Climate change is amplifying property damage and business interruption exposures by increasing the frequency and severity of natural catastrophe events such as floods, wildfires and storms.

Understanding amplified physical risk exposures

Last year, natural catastrophes caused more than $350 billion in economic losses globally, with insurance covering less than a third of these losses, at just over $100 billion.

Between January and June 2024, the U.S. experienced more than $30 billion in insurance claims due to an above-average number of tornadoes, hailstorms and straight-line wind events. Texas, meanwhile, recorded its largest wildfire, which burnt 426,600 hectares. The damages involved in these events often far exceeded businesses’ risk scenario planning considerations.

What can companies do to better identify, quantify and mitigate potential damage and ensure both effective insurance protection and more resilient operations in the face of escalating physical climate challenges?

Organizations need smarter, more dynamic and comprehensive approaches to understand and respond to the risks. 

See also: What Trump 2.0 Means for Climate Initiatives

A smarter way to address physical climate risks

By evaluating the aggregate hazard scores of each of a company’s assets – the metric to evaluate the likelihood and potential impact of a specific hazard occurring – companies can understand their exposure to various natural catastrophes. Smart hazard scores can also combine historical data and predictive insights with expert judgment, providing the comprehensive risk assessments organizations need to address property damage and business interruption risks in today’s context.

More sophisticated risk evaluations will help to identify high-risk assets and prioritize actions to mitigate potential damage. Organizations can better detect vulnerabilities, such as the presence of basements with critical equipment in buildings or plants in flood-prone regions, or identify with more precision secondary peril risks such as landslides following heavy rainfall.

A combination of traditional insurance, captives and alternative risk transfer (such as parametric solutions), as well as cost-effective and sustainable adaptation on site level, can help business operations or value chains recover more quickly.

Using a combination of "what-if" types of stress testing, risk engineering and numerical or theoretical modeling can put companies on the front foot to manage the landscape of increasingly complex risks. The same is true of looking beyond an organization’s boundaries to better assess the potential vulnerabilities across their value and supply chain in light of more frequent, more severe disruption.

See also: Insurers Must Evolve to Survive Climate Crisis

How to avoid under-insurance using analytics and valuations

Many businesses could be under- or overestimating their property and business interruption risk in the context of heightened climate-related exposures. Some insurers, meanwhile, are potentially mispricing property risk, in part because their models don’t capture what used to be "black swan" events – those events that are almost impossible to predict yet seemingly inevitable, after the fact. Once rare, such events are now much more common due to climate change.

Because many models call on claims experiences, they effectively play back what’s already known, rather than forecast future likelihoods and impacts. This can lead to underestimating the value of assets and subsequent underinsurance, leaving businesses vulnerable to significant financial losses in the event of a claim.

A life and annuity (L&A) insurance service staff (policy administration or claims) serves as a critical intermediary between policyholders and insurance companies. Their role involves policy maintenance, investigating claims, assessing impact, and ensuring that settlements are processed fairly and promptly. 

To transform an L&A service staff into a “superpowered” professional, disruptive technologies would enhance efficiency and accuracy, empower staff with the ability to get the job done, and ultimately improve customer satisfaction. 

Below is a snapshot of a typical day for a service staff with SUPERPOWERS (i.e., good data, automation, and an AI assistant):

See also: A Season of Change for Life Insurance and Annuities

Human in the Loop Work Orchestration: 

• Review personalized dashboard on critical items needing attention.
• Respond to overnight emails and messages from policyholders, internal departments, or other external stakeholders in your enterprise workflow solution. Update any notes or set any reminders.
• Review and start working on pending/new cases that are automatically prioritized and routed based on deadlines, severity, or complexity.
• Analyze insurance policy information and document summaries to understand eligibility, request type compared with policy information such as coverage limits and exclusions for new requests in one user interface. Contact policyholders via their communication choice if additional information is required.
• Handle urgent requests or disputes that may require immediate attention.
• Update policyholders/stakeholders on progress and resolve questions or concerns per communication choice of their choosing. Handle disputes or escalations when stakeholders disagree with assessments or coverage decisions, using facts and empathy as data surrounding the decision is in one interface.
• Submit for approvals/denials based on authority limits
• Review and adjust ad hoc letters for any complaint/denials/complex workflows. The correspondence engine automatically provides a recommended language based on the action.
• Review payout calculations that need oversight due to the size and nature of the request. The calculation logic is presented for review and approval.

