The past 12 months has been a mixed bag for the insurance and automotive sectors alike.
Both remain constrained by the global supply chain disruptions that have been prevalent for a couple of years, leading to increased repair expenses, parts shortages, and longer repair times, contributing to premium hikes.
For insurers, rising premiums have been jumped on by the regulator, which has the insurance market in its sight for scrutiny, following the introduction of fair pricing rules in 2022.
This has seen the insurance industry embrace digital technologies such as telematics as a way of bringing policy prices down. Car brands, likewise, have shown a keen interest in new technologies as seen by the rise of embedded insurance.
So, what does 2025 bring? Here are our top predictions.
ML investment will grow as decentralised models emerge
Insurers are actively investing in and scaling machine learning (ML) in pricing, with ML-driven rating engines, dynamic pricing, and analytical underwriting transforming the insurance landscape and enabling more accurate pricing. These solutions are particularly impactful in motor insurance, a competitive and data-intensive sector, enhancing insurers’ ability to stay ahead.
However, centralised ML models, designed for mass-market policies, face challenges when applied to affinity or branded programmes. These programmes often involve unique risks, scale, distribution methods, and customer profiles, with many partners contributing proprietary datasets to refine pricing and underwriting. This shift is driving the adoption of decentralised ML approaches tailored to these programmes, moving beyond one-size-fits-all models.
Hybrid frameworks are emerging, combining centralised models for baseline pricing with affinity-specific models that integrate partner data to address bespoke needs. This approach balances consistent underwriting logic with the flexibility required for programme-specific nuances, essential for managing affinity programme complexities. The rise of decentralised models reflects insurers’ increasing collaboration with affinity partners to enhance scalability and profitability. Partner-specific data is now critical for branded programme success, highlighting ML’s role in managing bespoke risks and maintaining competitiveness in a personalised market.
While GenAI garners attention and investment in areas like customer care and claims, the real momentum is expected in the transformative potential of ML-based rating and underwriting models at scale.
Adapting to new regulations will be imperative
The regulatory landscape for insurers has remained relatively steady in recent years, with changes like Consumer Duty bringing incremental adjustments. However, emerging regulations may necessitate adjustments across the entire insurance value chain.
The UK Data Use and Protection Act is expected to encourage greater transparency, cooperation, and best practices. The alignment of UK GDPR/DPA with PECR enforcement may lead to increased compliance responsibilities, particularly in electronic communications and marketing, as penalties align with GDPR standards.
In addition, larger insurers may face new challenges as the EU’s Financial Data Access (FiDA) regulation and Artificial Intelligence (AI) Act shape the regulatory framework. FiDA aims to drive open finance through data sharing with third parties, fostering innovation and personalised services while requiring investments in governance and security. Meanwhile, the AI Act’s emphasis on transparency and accountability in AI usage may prompt refinements in insurers’ rating and underwriting models. Where some elements of this new act don’t align with UK regulation, a new post-Brexit issue could rear its head.
These trends suggest that all players in the insurance value chain must adopt agile, tech-driven, and collaborative strategies to balance regulatory demands with innovation and remain competitive in a dynamic market.
The macro economic environment will bite
Insurance and automotive sectors were both hit especially hard by COVID-19 and have had to make tough decisions since, in the face of inflation, rising manufacturing costs and a downturn in consumer spending.
This past year has seen some recovery but 2025 looks like it will be a bit choppy, with a reintroduction of global inflationary pressure. Coupled with credit lending rates remaining relatively high, the automotive sector may see some market disruption as it struggles to finance innovation.
What is crucial for them is that they take an ‘investment’ approach. Rather than putting ‘expensive’ projects on hold - such as developing an embedded insurance offering, they view the spend as a short-term outlay that has the potential to make back what it costs many times over. The other side of the coin is that they don’t do this, and are beaten to the punch by a competitor brand. The key to making this work is to find the right partners that can support them, looking to trusted insurers and industry-leading platform providers to efficiently bring solutions to market that genuinely meet customers’ needs.
Sustainability will remain on the agenda
The automotive sector remains under pressure to lead on sustainability. Investment in green technologies like EVs and hydrogen fuel cell engines is advancing, with major brands planning more affordable hybrid and EV models in 2025. These efforts aim to broaden access to sustainable options and align with growing consumer demand for environmentally friendly choices.
However, EV adoption is lagging behind OEM and government expectations, creating challenges in meeting electrification and sustainability targets. Slower uptake is straining production timelines, stalling infrastructure development, and forcing OEMs to recalibrate their investment strategies, a trend that will shape the market in 2025.
For insurers, adapting to sustainable vehicle technologies is urgent. Policies must address untested risks like battery safety and repair costs while meeting Consumer Duty requirements for personalised coverage. Yet, slower EV adoption adds complexity, as traditional vehicle data still dominates risk models. This delay hampers the ability to gather meaningful EV risk data, increasing uncertainty and complicating pricing and underwriting. Bridging this gap will be essential and challenging for insurers to remain competitive as the industry shifts toward greener technologies at its own pace.
Product suites will become crucial
Customer-centricity is often touted as a key priority for all organisations operating in the insurance sector, which is inherently a consumer experience sector.
But saying it, meaning it and actually being it are three totally different things. This will come into sharp focus in 2025, which will bring a soft market with greater competition and a tightening of margins.
The race to win new customers therefore, will be critical to the success of both insurers and automotive brands that offer their own insurance product. The very nature of branded, embedded insurance is that it is built with the end-user in mind, for a slick and seamless experience with a brand they already know and trust. This can give auto companies an advantage to selling insurance products, as a consumer buying a car already has some brand affinity.
But to hold that advantage, insurance offerings will need to be examined through a holistic lens. Consumers want consistency and the days of hosting a product on one platform and another product on a separate platform are numbered. A single product suite will cut the headache for auto brands who will be able to refocus on delivering a truly special experience that is backed by a seamless digital offering.