Note: This article has been updated with an op-ed followup to reflect how today's pandemic-related challenges have impacted these twelve trends. Visit the new blog post here:
Last year, we outlined the major trends set to disrupt insurance in 2019. We explored a variety of digital, cultural, and economic developments - from AI and blockchain to gig work and the cannabis business - and their potential impact on the industry.
While these trends will continue to shape the insurance landscape in 2020, it’s once again time to look ahead at the next set of emerging issues and challenges.
12 Insurance Challenges and Opportunities
1. The New Face of Auto Insurance
Are new business models a threat to traditional auto insurance?
Auto insurance providers continue to adapt to the changing cultural approach to personal transportation. Rideshares have created the need for hybrid personal-commercial insurance policies; semi-autonomous cars have split liability between drivers and manufacturers; and the subscription economy has produced an alternative to vehicle leases and ownership, giving drivers the option to pay an all-in-one monthly fee that combines car payments, insurance coverage, and maintenance. Additionally, manufacturer-provided insurance (such as Tesla, Porsche, and Toyota), telematics, usage-based insurance, and peer-to-peer car-sharing have all prompted the industry to develop new solutions to meet the needs of modern drivers.
As long as people are traveling by car, there will be a need for auto insurance. However, with the increased variety in pricing structures, expanded policy models, new vehicle technologies, and the blurring line between insurers, car makers, and insurtechs, an agile business strategy will be key for traditional carriers to maintain a competitive edge in this line of business.
How does telematics technology work in insurance?
The term “telematics,” at its most basic, refers to devices that merge telecommunications and information technology. Auto insurers use telematics to obtain policyholder information in real time via data transfer. Common use cases involve monitoring driving behavior, assessing car condition, and tracking mileage. The data is then analyzed to create a detailed risk profile and to calculate rates accordingly. Telematics can also be used following an event (such as an accident) to determine fault and assess damage.
Many policyholders welcome the opportunity to lower their premiums based upon their safe driving habits. But some are reluctant to hand over all their driving details in real-time - prompting several states to enact privacy statutes to protect consumers’ rights regarding telematics data. Generally speaking, insurers must obtain consent before analyzing a customer’s telematics data (although some anecdotes suggest the possibility of an ethically questionable “opt out” permission structure).
As with any innovative new technology, incorporating telematics requires a meticulous balance to ensure maximum benefits for the customer (advantageous pricing options), without undue exploitation or harm (privacy infringements).
Who covers the injured rider in cases of city-provided bike and scooter accidents?
This small-yet-mighty trend is disrupting the insurance industry as well as the roads. Regarded as one of “the fastest technology adoptions in history,” micro-mobility – a blanket term for non-car personal transportation methods, such as manually and electrically powered scooters and bikes – is surging in popularity, and has quickly become a transit staple in cities across the globe. Many cities now provide a fleet of micro-mobility vehicles for community use, both station-based and dockless.
Unfortunately, the explosion of new road-users has impacted traffic congestion, and rider injuries and fatalities are on the rise. Although riders are typically required to sign a waiver before borrowing the scooter or bike, liability issues still arise when multiple factors are involved in an accident, such as another person (e.g., automobile driver, pedestrian, other micro-vehicle rider), municipal negligence (e.g., inadequate road repairs, outdated ordinances, insufficient vehicle maintenance), manufacturer defects (e.g., faulty brakes, improper alignment), or even employers (if the rider was on a work trip or performing official duties at the time of the accident).
Whereas auto, homeowners, personal liability umbrella, commercial general liability, workers’ comp, and health insurance policies may cover micro-mobility accidents – in many cases they do not. The National Association of Insurance Commissioners (NAIC) recommends all riders obtain scooter insurance to cover collision, liability, and medical costs. Insurers will want to review the language in current policies to ensure clarity regarding micro-mobility coverage, and revise as needed. With 85,000 public e-scooters in 100 cities across the U.S., the trend offers a huge opportunity for new product ecosystems to protect the growing community of micro-mobility enthusiasts.
4. Generational Shifts
X, Y, Z… How can insurers keep up with all the generations?