Agentic Workflows (Superpowers) in Action

• Natural Language Processing (NLP): Real-time, multilingual customer interaction and document interpretation. NLP tools like chatbots and voice assistants handle policyholder queries, extract key data from documents such as medical records or death certificates, and summarize complex documents, ensuring faster resolution.
• AI-Enabled Workflow Automation: Lightning-fast processing aimed to un-fragment various solutions into one experience. With agentic flows, repetitive tasks such as checking eligibility, retrieving and summarizing required documents, and initiating payouts are automatically done, which reduces human error and processing time.
• AI-Driven Triage: Instantaneous work categorization, prioritization, and routing of work. AI models analyze request details, policyholder history, policy information, and third-party data to recommend next steps, flagging fraudulent activity and urgent payouts.
• Third-Party Data Integration: Access to real-time data from various sources to retrieve meta data or specific info such as death data. Service staff leverage data from these data sources to validate events (e.g., accidents or health conditions) and expedite processing.
• Quantum Computing Insights: Instant risk assessment and fraud detection. Quantum computing processes complex datasets to identify fraud patterns or optimize payout models faster than traditional systems.
• Hyper-Personalization With AI: Tailored customer experiences and communication. AI analyzes policyholder demographics, behavior, and preferences to customize communication and processes, enhancing satisfaction.
• Sentimental Analysis for Empathetic Support: Detecting emotional states for tailored communication. AI models evaluate a stakeholder’s tone, language, and sentiment during interactions, helping staff respond empathetically while managing expectations.
• Advanced Analytics and Insights: Data-driven decision-making. Predictive analytics tools identify trends in requests, uncover potential risks, and suggest ways to enhance underwriting or streamline future processing.

See also: AI Bias in Life & Annuities Insurance

By blending these technologies, the L&A service staff becomes not just a processor but a proactive problem solver, delivering exceptional service while minimizing inefficiencies and errors.

At carriers that adopt these technologies, operations staff can focus on more complex, human-centered aspects of their roles while ensuring accuracy, consistency, and efficiency in handling work, providing a personalized customer experience.

When British mathematician Clive Humby said in 2006, "Data is the new oil," he might not have realized just how applicable that statement would be to the insurance industry's growth and profitability 19 years later.

Humby's quote has been interpreted to mean data will surpass oil as the driver of the global economy. Whether that ultimately proves to be the case is unimportant; comparing data and oil is apt. The value and usefulness of both depend on how they are processed and applied.

Insurance agents and brokers have a complex array of data at their fingertips, and maximizing the value of it all is challenging. There is, however, an area where they can tap significant revenue opportunities with minimal effort: placement data.

Insurance intermediaries collect vast quantities of data every day related to placing coverage, not only on their customers' risks but also from the insurance companies that accept those risks. This data can serve as a roadmap to consistent financial outperformance, if brokers can unlock it.

Even though placement data reflects potential revenue, brokers can't realize those earnings until they connect the dots between client need and carrier appetite and they complete coverage placements. What's needed is a reliable way to speed that process.

See also: 4 Challenges in Adopting Broker Technology

Accelerating placements

Accelerating the placement process and making it more efficient is an opportunity for every agent and broker. Beyond speed, maximizing the value of placement data means gaining clear visibility into opportunities that drive growth.

Identifying growth opportunities in placement data is a bit like matchmaking. Brokers must consider: What coverages do insureds need? What are underwriters looking for? Where do insurers have an appetite to write more business? By bringing both sides together with agreeable terms, the intermediary fulfills its mission and forges relationships that can deliver long-term benefit to all parties.

Imagine how much faster a broker could achieve revenue goals by analyzing placement data and finding opportunities it didn't see before. What could happen when a broker sees the possibility of offering additional coverage to an existing customer, or consolidating multiple lines with an insurer that is paying more commission for that business? Growth and profitability could increase for the brokerage, while the client gets more protection for its risks.

Consider the following hypothetical – though common – scenario:

ABC Insurance Brokers serves a wide range of midsize and large clients by procuring property and liability insurance policies. Even though ABC has placed its clients' risks with more than 50 different insurance companies, 80% of its book of business is placed with just 10 carriers. A great deal of time and effort is expended maintaining relationships with 40 insurers that account for a fraction of ABC's clients. In addition, of the 10 core insurers, five generate more than 60% of ABC's commission income. Seeing this, it becomes clear to ABC that the brokerage can generate more income by consolidating placements with fewer insurers, where doing so makes sense for the clients.

Moving up the ranks

A MarshBerry analysis of U.S. brokers shows the largest 50 firms account for 96% of the revenue of the top 100, while the bottom 50 have only a 4% share. With mergers and acquisitions forming a key building block of growth for most brokers, achieving organic growth through better use of placement data is a highly cost-efficient alternative – or supplement - to M&A.

The five-year compound annual growth rates (CAGR) for brokers in the top 100 varies by revenue size, MarshBerry found. Average five-year CAGR for brokers ranked 11-50 in 2023 was 18%, while it dropped to 9.5% for those ranked 51-75. The brokers ranked 76-100 had the lowest average CAGR, at 4.7%. This shows how smaller brokers struggle to consistently achieve growth.

Privately held brokers pursue growth to meet different objectives. Some prefer to remain independent, while others look to maximize their appeal for sale to a larger firm or private equity buyer. In either case, better use of placement data is a key to achieving sustainable, consistent growth.

See also: How Insurance Brokers Can Stay Competitive

Sharpening the line of sight

Gaining insight into the revenue opportunities within placement data is difficult with existing agency management systems. Those platforms excel at supporting agents' and brokers' workflows, but they fall short in providing strategic insights about placement. Innovative technology now exists that works hand-in-glove with brokers' existing core systems to analyze placement data and bring growth opportunities to the fore.

The traditional Waterfall method, a linear and sequential process for software development, was for a long time a cornerstone of project management. However, in the dynamic and ever-changing world of modern software development, this approach often proves inefficient and unsuitable for contemporary needs.

