The insurance industry continues to evolve in response to changing consumer demands, macroeconomic conditions, and emerging technologies. As the year comes to a close and we reflect on where we’re headed in 2025, we see a continued shift toward policyholder-centric strategies and digital transformation efforts, among other rising trends.
So, what is the future of the insurance industry? Continue reading below to explore the key trends that are ushering in the next era of insurance.
Technologies Shaping the Future of the Insurance Industry
Before we discuss some of the top trends impacting the insurance space in 2025, let’s take a look at the emerging technologies enabling innovation and progress for insurance carriers:
Artificial Intelligence and Machine Learning
The adoption of AI and machine learning (ML) in the insurance space has grown significantly in recent years, and these technologies will only become more prevalent in the industry over the rest of this decade.
From altering how insurers interact with policyholders via AI-powered chatbots to enhancing back-office workflows like claims and underwriting, insurance carriers are drawn to these tools largely for the efficiency and accuracy improvements they provide. In fact, global consultancy Deloitte reports an estimated 37% increase in labor productivity by 2025 due to AI and machine learning technology.
AI and ML are proficient in processing large amounts of data much more quickly and accurately than humans can. While the need for human talent will certainly never be extinguished from the insurance space, emerging tech like AI and ML can help streamline repetitive, routine tasks so staff can focus on more strategic work.
Telematics
Telematics and Internet-of-Things (IoT) devices enable the growth of usage-based insurance (UBI) policies. These devices track real-time policyholder behaviors and activities so they only pay for the actual amount of coverage they use. For example, drivers may install a GPS-enabled device in their vehicle to monitor driving behaviors and usage, with the insurance carrier using this telematics data to determine their premium.
This is a clear diversion from traditional fixed-price insurance coverage, where policyholders pay a set premium regardless of how much of the coverage they end up needing.
The global insurance telematics market is set to grow at a compounding annual growth rate (CAGR) of 18.2% between 2024 and 2032. While this insurance model may still be in the infancy stages, the desire for more personalized policies and the potential for cost savings could support further adoption of this technology.
Big Data Analytics
Traditionally, insurance carriers relied on standardized, structured datasets to drive underwriting and policy pricing decisions. However, access to Big Data analytics has enabled insurers to work with more complex and unstructured data from a wide range of sources including social media profiles, online activities, and more.
Big Data analytics provides a more comprehensive view of policyholder risk profiles and other insights to drive operational strategy. The advantage is that insurance carriers can leverage these granular insights to deliver more personalized solutions for policyholders and enhance risk management with accurate predictive modeling.
Drones
Drones and aerial imaging have yet to reach widespread adoption in the insurance space. However, this technology provides a unique opportunity for insurance carriers to re-imagine how they assess properties during underwriting and complete site inspections during claims adjustments.
Rather than requiring adjusters and underwriters to visit the site in person, drones enable much quicker, safer, and more accurate assessments from a birds’-eye view. This also means insurance companies can capture the extent of damages and potential hazards that might be impossible to gather from ground-level inspections alone.
Overall, the use of drones by insurance carriers has the potential to streamline claims processing after a natural disaster and help insurers make more accurate risk assessments before offering or renewing coverage.
5 Key Trends in the Next Era of Insurance
Now, a closer look at some of the trends shaping the future of the insurance industry:
1. Strategic Digitization
Though digital transformation in the insurance space is not necessarily a new trend, it will continue to be an underlying industry theme over the coming years. However, insurance carriers must remain strategic with digitization and focus on areas that will drive the most impact rather than adopting tools and platforms just for the sake of it.
A recent survey from McKinsey shows that only 20% of policyholders prefer digital channels when interacting with insurers. Thus, winning insurers will adopt a multi-channel approach, ensuring they don’t alienate policyholders who still prefer to deal directly with a human.
2. The Shift Toward a Policyholder-Centric Approach
Digital transformation trends are ushering in a new era of personalized insurance offerings. Today’s customers expect custom premiums and coverage for their unique needs and preferences and no longer accept traditional one-size-fits-all policies.
With the rise of telematics, Big Data, and insurance companies’ analytical capabilities, policyholders are more willing to give up access to their personal data if it means lower premiums or tailored insurance products. This policyholder-centric approach will only become more relevant as the industry becomes more saturated and competition rises from new market entrants, Insurtech solutions, and incumbent providers.
Insurance carriers will need to embrace innovation and new insurance models like flexible coverage or UBI to meet consumer demands and foster better loyalty and retention. In fact, a PwC survey found that 80% of insurance CEOs have included customer satisfaction metrics in their long-term corporate strategy, underscoring the widespread nature of this policyholder-centric trend.
3. Increased Focus on Climate Risks
Another key trend set to take hold over the next decade is the growing emphasis on environmental, sustainability, and government (ESG) factors in overall insurance strategy. This comes amidst growing climate risks and the rise of an eco-conscious consumer base.
Reuters reports that U.S. P&C catastrophe reinsurance rates rose by as much as 50% this year, citing reinsurers' need to recover from losses related to natural disasters like hurricanes and wildfires.
The future of the insurance industry is inextricably linked to climate change. As the frequency of natural disasters rises, the payouts for damages sustained in these catastrophes will also grow, meaning carriers may need to reassess their presence in certain geographies to mitigate climate risk.
4. Growth of Embedded Insurance Options
EY estimates that by 2028 more than 30% of all insurance transactions are likely to occur through embedded channels. This might mean auto insurance carriers partner with dealerships to embed coverage into the vehicle purchase.
Embedded insurance provides a unique growth opportunity for carriers to expand offerings to policyholders with standard risks and compete with new market entrants offering such services.
The growth of this alternative model is driven by consumer demands for a more convenient insurance shopping experience and is supported by the continued digitization of the industry.
5. Re-Thinking the Insurance Workforce
Though we’re well past the Great Resignation of 2021, the insurance industry continues to feel labor market pressures more than other sectors. Data from the U.S. Bureau of Labor Statistics (BLS) shows the current unemployment rate for insurance carriers is 1.5%, much lower than the overall unemployment rate of 4.1%.
As Baby Boomers continue to leave the profession for retirement, insurance carriers are struggling to attract and retain the younger Millennial and Gen Z workers needed to fill job vacancies.
As a result, insurance companies must embrace new labor models, such as outsourcing, to ensure they have the right talent to deliver exceptional service to policyholders without being limited to their local talent pool.
Future-Proof Your Operations with Outsourced Support from Covenir
Navigating the ongoing changes in the insurance space is no easy feat. However, insurance carriers that leverage the right tools and talent can better equip themselves for the industry’s next era.
If you’re struggling to keep operations agile while finding the right talent to execute your brand vision, consider partnering with a trusted onshore outsourcing partner like Covenir. We handle everything from call center / FNOL overflow during peak times or catastrophes, to print distribution and virtual mailroom… and everything in between, giving your team more time to focus on growth and innovation.
Contact us today to learn more about our custom outsourcing solutions.