What is In Store For Insurers in 2025?

This piece is by René Schoenauer, Director, Product Marketing, EMEA at Guidewire.

The last two years have seen a great deal of promise when it comes to new technologies and their impact on the insurance sector, but as of yet there have been few real success stories when it comes to their implementation. Insurers are still facing challenges in the form of legacy systems and understanding how to measure the value gained from new technology.

2025 is set to be when that promise truly begins to feed through into impact on insurers, their customers, and the ability of the insurance industry to meet new challenges. Those that have built a modern core and a solid foundation are looking at the year ahead and focusing on human-centricity, strong growth, a greater ability to innovate through insurtechs partnerships, and tackling climate risks.

Insurers’ AI will become more human-led

2025 will see last year’s hype around AI and generative AI (GenAI) turn into meaningful action. After two years of testing and learning, insurers are now ready to deploy AI to improve their operations and benefit their customers. Indeed, 77 percent of insurance industry executives acknowledge that they need to adopt GenAI quickly to keep up with competitors. However, 49 percent of insurance CEOs believe that adopting GenAI is more of a risk, versus the 51 percent that see it is an opportunity. This risk can be reduced by using the best-in-class technology solutions available on the market, which will deliver a pivotal shift towards AI driven human empowerment, supporting insurance agents, underwriters and customers alike.

Even though AI, machine learning and GenAI can all fall under the umbrella of AI, it is key for insurers to differentiate between these technologies and what they can do. GenAI, an increasingly mature subset of AI, will play a significant role in creating more efficient and streamlined underwriting and claims processes, as well as improving customer service. For example, Kyber leverages GenAI and centralised templates to reduce time spent drafting regulatory notices. This takes the pressure off claims adjusters, so they can spend more time working on more complex cases.

Additionally, machine learning will have a significant impact on the insurance lifecycle, but only when insurers are able to deploy these models in their operations. Machine learning can be used in a number of parts of the claims handling process to quickly gather and analyse information to assess the severity of damage from weather events or other losses. Using machine learning, it can forecast what repair is needed and book the repair with a verified provider, instantly sharing details with the customer. This accelerates the pace of the claim settlement and has a material impact on the customer’s wellbeing.

However, what will hold some insurers back is the lack of technical maturity and the resulting inability to integrate these technologies into their workflows. Being able to build and deploy these models is going to become a major factor in 2025. Insurers that cannot leverage these tools at scale will not be able to refocus their teams’ attention on the customer. They will fall behind in the level of human-centric service they can provide and in time see their competitors race ahead of them in the marketplace.

Revolutionising traditional insurance partnerships with insurtechs

Traditional insurers and insurtechs are partnering to innovate more quickly, which delivers great benefits to insurers and their customers. Through this partnership, traditional insurers can add new customer functions to better understand risk and improve services. For example, satellite radar imaging provider ICEYE offers reliable and timely hazard data to manage natural catastrophes, thanks to a synthetic-aperture radar constellation. Through ongoing monitoring capabilities, the insurtech can detect and respond to climate-related changes quickly and accurately in any location. As such, with a partnership between traditional insurers and ICEYE, insurers can improve disaster response plans, be able to proactively communicate with customers and more accurately predict losses. This is just one example of how the insurtech sector is delivering real benefits for those insurers who can integrate new services to meet customer needs.

This partnership goes beyond being a set of alliances. It is a defined network of solutions that can be used alone, or in collaboration with other offerings. A strong insurtech ecosystem is of utmost importance, especially as risks continue to change and develop. However, the success of this integration is based upon insurers having a modern, cloud-based platform. This allows them to take advantage of preconfigured application programming interfaces (API) and embedded analytics, leveraging both internal and external data. Without this, whilst partnerships between traditional insurers and insurtechs are possible, each one becomes its own IT project that needs to be maintained, increasing the cost of the partnership and weighing on the loss ratios of insurers.

Getting a better grasp on changing ESG and climate risks

The UK experienced one of the hottest summers on record in 2024 and we have seen devastating hurricanes and wildfires in the US, putting climate risk top of mind for insurers. This has put massive stress on traditional insurance models. Consequently, we have seen insurers withdraw from certain areas, leaving some locations uninsured or underinsured, with disastrous effects for customers. Whilst some suggest that this is due to rising costs in the reinsurance market, the fact is that attachment points have increased because insurers are not able to describe the risk profile of their portfolios well enough. Initiatives focused on better interoperability of data and greater data sharing are underway and will start to make it easier to assess risk in 2025. This will enable insurers to have a deeper understanding of their risk profile and allow them to describe it in more exacting terms to reinsurers. In doing so, attachment points will fall and markets that were considered too risky will be viable again, reducing the protection gap and enabling insureds to access coverage against climate related risks.

Furthermore, insurers will leverage new solutions, such as parametric insurance, to help them provide cover for customers in difficult to insure areas. Parametric solutions are being looked at by insurers because they allow them to provide cover with greater certainty and they offer more immediate benefits to customers. What we are likely to see in the coming year is the use of parametric insurance as part of a mixed model. The parametric element provides an immediate payout to the customer in the event of a catastrophe – helping them to deal with the immediate effect on them, their family and their livelihood – whilst a traditional claims process takes place to decide the total value of the claim.

Alongside this, 2025 will see insurers evolve to become risk consultants and advisers to their customers. This means proactively offering advice and support on risk mitigation as part of the service they provide. Let’s imagine a severe storm is forecast to hit a particular area. The

insurer will have the relevant data – relating to rainfall, wind speed and the geography of the area – integrated into their risk models. This means they can predict which homes and businesses in that area will be affected and translate this into action that reduces the damage. This would include advice like moving valuables to a higher floor, sending sandbags to prevent flooding, or helping to move employees and goods to an unaffected area. This will create a new relationship between insurer and insured, one that goes beyond being transactional to one where the insurer becomes a trusted partner.

The coming months promise fundamental change in the insurance industry, but only for those that have got their house in order. Whilst technology promises many solutions to the challenges that the insurance industry faces today, without a flexible core system insurers are going to find themselves tangled in a web of legacy systems. The sticking plaster approach taken by the industry may have gotten it this far, but legacy systems are creaking under the weight of technical debt and unable to facilitate the coming wave of disruption. If the industry is to continue to play its full role in our economies and societies, and to tackle complex challenges such as closing the insurance gap for natural catastrophe risk or achieving AI-driven human empowerment, then it needs to address the fundamentals first. Those insurers that have taken the lead in this respect over recent years will set the benchmark for what is possible in 2025. The steps they take in the next 12 months should see them lead the market for years to come.