Its place is frequently taken by iterative approaches, such as Scrum or smaller Waterfall cycles, which offer more dynamic and effective alternatives for achieving success in IT projects.

See also: Multi-Agent Systems Reshape Human-Machine Collaboration

The Other Side of the Coin

The fundamental flaws of the Waterfall methodology stem from its tendency toward excessive upfront planning. Teams often overcompensate, trying to address every possible requirement early in the project, which leads to an overly expanded project scope. Fear of future budget constraints results in the inclusion of unnecessary and low-priority features, increasing the complexity of the project and hindering its execution. Consequently, projects often become inefficient and prone to failure.

Another critical problem of the Waterfall method is the delayed response to user needs and product delivery. Users and stakeholders typically cannot evaluate the product until the later stages of development. By this point, resolving issues becomes costly and time-consuming. This delayed feedback loop limits the ability to effectively align the product with user needs and expectations.

Moreover, the rigidity of the Waterfall method assumes that requirements remain constant, which is rarely true in today's dynamic business environments. This lack of flexibility makes it difficult to adapt to changing market conditions, customer preferences, or technological advancements, often leading to wasted resources and diminished project value.

The Iterative Approach as a Key Solution

The iterative approach offers an appealing alternative. By building systems step by step in smaller cycles or mini-Waterfall projects, this approach allows teams to focus on delivering the most critical features first. This strategy enables faster delivery, earlier user feedback, and quicker issue resolution. The iterative model better aligns development efforts with business goals and ensures the product remains relevant and valuable throughout its lifecycle.

A key principle underpinning the success of the iterative approach is the Pareto Principle, also known as the 80/20 rule. In IT projects, this principle suggests that 80% of a product's value often stems from just 20% of its features. By prioritizing high-impact features and deferring or eliminating low-value ones, teams can optimize resource usage and shorten development timelines. This approach avoids excessive costs and complexities associated with rarely used edge cases, ensuring a more efficient use of time and resources.

The iterative approach also accelerates time-to-value by enabling users to access functional elements of the system earlier than traditional methods. Early delivery increases user satisfaction and provides tangible evidence of progress to stakeholders. Continuous delivery builds trust and fosters collaboration between development teams and business stakeholders, creating a positive cycle of improvement and adaptation.

See also: The Need for Agility in Insurance

Factors Building Success

For iterative approaches to succeed, decisive leadership is crucial. Managers must effectively prioritize, having the courage to defer or discard unnecessary features when necessary. Strong collaboration between business and development teams ensures alignment of priorities and makes the iterative process deliver meaningful results.

Equally important is the support and understanding from executive leadership, which should approve budgets in phases. This staged approach to financing allows for flexibility, enabling teams to respond to emerging challenges and opportunities without being constrained by rigid upfront planning.

Adopting the iterative approach also requires a cultural shift within the organization. Teams must move away from the mindset of achieving perfection from the start and instead focus on experimentation and learning from early iterations. Promoting agility and flexibility empowers teams to innovate and adapt to changing circumstances, supporting a more resilient and effective development process.

In Summary

While historically significant, the Waterfall methodology is increasingly unsuitable for modern, complex projects. Its inefficiencies, lack of flexibility, and delayed responsiveness make it ill-suited for today's dynamic environments. Iterative approaches provide a powerful alternative, delivering flexibility, faster delivery, and cost efficiency. By adopting iterative strategies and fostering the right organizational mindset, companies can unlock greater value and achieve sustained success in their software development processes.

Despite a positive overall sentiment about 2025, business leaders must navigate significant challenges to profitability, employee productivity and organizational resilience.

This complexity arises from an ever-changing risk environment. Key risks include climate change, natural disasters, cyber threats like deepfakes, the growing adoption of AI, and geopolitical uncertainties. Organizations must adapt swiftly to remain competitive and resilient.

Building resilience through comprehensive risk management

Integrating risk management into corporate culture is critical for turning disruptions into opportunities in 2025. Businesses must plan for climate-related risks, as climate change has escalated the frequency and intensity of natural disasters, leading to average annual global losses of $151 billion.

Organizations should conduct a business impact analysis to understand risks and recovery strategies. Extending business interruption policies to 24 to 36 months to accommodate long-term recovery needs and updating replacement costs in property insurance policies annually are essential steps.

Moreover, creating a "people plan" is vital, as disasters affect employees as much as operations. Establishing robust communication systems for employee support and providing essential resources such as food and medical benefits during crises ensure both operational continuity and workforce stability. Organizations that prioritize resilience are better equipped to maintain operations and recover quickly, gaining a competitive edge.

See also: Cyber Incidents Top Global Business Risks in 2025

Leveraging data and analytics for strategic decision-making

One of the essential actions businesses need to take in 2025 is leveraging data for strategic decision-making. The shift from cautious experimentation to widespread adoption of analytics is accelerating. Businesses that harness advanced analytics gain crucial insights into risk exposures and can "see around the corner."

Leading organizations are using data-driven strategies to optimize insurance costs, enhance employee benefits and improve decision-making alignment across the organization. By embracing analytics, companies can improve resilience and employee engagement, positioning themselves as leaders in navigating emerging risks.

