What will 2025 hold for the insurance industry?

With 2024 having been buffeted by inflation, catastrophic weather, market volatility, the advent of artificial intelligence and the lackluster performance of insurtech startups, where is the industry headed in 2025?

Here are some of the key themes and changes we expect to see in 2025:

1. Increased focus on personalization with AI and data analytics

Insurers are attempting to leverage AI and data analytics to provide more personalized coverage options based on real-time customer data, behaviors and preferences. Advanced algorithms can tailor policies and pricing models to individual needs, making insurance products more relevant.  However, according to Forrester, adopting and implementing real-time AI capabilities and applications lag other items such as improving data and analytics technology usage. 

2. Regulatory shifts in climate-related insurance practices

Climate-related events and risks are receiving increased regulatory attention. Insurers are being urged to reassess underwriting practices to factor in environmental impact and sustainability efforts. At the same time, some carriers are pulling out of hard-hit markets. For agents, this means staying informed about how these regulations might affect pricing, availability of coverage and client eligibility. Advising clients on sustainable practices or risk mitigation may become a critical value-add service, especially for businesses in high-risk zones.

3. Expansion of embedded insurance models

Embedded insurance — where insurance is offered as a part of other purchases, such as with cars, travel or electronics — is expected to grow. This trend enables seamless insurance purchasing for clients but may reduce traditional touchpoints for agents. According to Forrester, 32% of global business and technology professionals at insurance firms plan to invest more in embedded finance capabilities in 2025. 

4. The path of LTC insurance

While the history of ill-conceived products has diminished the public trust in long-term care insurance, the need for such coverage is growing rapidly as baby boomers hit retirement age at a historic rate and care costs continue to rise. While states such as Washington have attempted to create a public model for coverage with its WA Cares program, a sound path for dealing with this enormous need is unclear and may eventually come down to
public-private partnerships.

5. Broadening of insurtech partnerships and integrations

 As insurtech companies continue to innovate, traditional insurers are forming partnerships to enhance digital offerings, improve customer experience and streamline claims processing. As Angus McDonald, Cover Genius CEO, put it, the American insurtech landscape has entered a “second wave” that’s all about collaboration and partnerships with traditional insurers and big-name corporations. 

6. The annuity market will continue to thrive

According to Deloitte, total U.S. annuity sales increased 23% year over year to $385 billion in 2023, led by a 36% jump in fixed annuities, to $286.2 billion. In the first half of 2024, total U.S. annuity sales rose 19% to $215.2 billion, year over year, with registered index-linked annuities and fixed-income annuities setting new records. While the Federal Reserve has begun cutting interest rates, buyers are still looking to lock into higher guarantees.

7. Can life insurance sales remain at record levels?

New annualized life insurance premiums have set a sales record in each of the past three years, while in the first quarter of 2024, both total new premiums and total number of policies sold fell a bit year over year. Deloitte points out that neither the pandemic-fueled interest that boosted mortality product sales nor the higher interest rates that drove interest in savings products are likely sustainable growth drivers. New approaches both with products and in reaching younger and underserved markets will be needed to keep the numbers up.

8. Increased integration of wellness and preventive health incentives in policies

 Life and health insurers are focusing more on wellness programs, incentivizing clients for healthier lifestyles with lower premiums or added benefits. Wearables and health apps are frequently incorporated to monitor activities and health metrics. John Hancock, for example, pioneered a new approach in life insurance, shifting its emphasis to longevity and well-being. For agents, this trend presents an opportunity to highlight these added benefits to clients, promoting policies that align with a proactive approach to health and wellness.

9. Shift toward subscription-based insurance models

Subscription-based insurance, where clients pay monthly or annually and adjust their coverage as needed, is becoming more common. This model aligns well with evolving customer expectations for flexibility and control over coverage. 

10. Rising importance of cyber insurance

With cyberattacks growing in frequency and sophistication, demand for cyber insurance is escalating, especially among small and medium businesses. Many policies are becoming more complex, covering specific threats and offering post-breach support services. Agents can capitalize on this demand by educating clients on the importance of cyber coverage, particularly in industries targeted for data breaches and ransomware attacks.