Ben Telfer:

Hello everybody, and welcome to today’s ICMIF webinar. Today we’re very pleased to be joined by Isabelle Santenac, who is the EY Global Insurance Leader for the first ICMIF webinar of 2024. And it’s a very relevant topic as we have a strategic outlook for insurers for 2024, looking at how to strengthen trust to unlock innovation and growth.

We’re very pleased to be joined by Isabelle from EY, one of ICMIF’s supporting members. And Isabelle will present an overview of EY’s global insurance outlook. Isabelle, welcome. Before we start, perhaps you could give an overview on the outlook and what it aims to achieve?

Isabelle Santenac:

Yes. Thank you, Ben, and thank you for the invitation. So every year we are releasing our global insurance outlook, which is a summary of the most important trends we see for the insurance industry and the reinsurance industry in the coming 18 months.

And so for doing that, we gather the view of our experts and also the view of our clients. And you’ll see in the document some testimonies of clients or point of view of the client. And we select the three Big Six. So every year we release that, and I think it’s quite interesting for a reader because it’s a good synopsis of the industry.

Ben Telfer:

Fantastic. And we’ll be going into those three key issues today on the webinar. So just firstly, it’s such a turbulent time in the global insurance industry at the moment. Powerful forces are really reshaping insurance business, really creating some compelling opportunities, but also with some emerging new threats. What do you see and what do EY see as the biggest challenge for insurers today?

Isabelle Santenac:

There are a lot, I would say. But we steer and we start our outlook by summarising a little bit all the macroeconomic trends, which are not that positive. We have been now in a period of high inflation, and even though people expect that inflation will be more under control, it’s still quite a challenge, and that obviously has also big impact for the industry. We are in a political context where you have several wars in the world and a lot of political tensions between some big countries.

So that creates also a lot of uncertainty. And of course, for the insurance industry, some potential exposures to the countries which are currently in war. Interest rates continue to be high so that has some positive impact in a way, but that also creates volatility and no one can really predict when the interest rates will decrease. It’s very linked to the ability of the governments to control inflation.

And so when you see all of that from this political macroeconomic environment, that requires the insurers and reinsurers to really be able to stress test more their business, their projections, do some scenarios testing and ensure they can be resilient in this very uncertain environment. And I think the industry demonstrate that quite well.

Another challenge we see coming, it’s social inflation and in particular, in the US with the funded litigation, which is increasing and which raise, I would say, the risk in every litigation for the insurance industry. So that is something I think the industry is watching quite carefully. And maybe I will finish with the fact that because of all this uncertainty, I didn’t mention also capital markets.

Of course, the insurers are big investors, but because of this uncertainty, you see in some countries regulators putting more pressure on the insurers and we see, in particular, the liquidity. There have been some new requests from regulators in some countries asking for stress testing the liquidity. But this is something also which is not new, but which is more acute, I would say, since last year and since the crisis and liquidity crisis, which happened at the beginning of the year. So that is also an element of challenge.

Ben Telfer:

And looking specifically with members and mutual and cooperative insurers around the world, are there any of these macro issues that particularly impact our business model, do you think?

Isabelle Santenac:

Well, for sure because when you are in this very uncertain environment, by definition, everyone is impact. But I would say maybe what is a little bit different is a lot of mutual insurers operate on the local or national level. So they are less exposed to those geopolitical tensions, I would say. Inflation clearly impacts everyone and maybe even more than the mutual insurers who are very focused on personal lines.

And so that is something which definitely is maybe even more impactful for the mutuals. But I would say interest rates, as I mentioned, and social inflation is also something which impacts a lot of the mutuals. So overall, maybe what is a little bit different is the fact that a lot of mutualists are more local than international or across countries. So that makes maybe the stress testing, what I was mentioning, the scenarios testing easier in a way.

Ben Telfer:

Thank you, Isabelle. And I know EY have done some previous research looking at the mutual insurance sector. I think that was two or three years ago now. Perhaps you could share some of the main findings from that and how that aligns with today’s current market?

Isabelle Santenac:

I think the fact that being purpose-led, being very focused on the customer, I think all of that, I would say, is very acute for the mutual industry. Member centricity as well, social responsibility. Those are elements which are extremely important for the mutuals, and that’s what we also highlighted in our report that you were referring to.