Addressing cyber and geopolitical risks

Addressing emerging cyber and geopolitical risks is also a significant focus in 2025. The digital and geopolitical landscape presents challenges that businesses must address to secure profitability. Cyber threats, including ransomware, deepfakes and social engineering, are growing in sophistication. Projected global costs from deepfake fraud alone are estimated to have reached $1 trillion in 2024.

However, not all companies currently hold cyber insurance policies. To enhance cybersecurity preparedness, businesses should evaluate exposure to cyber risks, consider data retention policies and employee training, and offer employees cyber protection tools to safeguard both personal and corporate information. Securing comprehensive cyber insurance coverage tailored to evolving threats is crucial.

Geopolitical risks, often perceived as distant issues, have direct impacts, such as supply chain disruptions and regulatory changes. To mitigate these risks, companies should invest in political risk insurance to manage potential losses from political violence or government actions and use trade credit insurance to protect against payment defaults by foreign entities. Collaborating with vetted insurance partners in target regions ensures compliance with local policies and strengthens international operations.

Enhancing employee productivity and well-being

Employee productivity remains a top priority for 2025, as businesses face rising costs for medical benefits, pharmacy drugs and compensation. Companies are increasingly aligning total rewards with productivity metrics, emphasizing efficiency and innovation.

To enhance workforce vitality, more businesses are adopting a human-centric approach, building workplaces that prioritize well-being, flexibility, social connection and continuous learning. Leveraging data analytics helps identify cost-saving opportunities, especially in healthcare and pharmaceutical expenses. Additionally, reducing financial stress by offering solutions such as personal insurance coverage and financial coaching supports employees' financial health and improves productivity.

See also: Rising Climate Risks Demand New Strategies

Treating insurance as a strategic asset

Insurance should be a strategic tool for mitigating complex risks, protecting reputation and safeguarding the bottom line in 2025 and beyond.

Companies must conduct annual reviews with their broker to ensure policy limits and replacement costs are up to date. Additionally, they should explore alternative risk transfer solutions, such as captives and parametric insurance, to address gaps in traditional coverage.

By guiding organizations in adopting advanced analytics to better understand risks and employee needs and offering tailored solutions for employee well-being and financial security, brokers enable companies to achieve growth, resilience and operational excellence.

Thriving amid uncertainty

Insurance in 2025 requires integrating data analytics with strategic risk management. Organizations can navigate challenges by treating insurance as a strategic asset while building resilience against emerging risks. Expert partnerships and employee wellness programs help companies adapt to uncertainty.

Accurate and well-governed data is critical for success in today's data-driven P&C insurance industry. But the sheer volume and complexity of data presents significant challenges to insurers, which must manage complex regulatory requirements while ensuring accuracy for underwriting and claims processing.

Conventional data governance methods often struggle to keep pace, leading to data quality issues, compliance risks, and missed opportunities for insights. Generative AI offers the opportunity to automate processes, improve data quality, and gain competitive advantage through well-informed decisions and streamlined operations.

At its core, Generative AI uses deep learning architectures to create models that learn complex statistical representations of the data they have been trained on and generate new data that conforms to the learned distributions. Unlike discriminative AI/ML models, which are designed for tasks like classification and prediction based on existing data, Generative AI models focus on generating new data. This capability enables a wide range of applications, from synthesizing text and images to generating synthetic data for testing and training other models and creating metadata or data quality rules for an analytical pipeline.

See also: How AI Can Maximize Unstructured Data

Here are some of the ways P&C insurance companies are leveraging Generative AI to address key data governance challenges and unlock opportunities:

• Improving data quality through automated metadata generation and data quality rule creation
• Streamlining data stewardship and metadata management processes
• Strengthening compliance with evolving regulatory requirements

Generative AI helps insurers automate the generation of metadata for business attributes, tailored to their specific terminology and standards. This not only standardizes existing metadata but also generates information for missing metadata, which is particularly helpful with legacy systems that may not have good metadata definitions in place. Effective implementation of AI models and integration with data quality and data observability platforms enables continuous monitoring and improvement of data quality. This approach helps generate comprehensive data quality rules, consistently identify critical data elements for operational reporting and apply company-specific language for business glossary definitions.

Data stewards play a vital role in data governance, ensuring quality, integrity, and security of the company's data assets. Generative AI significantly reduces the workload for the data stewards by enhancing metadata management and keeping data catalogs current and comprehensive. Strategic integration of AI into data governance workflows can deliver time savings ranging from 50% to 90% for data stewards on tasks such as generating business definitions, identifying critical business attributes, and creating data quality rules, helping data stewards focus on strategic, human-in-the-loop activities that maximize the value of their subject matter expertise.

See also: A Data Strategy for Successful AI Adoption

AI-driven data classification can significantly strengthen regulatory compliance and enhance the protection of sensitive information. By analyzing both sensitivity (e.g., PII, PHI) and contextual attributes (e.g., document type, ownership), AI models, including those leveraging computer vision and natural language processing, extend discovery and classification to documents, images, and other unstructured data. This contextual understanding enables far more effective classification than traditional methods based on text patterns.

