How finance and insurance can unlock innovation and ensure resilience through smart regulation

The global insurance and finance industries will be instrumental in addressing the increasingly complex array of challenges and risks the world faces as we enter the second quarter of the 21^st century. These range from adaptation to climate change, heightened geopolitical risk, countering new cyber threats and managing increasing longevity. The common thread that runs across these disparate challenges is establishing new means to increase resilience. Another golden thread is the possibilities provided by new technologies and business models developed by insurers that may provide the solutions needed to meet ever increasing demands.

These themes were explored at a recent TheCityUK and World Economic Forum cross-disciplinary workshop convened in London, supported by the Streamlining Services Initiative. At the workshop, insurance and finance leaders shared their insights about the solutions their industries are developing to contribute to this effort. Participants also emphasized the necessity of building deeper partnerships between industry and policymakers. Policy, regulation and cross-border cooperation must collectively enable innovative technologies and business models to achieve their potential.

Insurers and policymakers have long been concerned with the need to address the growing global protection gap – the difference between insured and uninsured losses. A key issue is how to deliver effective insurance services that meet today’s challenges. If affordability cannot be assured, premiums will rise to inaccessible levels or insurers will withdraw from covering certain risks altogether.

Harnessing technology and innovation are central to improving efficiency and reducing costs. After natural disasters, drones are now deployed to assess damage quickly and safely, even in areas that are difficult to access. Integrating satellite data—which offers extensive and historical coverage—with the granular, real-time information generated by drones, enables insurers to perform more comprehensive risk assessments. This innovative approach accelerates payouts to policyholders and enables them to rebuild their homes or businesses quicker.

Meanwhile, as traditional property insurance grows costlier and less accessible in high-risk areas vulnerable to natural disasters, the development of parametric insurance products offers a potentially promising alternative. Unlike conventional policies, parametric insurance quickly pays out based on set triggers, such as storm category or wind speed, rather than lengthy loss assessments. This reduces underwriting and adjustment costs, making coverage more affordable. At the same time, specialist insurance markets that exist specifically to cover tougher risks such as severe weather-exposed properties are continuing to grow.

However, greater efficiency alone is unlikely to be sufficient to meet the increasingly complex challenges societies face. Therefore, many insurers are redefining their role. Instead of simply responding to disasters and losses, the industry is moving towards prediction and prevention to help mitigate risks before they materialise.

AI and predictive modelling is a huge opportunity to shift from reactive to proactive strategies to predict failures, fraud, cyber threats and automate responses. To fulfil this potential, there is a need for data collection and analysis at a global level. Increasing regulatory fragmentation and demands for data localization are impeding the free flow of the very data central to proactive strategies.

The adoption of AI across the financial services industry and wider economy is also creating new risks to manage. For example, there are increasingly difficult questions surrounding liability for errors made by AI systems. AI also carries its own vulnerabilities: it is likely to increase the sophistication and volume of cyber-attacks, but it also brings benefits, providing new tools to defend against such risks. Cyber, too, is emerging as a systemic risk that carries its own challenges.

More broadly, insurance, in collaboration with the wider finance industry, is a critical enabler of growth, transition and resilience, particularly by de-risking investment.

Climate finance initiatives have often overlooked the role of insurance. But capital cannot be deployed in support of climate adaptation solutions unless the initiatives being funded can be insured. For example, insurance has been developed to reduce the costs of capital and address the financing challenges of carbon capture and storage projects, which have a complex risk profile as new value chains are established. The multifaceted role of insurance is central to its strength as a resource to be deployed.

While the industry stands ready to expand its expertise and impact, it must contend with a range of regulatory barriers. Some are long-standing, arising from regulation not being attuned to new types of risk. But other, newer, barriers threaten much needed competition in the global provision of solutions. This new generation of regulatory barriers can be grouped into thematic “buckets” illustrating areas where cross-border regulatory divergence is growing:

To address these challenges, governments and regulators must work alongside the insurance and finance sectors to harmonise approaches across jurisdictions and reduce unnecessary regulatory complexity.

Unlocking the full potential of the insurance industry to address complex, long-term challenges will require commensurate policy consistency and predictability, over visionary timescales that many governments are not typically used to. Short-termism will not do, because lack of long-range policy predictability and consistency will not provide the investor confidence that is required.

The time for action is now. By fostering greater international cooperation and aligning frameworks, policymakers can help create a more predictable environment that encourages innovation, investment and the effective deployment of insurance solutions on a global scale. Only through such coordinated efforts can the industry fully leverage its capabilities to support resilient, sustainable growth. If these gains can be captured early, we can be optimistic that they will help provide the security and stability required for societies to thrive in an increasingly uncertain world.