Insurers are reckoning with the fact that the world, in terms of innovation and technology, has shifted, and that they must shift their approach to match it, according to a report by Majesco, titled “8 Trends Shaping the Future of Insurance in 2025.” It states that “while the industry’s core business model of premiums, claims, reserves, and capital is not changing, how we think about the operating model and technology foundation must change.”
The solution, according to the report, is “investing in both today’s and tomorrow’s business, [which] is increasingly critical for carriers to elevate their operational excellence, innovate and create products that address new risks and protection gaps, and rethink the insurance value proposition—making insurance more transparent, reliable, accessible, and resilient."
Insurance Market “At a Crossroad”
“In the case of business models,” states the report, “rethinking them to meet the demands of today and tomorrow will help avoid the operational issues that ‘quick fix’ decisions can create and can deteriorate operational results over time.” Rather, insurance business models need “flexibility, scalability, ad the kinds of technology capabilities that are available…now.”
According to the report, the industry is at a crossroads and potential tipping point; however, this isn’t the first time. Events that caused tipping points in the past include 9/11 in 2001; Hurricane Katrina in 2005; the financial market crash, great recession, and bailout of AIG in 2008; the emergence of Insurtech in 2014; COVID-19 in 2020; and fires that ravaged the west and Hawaii in 2022 and 2023. “After each of these huge events, the industry needed to rethink the business and the technology to adapt and innovate for a different future,” the report explains. “We need to change again.”
2025 Trends for the Future of Insurance
Trend 1: New era of risk demands new technology. “Risk is growing, shifting, and becoming more complex,” states the report. It adds, “From health to property, the risks are all intensified with the backdrop of macroeconomic challenges. Gone is its predictability. Risk events are becoming more frequent. There are more combined risks. New risk layers, such as climate, societal, and technology risks, add new considerations and complexity.”
For instance, there has been a significant increase in the yearly number of billion-dollar disasters. From 1980 to 2022, the number averaged 8.1; however, over the past five years, the number has skyrocketed to an average of 18 billion-dollar disasters a year. The National Centers for Environmental Information cites increased exposure, vulnerability, and climate change as the reasons behind the increase.
When Hurricane Helene hit, there were combined areas of risk just like there were on 9/11. Property and businesses, work, and life were lost, leading to a significant impact on the insurance and risk assessment. “It has further fueled a view that people, companies, and governments must better understand and prepare for a catastrophic event to minimize or avoid loss and ensure economic, risk, and ensure financial resilience,” states the report.
Little progress has been made in risk resiliency due to operational challenges of cat events and increasing claims. “Our short-term response is raising the cost of insurance. This is unsustainable for customers and the industry.” The report suggests that the insurance industry must change legacy business methods and technologies for assessing and managing risks that no longer work. “With risk resilience, there must first be a focus on assessment and recommendations for prevention as a part of providing protection. Risk-resilient business processes and technologies assess, communicate, educate, and recommend prevention and mitigation strategies to all customers, regardless of insurance type.”
Trend 2: Growing protection gap consequences. Initial estimates of Hurricanes Helene and Milton are around $50 billion, with numbers still being added up, the report notes. Most people (95%) were not insured, putting victims in a deeper financial hole. “The large gap of uninsured losses, while financially not impacting insurers, does impact the brand and trust of insurance overall, something we have seen before.”
As a result, uninsured losses and insured losses that do not cover the actual loss reflect a significant societal risk that governments, taxpayers, and insured are burdened with. Indeed, Majesco’s 2024 Consumer Research found that “76% of the younger generation (Millennials and Gen Z) and 61% of the older generation (Gen X and Boomers) had to cut back and tighten their budget, highlighting the pressure of price.” This shows the protection gap that is growing due to insurance price increases that are unaffordable for consumers, leading to decreased trust and loyalty, shopping around, and not purchasing insurance.
Trend 3: Rise of climate-risk technologies. “Adapting and creating new AI models that leverage new data sources and the power of advanced analytics is crucial to stay ahead and address climate risk,” according to the report. IoT technologies, for instance, are increasingly used for areas other than auto and property, such as air quality, temperature, and detection of wildfires.
