P&C Insurance Grapples with Rising Risks, Operational Challenges: Report

Amidst a fast-changing and complex risk landscape, successful P&C insurers should embrace risk mitigation, predictive modeling and AI tools and technology, a Capgemini report.
By: | April 17, 2024
data driven insights

The property and casualty (P&C) insurance industry faces mounting challenges amid an increasingly complex risk landscape, and operational challenges that are limiting insurer effectiveness, according to Capgemini’s World Property and Casualty Insurance Report 2024.

The Capgemini report analyzes challenges facing P&C insurers and outlines a playbook that “trailblazers” are following for more profitable growth and outstanding broker and policyholder experiences.

The global P&C insurance risk landscape is evolving rapidly as the frequency and severity of natural catastrophe events, coupled with rapid technological changes, increase risk and underwriting complexity, according to the report. These have contributed to a global P&C combined ratio of 103% in 2022, marking the third year of underwriting losses in the last four years.

Traditional underwriting models and data sources are inadequate to accurately assess and price the evolving risks associated with natural catastrophes, according to Capgemini. Legacy statistical models struggle to capture the complexities introduced by climate risks, shifting weather patterns, and the interconnected nature of global risks.

Only 27% of insurers have advanced predictive modeling capabilities, which are crucial for accurately predicting potential losses and pricing risks related to natural catastrophes, according to the report. As a result, a significant portion of the industry is relying on outdated models that fail to account for the changing risk landscape and for the speed of change in NatCat events.

Adopting more effective risk mitigation strategies not only can limit losses for insurers but also help protect customers, Capgemini contends. This approach not only enhances insurability but also promotes affordability and availability of coverage, which is one of the great challenges related to climate risks.

“Insurability challenges are driven by underlying risks, not insurance prices. Insurers, customers, and governments must jointly confront the underlying risk drivers to increase insurance affordability and accessibility,” Sean Kevelighan, chief executive officer of the  Insurance Information Institute, said in the report.

Insurers also face substantial organizational challenges that range from outdated technology systems to inefficient processes, hierarchical decision-making structures that slow down innovation, and a lack of integration across different business functions. These systemic issues, coupled with a traditional mindset resistant to change, create a challenging environment for insurers to meet customer expectations, according to the report.

In a survey of 294 insurance executives, 54% cited insufficient access to data as a top challenge, while 51% mentioned legacy systems and 47% noted a lack of skilled talent. These factors create fundamental underwriting challenges, including a lack of preparedness for rising claims and costs, limited insights, lackluster risk mitigation capabilities, and siloed underwriting operations.

Underwriters’ time allocation also poses issues. Administrative tasks consume 41-43% of their time, while core underwriting tasks take roughly 33%, leaving only about 26% for sales enablement.

“The first actionable underwriting transformation step is business simplification. Reducing process and technology complexity drives cost out of the core while providing greater agility and more usable data for rapidcycle continuous improvement,” commented Peter Settel, Enterprise Chief Strategy and Technology Officer for American Family Insurance.

Insurance leaders are optimistic about AI’s impact on underwriting for increased speed and accuracy, but underwriters lack trust, the report states. While 62% of insurance executives believe that AI will elevate underwriting quality and reduce fraud, only 43% of underwriters regularly accept automated recommendations from predictive analytics tools, citing concerns around complexity and data integrity.

A small group of underwriting trailblazers are using AI and predictive analytics to outperform other mainstream carriers. While representing only 8% of insurers, these “best in class” companies are meeting or exceeding underwriting targets for efficiency, accuracy and customer experience by accelerating their data-to-decision cycles, leveraging AI-driven insights and redefining underwriting operating models.

“The integration of human and AI insights using an array of platforms, predictive models, and visualization tools can help modern underwriters deliver more efficient and accurate risk assessments,” Massimo Cavadini, Global Leader of Insurance Solutions for Munich Re, stated in the report.

The path to becoming an underwriting trailblazer requires a clearly defined transformation journey. Insurers must design a flexible capability roadmap, develop a digital transformation plan, leverage more modular systems, and outline tangible ROI and combined loss ratio goals to get there, according to the report.

For more information about World Property and Casualty Insurance Report 2024, visit Capgemini’s website. &

The R&I Editorial Team can be reached at [email protected].

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