“Enjoy it while you can” might be the catchphrase for the insurance industry in 2025. Insurers had a strong year, with premiums growing above historical trends across most business lines. Profitability improved as well. This recent performance is largely cyclical, however, and not indicative of long-term health. Insurers face major strategic challenges ahead—namely, turning technology, distribution, and capital innovation into structurally lower cost of risk and superior long-term value creation.

Premium growth during the year was expected to exceed that of the past decade in every region except South America and across property and casualty (P&C), life, and health (see Figure 1). Because of reporting lags, full-year 2025 data has not yet been released in many countries.

By region By category

Figure 1

Figure 1

• By region
• By category

Figure 1

Figure 1

Profitability rose as well. P&C businesses benefited from rate increases and a benign year for catastrophe losses (see Figure 2). In the life business, positive underlying factors included a favorable interest rate/capital markets environment along with an aging population that increases the need for guaranteed-income products.

Figure 2

What lies behind investor skepticism

Among publicly traded insurers, shareholder returns lagged broader equity market indices in 2025, with the MSCI World Insurance Index 2 percentage points lower than the MSCI World Index (though insurance stocks in Europe outperformed the broad European market by 11 percentage points). And investor skepticism persists because the industry’s structural challenges remain unresolved. Investors generally expect a decline in value growth beyond the next 18 months (see Figure 3).

Figure 3

The industry faces three major challenges: difficulties around affordability and access, digital gains that don’t translate into economic advantage, and fragmenting value chains.

Difficulties around affordability and access: P&C coverage has become less affordable for many households, especially on the heels of a multiyear hard market that drove up rates in home and auto lines.

In life markets, access has diminished as both product complexity and the up-market migration of advisers have created a significant gap in advice. Over the past decade, life penetration has been flat or declining (see Figure 4). Yet while ownership of retail life insurance has declined, consumers’ self-reported need for protection has increased, a recent US survey by Bain and LIMRA found. Commonly cited barriers include lack of accessibility to straightforward information and difficulty finding a trusted financial professional.

Figure 4

Digital gains that don’t translate into economic advantage: Customer allegiance has improved for many insurers in some regions such as Europe, especially large companies that can use data and technology to produce higher-value customer engagement. But that’s not always translating into favorable behavior. For instance, the levels of switching providers in US home and auto policies has ticked up in recent years.

As with other industries, insurers are accelerating their investments in AI, largely focused on productivity and cost reduction. But while direct written premiums doubled over the past decade, expense ratios dropped by only 1 percentage point. One possible leading indicator of change may be a nearly 50% decline in hiring since 2022, which has touched all functions (see Figure 5).

Figure 5

Fragmenting value chains: Fragmentation is playing out along a few dimensions. First, balance sheets are becoming more separable from the rest of the business. Reinsurance continues to outgrow the broader industry, with 28% premium growth from 2019 through 2024 (including sidecars and insurance-linked securities) vs. 24% for the industry as a whole.

US asset managers have more than doubled their share of fixed annuity sales since 2018, and there is opportunity for further capital relief in asset-intensive life and annuity lines as more alternative asset managers pursue insurance balance sheets as a source of permanent capital. In P&C, there is an opportunity to increase capacity and de-risk as recently illustrated by the emergence of catastrophe bonds for data center risks.

Another dimension involves distributors consolidating power and AI enabling new models. Despite recent questions about AI’s threat to distribution, investors continue to view distributors favorably vs. carriers (see Figure 6). In addition, a large profit pool is accreting around technology service providers for core systems, AI, and data. This group of companies will likely continue to outgrow the insurance industry as AI augments and then, in some cases, replaces labor and traditional IT assets.

Figure 6

As insurance unbundles, carriers can no longer assume that they will retain the industry’s most attractive profit pools. Those companies that lower the cost of risk and adopt AI in ways that increase access and affordability will be better positioned to create long-term value.

Four levers to realize the opportunity

Contrast the slow, steady growth in insurance with the explosive expansion of finance over the past 30 years as the latter decoupled from economic growth (see Figure 7). While not all this expansion was an unalloyed benefit to customers and society, the persistence of large protection gaps suggests that there is room for the world to buy more protection (see Figure 8).

Figure 7

Figure 8

Realizing this opportunity will require lower-cost, more affordable solutions combined with increased value for customers. Fortunately, rapid and broad-based advances in technology, data, and analytics have the potential to deliver both. These advances can help address the four main components of the cost of risk: claims loss prevention; AI-enabled policy acquisition, customer advice, and distribution; operating expense productivity from agentic AI; and alternative capital.

Claims loss prevention: The industry has dabbled in loss prevention at a relatively small scale. The business case for investing here becomes more compelling as the cost of interventions falls and the ability to target better with data and analytics improves. Claims costs could fall by 10% to 20%, we estimate, through technologies such as automatic emergency braking in cars, residential sprinklers, smart home protection, storm-hardened construction, and wearable devices that monitor health.

AI-enabled policy acquisition, customer advice, and distribution: Insurers have long contended with a scarcity of trained and productive advisers for guidance on complex products. This group is retiring faster than it is being replaced. As AI tools to support adviser productivity advance, a breakthrough would be personalized digital advice combined with AI-enabled customer engagement, providing on-demand, infinitely scalable growth in advice. This capability even holds in commercial lines, in which agentic AI expands placement reach with lower cycle time and cost.

Operating expense productivity from agentic AI: Broader agentic AI deployment will transform administrative tasks and claims adjustment. That will free up advisers to spend time more effectively with clients. But the transition may not be a straight line as the composition of operating expenses shifts from labor expenses to token expenses. People are easy to see and count in HR systems; token costs are more hidden but expensive in the aggregate. Insurers will need to develop tools to track and manage the new type of expenses.

Alternative capital: The rise of securitization over the past 50 years helped transform lending into an investable asset class. Today, investors increasingly seek access to insurance as a source of uncorrelated yield, but insurance securitization markets remain small despite more capital flowing into reinsurance sidecars. Increased standardization would help bring new capital into the market and enable better matching of risks with the appropriate owners.

In each of these areas, insurers have an opportunity to reduce costs/improve profit margins, pass along savings to customers via price cuts, and invest in features and offerings that create more value for customers. While it makes no sense to cut prices in highly penetrated markets where demand is inelastic, insurers should target cost-driven price cuts at the most elastic markets to grow revenue there. Where the effect of price cuts alone is muted, insurers may need to invest in providing additional value and better distribution. While these areas may be small today compared with mature lines, some of them, such as cyber insurance, could become quite large.

New models are emerging, and not all incumbents will win

The future landscape we describe is admittedly speculative. Solving these challenges, however, would reap massive rewards for companies and customers. It’s worth asking what the consequences would be if these changes do materialize, and who would reap the benefits.

• Will today’s integrated insurers continue to lead, or will other competitive models arise? We can glimpse at least three viable models: firms that focus on distribution and product, firms that run operations and servicing, and firms that manage the balance sheet, both capital and asset management.
• If activity splits in this way, will we see more monoline and focused product models in some countries? Or will firms that excel at distribution and customer propositions and that can be more selective about which risks to retain broaden their focus across insurance lines? Insurers that become particularly adept at refining data to match price to risk would reduce their need to rely on a portfolio approach to balance risks.
• Will structuring and securitization deepen the convergence of market and insurance risk? If so, will asset managers or insurers lead the charge?

The industry posted a good year in 2025. Now the question is which companies will turn today’s momentum into structurally better economics and durable long-term advantage.