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**German Insurers Navigate Challenges in 2021**
In the ever-evolving landscape of the insurance industry, German insurers faced a multitude of challenges in 2021. Climate-related natural disasters, mental health claims, cyber insurance, and the ongoing impact of the COVID-19 pandemic, coupled with rapid digitalization, have significantly shaped the industry's strategic focus.
1. **Climate and Natural Disaster Risks**
The devastating flood disaster in Germany's Ahr Valley served as a stark reminder of the country's inadequate preparedness for extreme weather events influenced by climate change. The urgency of insuring against natural hazards has become a pressing issue, with ongoing debates about implementing a compulsory or opt-out natural hazard insurance. The German Insurance Association (GDV) has emphasized the need for a balance between state involvement and industry responsibility, cautioning against models that might reduce incentives for individual risk prevention.
2. **Mental Health and Disability Claims**
Mental health conditions have emerged as the leading cause of disability claims in Germany, accounting for approximately 30% of cases. This complex and often chronic nature of these conditions poses challenges for insurers in accurately assessing and managing claims. Innovations such as Munich Re’s "Psyche" claims initiative have been introduced to improve disability claims assessment workflows, aiming for more precise, timely, and cost-effective outcomes.
3. **Emerging Cyber Insurance Market**
The rising use of digital technologies has spurred growth in cyber insurance, a relatively new and fast-expanding market. However, insurers face significant difficulties in quantifying cyber risk exposure and accumulation, due to limited historical data and misunderstandings about coverage scope. This gap presents a challenge for the industry in providing adequate financial protection against increasingly frequent cyber threats.
4. **Impact of COVID-19 Pandemic**
The pandemic has affected insurers’ financial performance and sentiments. While insurers in Germany reported strong profits in 2021, these profits decreased in 2022 due to falling underwriting profits and investment gains amid a challenging macroeconomic environment. The pandemic underscored the importance of adapting products and risk models to new health realities and economic uncertainties.
5. **Digitalization and Technology Integration**
Digital transformation is reshaping insurance strategies through the adoption of artificial intelligence and other technologies that enhance underwriting, claims processing, and customer engagement. Insurers are increasingly integrating digital tools to improve efficiency and address emerging risks, but this also requires navigating new regulatory landscapes and cybersecurity concerns.
Amid these challenges, insurers are grappling with the replacement of mainframe computers with modern cloud computing IT. A shortage of developers with expertise in outdated systems and programming languages has led some companies to seek support from retired developers. The pressure to act in this area is increasing, as insurers incur high costs due to the conversion of IT systems.
Smaller brokers have struggled more with the shift to online advice due to the COVID-19 pandemic, while larger insurers have implemented digitalization measures during the lockdown, offering customers apps, video chats, and self-service options through online customer portals.
According to Kai-Uwe Reiter, head of insurance consulting at Sopra Steria, genuine progress in the replacement of mainframe computers with modern cloud computing IT is the exception so far. The 2021 Industry Compass Insurance Study by Sopra Steria and F.A.Z.-Institute reports that 75% of decision makers in the German insurance industry expect it to develop at least as well as the overall economy by 2023, with 41% anticipating better growth. However, only one in five brokers believes that business will develop better than the overall economy in the next two years.
In summary, German insurers in 2021 dealt with heightened natural disaster risks, complex mental health claims, and the challenges of a burgeoning cyber insurance market, all amid pressures from the COVID-19 pandemic and rapid digitalization. These factors influenced their strategic focus on risk assessment innovation, product adaptation, and collaboration with policymakers to develop sustainable insurance models.
- Other innovative insurance strategies involve the adoption of technology to improve efficiency and address emerging risks, such as the replacement of mainframe computers with modern cloud computing IT. This technological shift also necessitates navigating new regulatory landscapes and cybersecurity concerns.
- The finance sector, including insurance businesses, has been influenced by technology advancements. For instance, digitalization measures have enabled larger insurers to offer customers apps, video chats, and self-service options through online customer portals, whereas smaller brokers have faced struggles with the shift to online advice during the COVID-19 pandemic.
