaps and gender pension gaps, we as an industry need to do far more to recognize the important role of women in financial inclusion and we've done a lot of different work looking at how you can encourage that. Our main aim would be: get more female advisors in because then more women tend to be keen to buy the necessary protection. So, I think as an industry we have got to do all we can to improve the amount of women that we have in our distribution and the applicability of the solutions for women. and then on things like the retail investment strategy and broader savings and how regulation affects our industry. I think we can all start looking for the “how we can make this work” rather than trying to nickel and dime and object to as much of it as we possibly can. I think the more constructive we are as an industry in trying to support the very laudable aims, for example, that the European Commission has with trying to encourage more investment in the capital markets. That's for our benefit.
Vermeulen:
what about you, Urs? What do you think about when you look out over the next decade for the sector?
Baertschi:
I'm very optimistic about the impact that our industry can have on the world. Nothing happens without insurance, whether it's building something or moving something or creating something fundamentally need insurance. So, we're an enabler of the global economy and societies around the world. and it's very, very broad faced. The various areas that we touch also operationally, internally from technology to asset management to risk to talent the impact that we can have on people both as an employer but also in society and drive inclusion and drive protection and shrink that protection gap that is very, very meaningful. Fundamentally, our product is a promise to be there for our clients when they need us the most. and that's a purpose worth pursuing.
Vermeulen:
Thanks Urs, that's a fantastically optimistic view to end today's session on. So, thank you so much and thank you both for joining me today for this fantastic conversation.
Baertschi and Martin:
Thank you. Thank you.
The views of third parties set out in this podcast are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.
The European insurance industry is facing big questions in 2024, questions about how we promote stability and growth, how we harness AI, how we prove our value to society, and how we serve our customers. To help answer these questions,
I'm meeting two leaders in the European insurance industry. Alison Martin, EMEA, CEO at Zurich Insurance Group, and Urs Baertschi, Global CEO for Property and Casualty at Swiss Re. Starting with the macroeconomic environment, so this year I think we're witnessing a continuation of some of the pressures that we saw last year both high inflation rates that are not yet going down, and rising interest rates. We're also starting to see some pressures on economic growth. So, first question to you Urs, how are you seeing this macroeconomic environment for 2024 impacting the insurance sector? What should firms be doing to respond and mitigate that?
Urs Baertschi:
We live in a very uncertain and volatile world, Phil, and it's everywhere. It's about high interest rates, inflation, GDP growth changing. We have several crises at the same time. Energy supply, climate change, and we also have several wars and conflict zones around the world. Some of the things are getting a little bit better. When we look at inflation, for example in Europe here, we're looking at about 2. 3% in 2024, and that's fairly close to the price stability target of 2. 1%. On the other hand, when we think about geopolitics, the risk is to the downside. and just this year, think about this: almost half of the world's population is voting for a new president. and as we've seen in the past, it's not always predictable and can have a very high impact on the environment that we face. for us in the insurance industry, all of this is around us, of course, for our own operations. Volatility, for example, on the asset management side can have a big impact. and then for our customers as well, they might want to buy more protection in an uncertain world or conversely, when inflation is up and affordability and disposable income is down, they might actually have less means to go buy more insurance. So, this is all around us, but our industry overall is very resilient, even in this environment. and we keep coming back to our purpose, which is to provide protection for people around the world when they need us the most, and that's as important as ever.
Vermeulen:
I know Zurich has also been thinking about this issue for a while and you contributed to the Global Risk Report together with the World Economic forum and a number of these issues were also considered as part of that. So, I guess with a focus on the downside risks of that environment, what are some of the things that came out of that report, some of the things that we ought to be thinking about in terms of responding to that environment?
Alison Martin:
So, one of the things that troubles me most actually about the findings of the report is how few people think that actually the world is going to be a settled and calm place. So only 16% of the respondents to the report thought that within the next two years, the world is settled and calm. Why is that important? Well, obviously, for business, the most important thing is actually that you have a calm outlook, whether that is geopolitically, macroeconomic, climate, etc. All the things that Urs talked about. I think even worse, less than 10% think that over ten years. So, my message is: it's going to be troubled, choppy waters ahead. So, as we think about how do businesses position themselves for that, it's got to be in that context that people don't think it's going to be calm, and they certainly don't think it's going to get better. Now, what does that mean for insurance companies? I think it's whether it's non-life and it's thinking about how we're going to tackle inflation but combined with the cost of insurance and therefore affordability. So, are we looking at retention levels? Are we looking at coverage so that we allow customers to choose the level of cover that works for the budget that they have? Or on the life side, are we thinking about what do the high interest rates actually mean in terms of product design?