Data protection and governance platforms now provide pre-trained models and the flexibility to incorporate custom-trained models to accomplish this. Language models can also automate the monitoring and analysis of regulatory changes published by state insurance departments, the NAIC, and other relevant authorities, assessing their impact on existing policies and processes.

The convergence of AI and data governance presents a significant opportunity for P&C insurance companies to transform their operations and gain competitive advantage. However, successful implementation requires deep expertise across all these domains.

Artificial Intelligence (AI) is disrupting the insurance space at a remarkable rate, building a new ecosystem based on accuracy, efficiency, and customer-centricity. It is changing the way we look at all the legacy insurance functions, like claims processing, personalized customer experience, and fraud detection.

As the adoption of AI expands, more tailored products can be delivered, claims can be responded to faster, and risks can be mitigated. Progress never comes without hurdles, though, and new challenges in the form of regulatory compliance and data security make it imperative for insurance enterprises to have a strategic approach while implementing AI. 

In this article, we will explore how AI can deliver impact across different touchpoints of the insurance value chain.

Disrupting Underwriting and Claims Processing

Underwriting is one of the highest-value activities across the policy lifecycle, performed by highly skilled and highly paid resources. Most insurance carriers follow a first in, first out (FIFO) system with no consideration for the criticality of a claim, which places undue pressure on underwriters and leads to a sub-optimal experience for customers. AI's intervention at this touchpoint of the insurance value chain can be transformative as it can enable automated screening of proposals and ensure that they are assigned to the right resources based on priority.

Generally, settling a claim has taken a few weeks or even months due to issues with potential fraud detection and the efficiency of verification processes. However, AI can accelerate this process by up to 40%, satisfying customers while reducing operational costs. AI also makes it possible to identify patterns in claims data along with easy verification of records, including visual evidence, mainly due to the advent of image recognition technology. Early warning and fraud detection using AI help in identifying certain patterns that can help define rules to better identify potential fraud based on data accumulated over time. Furthermore, the use of AI in claims digitalization can better enable straight-through processing, first notice of loss (FNOL), ease of registration and faster settlements.

See also: How AI Will Transform Insurance in 2025

Maximum Impact on Tailored Customer Experience

Traditional insurance players haven't had access to precise information like customer behavior, lifestyle factors, or past interactions. With AI, insurance companies can deeply analyze the vast amount of customer data available to them and develop highly personalized insurance products and experiences. Customer-oriented data is fed into an AI-enabled chatbot that provides automated recommendations of the best-fit insurance products. Such personalization of the insurance products can directly boost customer loyalty and satisfaction.

Insurance GPT: the New Norm

Insurance companies are looking to develop a custom-built AI GPT tool that is focused on the specific needs and workflows of their industries to significantly enhance customer experience, boost operational efficiencies, and ensure data engineering readiness.

Here are some of the areas where insurance GPT can have the biggest impact:

• Policy Distribution: Insurance agents or websites typically specialize in selling targeted policies. However, this specialization limits their ability to identify and capitalize on cross-selling and upselling opportunities. With the advent of insurance GPT, agents can go beyond their area of specialization and effectively position other complementary policies or offerings that may be of use to a customer. Agents can also look up queries in real time, handle objections effectively and better articulate the combined value proposition of different offerings.
• Service Management: Effective service management entails handling structured and unstructured data that might be found in various form such as web forms, Excel sheets and PDFs. AI can greatly simplify the process of converting unstructured data to structured data with a pre-built context to increase operational efficiencies.
• Integration: As in every industry, insurance companies are also mired in legacy investments in technology that may not be compatible with modern AI journeys. Hence, it is important for an insurance GPT to be compatible with third-party applications and ensure seamless integration by serving as an AI and user experience (UX) wrapper.
• Reporting: Data that is often found in silos within legacy systems across different form factors isn't very usable. An insurance GPT can facilitate greater visibility and transparency by leveraging AI for dashboards, management information systems (MIS) and reporting, thereby keeping businesses ready for the data and AI revolution.
• Customer Engagement: With the sheer amount of data that is generated in the insurance industry, account managers or agents find it difficult to have the necessary insights needed to ensure a great customer experience. Insurance GPT can streamline all customer conversations and provide a 360-degree view of a customer, which can help an insurance provider drive better customer engagement while improving policy renewal rates.

See also: How AI Is Changing Insurance

Conclusion

As the use of AI expands, it is bound to leave a huge footprint on the current regulatory environment, which includes data privacy laws and ethical usage standards for AI. Making sure that modern AI tools comply with rules and regulations around data security and consent is essential to gaining public confidence and building accountability and transparency.

In 2025 and beyond, AI is set to drive significant transformation across the insurance industry, delivering substantial benefits in areas like risk management, claims processing, fraud detection, and underwriting. Insurers must be ready to fully leverage AI's potential by making strategic investments in technology and developing a well-structured roadmap to tackle emerging challenges as the industry's AI adoption accelerates.

By making this technology shift responsibly, insurance companies can unlock immense value for customers, offering unprecedented agility and predictive capabilities. As insurers evolve to meet shifting customer expectations and regulatory requirements, AI emerges as both a transformative tool and a catalyst for a more resilient, customer-focused future.

