2025 Insurance Forecast: Trends to Watch Out For

In the first half of the decade, we’ve tackled the challenges of the COVID-19 pandemic and seen the rapid rise of new technology like artificial intelligence (AI). The insurance industry has had its hurdles to overcome in terms of these events and others, yet it has prevailed –  meeting the demands of policyholders, lasting through interruptions to business operations, and proving its necessity in times of crisis.

So, what’s in store for 2025 and beyond? According to experts, the three things that will be most impactful to the insurance industry in the coming years are technological advancements—which can both help companies grow and also present challenges—evolving consumer preferences and changing regulatory environments.

Let’s take a closer look at some of the variables affecting insurance in 2025 and the trends that are expected to appear.

Technological Advancements: The Age of AI

While AI in the insurance market was valued at $2.74 billion in 2021, it is projected to reach $45.74 billion by 2031. We are heading towards an increasingly AI-powered industry and an insurance experience that occurs entirely (or almost entirely) online.

As a result of the internet’s ubiquity in all aspects of our lives, customers are looking for a digital experience when shopping for insurance, contacting agents, and filing claims. Insurers can digitize the customer experience by using AI chatbots, automating tasks to accomplish them more quickly, and building personalized pricing models based on real-time data—which is provided through technology such as drones and satellites. In addition, marketers are becoming more involved every day with social media.

Many insurance companies are adopting low-code or no-code digital tools, which allow professionals with limited coding knowledge to create custom applications and address their business development needs.

In order adapt to the changing technological landscape, insurance companies need to upskill their workers, providing them with new and improved skills in data analysis and AI, as well as hiring and retaining top talent. To thrive in 2025 and beyond, insurers should take advantage of the gig economy, hiring contractors, as well as getting involved with the growing business-to-business (B2B) ecosystem, which provides new opportunities for revenue.

Evolving Consumer Preferences: Closing the Trust Gap

Research has shown that only 54% of people trust the financial services industry, which includes insurance. In an uncertain world, this trust gap is only going to widen.

One trend that attempts to cater to consumers is a shift in the industry from a “Promise to Pay” model to a “Promise to Help” model. What this means is that customers are looking for more than just compensation for damages, medical expenses, and other incurred costs that insurance covers. Instead, they are looking for insurers to support their proactive preventative measures—such as safe driving or healthy behaviors.

In response, insurers should offer customers solutions that protect against risks and reward their safer, healthier habits. This involves gathering and analyzing customer data to understand their behaviors and preferences—and potentially utilizing AI tools.

Another way for insurers to engage with customers and their changing preferences is to embed Environment, Social, and Governance (ESG) principles in their organizations. Not only is assessing climate risk and focusing on sustainability important for the survival of businesses in our ever-changing world, but it is also important to consumers, who want to support organizations that align with their ethics.

Adopting ESG principles can involve reducing one’s carbon footprint through clean energy use, phasing out paper products, and embracing a remote or hybrid work schedule to reduce the emissions that come with daily commutes. For 2025, insurers should focus on developing an understanding of ESG and maintain transparency of their ESG actions and results for consumers.

Covering Uninsured Risk: Bridging the Protection Gap

Around the world, the difference between the cost of actual losses and damages and those covered by insurance—known as the protection gap—serves as an indicator of how resilient communities and economies are to disasters like hurricanes, fires, conflict, and other damage-causing events.

In 2020, the global protection gap reached US$1.4 trillion. It’s set to increase by 5% by 2025. A new report in 2023 found significant protection gaps in a few different categories—$1 trillion for pensions, $900 billion for cyber, $800 billion for health, and $100 billion for natural catastrophes. By 2025, the Asia-Pacific region is expected to account for almost half of all uninsured risk.

Insurers have an important role to play in safeguarding not only just individuals and households but also entire cities and national economies. Therefore, insurers and policymakers should be working over the next five years to innovate in ways that will close this gap. Insurers are being given an opportunity to expand their markets, but this requires adaptation, evolution, and innovation.

Evolving Regulatory Environment

New regulations can always impact the insurance industry, but there are a few ways that policy is expected to have an effect in 2025 and beyond.

One is the regulatory oversight of AI. As insurance and other industries begin to utilize AI, policymakers may begin to regulate its use. For instance, in Colorado, there is a new regulatory framework, effective November 14, 2024, created to prevent bias and discrimination within AI tools, specifically for insurance companies.

Another issue policymakers are concerned about is solvency. Insurance companies will need to keep an eye out for new compliance frameworks and solvency requirements. In addition, regulators are looking to promote education and oversight initiatives to help consumers make more informed decisions about insurance.

Lastly, the growing impacts of climate change are likely to impact the regulatory environment for insurance, as there is a push for underwriting that accounts for climate-related disasters and extreme weather.

Have insurance questions? We have answers. Talk to an agent at C&S insurance today.