Authored by John Bowers, Actuarial Product Director, RNA Analytics
We discussed how, following the pandemic, remote and digital work practices would become foundational, enabling new levels of collaboration. To support operational and strategic success in this evolving landscape, we recognized that processes would need to adapt, and that fresh solutions would be necessary.
For the insurance industry in particular, the digital transformation has been profound – across the entire insurance ecosystem. In modelling specifically, techniques and solutions have needed to evolve fast to keep pace with changes in the global regulatory and standards landscape – be it in insurance accounting, capital adequacy, solvency, reserving, pensions or health.
In 2025, tools must continue to be flexible enough to address the shifting goals of regulators around the globe, for instance, as we have seen with the latest iterations of Solvency II in Europe and the UK; and the changing needs of insurers falling under J-ICS, as expectations of Japan’s Financial Services Agency evolve. To address ever-widening and more complex regulatory demands, only tools that are developed in such a way that they can quickly respond to trends will suffice.
Similarly, in the arena of climate risk, a flexible approach will be crucial for risk and capital modelling, given the shifting landscape of climate and liquidity testing reforms. When it comes to climate change, insurers face a unique risk profile, being exposed to climate-related risks on both sides of the balance sheet. This is as true for property and casualty insurers as for life insurers, both of which should be closely monitoring developments in the climate space over the coming year.
Amongst the most significant upcoming developments is the Taskforce on Nature-related Financial Disclosures (TNFD) Framework, which will be central to industry discussions in 2025. Modelled on the Task Force on Climate-related Financial Disclosures, the TNFD encourages companies to incorporate nature into their decision-making, aiming to redirect financial flows away from nature-negative impacts.
Amongst the complexities brought about by the TNFD are the introduction of the concept of ‘double materiality’, which necessitates the identification of risks and opportunities for mandatory and voluntary disclosures. Double materiality requires organisations to disclose both how nature may impact their immediate financial performance, as well as how their operations impact nature – demanding, in turn, novel approaches to modelling techniques.
An element of ‘double materiality’ will be seen in the impact of AI and data science on insurers and actuaries over the coming year. While both open up a world of opportunities for actuaries in all fields, constantly increasing sources of data and the ever-expanding capacity of AI and data science tools bring about major shifts in risk profiles and appetites – and, as a result, modelling demands. The operational efficiencies driven by the ongoing global digital transformation are set to yield tangible benefits in 2025. These gains will extend to both companies heavily impacted by regulatory pressures, and those facing fewer compliance demands. For example, as systems and solutions introduced for IFRS 17 compliance stabilise post-implementation, the resulting operational savings and strategic advantages will become clear, delivering measurable value and long-term dividends.
As it rises to the challenges of the new year, the insurance ecosystem has a crucial role to play in ensuring that innovation does not come at the expense of ethics and societal well-being. In the coming year, regulators, insurers and technology providers will collaborate to address these new challenges, perhaps making historic strides toward common goals. And when, in a year’s time, we once look back to look forward, we hope to demonstrate that we, too, have been a positive force for change in a world of rapid evolution and rising global expectations, as the industry cuts a path towards a more sustainable and resilient future.
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