U.S. insurers appear to remain generally optimistic about investment conditions for 2025 and expect to continue to take on more investment risk, according to a recent survey of 310 investment decision makers in the U.S. insurance industry commissioned by Conning.

The recently completed election season also seems to be weighing on insurers' minds as the domestic political environment was the top portfolio concern of 10 choices listed, even though the survey was conducted after the November 2024 elections. Portfolio yields and market volatility were tied as the second greatest concern. Inflation, which had ranked as the top concern in the previous three investment risk surveys, fell to seventh among respondents.

Insurers continue to express interest in private assets and expect their current exposures to grow. The bulk of respondents (71%) currently have between 5% and 20% in private assets. In two years, a majority (63%) expect to have between 10% and 25% in private assets.

The majority of respondents also said they expect to maintain or increase duration in 2025 as well as exposure to floating-rate assets, and almost all are confident they can meet the liquidity demands of their business.

See also: 20 Issues to Watch in 2025

Optimism, Less Inflation Concern, Comfort With Liquidity

Overall, the respondent group remained optimistic regarding the investment environment in 2025, although the optimism has slipped a few points since the last survey and pessimism has risen slightly.

For the third year in a row, the majority of respondents also said they expect to increase their investment risk in the year ahead, although their inclination has been easing over the past three surveys. Respondents with the largest firms were the least likely to increase risk and the most likely to decrease it. Those outsourcing asset management were also more likely to decrease investment risk than those managing assets internally.

A major change in the leading portfolio concerns during the next two to three years among respondents was the significant decline in inflation worries, which had been the top concern among respondents the past three surveys (and remained the primary worry for the smallest firms). Of a list of 10 portfolio concerns, the domestic political environment was first, followed by investment yields and market volatility (tied), geopolitical events and the impact of artificial intelligence/model risk.

The political environment category was added in the prior year's survey and proved to be a major worry again in this survey, although it was not a leading concern for the largest insurers, which identified yields and market volatility as their top threats. Monetary policy rated among the lowest in the list of concerns (except for insurers with between $5 billion and $10 billion in assets).

Liquidity was the lowest concern (it was slightly higher for property-casualty firms than life), a point to note given the increasing interest in adding less liquid private assets to portfolios. In separate questions, respondents voiced confidence in having the necessary portfolio liquidity to meet business needs. Nearly half (48%) said their portfolios had an appropriate amount of liquidity, and 30% said they had too much. Only 12% said they had too little. And the vast majority (92%) agreed or strongly agreed that their companies are well positioned to address liquidity needs for their operations.

Cost control and the need for expertise in analytical capabilities in risk management and asset allocation remained the top reasons for insurers to outsource asset management. The next greatest reason to consider outsourcing was accessing different investment strategies.

Patience With Asset Allocation, Seeking More Private Assets

Respondents also indicated they do not anticipate a rush into particular asset classes, another sign of restraint compared with the prior year's survey. For example, 63% of respondents to the 2023 survey expected to increase exposure to investment-grade fixed income, not surprising given the opportunities apparent from rising yields in late 2023. Six other categories saw at least 50% of respondents expect to increase exposures. In our most recent survey however, none of the 12 asset classes listed saw more than 47% of insurers expecting to add exposure; responses generally were higher in the "no change" or "decrease" options in comparison with the prior year results.

However, momentum appears to remain for moves into private assets.

The exposures to private assets from our most recent survey respondents almost matched the prior year's survey, with 71% currently holding between 5% and 20%. While respondents expect moderate growth in their exposures, there was some tempering at the higher end: 17% expect to have 25% or more in the asset class, down from the 25% who projected this level of exposure in the prior year's survey.

Private assets are not without their own risks, as insurers know, and tops among them for respondents was the impact on liquidity; 31% said they were "very concerned" about it, clearly an area of focus for insurers given their stated comfort with current portfolio liquidity overall. Concern about sourcing private assets, having data/analytics to support them, and management/board approval, were less of a concern.

Floating Rate Strategies and Duration

Responding to a separate question, the large majority of those surveyed said U.S. Federal Reserve policy affects their investment strategy "moderately" or "significantly," and Fed policy has a significant impact on floating-rate strategies. In the year ahead, 53% said they expect to increase exposure to floating-rate strategies, and a further 25% said their exposure will remain the same.

While insurers expect to increase exposure to shorter-duration floating-rate assets, overall duration is expected to increase, suggesting the duration barbell will be popular this year. A number of insurers in 2024 sought to extend duration in the portfolio, a strategy that appears popular for 2025: Nearly two thirds of insurers (64%) said they expect to increase duration this year, and only 14% expect to decrease.

Market conditions in 2024 seemed to suggest that portfolio turnover might be on the rise, and half of all respondents confirmed that they had more turnover in 2024 than the prior year; only 22% said it was lower, with 28% saying it was the same. Of those who had more turnover, the leading reason (62%) was a tactical decision given market opportunities. Of those who had lower turnover, their leading reason (53%) was a limited ability to reposition. In both groups, change in risk preference was the least-chosen reason.

