Editor's note: This item has been excerpted with permission from the "Insurance revenue landscape 2025: Innovate for resilience" report.
Insurance industry activity is historically tied to GDP with increasing asset ownership or asset usage driving greater demand for insurance coverage. Our projection of $1.4 trillion in global industry growth is consistent with forecasted increases in global GDP.
We expect $1.2 trillion of the $1.4 trillion in expected growth to come in existing products, which may give the false impression that staying the course is a viable plan. But insurers can no longer rely on the familiar products, channels, and historic retention rates to drive profitability long-term. Rising costs, volatile markets, and increasing consumer demand for digital services show no sign of abating.
Almost half a trillion dollars ($480 billion) of the $7.5 trillion in GWP expected in five years, or approximately 7%, would be heavily impacted by innovation. We anticipate $200 billion from new risks, product offerings, and services; $140 billion in existing revenues impacted by product innovation; and $140 billion in shifting placement channels.
Of the $1.4 trillion in expected industry growth over the next five years, approximately 15% ($200 billion) would come from new risks, products, and services. This would include new product innovation ($160 billion) and the monetization of value-added services ($40 billion). To compete for this $200 billion in revenue, insurers need to innovate in:
- New products such as technology-enabled health and wellness, auto, and home products
- Services such as financial advisory services aligned to life and health
- New revenue streams such as data monetization
The trend toward innovation-led revenue growth comes as no surprise. In our report “Future-ready insurance systems,” published a year ago, we projected that insurers assessed as innovation Leaders would see greater revenues. According to the report, “Based on a notional $10 billion in revenues for a given insurance Leader and Laggard counterpart in 2015, a 37% revenue gap is expected in 2023.”
Insurers cannot rely on historic retention rates to hold. While retention rates hover around 85% for most insurers, we are already seeing signs that personal lines retention rates may be slipping.4 According to our most recent Insurance consumer study, 20% of consumers in China (mainland) say they intend to switch insurers in the next 12 months. If that stated intent becomes reality, it will have significant impact on the market with the largest expected CAGR increase and the second largest increase in absolute growth.
We anticipate almost 5% of global premiums—approximately $280 billion—to be impacted by innovations in products ($140 billion) and shifts towards digital third-party platforms ($140 billion). With this kind of shift, insurers could see retention rates drop if they neglect to defend existing revenues through product and distribution innovation. Our report, Where’s the Payback on Digital Innovation in Insurance, has shown this to be a wise investment for insurers. Carriers in North America and Growth Markets that have seen the best financial performance also had an outsized number of customer experience and distribution-focused innovations.
Competing for the innovation-dependent 7% of $7.5 trillion in future revenues is a worthwhile effort. And carriers who compete to win will recognize that the smallest advantages can make or break a strategy.
