As we prepare for the release of our 2025 Claims Insights Survey results next year, it’s clear that the UK insurance industry must approach the next 12 months with both optimism and caution.
Whilst there are plenty of possibilities on the horizon, the industry must also confront an array of complex challenges that are reshaping its operational landscape. These challenges arise from numerous factors, including geopolitical tensions, climate change, the integration of artificial intelligence (AI) and automation, advances in data analytics, and the mental health implications for claims handlers dealing with traumatic claims. Each of these areas presents unique obstacles that insurers must navigate to still be competitive and responsive to evolving market demands.
Geopolitical Uncertainty Persists
Geopolitical tensions continue to affect the global insurance landscape, influencing everything from risk assessment to claims management. Factors such as trade wars, political instability, and shifting alliances not only affect business operations but also create complex risk scenarios that insurers must navigate.
The potential implications are clear:
- Increased Risk Exposure: Political instability can lead to heightened claims related to property damage, business interruption, and liability. Insurers must adjust their underwriting practices to account for these risks, which can vary significantly by region.
- Supply Chain Disruption: The rise of protectionist policies and trade disputes can disrupt supply chains, leading to increased economic uncertainty. Economic shocks can affect claim frequency and severity, particularly in sectors reliant on global supply chains, such as manufacturing and logistics. Insurers must reassess their risk models to account for these disruptions and may need to develop new products that address supply chain risks more effectively.
We will probably see the sector looking at or certainly starting to look at diversification of risk portfolios and some more robust scenario planning involving data analytics to understand the potential impact on claims exposure and supply chain robustness. Overall, a greater role for Risk Assessment and analysis in all stages of the process is vital for insurers to maintain the status quo.
Mounting Pressure from Climate and Emerging Risks
Climate change is one of the most pressing challenges facing the insurance industry. With the increasing frequency and severity of natural disasters, insurers must adapt their risk models and claims processes to address the evolving landscape of climate-related risks. In addition, Cyber has publicly been on the rise with far more attention during 2024 and this will not diminish. Insurers must be alive to not just the historic risk exposures but the ones that are coming down the track – and for those who act early they will be in a better position if they fully understand or have assessed some of the implications:
- Rising Claims Cost: Climate-related events, such as floods, wildfires, and storms, lead to a surge in claims, driving up costs for insurers. The UK experienced record flooding events in recent years, resulting in significant losses for property and casualty insurers.
- Regulatory Pressure: Governments and regulatory bodies are increasingly focusing on climate risk disclosures. The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are pushing for greater transparency in how insurers assess and report climate risks. Insurers will have to assess and report on their exposure to climate risks, leading to potential reputational and financial repercussions for non-compliance.
- Changing Customer Expectation: Consumers are becoming more environmentally conscious, demanding sustainable practices from insurers. This shift in consumer behaviour requires insurers to rethink their product offerings and internal practices. Customers will do business with companies that share their values, and new employees will work for businesses that they view as aligned to their beliefs – in a talent starved market this cannot be ignored.
A Balancing Act Between Humans, AI and Automation
This is a big one. Anyone who has attended any conferences in the UK will know that one of the biggest talking points of 2024 has been AI and Automation. Everyone accepts that these tools have a significant role to play going forward and in 2025 we will inevitably see an acceleration of their adoption.
However, the challenge or issue for us to address will be the balance between HUMAN vs MACHINE. While these technologies can enhance efficiency and reduce costs, they also raise questions about the role of human expertise in claims management and underwriting. This balance will be the next thing the profession needs to address:
- Job Displacement: As automation takes over routine tasks, there is a growing concern about job displacement within the industry. Positions in claims processing, underwriting, and customer service may be vulnerable to automation. This shift can lead to workforce reductions and create anxiety among employees about job security.
- Quality of Customer Service: While AI can streamline processes, there is a risk that the personal touch in customer service may be lost. Many customers prefer human interaction, especially when dealing with complex claims or sensitive situations. Insurers must strike a balance between automation and human interaction to support customer satisfaction, as over-reliance on AI could lead to a decline in customer trust.
- Ethical Concern: The use of AI in decision-making processes raises ethical questions, particularly concerning bias and transparency. Insurers must ensure that their algorithms are fair and do not inadvertently discriminate against certain groups. For instance, if an AI model is trained on biased data, it could lead to unfair outcomes in underwriting or claims processes, resulting in reputational damage and legal challenges. The Regulator will be watching carefully!
As a profession – whether claims or risk – we need to make a fundamental assessment of what we see as the skills of a 21C or 22C claims Handler. We need to reskill /upskill workforces recognising the demographics at play – older workers who have the technical knowledge are essential, but they also need to be comfortable with the technology. Equally our new entrants must learn the technicalities of the job, and 2025 is likely to be the year where still to be answered questions such as, ‘how do they do that if AI removes the lower value claims?’ begin to surface in the talent acquisition and development pool.
The challenge will be finding these answers before the balance between AI and humans becomes unstable.
The Delicate Matter of Data
Data is key – but so is the context it is positioned in. We have masses of data in the sector, but do we have the tools and skillsets deployed to really draw out the right levels and interpretations of data with the right context? The year ahead will see several issues that need to be addressed:
- Data Privacy Concerns: With the increasing volume of data collected from various sources, including customer interactions and various other sources (even our Fridge Freezers with IOT connections) insurers must navigate complex data privacy regulations. Customers are still nervous particularly when well publicised Cyber incidents continue to occur. Coupled to this, is the need for Ethical behaviours – if decisions are being made purely based on data, stakeholders are going to want assurances the decision-making tools are balanced.
- Data Quality Issues: The effectiveness of data analytics relies on the quality of the data being used. To put it another way, if you pump rubbish in you are going to get rubbish out. How this is resolved when multiple legacy systems can be used by one organisation is problematic. Ensuring that colleagues fully understand the purpose behind certain data fields and the need for accuracy will be a significant step to overcome. Insurers may face challenges with incomplete, outdated, or inaccurate data, which can lead to flawed insights and poor decision-making. Data integrity is essential for effective risk assessment and claims processing.
In this situation, it’s important to remember that sometimes slow and steady is a better long-term approach, and going backward to move forwards isn’t always a bad move. Keep the purpose you are trying to serve front of mind, not just the opportunity to serve, and review your data for old inconsistencies and gaps before you try to start drawing new conclusions
Mental Health Takes a Toll
Another area raised in the latter part of the year was mental health and wellbeing of specifically Claims Handlers and Adjusters. Every business has various resources for colleague health and wellbeing, but this is going a step further.
Looking specifically at claims handlers and adjusters who are often dealing with highly traumatised customers and catastrophic incidents including deaths. How much thought have we put into the support structures for these colleagues?
The psychological impact of managing claims related to accidents, natural disasters, and other distressing events can take a toll on the mental health of claims professionals. We need to perhaps be a little more deliberate in the support and advice – training and tools – we give to our people who regularly face these traumatic environments – particularly for those who work remotely full time or on a hybrid basis.
2025 looks like a year of significant opportunity, but it will not be without its challenges. At Gallagher Bassett we are focused on driving initiatives that deal with these issues in an empathetic and supportive manner through collaboration and application of our deep expertise. Reach out to us today to find out how we can help you conquer the challenges ahead and stay ahead of the curve.