Can there be innovation around how we think about, again, what's the coverage that somebody needs that they can afford? and of course, it's an interesting environment when you're competing with government bonds instead of competing with our usual competitors.
Vermeulen:
Of course, I think we've seen that 2023 was a challenging year too on the macroeconomic front, but actually the insurance sector weathered that particularly well. So, I think it’s how the industry continues to be resilient, and these periods of high volatility also present a lot of opportunity for the sector.
Let's perhaps move on to the next topic, which is around AI, I think there's been a lot of hype about AI in the last few months, particularly through GenAI. But this looks to be a technology which is truly trans formative for many industries, but also the insurance sector. That said, it comes with a significant amount of risk which we all need to be aware of and learn how to manage. Maybe I'll start this one with you Urs. how are you seeing at Swiss Re the opportunity of AI and particularly GenAI?
Where do you think this can actually transform the customer experience and the nature of the insurance value chain?
Baertschi:
Phil, you mentioned the hype. It certainly feels like we're at the peak of that hype cycle right now when it comes around GenAI. I think some of that has to do with the fundamental understandings of what it can do and what it cannot do and also where we come from. Machine learning has been around since the 1980s, and different levels of artificial intelligence and algorithms that keep getting better are part of our business today. The difference with large language models and GenAI is that they can use unstructured data and then it's fundamentally a blank-fill technology. It's a tool that gives you the most probable next item in a sequence. and between that and the unstructured data, think like reading a PDF, it's remarkable how well it can understand context. And with that, of course, it opens up great possibilities. We see it in two categories. and the question around the first one is automation, and this is about how we can replace something that exists today with a technology. and the second one is about augmentation. How do we do certain things better, faster, cheaper? And it's probably going to be more in the second category where we see most of the applications for our industry. Having said that, even around automation, think about a call center, for example.
I personally, I do not like talking to chat bots. I prefer a person, but I've talked to one insurance company in the industry, and they said the average time that their call center agents had before was five minutes and now it's one minute. That's a massive reduction and at the same time customer experience is going up. So, my hope is the next time I call in, I actually get a better customer experience as a result of that. The other thing that you said, there are opportunities. There are also threats. and the bad things that we're going to get fraud, deepfakes, false positives, false negatives, they're going to get a lot better. and so, a big part around the industry's focus around GenAI also has to be on defense, not just playing offense.
Vermeulen:
I think that's great. I think a lot of the customer service use cases are the ones that we're really seeing being tested at the moment are on call centers and helping enable agents and those in the front lines. I guess one question that I would have if I think about the industry use cases is when it comes to underwriting, whether we start to see potential for AI in the future, really helping us underwrite in a different way and be smarter about risk selection that would be whether you see that as a positive in terms of the ability to better price risk and maybe provide cover much more broadly than we've done in the past as an industry or whether that can potentially increase the protection gap by excluding a lot of people who get covered today? What are your thoughts on that, the use of AI in that particular context?
Baertschi:
We're actually much more focused initially at Swiss Re on the operational aspects, thinking about contracts thinking about claims and so on. I think that's where we see a lot of potential. When it comes to the underwriting side, on the one hand, you can think about maybe this technology allows us to get to cover more people around the world in ways that we haven't been able to do. That would be the positive spin. There's certainly also elements around risk management where you can see application, but there is also a potential dark side of applying this technology where it could introduce bias and therefore actually increase exclusion rather than shrinking the protection gap. So, on the underwriting side, we're really going to have to think this through and balance both the positive aspects of it where we can reach more people and insure and protect more people versus maybe the unintended consequences.
Vermeulen:
Exp anding on this idea of risk, Alison, I think there's clearly a balance to be had here where the speed of adoption of this technology, which I think you risk being left behind. I think we can move on from GenAI, if we don't adopt it as an industry and of course everyone's experimenting, but of course there's a risk you can adopt it too fast and suffer some of the unintended consequences that Urs mentioned.
