Global insurance premiums could grow to $10 trillion by the end of the decade as new technologies reduce insurer costs, driving better coverage and pricing for good risks, Bain & Co. said in a report Monday.
However, technology advances will also likely increase the pressure on bad risks, resulting in sharply higher prices and unavailability of coverage, Boston-based Bain & Co. said in the report.
Insurer claims payouts could decline by up to 20% and operational costs by up to 50% as technologies such as automation and the internet of things allow insurers to be more efficient and better mitigate each risk event, Bain research found.
This will create value for all parties involved and spur a collective shift in the industry’s central purpose from loss reimbursement to loss control over the next decade, Bain said.
But even as technology and data analytics allow insurers to make gains in understanding, preventing, and mitigating risks, bad risks will come under more pressure, Bain said.
As a result, some risks to property exposures such as California wildfires may become too costly to cover, according to the report.
Extreme segmentation and underwriting price discrimination could also weaken subsidies at the core of risk pooling, while public pressure on out-of-favor sectors such as carbon-intensive energy producers could increase, Bain said.
“Depending on the extent to which this trend plays out, governments may intervene with stricter rules around data access and usage, increased regulation of underwriting practices, or expanded use of assigned risk pools and public-private partnerships,” the report said.