The insurance market in 2025 has faced several challenges, leading to ongoing volatility and uncertainty. While this creates concerns for current business models, it also brings opportunities to serve both new and existing customers with innovative and differentiated offerings. As we examine the fundamentals shaping the market in 2026, we identify five dominant mega trends. Many of these build on challenges faced in previous years, but they are now they are now having a stronger and faster impact than ever before.
1. Changing Customer Expectations
The Digital-First Generation is reshaping insurance expectations, driving demand for usage-based models and mobile-first experiences. Nearly 28% of Gen Z and 21% of Millennials have switched providers for better digital services. Demographic shifts are influencing long-term savings, retirement, and protection products, alongside faster claims in P&C. Post-pandemic SME growth is fueling demand for tailored health, pension (Master Trust), and commercial lines like cyber and business continuity, requiring a fresh approach beyond traditional offerings.
2. Pricing Sensitivity
Across multiple business lines, hard prices that peaked in late 2023 are softening, putting pressure on combined operating ratios in Property & Casualty. According to McKinsey, Motor premiums have stabilized after a ~16% drop last year, while commercial lines fell ~6% year-on-year in Q2. Household insurance premiums remain high, but affordability concerns push customers to shop around. In Life & Pensions, cost-of-living challenges are prompting reduced contributions, paused payments, and spending reprioritization.
3. Impact of Cost Inflation
Inflationary pressures are driving up prices and costs as insurers navigate global challenges such as wars and tariffs, alongside domestic issues like rising inflation. Although claims inflation has eased from its 2023 peak, it still outpaces CPI due to supply chain disruptions, wage growth, and severe weather events, driving up claims fulfilment costs. Additionally, claims fraud, closely linked to the cost-of-living crisis, has reached record levels, prompting insurers to maintain substantial annual reserves.
4. The Changing Nature of Risk
Recent cyberattacks on firms like M&S and Jaguar Land Rover have spurred growth in cyber insurance and intensified focus on prevention, with insurers investing heavily in client protection services. Similar patterns appear in climate risk, where severe weather claims push insurers to cut indemnity costs. Meanwhile, delays in the electric vehicle transition have disrupted the market, leaving insurers to manage high claim costs across petrol, diesel, hybrid, and EV models. In health, life, and pensions, an aging population is driving up social care costs as the economies struggles to fund decades of retirement.
5. Continued Regulatory Burden
Our final mega trend regulation may seem less dominant than in recent years, but its impact remains significant. In pensions, we see both opportunities and challenges: growth driven by local government fund consolidation and rising stakeholder pensions for SMEs, fueling Master Trust, Bulk Purchase Annuities and Pension Risk Transfer. Challenges include concerns over reinsurance driving regulatory capital arbitrage in a market attractive to private equity partnerships. In addition, taxes (and capital gain taxes) impacts personal lines and savings and retirement, where addressing vulnerable customers and ensuring fair value remain complex and costly.
How Insurers are responding to these challenges
Trends in 2026 largely represent a continuation and in many ways, a doubling down of those seen in recent years. As such, insurers are well-versed in the levers they will need to deploy to address these challenges.
1. Focusing on Cost Control
Insurers aim to cut cost-to-serve by accelerating digital transformation in Customer Service, Claims, and Complaints through self-service, straight-through processing, and low-cost locations. In underwriting, pricing, and claims, data-driven decisions and better tools reduce time and errors. While technology drives efficiency, IT costs remain high. Insurers are modernizing core systems, data infrastructure, and AI platforms. The increased adoption of cloud and shift to SaaS is underway, with growing emphasis on cutting tech operations costs and legacy debt. There is an increased trend in captive outsourcing, Global Capability Centers (GCC) and productivity improvement using cloud and AI capabilities.
2. Optimizing Customer Value
Market pressures make attracting, retaining, and cross-selling harder. Insurers are leveraging AI and data to improve underwriting risk, pricing profitability, and customer experience through advanced chat and digital tools. Effective triage ensures high-value tasks get human attention while automation handles low-value transactions, creating frictionless, cost-efficient processes.
Wipro partnered with a leading life insurer to build a digital ecosystem that enabled the launch of a simplified life insurance product. The approach focused on enhancing customer experience through streamlined processes and advanced technology, driving growth and operational efficiency.
3. Product and Service Innovation
Demand for personalization and complex risks make innovation critical. Speed to market now rivals cost-to-serve and premium growth in importance. High-growth areas like SME and next-wave Cyber Insurance are “land grab” opportunities requiring early, well-priced products. In competitive sectors like Auto/Motor and Household, innovation drives retention and value. Savings and Retirement insurers are targeting young savers with gamified financial planning and life-stage propositions to influence behavior.
Wipro’s Intelligent Underwriter solution leverages AI and automation to streamline risk assessment, improve pricing accuracy, and accelerate underwriting decisions. It helps insurers enhance efficiency while reducing operational costs and improving customer experience.
Wipro’s Claims Transformation approach focuses on digitizing and automating claims processes to deliver faster settlements and improved transparency. By integrating advanced analytics and AI, it enables insurers to reduce cycle times, enhance customer trust, and optimize operational performance.
4. Market Consolidation and Business Model Simplification
2025 has seen major consolidation: Aviva-DLG merger in Personal Lines, HSBC selling its Life book to Chesnara, and Ageas acquiring eSure. Intact (RSA UK) rebranded and exited personal lines to sharpen focus. Insurers are simplifying operating models, rationalizing core systems, and streamlining architecture to cut costs and boost agility.
Wipro secured a £500M strategic deal with Phoenix Group to modernize its IT infrastructure and enhance digital capabilities. The engagement aims to simplify operations, improve agility, and accelerate transformation in the UK insurance market.
How AI Will Change the Game in 2026 (and Beyond)
Insurers are accelerating their shift toward becoming AI-powered enterprises—a trend that has seen a major step change over the past 12 months and is poised for significant growth in 2026 and beyond.
1. Technology-First Strategies
Over the last 18 months, insurers have doubled down on AI-driven IT services and infrastructure operations, as well as its use across the SDLC. These non-customer touchpoints improve efficiency while enabling experimentation and establishing governance to ensure safe value creation.
2. Co-Pilots, Advanced Chat, and AI/ML
Insurers are embedding advanced AI chatbots into policy servicing and claims, adopting co-pilot technologies, and leveraging intelligent document processing to drive straight-through processing. Gen AI enables quick summarization of complex data and draft outcome generation, improving productivity, reducing turnaround times, and minimizing errors. Agentic AI solutions, combined with customer journey design, deliver strong ROI.
3. Prescriptive Analytics and Digital Decisioning
Beyond cost and process efficiency, prescriptive analytics, especially within Agentic AI, helps optimize decision-making in underwriting and claims. As adoption grows and governance strengthens, expect more “pure digital decisioning” for simpler processes. Sentiment analysis and advanced data interpretation will enhance customer outcomes, boost efficiency, and improve profitability.