When you see what we highlighted as challenges for the industry, I think that those attributes of the mutuals resonate extremely well with the challenge that we are going to discuss. So I think it’s just a demonstration or an illustration that the mutual insurers are quite well-positioned to face all the challenge that we highlight in the global insurance outlook.

Ben Telfer:

Perfect. And that brings us perfectly on the first key topic in terms of the transformative impact of AI. And again, this is a topic that we’re hearing all around the world from our members. Gen AI is such a prominent topic of discussion among CEOs and C-suite executives.

Perhaps you could share something about how insurers are advancing in implementing this technology and additionally, what measures can be undertaken to effectively manage the risks that come with AI to ensure that there is true success in its deployment?

Isabelle Santenac:

So generative AI is exponentially increasing. It’s quite interesting to see the attraction that it has now everywhere in every industry. But we see a lot of opportunities for the insurance industry, whether in underwriting, in claims processing, in compliance, in operations more broadly, marketing, sales et cetera. I think we see a lot of clients working on testing that on some proof of concept of generative AI. I think it’s fair to say that so far we have not really seen a deployment at scale of those experimentations with generative AI, but it will come very soon.

And I think we made a survey recently on what people believe, and 58% of the CEOs said that they see AI as a force for good, and 52% plan to significantly invest in the next year on that. And I think we have also some response, we show that people say we don’t need to agree or not agree; we need to embrace it because I think the train left the station. So a lot of opportunities for the industry. Of course, it raises a lot of questions from an ethical perspective, “How do you ensure you use generative AI from an ethical perspective? How do you show the way you use it is not biassed? How do you control the way you use it? Do you understand the risks you have if you use generative AI in interacting with clients?”

So I think what is very important is before deploying that scale to really define the governance of the usage of generative AI, to have a risk assessment framework and very clear rules on how you want to use it, what you allow, what you prohibit. And that is really the fundamental starting point to avoid any trouble.

And that requires as well that you know how your providers use it because all the insurers work with different providers. So how do you ensure that they don’t use generative AI in a way which is not compliant with your own principles? So a lot of challenge of course, but also we see a lot of opportunities in the areas I mentioned already and certainly much more to come.

Ben Telfer:

And also, another challenge perhaps on regulation, because again, in Europe we’ve just seen the recently introduced EU AI Act. How do you think that will influence the landscape of AI and especially how it will impact insurers?

Isabelle Santenac:

Yeah. Well, first, I would say I was attending a meeting where you had one person who was very active in developing generative AI and he was calling for more regulation. So it’s interesting that everyone recognised that, including the developers or the founders of the concept of generative AI, it’s very important that the regulation is at the right level.

So EU, I would say, was the first one to articulate a regulation, which gives a good framework for all the companies to be prepared for using AI, even though there are still a lot of elements in the EU AI Act, which still needs to be more detailed and precise, I would say. But it creates a good framework for the companies to start to think about, “Will we have some high risk AI model which then could be prohibited? And for the non-high risk, what the level of transparency we will have to give?”

So I think there is a lot of elements in what has been released right now to start to, again, define the framework and ensure that you are going to use AI the right way. We believe that other regulations will follow and will follow quite quickly. So there are some debate about whether there will be a level play field which is equivalent for the other countries.

Is EU harder than other countries on this topic? And so will EU AI Act maybe slow down the initiatives on AI in Europe compared to other countries? But we believe that the other countries will align on what has been done by the EU. Maybe the US will be a little bit more flexible, but overall I think all the countries will have a strong regulation around the generative AI.

Ben Telfer:

Thank you, Isabelle. So with every opportunity for efficiency, for better underwriting, there seems to be more risks that come with it as expected. So thank you for sharing those insights. Perhaps if we move on to the second area of the report in terms of delivering societal value, obviously, that’s a big alignment with the mutual and cooperative model. But perhaps you could share a little bit more about how do you perceive the industry as a whole in terms of its role, in terms of driving societal change and that commitment to delivering societal value?

Isabelle Santenac:

I think you see more and more people expecting the businesses to play a bigger role for delivering value to the society. I think it’s coming also because governments, I would say, are less powerful because they have less money. So there is an expectation that the private sector has to play a significant role for the society. And that’s where I think the insurance industry can play a big role because first, the insurance industry purpose is to protect the society against risks.