Regarded as a particularly formidable and oft misunderstood generation, Millennials (sometimes referred to as Gen Y) now span their 20s and 30s, surpassing Baby Boomers in both the workforce and in sheer numbers. Together with their successors – Gen Z (now entering their 20s) – the under-40 consumer group makes up over half the U.S. population. Millennials and Gen Z have wildly different expectations of their chosen brands than previous generations, preferring companies who prioritize digital engagement and global consciousness.
Several new digital-first insurance companies have made a successful debut with this powerful age-group, but at least for now, traditional insurers still hold the majority of the market. Larger companies with vast resources have already upgraded their entire systems infrastructure to provide a cross-generational appeal. However, because a complete core system replacement is often cost-prohibitive, most companies are instead taking a step-by-step approach to modernization. These insurers are strategically replacing high-impact functions with integrated insurtech solutions – often beginning in the areas of payments and claims – to provide similar customer experience enhancements on a more budget-friendly scale.
5. Employment Gap
What can insurance companies do to attract and recruit new talent?
The insurance industry is facing an unprecedented shortage of workers, often referred to as a “talent gap.” Baby Boomers are reaching retirement age – with 10,000 Americans turning 65 years old each day – leaving open positions at a faster rate than can be filled. Additionally, today’s new graduates do not tend to consider insurance as a career path, compounding the discrepancy even further.
While most insurers are struggling to fill the employment gap, a few seem to have no trouble attracting talent. In fact, four insurance companies even made the Great Place to Work’s Best Workplaces for Millennials 2019 list. The common thread among these organizations is a blend of creativity and adaptation. To become more appealing to today’s jobseekers, employers must focus on modern career values, such as advancement opportunities, flexibility, company culture, benefits, and diversity.
6. Customer Experience
How does the new customer experience differ from traditional customer service?
According to a new Deloitte report, customers represent the most disruptive force in the insurance industry today – more than any single technology. The 2020 customer experience (CX) requires an entirely holistic approach that puts your policyholders’ needs front and center in nearly all aspects of the business. An effective CX balances personalization, empowerment, and efficiency – using a combination of human and digital solutions – at every touchpoint throughout the customer journey.
Your CX strategy must be flexible enough to accommodate a wide range of preferences, and should include both traditional and digital options. While digital engagement is critical for any modern business, consumers continue to rate caring, competent, accessible customer service providers – real, live human beings – as a key differentiator among insurance companies. Hyper-personalization is becoming a baseline expectation, and it can only be achieved through detailed data analysis, communication, modern digital capabilities, adaptability, and accessibility.
7. Environmental Issues
How does insurance impact the environment (and vice versa)?
The environment is a top concern among the majority of consumers. In particular, over 70% of Millennials and Gen Z place environmental and social consciousness above price when deciding upon their brands of choice. Roughly two-thirds of Gen X and half of Baby Boomers share this environmental priority as well.
The insurance industry is responding with a multi-pronged approach, starting from within. Many companies have already adopted internal sustainability initiatives, which may include office recycling programs, paper and plastic reduction efforts, and community cleanup events. Many auto insurance providers also reward customers with discounts, rebates, and other perks for choosing low-emission vehicles, such as hybrid and electric models.
In response to increasingly severe weather events and natural disasters, the industry is taking on a more proactive role to reduce the chances of injury, property damage, and liability, by updating risk assessment models and enhancing mitigative efforts. Insurers are driving change through awareness, education, and incentivization for communities (businesses, municipalities, and individuals) to invest in preventative, resilient infrastructure and procedures.
8. Going Mobile (Phones)
What does it mean to “go mobile” in insurance?
With 96% of Americans owning a cellphone and 86% with a smartphone, mobile functionality is a top priority for most businesses. In fact, 74% of insurance companies already offer apps. Still more maintain mobile-friendly websites through which policyholders can get quotes, sign up, access accounts, make payments, file claims, and renew policies from the convenience of their phones.
But going mobile is not a set-it-and-forget-it event. Consumer expectations change as rapidly as the technology itself, and today’s “modern” interface can quickly become tomorrow’s outdated relic. Insurers need to continually monitor mobile and web trends, and refresh those platforms regularly - paying close attention to features such as navigation, appearance, available information, range of services, and clarity.
9. Advanced/Predictive Analytics
Is more data always better? How much is too much?
