Looking beyond the horizon in insurance

The insurance industry is navigating a complex landscape with groundbreaking technological advancements, geopolitical uncertainty, evolving regulations, and changing consumer expectations at the forefront. With all this change, the call to action for executives is clear: in order to thrive, embracing change and innovation is not just beneficial – it's essential.

As 2025 has ushered in a new series of economic risks and uncertainties, opportunities remain for insurers to be bold and capitalize on several pivotal trends to strengthen their position in the ever-evolving industry. The enhancement of customer experience through digital transformation and the importance of accurate and complete customer data are two critical elements influencing the industry’s future. The integration of technology with operations, finance and actuarial functions has never been more important. With this, the role of the chief financial officer (CFO) becomes critical as they guide organizations through the complexities of the industry which will significantly influence overall success. Additionally, we must consider the implications of regulatory developments, the complexities of capital management and the transformative effects of artificial intelligence (AI).

The growing significance of tax considerations and the integration of environmental, social, and governance (ESG) factors embedded into businesses to not only meet regulatory requirements but improve the well-being of customers are also shaping the future of the industry. Furthermore, the intriguing intersection between the private equity and insurance sectors highlights how these interconnected dynamics will influence the industry’s trajectory moving forward.

The insurance industry is not merely adapting to change; it is entering a transformative phase that promises to unlock new opportunities and redefine how insurance is delivered and experienced. Let’s dive into the trends that are on the horizon for 2025 and beyond:

AI is not merely a tool; it represents a transformative force capable of redefining the operational landscape for insurers. The rapid advancement of AI technology is underscored by the fact that AI models are improving 5 to 10 times per year, which highlights the exponential growth of AI capabilities.1 This swift evolution presents exciting opportunities for enhancing operational efficiency, improving customer interactions, and transforming business models. Insurers must quickly adapt and harness the power of AI to navigate the changing competitive landscape and meet the increasing expectations of their customers.

To effectively harness AI and keep pace with the rapidly evolving market, insurers should implement several actionable strategies. These include investing in training programs that equip employees with a solid understanding of AI applications, integrating AI into existing systems for underwriting and claims processing, and developing customer service chatbots powered by generative AI to enhance client interactions. Furthermore, establishing cross-functional teams dedicated to exploring innovative AI solutions tailored to specific organizational needs is essential.

The ability to effectively utilize AI will become a critical differentiator for insurers in the coming years, enabling them to maintain competitiveness in a rapidly evolving market. By embracing these advancements, insurance organizations can not only streamline their operations but also enhance their service offerings, ultimately leading to improved customer satisfaction and loyalty.

Macroeconomic forces are impacting all businesses and insurers are no exception. These forces are driving significant changes to the way the insurance industry operates. Challenges such as climate change, rising material and claims costs, and evolving consumer expectations are reshaping operations. Geopolitical uncertainty, the evolving trade environment and the impact of U.S. tariffs on Canadian goods further complicates the landscape, influencing insurers' strategies, supply chains and market dynamics. To effectively navigate these external pressures, insurers should adopt strategies that prioritize agility, innovation, vigilance and proactivity to help ensure their long-term success.

Geopolitical uncertainty can lead to market volatility, affecting investment strategies and risk assessments within the insurance sector. Tensions between nations can disrupt supply chains, leading to increased claims related to business interruptions and property damage. The uncertainty brought on by the U.S. enacting tariffs on Canadian goods and services will result in higher operational costs for insurers and their clients. This, in turn, can lead to increased premium cost for customers and a re-evaluation of coverage options, as consumers seek to manage their financial exposure in an uncertain environment.

Insurance executives should look to create solutions that not only address current risks but also anticipate future demands, positioning the organization as a leader in the insurance sector. By integrating considerations of geopolitical risks and tariff impacts into their strategic planning and modeling scenarios insurers can better prepare for potential disruptions and enhance their resilience in a rapidly changing environment.

The insurance industry faces increasing pressure from natural disasters, which have led to record years of catastrophic losses. According to Aon’s catastrophe report, property and casualty (P&C) insurance capital needs to outgrow annual natural disaster losses by 6% to narrow the global protection gap.2 This highlights the urgent need for insurers to develop strategies that not only address immediate financial impacts but also incorporate sustainable practices to mitigate future risks.

In response to the rising frequency of natural disasters and climate-related hazards, parametric insurance has gained traction. This type of insurance facilitates quick claim settlements and offers tailored coverage options, prompting insurers to innovate their product offerings. As consumers become more aware of climate risks, they increasingly seek insurance solutions that are both transparent and efficient.

