THE FUTURE OF INSURANCE: Navigating Change and Unlocking Opportunity through AI, Key Trends, Challenges, and Innovations Shaping the Insurance Sector to 2040   The insurance industry stands on the edge of a transformative era, marked by profound technological advancements, evolving risks, and shifting global dynamics. Drawing on the research and insights presented by the Economist and SAS, this article explores the pivotal trends, challenges, and opportunities that will define the insurance sector through 2040. We examine the rise of artificial intelligence (AI), the imperative of climate adaptation, and the strategies insurers must adopt to thrive in a world of uncertainty and rapid change.   The Insurance Sector at a Crossroads In recent years, the insurance industry has faced a series of shocks that underscore its vulnerability and the urgency for reinvention. Catastrophic wildfires in California resulted in billions in losses, exposing systemic weaknesses. Meanwhile, the CrowdStrike (and more recent AWS) outage highlighted the looming threat of cyber disruptions. At the same time, digital technologies and AI are revolutionizing how insurers price risk, launch new products, and engage consumers. These forces, complex and often unpredictable, are reshaping the sector's landscape and compelling insurers to rethink their strategies for the future.   Megatrends Reshaping Insurance Economist Impact's global survey of over 500 insurance executives in 17 countries identified several megatrends set to shape the industry: Climate Change: A growing threat to societies and commerce, increasing the frequency and severity of extreme events. The Digital Revolution: Accelerating advancements in AI, machine learning, and data analytics. Globalization Under Pressure: Geopolitical tensions and regional fragmentation impacting market dynamics. Economic and Social Inequities: Disparities affecting market growth and protection gaps. Demographic Shifts: An aging population and a growing middle class altering insurance needs. Executives see market dynamics and AI as significant opportunities, while climate risks, geopolitics, and cybersecurity are viewed as the greatest challenges. Regional differences persist: North and Latin America are more concerned with climate risks than Asia-Pacific and EMEA, and minimizing costs remains a central focus for industry leaders.   Closing the Protection Gap: Responsibility and Opportunity A notable finding is that about 80% of insurance leaders believe in the ethical obligation to close the "protection gap"—the shortfall between insured losses and economic losses. This obligation is strongest in North America but is recognized globally as both a moral imperative and a significant business opportunity. Key outcomes insurers aim to achieve include market expansion, improved claims processing, enhanced cybersecurity, and progress toward ESG (Environmental, Social, and Governance) goals.   Scenarios for the Future: Four Possible Pathways Economist Impact developed four scenarios to help insurers navigate the uncertain future. These are not predictions, but plausible futures based on the pace of technological change and the level of global cooperation: Fractured Resilience: Rapid technological progress amid global fragmentation, leading to uneven benefits, widening inequalities, and a larger protection gap. Digital Harmony: Strong international cooperation and rapid technological advances drive customer-centric transformation, climate progress, and improved risk management. Adaptive Alliance: Society embraces climate resilience, with transparent risk pricing and collaboration between governments and businesses to adapt infrastructure and systems. Stagnant Turmoil: Stalled technological progress and fragmented governance lead to rising premiums, regulatory barriers, and a struggle to adapt to escalating risks. Each scenario offers unique challenges and opportunities, from exclusionary pricing and regulatory complexities to enhanced customer trust and climate adaptation investments. The scenarios collectively underscore the need for flexibility, collaboration, and innovation.   The Rise of AI: Transformation and Paradox Artificial intelligence is poised to become the cornerstone of insurance transformation. Insurers are "cautiously optimistic" about AI's potential, with nearly half focusing on reducing underwriting and operational costs. Yet, as AI adoption accelerates, it brings a paradox: while it unlocks new opportunities, it also introduces new risks and ethical dilemmas.   What Is AI and Why Now? AI is defined as the science of designing computer systems to support and accelerate human decisions and actions. Unlike traditional automation, AI augments human capabilities, enabling the processing of vast data sets, complex calculations, and real-time decision-making. The convergence of mature compute power, abundant data, and advanced analytic models has made widespread AI adoption feasible—especially in data-rich sectors like insurance (for more on AI, you can read this explainer page).   