Fundamental disruptive forces are driving monumental changes in the global economy at an unprecedented rate. These forces compel the (re)insurance industry to adjust to the new reality and capitalise on the opportunities created.
Four major disruptive trends - expanding urbanisation, technological advances, increasing connectivity and an ageing population - are accelerating change in the foundations of the global economy at a faster pace than at any time since the industrial revolution.
Rapid urbanisation is occurring in emerging markets, shifting ascendancy in the global economy towards territories in the East and South.
The world's urban population is expected to grow by 50 percent to more than 6 billion by 2050 as the rural population shrinks. By 2025, almost half of the companies with revenues in excess of $1bn will be headquartered in markets such as Mumbai and Shanghai, along with rapidly expanding hubs such as Hsinchu in Northern Taiwan and Santa Catarina State in Brazil.
Cities rely on infrastructure, infrastructure relies on investment and each relies on insurance. It is estimated that $43tn will be invested in urban infrastructure between 2013 and 2030. This presents a huge opportunity for insurers.
Technological change is accelerating in scope, scale and economic impact. Processing power, connectivity and the vast amounts of data now available are disrupting almost all forms of activity. The very fast pace of change is reducing the life cycles of businesses, products and services and forcing enterprises to act faster.
These changes can be unsettling, but as new risks emerge, opportunities to transfer risk follow. As the insurance industry harnesses the data and new technology, its ability to understand, measure, monitor and price risk significantly improves.
Concomitant with technological change is the world's increasing hyper-connectivity in everything from trade and capital, to the movement of people and transfer of data. The surge in technology-driven connectivity is spawning a new phase of globalisation full of opportunity, but which equally brings greater exposure to rampant volatility, interruption and malicious attack.
The world's ageing population is the fourth disruptive phenomenon. For example, as Europeans' lifespans increase and they have fewer children, the share of people aged 65 and older is projected to double from 16 percent in 2005 to 30 percent in 2050. Simultaneously, the most economically active age group (25 to 64 year olds) in Europe is projected to decline to less than half the population by 2050. These trends may pressure society's ability to fund the increasing costs of retirement and healthcare for the elderly.
These waves of change are growing exponentially and impacting all sectors of society, including by sweeping away many of the assumptions, accepted truths and standard practices that have held firm for decades.
The (re)insurance industry, faced with a rapidly changing world, must re-evaluate its role and recognise that the traditional business model is not designed to meet the demands of this new environment, even though it may continue to generate revenue.
The (re)insurance sector must also recognise the potential threats and opportunities for innovation these changes create for the industry.
The primary insurance product is becoming increasingly commoditised, while digital firms and service providers are beginning to supplant the role of the (re)insurer. New technologies are reducing the need for certain forms of cover and in some cases making them potentially obsolete. All of these factors are combining to diminish the role of the insurer.
To continue to add differentiated value, the industry must acknowledge that fundamental change is required and actively seek out the opportunities these forces create in their wake. The industry can no longer rely on applying past lessons to prepare for and manage the future - the pace of change is simply too fast and the level of disruption too great.
We must innovate, change and adapt, as well as seek opportunities to work in tandem with leaders in other markets, such as "fintech" companies. (Re)insurers need to embrace this period of transformation, boost the potential it creates and redefine their future role and relationships with clients.
(Re)insurers have to move beyond standard insurance parameters into new growth areas both in personal and commercial lines. We have already witnessed the potential created by cyber, and that will grow exponentially as the world becomes increasingly dependent on e-commerce and cloud computing.
We must seek out opportunities to help reduce the unsustainable public sector debt levels generated by an ageing population by seeking to expand involvement in long term care. We must look to support (re)insurers by providing the secure platform that serves as a springboard for innovation.
For every industry transformed by disruptive forces, the net result has been growth. It is up to the (re)insurance sector to grasp the myriad opportunities this environment creates and drive the industry transformation that needs to take place.
Victoria Carter is vice chairman of international operations at Guy Carpenter.