Insurance plays a significant role in society. Insurance companies are among the largest investors in Finland. They are pioneers and promoters of risk management, continuously assessing evolving risks and responding to them as necessary. Nearly every Finnish citizen is insured.
As the world changes, so does the insurance sector. The entire industry is undergoing a major transformation as we speak: various megatrends, such as digitalisation and changing consumer behaviour, are reshaping the sector, bringing both opportunities and challenges. The insurance sector is also influenced by the economic and political environment, technology, environmental factors, regulation and supervision, as well as broader societal developments.
The future of Finnish insurance business is under threat. At the moment, Finnish insurance companies hold a dominant market share in Finland. However, in the future, European Union integration will facilitate the entry of foreign insurance providers into the Finnish market. New types of operators offering insurance-like services or operating in adjacent areas are expected to emerge. For example, peer-to-peer insurance is anticipated to play an increasingly important role. Peer-to-peer insurance involves the diversification of risk, with the aim of decentralising the financing and administration of insurance companies.
Technology
Technological development offers many benefits to both consumers and industry operators. The advancement of digitalisation and Big Data enable more precise customer profiling. For consumers, this means broader coverage and pricing that better reflects individual risk. However, technological development also presents risks concerning data protection and privacy regulations and challenges related to the availability of insurance – for instance, a customer may perceive a policy as too risky or its price may become unreasonably high.
Environment
Environmental factors and climate change are reshaping the insurance sector on a global scale. Urbanisation also has a direct impact on insurance. According to a United Nations projection, 66% of the global population will live in urban areas by 2050, and the overall insurance risk landscape is already shifting towards “urban risks”. In the future, insurance coverage and insurability may be affected by the location and pollution levels of a city. For example, climate-related risks threatening urban areas in coastal regions may become significant.
Economy and politics
From an economic perspective, the greatest challenge for insurance in the future is the fluctuation of interest rates. In recent years, interest rates have been exceptionally low, which affects the calculation of pension liabilities, for example. Current pension liabilities have been calculated based on the assumption of higher interest rates. If low interest rates persist, society may face considerable difficulties in financing these obligations.
Society
Increasing life expectancy and population ageing place pressure on both the insurance and pension systems. One of the significant challenges is the rising dependency ratio, which means the proportion of dependent people is growing faster than the working-age population. The number of pensioners will increase, and pensions will have to be paid much longer. This puts a strain on the solvency of insurance companies. It is estimated that by 2030, the share of the population aged 60 years and over will increase from 1 billion in 2020 to 1.4 billion. Pension systems have already begun to adapt to demographic changes by transitioning to contribution-based models, raising the retirement age, and implementing balancing mechanisms designed to adjust pension benefits in line with economic sustainability.
Nevertheless, demographic change also presents opportunities – particularly in the area of health insurance. A key challenge remains the management of longevity-related risks. Insurance against terrorism has also become a topic of discussion in modern insurance. The damages caused by terrorism can be substantial – for example, the estimated insurance loss from the 9/11 terrorist attacks in the United States was $40 billion. Many insurance companies have already incorporated terrorism-related clauses into their policy terms.