Martin:
How are you thinking about balancing the risks of this technology at Zurich? So, we think about AI - as you say it’s a fantastic opportunity, but we are very cognizant of the risk it poses. So, five years ago, we introduced our AI Assurance Framework, which really is looking at how do we risk manage the use of it internally? and which essentially means you always have to have a human in the loop and we are very reticent about touching our customers with artificial intelligence. Now I think you said it, Phil, in your introductory remarks around the use of it for enabling agents to serve customers, we think there's lots of fantastic ways that AI can support agents to give customers better advice. We can look at giving more risk insights. However, having AI speak to our customers, we are very, very nervous about that. When we think about use cases for AI. One of the things we think about is what's the potential for negative consequence to our customers? and it's a very high bar that any technology would have to get over for us to put it in front of our customers.
Vermeulen:
And I think we can move on from AI, this is also a useful segue into the next topic of our report, which is around societal value and the protection gap. I think the protection gap has been a topic for some time, but I think also the macroeconomic environment that we're seeing this year combined with some of the climate change impacts, is certainly leading us to believe that the protection gap is growing. and I mean protection gap in the broadest sense. So, protection from natural disasters, that gap is clearly growing due to both increases in exposures, but also an increase in the frequency of natural disaster events, the economic environment, the volatility and high inflation is also leading to savings gaps for retirement increasing dramatically. So latest studies have suggested that the global protection gap is over a trillion dollars. So, the question then comes up the role that the insurance sector has to play in providing societal value starts to go far beyond just philanthropic endeavors and far more into leaning into closing that protection gap. Alison, can you share a little bit about how you're thinking about this question at Zurich driving this increase in the societal value of the sector?
Martin:
Yes, our ambition is to be one of the most responsible and impactful businesses in the world. and whilst that doesn't mean we don't want to do philanthropic ventures through the Z Zurich Foundation, which I'm very proud of, absolutely it means your core business needs to deliver value to all stakeholders, and that does mean we need to do everything we can to close protection gaps. So whether it's thinking about how we use technology and risk insights to grow protection pies rather than seek to narrow them, I think our role is to seek to insure as many as we can rather than continue to select the few, whether they be the wealthy few in the case of savings business, or whether they be the few who happen to live in areas which are less prone to climate change. We've seen over the last five years such a significant rise in the frequency and severity of climate impacts. and at long last, the insurance industry, we've started to be able to actually put together our traditional CAT models, which, as everyone knows, are backward looking with the GCM model. So, the circulatory models which actually look at climate to be able to say what's going to happen into the future. You put on top of that what happens with artificial intelligence and the ability to look at how can we give customers insight into what they can do to help reduce the probability and the impact when these events happen. And you start to be able to imagine a different world of insurance, a world where it’s actually it’s not just about providing a risk transfer, but it's about actually supporting resilience.
Vermeulen:
So, it's a really interesting point because we talk about climate change. I think a lot of what you hear in the press seems to focus much more on what the sector is not doing. So, areas where the sector is withdrawing cover. because the risks are too high, and the prices are not adequate to cover them. I guess specifically on that point about climate, how do you see the role of prevention within that and how do you see the role of price signaling, which I think is also something that's important for the sector to continue to play a role in?
Martin:
So, for insurance, there has to be a possibility that you're not going to have a claim. So, I think I put that as a baseline standard. But insurance also has to be affordable. So, we can't have a situation where the cost of insurance rises so great that no one can actually afford to buy it. It's not in our industry's interests. So, then it becomes about how do you use risk insights to inform. So, whether that's in forming a business or whether it's in forming a local authority or national authorities about options that are available to build, whether it's flood defenses for individual businesses, whether it be for rivers, for broader communities, whether it's to look for ways to address heat or drought. I mean, for every peril, there are opportunities to actually mitigate and enable businesses and citizens to continue to thrive. But you need the risk insights. and that's why things like AI and technology can be so exciting because they can help speed up the process by which we can get those insights where they're needed to businesses and to local authorities.
Vermeulen:
Urs, anything you'd like to add around the role of the reinsurance sector, in particular in helping to address. some of these questions of protection gap and lack of coverage.
Baertschi:
Reinsurers are fundamentally global and we get a lot of data from all the markets. and as a result of that, what we can contribute back into our industry and then as a result of that into society is around risk awareness, risk management, and then ultimately risk protection as well. So, when we take all of this data, we can actually play back to the various societies around the world what is happening at an aggregated level and that actually offers great insights. Out of that can come risk management. and whether this is for individuals who learn more about their health, whether this is for companies who know more about what they need to do to protect themselves better, or the public sector as well of how they can actually use preventative measures to improve societal resilience at a local level. At the end, of course, there is risk protection or risk transfer as well, where we can insure and reinsure some of these risks. and here around very much like what Alison said as well about growing the pie, we're very passionate about shrinking the protection gap and innovating in new products. for example, the parametric space together with the public sector has been an interesting area where because they have already paid out in some instances been able to reach a lot of people who otherwise actually would not have gotten anything.