See also: What Trump 2.0 Means for Insurance

Investment Managers' Role in Market Navigation

The survey finds that insurers remain a generally optimistic group but do see challenges in the year ahead. While the scourge of inflation appears to have eased, at least for the time being, and interest rates have declined, uncertainty remains over the future direction of rates and the potential for volatility, both in markets and the political environment. Insurers continue to broaden and diversify their portfolios and are expressing clear interest that they expect to add more private assets, and they will likely be careful to assure that they can maintain their confidence in meeting their companies' needs for liquidity.

The circumstances of each insurer's business goals, risk tolerance, and book of business help reinforce the view that insurers often require customized solutions to address their unique needs. They may be best served by investment managers with a deep understanding of insurance asset management to help them develop valued investment strategies and navigate any volatility that may arise.

Many employees today may find themselves in the beginning months of a new benefits period. Yet whether they re-enrolled in the same policies they had previously or elected new ones, they might not make full use of their non-medical workplace benefits throughout 2025 without fully understanding the coverage and services available to them.

To help change this trajectory and empower consumers to take advantage of their benefits, carriers today are investing in digital tools more than ever before to provide members with resources that meet their well-being needs. These solutions are focused on making learning about and accessing both insurance and non-insurance coverages as simple and intuitive as possible. This presents a unique opportunity for brokers to connect the dots for employers and their workforces. By advising their clients on how to make the most of digital tools and resources across benefit offerings, brokers can help support employee well-being in the year ahead.

See also: How Wearables Can Improve Worker Safety

Showcasing the richness of available support

To encourage engagement and offer comprehensive coverage, some carriers have begun to include wellness resources directly within traditional insurance products. If employees don't know about these benefits, they can't use them—and the implications can be significant.

Take the millions of full-time working Americans who have non-work-related caregiving responsibilities. A recent Guardian study found that these caregivers are two times more likely than non-caregivers to need to take a leave of absence from work. Employer-provided disability insurance may offer curated caregiver support solutions, including digital planning tools, a caregiving concierge, and a peer support network. These resources can help to minimize the need for an employee to take a leave of absence for caregiving duties. Given this approach remains innovative today, supporting awareness and access through digital self-service channels is critical.

Tobacco cessation is another example. While smoking rates are down overall, there is an alarming increase in teenage vaping rates, and almost a third of working Americans continue to use tobacco products, according to Guardian research. Yet two-thirds of workers say they would be very interested in using a tobacco cessation program through their dental insurance plan if it was complimentary.

Ultimately, embedded wellness offerings that leverage digital touchpoints to offer frictionless access to services can help make a difference when it comes to fostering employees' mental, physical, and financial well-being. As workers look to make the most of their benefits this year, brokers can help their employer clients educate their workforce about any wellness offerings included in their benefits package to ensure they use all available digital features and, in turn, tap the full scope of these resources.

Leveraging digital platforms to streamline information

Digital features are key to enhancing wellness offerings, but they're not the only way that tech-enabled solutions can encourage benefits usage and support well-being. There is also an opportunity to make important benefits information and related resources easier to access.

What does that look like in practice? Our research shows that more than 51% of employers would be interested in a single platform through which all wellness-related benefits could be made available. Further, employees who have access to a more digital benefits experience self-report better well-being than workers who don't.

In response, carriers are working to bring this digital experience to life through various digital hubs designed to help ease access to wellness benefits for members. These platforms typically include educational content on mental, physical, and financial well-being, as well as family and community support topics. Additional resources often include third-party fitness classes led by virtual instructors for people of all fitness levels, as well as wellness articles that are regularly refreshed and focus on the connection between mental and physical health.

For employers looking to offer a more comprehensive digital benefits experience for employees, brokers can use the opportunity to highlight the resources carriers are making available to streamline information and drive engagement.

See also: 'Bleisure' Travel Is on the Rise--and It's Complicated

Now is the time to get started

At a time when technology is integral to so many aspects of our everyday lives and carriers are embracing digital tools like never before, brokers can play a key role, supporting employers in helping their workforce to make the most of digital offerings.

When employees understand how to leverage the benefits available to them, including through embedded digital offerings or streamlined digital platforms, they're more likely to use them. It's a crucial way that brokers and employers can support employee well-being across mind, body, and wallet.

The climate in the Middle East has seen an increase in the frequency of both hailstorms and heavy rains.

Oman has been experiencing cyclones on an almost annual basis, with the latest being Cyclone Asna in August/September 2024. One of the most damaging to date was Cyclone Gonu, which hit Oman and the east coast of the UAE in 2007, resulting in 70 deaths in Oman and 10 in Fujairah, as well as significant damage to property (estimated $4 billion of damage in Oman).

Saudi Arabia is no stranger to extreme weather, with flash floods hitting the country on several occasions in the 1970s, 1990s and more recently in 2009 and 2011 when flooding hit Jeddah, causing average damages of around $3 billion per event.

The UAE has seen irregular extreme weather events over the last 70 years, mostly in the form of flash floods due to intense rains, and it is possible that future events will increase in magnitude as the climate changes.

