Insurers must embrace AI tools

Over the past year and a half, insurers have been pulling out of high-risk areas at an increasing rate. Nowhere is this more obvious than in California, where wildfires have become more frequent and intense — the Los Angeles conflagration in January being only the latest in a series of devastating blazes. And it's not just wildfires: the Golden State is also prone to large, damaging floods.

- PIERRE DU ROSTU

This poses an extremely complex and difficult challenge for insurance companies, which have understandably been struggling to cope. In recent months, a number of major insurers have paused new home policies in California.

But the problem is not confined to a few unlucky places. The world is facing a perfect storm of accelerating climate change, economic instability, political unrest, cybercrime, and supply-chain shocks. These interconnected threats are now more frequent and more costly. Insurers are frantically trying to continue providing coverage to their clients, as the traditional methods of assessing and pricing risk break down and the "protection gap" — the difference between insured and uninsured losses — widens. While there are no easy answers, insurers must evolve or risk becoming obsolete.

According to the European Investment Bank (EIB), every euro spent on prevention saves €5-7 in recovery costs. This points to a strong economic argument for insurers to shift their approach, by becoming active risk managers, rather than passive payers of claim risks, insurers would go a long way toward closing the protection gap.