Vermeulen:
We talked at the start about this kind of protection and retirement savings gap for life insurance, which I think is a really important challenge as well. and we are starting to see regulation in Europe moving down the direction of trying to open up options to address that gap with the retail investment strategy. How are you thinking about that theme at Zurich, working together within that regulatory environment to provide solutions to customers for bridging that gap.
Martin:
I think things like the retail investment strategy are super important for Europe on multiple levels, not least for EU citizens to improve the potential they have for their savings, but also to improve European competitiveness, which against markets like the U. S. the last ten years of trajectory has not been good for Europe. So, encouraging more individual citizen participation in the capital markets is really critical. and what RIS does is enables that through a number of different means. We're very big supporters of the significant push for digitization because I think that fits with trying to enable customers to actually do more self-serve, have more transparency. There's a lot of questions around what's the role of distribution in the retail investment strategy. But I think at the moment we're in a situation where the EU citizens don't have the financial literacy to wake up every day thinking “I must save my retirement.” So, whilst that's the case, the role of distribution is critical. To help customers to get the advice they need to address the risks they face. and then have some tailored propositions that actually work for them. Now, digitization and transparency, that all helps give an overview of what are the options and what's going to work best for them. So, we are very much in favor.
Vermeulen:
Maybe the last topic that we cover during the2024 outlook is about the changing needs of the customer, and digitization is certainly one aspect of it, but certainly we are starting to see an increasing trend where customers are much more demanding they demand personalized service, attention, they dem and, the ability to interact with both physical agents, but also online channels in a seamless way. They're looking at easier ways to buy their insurance, be that through bundling with other goods and services. So embedded insurance looks to be an important trend for the next decade. So, customer needs are changing and the industry does need to respond to that. Alison, when you think about this trend at Zurich, how are you perceiving this and how are you responding?
Martin:
I think you need to be where the customers want to meet you. So, wherever customers are is where we need to be. To the embedded insurance question, I think insurance because it is sold not bought, is a context moment. So having opportunities where there are relevant contexts where a customer would think an insurance proposition would be appropriate is really important. If you think to the reason why bank assurance is so successful, that's it. Because the banks have context moments with customers. Embedded insurance is simply trying to widen out the situations where those contexts occur. Now we do see them in, you can debate about the future of automotive; at the moment, depending on the jurisdiction, but a lot of insurance is sold through the dealerships when people buy their car because the context exists for wanting to buy an insurance policy. But it doesn't have to be that way. It can be embedded within the vehicle itself. Now, it's going to depend on what the OEMs believe is the most appropriate strategy for them. and fundamentally, it's how do the customers want to buy their insurance? Do they want to have it simple, quick, easy? Do they want to have a lot of optionality and choice? Bells, whistles? and I think that's going to depend on the complexity of the product. Context moments and simple bundling works best for very simple products, be it device protection, be it travel, etc. Complex purchases like saving for your retirement needs, you are unlikely to want to embed that.
Vermeulen:
how do you see that Urs, this emergence of these different channels, perhaps different providers of insurance to customers, how do you see that potentially changing the whole value chain of insurance over time?
Baertschi:
We're actually quite optimistic around the further emergence and prominence of embedded insurance in general. We see it by 2032growing to about 1. 5 trillion in premiums globally, and that's about 16% of all premiums sold at that time. So, we see potential and a trend in that direction. There's a number of things that happen in the background; Alison touched a little bit on this topic of automotive. Mobility is actually an area where we could see where a product is changing to a service and as a result of that, what we're insuring today goes from personal liability to product liability. and so, in that the bundling changes completely the way that also the insurance industry engages with the customer and the end customer, it's a different value proposition. As a result of that, we have to build digital ecosystems that are insufficient today to support that environment. But over time we're thinking that they will emerge.
Vermeulen:
So, I think digital ecosystems, I think that's a really interesting point. Part of it is about being able to reach the customers in these moments of important context and sell digitally to them through that. But of course, another aspect of those is ecosystems that bundle prevention services. We talked about that in the earlier section as well, about societal value, perhaps Alison can you share a little bit of how Zurich is thinking about ecosystems and service as opposed to risk transfer and the distribution of products?