So that is really the purpose of the industry, which resonates very well with the expectation of people and community. And so on that, I would say, through investment, through products that the insurance industry propose, they play a significant role in protecting. I think maybe what we saw recently is that people criticising a little bit the insurance industry to play less this role of protection. So there is an urgency for the industry to communicate more on what they do because they do a lot for delivering value to the society, whether to serve specific communities, underserved people, help protecting better some places, some areas.

And of course, it always come back to the protection gap that exists and where there is an expectation that the insurance industry can protect everything for everyone everywhere. And that, by definition, cannot be true. And we estimate that the protection gap is almost $3 trillion right now. And unfortunately, it isn’t going to diminish in the short-term because you have, again, I mentioned governments have less resources to support some protection schemes.

We see increasing risks, whether cyber, emerging risks like cyber or whether climate change risks. So the protection gap is not going to be reduced significantly in the short-term. But I think the industry can play a role to help maybe reducing the risk or reducing the damage created by the risk.

And that’s where I think investing in the resilient infrastructures, helping people better understand how to protect themselves better for their home, for their health et cetera, I think that’s also a big role that the insurance can play to help reducing the impact of the risk and so helping reducing the protection gap.

Ben Telfer:

Fantastic. Thank you. Thank you, Isabelle. And looking specifically at the mutual and cooperative insurance model, it’s uniquely focused on members and again, topics like the protection gap and serving the underserved is something that is the reason why and the purpose of mutual insurance and why they were set up 100, 200 years ago. How do you think they’re positioned today? And can we, as a sector, play a distinct role in driving societal change in comparison to what traditional stock-owned companies can do?

Isabelle Santenac:

You said it well, Ben. I think that the mutual insurance industry is extremely focused on sustainability, helping underserved people or helping people to be more resilient. The mutual insurance industry has a strong focus on serving their communities. So this is really in your DNA as an industry. So obviously, you do already quite a lot on that, but I think maybe you need to speak more about that.

There will be now more transparency required on what the companies do on sustainability, on nature-related risk, of climate change et cetera. This is a perfect opportunity for the mutual insurance industry to be even more vocal on what they do. And I think maybe also to be more vocal collectively to call for change. I was mentioning the need to reduce the impact, because to be honest, we are not going to wait for 2050 and people being net-zero to reduce the protection gap.

We know that what happens right now with flood, with hurricanes, with fires et cetera, is not going to disappear. Even if we do those long-term investment on decarbonization, it will continue. And so I was saying it’s important to be able to reduce the impact of this risk, and that’s where I think the mutual insurance industry, collectively, can be quite impactful and vocal to call for governments, for other parties to work together and ensure that there is relevant investment to reduce the damage.

It could be to convince governments to impose some development standard for construction, like what exists currently in Japan. So I really think the mutual insurance industry has a big role to play and can be more impactful if they really talk collectively.

Ben Telfer:

Thank you, Isabelle. And that’s something that ICMIF, along with working with our members, is really striving to do, provide that leadership role, working with members, working with industry partners, governments, other industry associations to really drive that change. And again, that comes through in our various influence and impact work. And more of that will come throughout the year and also be shared at the ICMIF conference later in the year.

Moving into the third topic then, we are looking at addressing the evolving customer needs and blurring industry lines. I’m hoping, Isabelle, you can share some of the recent trends in terms of customer expectations and how have these reshaped the competitive dynamics in the industry today? And what approaches should insurers adopt to align with these ever-changing customer preferences?

Isabelle Santenac:

So the customer expectations have changed significantly over the past years and I think COVID has been an accelerator also of that trend. Customer wants to buy the right product for them, so really what they need, when they need, how they need it. So that is clearly something which is a common pattern for customer expectations. So how can the industry ensure that the products they offer are really fit for purpose, are delivered the way the client wants to buy them and can follow also the needs of the customer throughout their life?

And I think that is a very important point where insurers say that they are customer-centric and I think all the strategy plans of most of the insurers say that. There is still some effort to do to really be customer-centric, and that requires that you know well your customers and what they want. So how can you really better know your customer segment, your customer portfolio and ensure that you offer them what they really need?

So what we see more and more is customers viewing the insurance product as a side product of what they buy and the concept of embedded insurance, which is growing quite significantly. And at EY, we believe that in five years from now, 30% of all global insurance transactions will happen through embedded channels, which is quite a significant portion of the business. And why that? It’s because people go and buy a car, a watch or a phone and they want to have everything which will protect this product together.