With an estimated 2.5 quintillion bytes of data created every day, advanced data analytics is taking actuarial science to a whole new level. Beyond traditional data points such as age, driving (or health) record, location, and gender, algorithms can now incorporate information from credit reports, social media behavior, shopping habits, family background, education, and occupation, just to name a few. These advanced analytics can be used for a variety of purposes, including risk assessment, price optimization, fraud detection, personalized marketing, and claims prediction.
The National Association of Insurance Commissioners (NAIC) is continuing to develop best practice regulations for the appropriate use of predictive analytics. Among the wide range of issues in question, NAIC is working to create a set of standards to ensure proper communication, non-discrimination, accuracy, boundaries, and review procedures. You can follow the developments online through their regularly updated whitepaper on predictive modeling.
Will robots eliminate the need for humans in insurance?
Telematics, chat bots, predictive modeling, touchless claims, and other areas of robotic process automation (RPA) are causing excitement - along with a bit of unease - across the insurance industry. While most insurers welcome the opportunity to automate time-consuming operations, some are also concerned about job security and the potential impact on the insurer-insured relationship.
However, the human element is essential to the modern customer experience – every bit as much as technology. Even the most famously digital of digital insurance companies has a support team on staff for those customers who need person-to-person help.
Automation is best applied to repetitive, rule-based processes with minimal need for human judgement (and plenty of room for human error). Functions such as reporting and reconciliation, data analysis, claims documentation, and even straightforward customer service questions are all areas that can be streamlined with digital solutions. Far from replacing the need for humans, automation enables insurers to be even more effective, responsive, and innovative by freeing up the time and energy traditionally spent on tedious tasks.
11. Technology Threats
What are the biggest technology threats to insurance companies?
Data breach remains one of the industry’s top technology dangers. While security efforts have historically focused on servers and desktop computers, IoT and mobile have quietly emerged as the newest points of exposure. It’s also important to note that most cyber-attacks involve at least one element of personal contact – usually unbeknownst to the targeted participant – which paves the way for a larger scale exploitation. Therefore, to achieve maximum security, insurers should address both the technical infrastructure and human vulnerabilities across all platforms and networks.
In recent years, technology has also produced a different kind of “threat” to the traditional insurance business model: steep competition. The gap between the digital haves and have-nots is wider than ever before, with digitally mature companies outpacing their analog counterparts in both profitability and customer satisfaction. Regardless of where your organization falls on the technology spectrum, a strong and agile digital strategy, with regular attention and adaptation, is vital for long-term success.
12. Virtual Reality (plus Augmented and Mixed Reality)
How can virtual reality help insurers in day-to-day business?
Virtual reality (VR) refers to technology that creates a fully simulated environment for the user. For decades, VR has been a valuable training tool for pilots, surgeons, astronauts, first responders, soldiers, and others for whom real-world enactments are not readily available, practical, or safe. Augmented reality (AR) is a closely related technology that superimposes computer-generated images – and sometimes other sensory additions such as sounds or smells – over a real-world view. Taking AR a step further, mixed reality (MR) allows the user to interact with augmented imagery.
Insurers are currently exploring a variety of applications for VR, AR, and MR (collectively known as XR), looking for opportunities to bolster operations and services with these reality-extending technologies. Two insurance use cases showing particular promise include training (for example, practicing customer service skills with a virtual policyholder) and gathering information from distant or hazardous settings (for example, virtually exploring an entire building to assess potential flood damage).
Whether your organization is planning to augment reality or simply expand your current digital engagement capabilities, an effective 2020 digital strategy will hinge upon a strong customer focus. Every new technology and process should enhance the policyholder experience, either directly or as an extension of internal improvements.
A recent Accenture report concluded that insurers using “intelligent solutions to reinvent the customer experience and to drive human-machine collaboration” earn ten-fold returns on their technology investments.
Luckily, you don’t need to hire a team of robots or virtually gamify the onboarding process (at least not yet). However, with strategic automation, efficient resource allocation, and close attention to evolving policyholder needs, you can create the kind of customer experience that promotes loyalty and referrals, which ultimately leads to increased sales, retention, and persistency.
For more information about even more disruptive technologies and industry trends, check out the blog: Insurance Industry: 12 Trends for 2019.
You might also be interested in: