Socioeconomic meta-changes and their impacts on the insurance sector
With regard to societal changes, it can be assumed that, due to the influence on attitudes and values, by 2050, a “virtual-industrial” revolution can be expected, accelerating global networking and leading to new corporate structures, while also making it more difficult for insurance companies to strictly define the exact scope of the insured business with corporate customers. At the same time, the “virtual-industrial” revolution will provide insurers with metadata and new methods based on IT analytics, enabling them to analyse specific customer behaviour and better tailor insurance offerings to customer needs. Additionally, the composition of personal, customised insurance businesses will continue to evolve, including different preferences regarding asset ownership among younger generation
The second change concerns the transport system and mobility. It is implied that the transportation sector will be dominated by public transportation and electric vehicles in the future, while shared ownership and shared use of vehicles will become more common. These changes will impact the insurance industry by, for instance, increasing the demand for insurance of public assets, while the demand for insurance for privately owned cars will shrink. Additionally, the risk profile of some asset classes will be novel, as there will be many self-driving electric vehicles in the transportation sector.
Sector-specific impacts of climate change on the insurance sector
- Energy
- Global food supply
- IT & digital systems
- Construction & building sector
Energy
The insurance industry will increasingly encounter stranded assets due to transition risks. Liabilities such as product design will become significant issues, leading to a rise in litigation activities.
Additionally, there will be substantial growth opportunities from new suppliers and new markets. Heightened scrutiny from regulatory authorities will require adjustments in risk management policies.
Global food supply
Agricultural insurance will become more responsive to extreme weather and sus practices to mitigate adverse impacts. Better data is needed for improved risk models and offering incentives in insurance premiums for sustainable agriculture as a preventive mechanism.
Uninsured market disruption resulting from food insecurity will become more common and new insurance solutions for small local farms have to be developed.
Furthermore, the insurance industry will become more capital-intensive due to higher and diverse food production leading to an increase in the demand for insurance.
IT & digital systems
The insurance industry will become a highly sophisticated, digitally-enabled marketplace focused on personalisation, security, and options requiring insurers to adopt a new attitude about data, partnerships, service and success.
Integration of financial services with IT services and enhanced risk management capabilities, particularly for climate and environmental risks due to increased regulatory requirements.
Construction & building sector
A growing demand for capital to improve the climate and energy performance of both new and existing building stock. Also a growing market for property insurance, particularly in urban areas where new business opportunities are emerging.
However, higher insurance premiums and issues with insurability may impact regions with high climate-related risks, necessitating greater government involvement. Additionally, new types of insurance, such as life-cycle product insurance, will be enabled due to increased material prices.
The points above illustrate that the transition to Net Zero will bring about significant structural changes in the insurance industry. On the one hand, this means new challenges, but at the same time, it opens up new opportunities and business fields for the insurance sector.
More on this topic, and further reading on upcoming trends for the sectors of Energy, Global food supply, as well as IT & Digital Systems, can be found in the PwC Point of View “How Climate Change Affects Insurance: a 2025 Perspective”, a report issued by PwC Germany.
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