So in the one act, I would say, they buy everything they need around this product. So this concept, the embedded insurances, is growing significantly. We see also the ecosystems developing on many topics, whether on the health or on other type of P&C insurance, and I think that will also continue to increase. We see more partnerships because people want to have a broader offering where insurance is one component of the offering. And so if the insurance industry wants to continue to play a big role and to be relevant, they need to see how to bundle their product with something else, which, again, fit what the customer wants.

So all of that is really moving quite significantly. Also, it’s linked to the trust that the customer have when they buy a product. Trust is very important, in particular for the newer generations, the millennials. They need to trust the brand. But also, what we see more and more, they can buy also because they trust people who recommend them to buy: the YouTubers, social media et cetera, which play an increasing role in the way people buy products.

So to respond to that, the embedded insurance is quite, again, an attractive concept, and the insurers should ensure that they play a role on that and they can partner with the manufacturer et cetera to distribute that product this way because again, it’s going to increase significantly in the future.

Ben Telfer:

Oh, it’s going to transform it 30%. That’s not just a change. That’s a significant difference in terms of how insurance will be transacted in just four or five years. It’s an amazing prediction and it shows that embedding insurance should be a topic that’s top of mind for strategic leaders for sure.

So just moving on, Isabelle, looking at what you’ve just shared there in terms of the context of evolving customer needs and that real blurring of industry lines, how would you recommend that mutual insurers adapt to stay competitive, especially when we’re going to see all this necessarily change in terms of the industry, but making sure they effectively continue to serve their member policyholders?

Isabelle Santenac:

I would say, Ben, the mutual insurance industry is ideally positioned for that. Because as I mentioned, the key for being successful is to better know your client and what your client wants. And by definition, you know very well what your clients want because they are all shareholders and you are in close contact with them.

So you are uniquely positioned to hear the voice of your customer even more because you are closer to the customers in a way, having them also your shareholder, if we can state it like that. So for me, you are ideally positioned to respond. And I would say this is also in your culture to do the right things for your customers because again, your customers are your shareholders.

So for me, you are uniquely positioned to better understand the need of the customers, and you want to respond to those needs to really deliver the right product for them because that’s your first objective.

Ben Telfer:

Thank you, Isabelle. So in terms of the global insurance outlook, they’re the three main topics that were covered. One of the main themes that was running through the report was the idea of trust and transparency. And I’m just wondering if you could share why do you think that’s more crucial than ever for insurers in 2024?

Isabelle Santenac:

Well, I think it’s fair to recognise that maybe the trust in the industry has decreased over the past few years for various reasons. But I would say COVID certainly didn’t help, because it just highlights the fact that when you protect your business or your health et cetera, there are some exclusions. So you don’t protect everything, and people may have not realised that there were exclusions which didn’t protect them if there was business interruption due to pandemic.

So I think it create quite a lot of misunderstanding or lack of trust between society and the insurers because they say, “Hey, we have a policy for our business and you tell us that we are not protected.” So that has been, for me, quite a big lesson learnt from the pandemic. And based on that, I think a lot of insurers have tried to clarify what they cover, what they don’t cover, which is not easy to do. Because when you buy a policy and you have 15 pages to read, you don’t always fully understand what is really COVID, what is not.

So I think the trust relationship has been damaged and needs to be restored. We were talking about also climate risk et cetera. We see a lot of insurers announcing that they will not cover anymore some regions, some states in the US et cetera. And here as well, you have question of people to say, “But you are here to protect us and now you tell us that you will not offer us a policy.”

So I think there is a need to communicate more and educate more people about, “The industry cannot cover everything at any price. There are things which become uninsurable because the risk is too high or unaffordable because if we want to price well the risk, it becomes unaffordable.”

But the industry is doing a lot to continue to deliver societal value, as I was mentioning. So there is a need to communicate much more on that and ensure that the purpose of the industry is clear for everyone, is still to protect the society but not to protect at any price.

Ben Telfer:

Very well said. And I think that’s definitely an area that mutuals and cooperatives can leverage. Just going back to the point that you made around reading 50 pages of Ts and Cs and looking at simplification. Is that something that you think the context is on the rise of non-traditional competitors, like Insurtech and tech platforms, that really emphasise the fact that they offer simple products and easy-to-understand products? Do you think that trust plays a role in customer engagement? And how can insurers build or rebuild trust in order to retain the market share that they may potentially lose from these non-traditional competitors?