“A great example is how we need to rethink loss control for property,” the report notes. “Today it is primarily used for high-value or high-risk properties, leaving a large portion of insurers’ portfolios untouched due to the cost untouched due to the cost, heavily focused on ‘boots on the ground.’” Instead, the report continues, “by leveraging technology with self-surveys and videos with advanced analytics to assess the risk, insurers can segment and assess their entire property portfolio cost-effectively, either in-person or digitally.”
Trend 4: Modern insurance constrained with out-of-sync business operating model and technology foundation. “Insurers’ long-held business assumptions and operating models were built to support traditional insurance approaches for products, channels, pricing, and customer engagement going back decades,” states the report. However, “customers, competition, the types and severity of risks, and new technologies have significantly shifted since then. A new reality has emerged and exposed the challenges of the legacy operating model and technology foundation in terms of decreasing profitability, higher expense ratios, higher loss ratios, fight to retain talent and maintain customer satisfaction, agent satisfaction, and more.”
The report adds that insurers need to change the economics for loss ratios, expense ratios, risk selection, and risk prevention, the report notes. “It requires rethinking the business operating model and processes to leverage a wide array of amazing technologies, including Cloud, APIs, AI/ML, GenAI, IoT, and more. This will drive operational optimization and lay a foundation for innovation,” which is future-focused and based in current reality.
Transitioning to a new operating model, although necessary, leads to risks that need to be addressed. “First, legacy processes and business assumptions must not be allowed to leak into the new operation model and subsequently, the technology foundation, because of a ‘that’s the way we always have done it’ mentality,” the report explains. “This must be countered to meet today’s realities and create operational efficiencies, speed to market, enhanced customer experiences and more.”
Trend 5: Democratization and demonetization of data accelerates. “Data has always been the lifeblood of the insurance industry but today it is a vital asset in our digital world and increasingly crucial across every part of the insurance value chain, according to the report. “But access to data continues to be challenging and expensive. From soiled data, to limited access to core operational data, consolidation of data providers, and access at a price for some data, the industry has a significant gap between those with access to data and those without, resulting in competitive and market opportunity differences.”
As a result, democratization and demonetization of data has become a key trend to making data more accessible, understandable, and actionable to anyone.
Trend 6: AI and GenAI propels real business optimization. Implementation and integration of AI and GenAI into insurance business workflows transforms the industry through providing detailed guidance, assessments, and recommendations, increasing productivity and enhancing and accelerating employees’ knowledge and performance. “It is the innovation catalyst needed to help insurers stay ahead of market trends, risk shifts, customer demands, and technological advancements, giving them the confidence to navigate complexities with ease and significantly improve business operations and results,” states the report. “Early benchmarking results show 10-20 times productivity improvement that can revolutionize the front office and customer servicing, while driving quality, consistency, and operational efficiency that can lower unit costs and cost ratios which subsequently can improve product pricing and competitive market position.”
Furthermore, with 50% of the insurance industry planning to retire by 2030, AI and GenAI can accelerate onboarding and positively impact the learning curve for employees.
Trend 7: Market shifts fuel new product growth opportunities. “The insurance industry continues to undergo profound change, accelerated by a convergence of multiple factors – economics, increased risk, customer demographic shifts, challenging business results, and accelerated technology advancements. The result is the need to reshape the business model, including the products offered to the market,” explains the report. Four areas that will see heightened interest and demand include protection as a service; rise of parametric products; golden age specialty; and supplemental and worksite products.
Trend 8: The algorithmic economy powers intelligent core solutions. “The explosion of data and the power of analytics, including AI and GenAI, is accelerating a rethink of the business of insurance—changing how we do business, what business we do, and providing better risk assessments and insights than ever before,” according to the report. “The continued rapid adoption of AI/ML models to better underwrite, identify fraud, create elevated customer experiences, and now the adoption of GenAI to drive efficiencies and operational optimization, is poised to redefine insurance operations like we have never seen before.”
Today, next-gen solutions can allow access to all operational data that can be used by the intelligence embedded into insurance business processes and workflows—the entire spectrum of analytics from BI to AI/ML and GenAI. This is a key part of empowering the ‘algorithmic economy’ which is defined as “the increasing influence and economic value of algorithms in modern business and digital society.”
Overall, “the future won’t be captivated by yesterday’s achievements, and tomorrow’s plans won’t come to fruition without an insurance business model that understands and adapts to market trends that are different than the past."