Interestingly, none of the major natural catastrophe tools used by the insurance industry today show any sort of major (extreme) natural catastrophe risks in the Arab Gulf region (other than one-in-50-year return storm surges in coastal areas). The renewables industry, and solar farms in particular, have been severely affected by severe convective storms in other parts of the world, most notably in North America. Hail damage is a rare but not impossible phenomenon in the Middle East, and the UAE has recently seen hail damage to infrastructure and vehicles, even though the size of the hail has so far been modest. 

Will that change with changes to the climate? Although unlikely to have the same impact as on the North American renewable industry, some negative future effects are possible.

See also: Insurers Must Evolve to Survive Climate Crisis

Predictions

The confidence in the forecasts of cyclones and flash floods remains low due to their relative rarity and the scale of the event. While cyclones are large events that can be captured by weather forecast models, the direction of the cyclone and its impact is much harder to forecast. The intensity of a cyclone depends on a large number of factors, including the track the cyclone takes, which itself is influenced by several factors that are difficult to predict, e.g., sea surface temperatures and other weather patterns.

Flash floods are much harder to forecast, as the processes that lead to them are typically only a few kilometers in size, smaller than the resolution of most forecast models. Flash floods are typically caused by sub-daily rainfall extremes, caused by localized heating, resulting in an unstable atmosphere and leading to a convective storm (which can also cause hail). However, whether the rainfall is absorbed by the ground or overflows resulting in flash flooding depends on the preceding conditions – too wet a ground means it cannot absorb any more rain, too dry a ground reduces its ability to absorb rain.

Climate change projections for the Arabian Peninsula show an increased risk from extreme rainfall that most typically leads to flash flooding. A warmer atmosphere can hold more moisture, thus when the conditions that favor extreme rainfall, and thus flash flooding, occur there will be more moisture in the atmosphere, leading to more extreme rainfall.

Figure 1 shows changes in extreme rainfall by 2055 under the SSP2-4.5 warming scenario (the current most likely warming scenario) using data from climate risk models. It shows that there is a large variation within both Oman and Saudi Arabia to changes in the rainfall pattern. Southern Oman shows a large increase in rainfall, directly leading to an increased risk of flash flooding. While northern Oman shows a decrease in extreme rainfall, this does not necessarily result in a decreased risk of flash floods. A drier soil could result in less rain being absorbed by the ground, increasing the risk of flash floods when extreme rainfall does occur.

Saudi Arabia (at right) has a much larger region showing an increase in extreme rainfall, where the majority of Saudi Arabia sees an increase in extreme rainfall occurrence. This suggests that the risk of flash flooding across the country will increase.

Figure 2 also shows an increase in drought risk across Oman, Saudi Arabia and the UAE for the SSP2-4.5 scenario. This will lead to drier soil conditions, particularly in the summer, increasing the risk of flash flooding from extreme rainfall. The data is not able to capture the processes that lead to sub-daily rainfall events; however, it does show that the conditions favor an increase in flash flooding risk.

There are other perils that may become worse due to climate change and thus potentially start causing significant losses in the region, in particular hail. The impact of climate change on hail remains very uncertain, due to the scale at which the processes that lead to hail occur. However, most projections for hail are for an increase in size and occurrence. This could have a big impact on the renewable energy sector, specifically solar panels, which remain vulnerable to hail and haven't seen that kind of damage in this part of the world yet. We also need to consider the changing nature of perils; with cyclones holding more moisture, we could see a greater impact from the rainfall/flooding from a cyclone, and not the wind, as traditionally seen.

Impact of Mitigation Aids

Improved forecasts of cyclones can reduce the impact through mitigation measures, e.g., increasing the resiliency of buildings, boarding up windows, and removing potential debris. Examples of this can be seen most recently in Florida in preparation for Hurricanes Helene and Milton. While losses were still experienced, they were smaller due to the warning and preparation. Florida also requires that when greater than 25% of the roof is damaged, the whole roof is to be repaired to new building codes. This has resulted in an increased resilience of buildings to hurricane winds.

A similar approach can be taken to flash flooding, even if it is more difficult to forecast. Improved drainage, identifying potential blockages and flood resiliency schemes that absorb water for short periods can significantly reduce the impact from flash flooding. It is also possible to increase the resiliency of assets to flash flooding by identifying potential water ingress locations and adapting them to prevent the ingress of water.

See also: Severe Weather's Effects on Auto Claims

Conclusions

An analysis of Oman and Saudi Arabia shows localized increased risk of extreme rainfall and subsequent flash floods if the SSP2-4.5 scenario becomes reality. Analysis data can be used to reduce long-term risk to a project by applying mitigation measures for future scenarios at the design stage of the project.

Will we eventually see weather events having an impact on premiums given the rapid deployment of renewables in the region? Although unlikely in the near future, a single damaging event (even if isolated) could have a massive impact on the market. The recent flash floods in the UAE caused severe damage to the Noor 1 Concentrated Solar Plant, possibly reaching a staggering $500 million of insured damage.

Insurers have until recently been relatively happy ensuring that an asset is adequately protected for a one-in-100 or one-in-200-year flood. We are now starting to see instances where insurers move toward requesting the one-in-500-year flood to be the governing condition for flood protection. This trend is likely to continue and might also come with requirements for predictive models to be used for large market assets to determine present and future natural catastrophe risks. The key is how these risks are managed and resiliency is embedded.