The insurance industry is at a pivotal moment as it grapples with the escalating impacts of natural disasters and climate change. The need for innovative solutions, such as parametric insurance, is more pressing than ever to ensure that insurers can meet the demands of consumers while also addressing the financial implications of catastrophic losses. By adopting sustainable practices and enhancing product offerings, the industry can not only protect itself against future risks but also play a pivotal role in bridging the global protection gap. As awareness of climate risks continues to grow, the insurance sector must evolve to provide transparent, efficient, and effective solutions that resonate with the needs of a changing world.

Customer experience and digital transformation are becoming an expectation in the insurance industry. Clients now expect user-friendly digital interfaces, similar to experiences in other industries, to manage their insurance needs through mobile applications and online portals.

Insurers should focus on providing seamless and personalized experiences, leveraging advanced technologies like AI, machine learning, and data analytics to better understand customer needs. This technology enables insurers to create tailored experiences that enhance client satisfaction and loyalty. The integration of digital platforms facilitates real-time communication, allowing insurers to respond to inquiries and process claims more efficiently.

Fostering a customer-centric culture is vital. Employees must be trained to prioritize customer experience, understanding their role in delivering exceptional service. This cultural shift can lead to more engaged employees and further enhance customer satisfaction. Insurers should also focus on gathering and analyzing customer feedback to continuously improve services. By actively listening to clients and making necessary adjustments, insurers can build trust and loyalty, which is crucial for remaining competitive in the market.

In insurance organizations, the CFO and the finance function are focusing on forming strategic partnerships with other departments. This shift is essential in a landscape marked by economic volatility, regulatory changes, and evolving consumer expectations. Effective collaboration between finance and other departments aligns financial goals with broader business objectives, positioning CFOs to support growth initiatives.

As the finance function evolves, CFOs are being tasked with managing regulatory compliance while also driving business growth. They should leverage advanced data analytics and technology, such as automation, to improve operational efficiency, streamline processes, improve reporting accuracy, and provide real-time financial insights.

These enhancements to the finance function and overall operation efficiency can allow CFOs and their teams to focus on strategic initiatives and make informed decisions that align with organizational goals. As the finance function evolves, organizations must prioritize training and development for finance teams to equip them with the skills needed for modern financial management.

Upcoming regulatory changes will significantly impact the insurance industry. Regulators have emphasized the importance of financial operational resilience in the face of economic volatility, highlighting the need for insurers to adapt to changing market conditions while maintaining robust risk management practices. The evolving regulatory landscape requires insurers to stay informed and agile in their compliance efforts.

The increasing complexity of the regulatory environment requires a proactive compliance approach. This involves understanding the implications of new regulations and the impact on their operations, and ensuring they have the necessary frameworks to meet these demands. As the industry faces challenges like climate change, economic fluctuations, and technological advancements, effectively responding to regulatory changes is crucial for maintaining competitiveness and long-term sustainability. By prioritizing operational resilience – through investing in infrastructure and processes – insurers can enhance their risk management capabilities, foster a culture of resilience, and better navigate market uncertainties while continuing to deliver value to their clients.

Tax considerations remain a critical area of focus for insurance organizations as they navigate new regulations. Recent legislative proposals, including changes to the taxation of Accrued Interest and Claims (AIC) reserves, have significant implications for insurers. Taxation of AIC reserves refers to the tax implications associated with the reserves that insurers set aside to cover future claims and accrued interest.

These reserves are crucial for ensuring that insurance companies can meet their future obligations to policyholders. Organizations must stay informed about these changes and consider their impact on financial reporting and compliance. The introduction of the Pillar 2 framework, aimed at ensuring that large multinational corporations pay a minimum level of tax, will also affect the insurance sector. Insurers must prepare for the complexities of these new tax regulations and their potential impact on capital management and operational efficiency.

Environmental, social, and governance (ESG) considerations continue to be an important operational and reputational matter for insurance organizations. With 92% of Canadian CEOs expressing concern about climate-related extreme weather events, insurers must develop robust ESG strategies to meet stakeholder expectations and regulatory requirements.3 Aligning these initiatives with corporate strategy is essential for creating and protecting value, enhancing reputation and trust among customers, and fostering long-term sustainable growth.

As sustainability becomes a critical focus, insurers are recognizing that effective ESG strategies can lead to improved risk management and operational efficiencies. By integrating ESG into their core business practices, insurance organizations can better navigate the complexities of the evolving landscape and ensure they remain competitive and resilient in the face of emerging challenges. This proactive approach is vital for long-term success in the insurance industry.

The intersection of private equity and insurance is another trend to watch in the coming years. As private equity firms increasingly invest in insurance companies, there is a growing need for insurers to adapt to the expectations of these investors. This includes a focus on operational efficiency, profitability, and innovative product offerings. To gain a competitive edge, insurers can look to insurtech innovations to help position themselves favourably in the market. Technological advancements play a crucial role in meeting investor expectations and enhancing overall competitiveness. Insurers must also be prepared to demonstrate their value proposition to potential investors while maintaining a strong focus on risk management and regulatory compliance.