What lies ahead for the insurance industry in 2024?
The insurance industry, like others, had a challenging 2023. While a hard market and rising premiums helped insurers, the sector also had to battle the spiralling cost of claims driven partly by inflation.
So what trends could shape the insurance industry in the new year?
New AI tools to tackle fraud
There will be major advances in 2024 for artificial intelligence (AI)-driven claims fraud detection, which will focus on so-called deep fakes and shallow fakes as part of the overall push to tackle the claims fraud industry.
“The integration of AI in insurance fraud detection marks a significant progression in the industry’s ability to tackle a perennial challenge that costs it billions every year,” says Damian Rourke, partner at Clyde & Co.
Rourke stated the primary role of AI in this field is the rapid and accurate analysis of large volumes of data.
He explained: “AI algorithms and machine learning can efficiently sift through extensive datasets and identify patterns and anomalies that are indicative of fraud. This involves scrutinising claimant histories, the nature of claims, and contrasting them with known fraud indicators.”
“By learning from historical data, it continuously enhances its ability to identify intricate fraud schemes,” he added.
Rourke suggested that a “crucial advancement in AI for fraud detection is its ability to extract data points from various documents.”
“Technologies like optical character recognition and natural language processing empower AI to analyse documents such as claim forms and medical records, extracting essential information, comparing inconsistencies, and highlighting potential red flags.”
“This capability is vital in detecting fraudulent activities, such as inconsistencies in dates or narrative discrepancies,” he added.
New insurance regime on the horizon
The UK government will launch a consultation in Spring 2024 on introducing a captive insurance regime as it seeks to revive the insurance market.
Chris Lay, chief of Marsh McLennan UK suggested the outcome of the government’s consultation is “eagerly anticipated by the UK insurance industry.”
Captive insurance is a form of self-insurance, whereby a company is created and wholly owned by those it insures. The idea behind it is that companies have control over the type of policies it needs, while also receiving coverage at a reduced cost compared to traditional insurance.
Lay explained: “According to Marsh’s Global Insurance Market Index, insurance rates have risen for 24 consecutive quarters. Property catastrophe, professional liability and cyber risks have been particularly challenging for clients over the past two years and, for some, captive insurance solutions offer a practical alternative to traditional market capacity.”
He highlighted that the current regulatory environment prevents the UK from becoming a viable location for captive insurance vehicles.
“A positive outcome from the consultation – followed by successful implementation – presents a tremendous opportunity for the London insurance market and the City’s financial services sector,” Lay added.
Costs continue to rise
The cost of claims reached new record highs over the last year, but this won’t be easing up across 2024.
Mike Dobson, partner at Clyde & Co explained that more injury claims will fall under “fixed recoverable costs rules”, which will put pressure on personal injury lawyers.
Fixed recoverable costs give certainty in advance about the maximum amount that the losing party will have to pay as they set the amount of legal costs that the winning party can claim back from the losing side.
He focused on injury claims, as he stated that “Clyde & Co’s catastrophic injury and large loss team are seeing more functional and psychological issues; more subtle brain injuries while, in tandem, the courts are placing greater emphasis on vulnerability.”
He explained: “This is significant because vulnerable claimants are one of the exemptions to the fixed recoverable costs regime.”
“The signs clearly point towards 2024 as a year in which many injury claimants will present conditions
that elevates the value of their claims above the threshold for recoverable costs,” he added.
Dobson, who is a partner in the firm’s catastrophic injury, motor fraud, and retail and leisure team, also pointed out the “uncertainty of the Ogden rate review in 2024”.
He explained: “There is a chance the rate may increase and ameliorate the impact of inflation, but if it does not, then this will potentially lead to another significant cost increase for insurers.”