Isabelle Santenac:

Of course, it plays a role, Ben. And when you contract an insurance product, or when you buy a product, you buy something, you buy a positive value. You would say for the insurance industry when you contract, when you buy a contract, you almost buy a negative value. “What is not in my contract? I purchase something, but what don’t I purchase?” It’s a little bit difficult for people to really understand that.

And when you see people around you, who are not very familiar with insurance, they receive all the pages, they don’t really understand the options they have. They select the cheapest one, they sign. But then, when they have a claim, then they realise that it was not covered the way they thought. I think simplification is crucial of that, but also explanation to the clients. So there is a better job to be done to explain what is a startup product that you buy. There you have all those options and then you can pay more and have more options.

It’s a little bit like when you go to a hotel, you have the room, but then you can take the breakfast, you can take champagne. Here, I think what is a little bit difficult for the customers, is that you buy something, but then you have everything which you don’t buy, which is described and it’s not very easy to understand, to be honest, for customers. So simplification is important.

Of course, it’s a regulated business, so unfortunately there is regulation which push or force things to be done this way. But there is more innovation to go through to ensure that it’s simpler to understand, in particular for the more plain vanilla insurance product. Otherwise, as you said, you have a new entrance, or we can propose things much more easily, or GAFA, which start to propose some very simple, old products online. So there is certainly an urgency for the industry to react on that.

Ben Telfer:

Yes, very much agree with that. Very well said. Just moving on to some questions that have been submitted from members. At a global level, where does EY observe differences in terms of the trends and areas of successful adoption? For example, do you see a region or a certain market that’s leading the way in terms of digital transformation, or embedded ESG, or adapting to the future of work? In terms of the global picture, where are you seeing the various differences where certain markets are further ahead or perhaps certain markets are further behind?

Isabelle Santenac:

Well, I think it’s a very mixed picture, Ben. It’s difficult to really say that this country is better or is ahead et cetera, because it depends on the product, it depends on many aspects. What we see, for example, we see maybe more innovation, in particular on the life or health insurance business in APAC, which seems to be leading the pack on that, on even simplification, digital et cetera.

You see ESG-related products, maybe Europe is also more advanced because Europe has been earlier impacted by regulation on this topic. But you see also a lot of innovations in the US. So I think it’s a very mixed picture. There is no response to say, “Oh, this country is really ahead of others.” It depends on the product, but it depends also on the companies. You have some companies which are maybe traditional countries, but still very innovative.

Ben Telfer:

Of course. EY obviously works with clients all around the world and many mutual and cooperative insurance company clients. Are there any common trends that you’re seeing on the strategic agenda for mutuals across the world? And are there any common challenges that perhaps mutuals are facing, globally?

Isabelle Santenac:

Well, I think what we discussed are the topics on which the mutuals work on. I think if you want to be successful with your customers, if you want to add value, if you want to do some partnerships or being part of ecosystem, I think the common platform on that is to ensure you have the right systems and data which enable you to do that.

So I think the mutual insurance companies, for most of them, because they want to serve better their customer, because they are very close to their customer, they invest quite a lot in the technology and how to better serve. And there is still a lot to do. But this is something where I would say it’s quite a common trend, how to invest better in technology and data to serve better our customers.

Ben Telfer:

And in terms of any challenges, is there anything in terms of the mutual model where in the current market and the current outlook, mutuals are at a strategic disadvantage compared to other insurers? And where do mutual insurers need to almost catch up with other models in our industry?

Isabelle Santenac:

Well, because of the mutual model, by definition, it’s more difficult to do some capitalistic transactions. And so that can be a barrier for expansion, for growing inorganically for sure. So that would be, for me, the biggest challenge. But as we say also at the beginning, in such an uncertain environment, operating locally is sometime a big advantage as well. So it depends where you see it in the trend of the uncertainty.

Ben Telfer:

Thank you very much, Isabelle. Thank you for joining today and just sharing a brief overview of the 2024 outlook. Obviously, anybody who wants to read more, I would encourage people to read the full report.

We actually just published a thought leadership article on the ICMIF Knowledge Hub, and that will be shared with members. So please click on there and read the full report.
And again, there’s lots of contact details in there to get in touch with Isabelle and her team of insurance leaders across the world. So thank you again, Isabelle, for joining us today.

Isabelle Santenac:

Thank you.

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