Some 2025 Predictions from Aleksander Czarnołęski, Head of UK GI, at Sollers Consulting.
As inflation led financial pressure eases insurers will focus on increasing efficiency
As the economy improves, 2025 will bring new opportunities for insurers in all parts of the world. Companies will use this window of opportunity to expand their capabilities in the areas of data, cloud and AI. UK insurers will put a lot of effort in expanding the attractiveness of digital channels and increasing efficiency through automation. In The Sollers Predictions Report we have analysed labour market trends, financial reports and data published by the IMF and WMO, among others.
With the challenges of claims inflation getting under control, 2025 will be a positive year for general insurers. They will benefit from a positive pricing environment, a healthy investment climate, a stronger growing economy in many parts of the world, and a NatCat environment that is expected to be less challenging than the El Niño year of 2024. The biggest threats will come from political and social instability.
A positive price environment
Rate increases will reduce the triple burden of claims inflation, increased NatCat losses, and high reinsurance costs. In 2024, the insurance markets have seen a strong upward trend in private insurance. However, the premium increases achieved have not been sufficient to fully offset claims inflation. There is a widespread willingness on the markets to increase rates further in 2025.
Investment income will continue to benefit from elevated interest rates. Although interest rates have fallen, they are still at a higher level than during the low-interest phase in the 2010s. Investment income was a major contributor to insurers’ profits in 2024, with investment income doubling at 38 global and national insurance companies. Higher interest rates were the biggest contributor and will have a sustained positive impact on insurance earnings in 2025.
NatCat losses are difficult to predict, but there are indications that the upcoming La Niña phenomenon will have a moderating effect on global warming dynamics and associated precipitation. Still, as climate change leads to new weather patterns, the risks associated with natural catastrophes will remain one of the biggest challenges for insurers.
Cloud is becoming an integral part of insurance IT
As the financial burden of claims inflation eases, IT investment in the insurance industry will remain at a high level. Innovation and change through technology have impacted the market and contributed to a 31% (WTW’s Quarterly Deal Performance Monitor) increase in the number of mergers and acquisitions.
Data and data management have become one of the most important areas in insurance IT, and this is likely to continue in 2025. The main goal is to enhance business intelligence and automation capabilities. Data management increasingly supports underwriting and pricing; this is a prerequisite for the effective use of AI. It is an important topic and will remain so in 2025. The cloud plays a central role in supporting data management ambitions. Insurance companies will, therefore, expand and improve their use of cloud computing. In the UK, Australia and the USA, cloud has become an integral part of insurance IT. Insurers in Germany and France will follow.
UK insurers will expand their digital channels in 2025
In response to regulation, insurers will increasingly focus on security, rates, and customer relationships. High claims and reinsurance costs are exerting financial pressure on the industry. A slightly weakening price cycle in personal and commercial lines of insurance, combined with a shortage of skilled labour, will create a difficult market environment. In response to these challenges, insurers will turn to mergers and acquisitions (M&A) to optimise portfolios and establish more cost-efficient business models. This strategy will strengthen their market position and reduce the proportion of fixed costs, including regulatory burden. In connection with M&A, insurers will simplify their business processes.
To increase operational efficiency, insurers will invest in automation and the digitalisation of core processes. An important challenge that the market will face is to strengthen customer trust in digital channels. The introduction of online solutions is crucial to quickly process the growing number of claims and reduce reliance on contact centres. This transformation is supported by a data-driven approach, using automation (including AI solutions) to gain insights, create more competitive offers, reduce manual labour, and free up employees.
System migration will be a key focus
The above challenges are being addressed through increased IT involvement. UK insurers’ technology departments are very much focused on achieving business goals by focusing on three main areas: system migration and consolidation, data strategy, and business process automation. The first topic will become particularly important in the context of mergers and acquisitions, as it will help to address concerns over legacy systems and technical debt. Better control of total cost of ownership will also encourage insurers to utilise cloud capabilities and build out cloud-based infrastructure more effectively. Adopting appropriate data strategies and ensuring compatibility between organisations with different core solutions will be critical to gaining a 360-degree customer view.
Utilising data will also improve pricing, underwriting capabilities, and claims settlement processes. The focus on the integration level will be key to utilising modern technologies and new solutions. The path to automation and digitalisation will be supported by a combination of cloud-native solutions and market products that provide insurers with the necessary tools within a unified ecosystem.
The Sollers Predictions Report 2025 “Window of Opportunity” can be downloaded here: https://sollers.eu/insights/insurance-industry-trends-2025/
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