Martin:
Yes, I think ecosystem is an oft used word, I like to think of it more as we have a broader role to play, which is not just about transferring risk from someone else's balance sheet to ours; that actually we have a fundamental role to play in supporting prevention activities. So, I think that's how I frame it. One of the things that we've been very successful in the last five years is in Zurich Resilient Services, which is looking at how do you support customers with their climate resilience, recognizing that we need to adopt a two-pronged approach. So, one is supporting customers with their transition to a net zero economy. So how are they thinking about reducing their own emissions and transitioning their business models? But importantly, we see the effects of climate change here today. So, what are we doing to actually support customers, whether they're making project decisions for manufacturing plants for the next 30 years – so where are they going to locate them? What are the biggest perils they're concerned about? Are they concerned about their actual physical location or are they concerned about their employees? Are they concerned about the infrastructure availability to that location? There are so many different ways that a business could be impacted. So then being able to give advice to a customer about how they can bundle all of that together and think about their investment decisions that they're making for the long term, recognizing the impacts today of climate, it really helps to build resilience into communities and importantly I say community deliberately because there's no point one business being resilient in isolation, if the community where the employees are and the infrastructure that that business relies on is not resilient. So, it has got to be community-level resilience.
Vermeulen:
So, I think that covers the four topics that we wanted to talk about today. But just to close, I wanted to think a little bit further beyond 2024. So, looking at insurance, the sector as a whole over the next decade, if you like, and perhaps get some reflections from each of you on what do you see as the biggest threats and opportunities for the sector over that longer term horizon? What should we be thinking about beyond 2024?
Martin:
Perhaps we’ll start with you, Alison. There's a huge pillar of technology. It will continue to advance significantly, exponentially even over the next decade. So how we are using that, how we are thinking about that to benefit customer experience and distribution experience as well as our own simplification, I think is really important. how we think about the nature of work. So that clearly has a knock on impact into actually the nature of jobs that people are going to have and aligned to that, then what are they, how are they going to think about savings needs for the future? Who's providing their pensions? how are they thinking about healthcare? So, I think there's a whole piece around what does the future of work look like? and then finally, we've talked about it a lot already. Climate - we have to address climate change, the impacts of it, the transition of our business models to a net zero by 2050 economy and dealing with the impacts that we already see of the physical risks. I think that's something we can all step up and play a really important role in. It's stopping thinking about what I'm going to stop insuring and how am I going to find a way to insuring more. How am I going to maintain insurability by actually using the risk insights that we have to help manage that risk of physical emergence of climate change? I think on the broader topic of inclusion into societal savings or more on the life side, I would probably say two things. So, one is a bit of a plea for some more gender equality. and I think we find that when you look at gender health gaps and gender pension gaps, we as an industry need to do far more to recognize the important role of women in financial inclusion and we've done a lot of different work looking at how you can encourage that. Our main aim would be: get more female advisors in because then more women tend to be keen to buy the necessary protection. So, I think as an industry we have got to do all we can to improve the amount of women that we have in our distribution and the applicability of the solutions for women. and then on things like the retail investment strategy and broader savings and how regulation affects our industry. I think we can all start looking for the “how we can make this work” rather than trying to nickel and dime and object to as much of it as we possibly can. I think the more constructive we are as an industry in trying to support the very laudable aims, for example, that the European Commission has with trying to encourage more investment in the capital markets. That's for our benefit.
Vermeulen:
what about you, Urs? What do you think about when you look out over the next decade for the sector?
Baertschi:
I'm very optimistic about the impact that our industry can have on the world. Nothing happens without insurance, whether it's building something or moving something or creating something fundamentally need insurance. So, we're an enabler of the global economy and societies around the world. and it's very, very broad faced. The various areas that we touch also operationally, internally from technology to asset management to risk to talent the impact that we can have on people both as an employer but also in society and drive inclusion and drive protection and shrink that protection gap that is very, very meaningful. Fundamentally, our product is a promise to be there for our clients when they need us the most. and that's a purpose worth pursuing.
Vermeulen:
Thanks Urs, that's a fantastically optimistic view to end today's session on. So, thank you so much and thank you both for joining me today for this fantastic conversation.
Baertschi and Martin:
Thank you. Thank you.
The views of third parties set out in this podcast are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.