Human-Machine Collaboration While machines excel at data processing and automation, humans contribute intuition, creativity, and empathy. The future belongs to "Human AI Teams," where people and intelligent systems work together to optimize outcomes. As the industry faces a looming talent gap—with nearly 50% of insurance professionals expected to retire in the next 15 years—AI offers a way to expand capacity and deliver better customer experiences.   Blueprint for the AI-Driven Insurer SAS proposes an "AI Blueprint" founded on eight pillars: AI foundation, data management, AI/ML innovation, enhanced operations (xOps), implementation, adoption, governance, and industry-specific solutions. Success depends on the interplay of people, processes, and technology. A responsible approach to AI—anchored in principles of human-centricity, inclusivity, accountability, transparency, robustness, and privacy—is essential to build trust and deliver value.   AI Use Cases: Real-World Impact AI is already delivering measurable benefits across the insurance value chain. Examples include: Dynamic Actuarial Modeling: Machine learning models drive smarter underwriting and customer segmentation, leading to millions in savings and higher sales, as demonstrated by Neova Sigorta. Automated Claims Handling: HUK Coburg, Germany's largest car insurer, uses AI-driven decisioning to streamline claims, reduce costs, and enhance customer satisfaction (and notably, they also operate HUK24, a completely digital insurer, with SAS). Fraud and Identity Management: CNG Holdings leverages AI to reduce fraud-fighting costs by 30%, improve straight-through processing to over 90%, and minimize false positives. Synthetic Data for Risk Modeling: Canadian insurers use generative AI to model rare events and supplement scarce data, improving accuracy and reducing costs (learn more about synthetic data here). IoT and Predictive Analytics: The StaSASticians, in collaboration with SAS, developed a heat-stroke prevention system using real-time IoT data, enhancing worker safety and regulatory compliance. Disaster Management and Public Services: Jakarta Smart City utilizes AI and analytics to deliver real-time flood and emergency updates, winning international recognition for resilience innovation. These cases highlight AI's versatility—from pricing and underwriting to fraud detection and public safety—demonstrating that AI is not a distant future, but a present-day driver of transformation.   Emerging Priorities and Challenges in AI Adoption While 70% of insurers use traditional AI, only 7% are at the "transformational" stage. The top challenges cited include decentralized data foundations, lack of data governance, and shortages of specialized AI personnel. To address these gaps, insurers are prioritizing skill development, AI literacy, and the creation of strategic AI roadmaps. Governance, data privacy, and ethical considerations are paramount, especially as generative AI becomes more prevalent (learn more in SAS’ Data and AI report from IDC here).   The Value and Risks of Generative AI Generative AI is expected to add $50–70 billion in value to insurers, especially in marketing, sales, and customer service. Yet, data privacy (75%), security (73%), ethical implications (59%), and governance (52%) remain top concerns. Insurers must balance innovation with robust safeguards to protect customer trust and comply with evolving regulations.   Regulatory Landscape and Industry Leadership As AI regulation matures globally, insurers must align with a complex web of requirements across jurisdictions (e.g., EU AI Act, NAIC, UK regulations). Leading insurers are investing in audit-proof ESG reporting, centralized data management, and partnerships that combine business expertise with technical excellence. SAS is recognized as a leader in AI decisioning, model risk governance, and machine learning operations.   Conclusion: From Optimism to Realization There is a non-zero chance the insurance industry will collapse by 2040. I choose a more optimistic view. However, we know the journey to 2040 will be defined by those who successfully harness AI to drive resilience, efficiency, and customer value—while navigating risks and upholding ethical standards. Insurers must embrace a holistic approach, grounded in responsible AI, robust data governance, and collaborative human-machine teams. By doing so, they can close the protection gap, adapt to new risks, and unlock unprecedented opportunities in a rapidly changing world.   For more information and insights, visit SAS at www.sas.com/insurance.   This article is based on insights from the Economist and SAS and was written with the help of Generative AI.   ... View more