Navigating Shifts In The Personal Lines Insurance Industry Series: Part One – Changing Customer Expectations

Trends Shaping the Future of Insurance

Insurance, in comparison to other industries, is slow to change and has been a laggard when it comes to digital maturity and innovation. The slow pace of innovation can be attributed to risk aversion, heavy regulation and compliance requirements that can vary from state to state, as well as large long-term contracts and commitments that are not easy to change. The heavy capital requirements to take on risk also act as an entry barrier for new entrants. InsurTech, described as the innovative use of technology in insurance and a subset of FinTech, was touted to disrupt the industry with venture capital backing. However, while InsurTechs did showcase the art of the possible, the threat of disruption has yet to materialize, highlighting the critical importance of industry tenure, reputation, financial expertise and core competencies to manage this segment's complexities.

Despite these nuances, a few catalytic shifts are taking place that are pushing the industry to an inflection point. These are disruptive in nature and have the potential to reshape the market for insurers and customers. Companies that move fast to respond to these trends with a well thought out strategy will have a lot to gain in growth and profitability at the expense of the slow movers' market share. Some industry leaders are already making moves, whereas for others, this is not the time for complacency.

This is the first installment in our three-part series exploring the three major trends that will have the biggest impact on the personal lines of the insurance industry:

1. Changing Customer Expectations: Change in customer expectations and how they are forcing incumbents to rethink the value they are creating for their customers.
2. Market Contraction in Auto Insurance: How some new products, distribution models and business models are shifting some power away from the traditional players.
3. Evolving Technology: How big data, analytics and artificial intelligence are disrupting and redefining the industry.

In this first installment, we will look at changing customer expectations and delve into examples of how some key market players are responding, and what actions incumbents should take.

The Insurance Customer Experience

Customer expectations continuously evolve. Multiple factors contribute to customer wants and needs, including socioeconomic and cultural factors, as well as the totality of customers' experience interacting with brands in their everyday lives. Meeting customer expectations is a moving target for the brands, with a layer of added complexity due to varying expectations by customer demography, geography, income and digital savviness.

As insurers look to retain customers or grow their base, it is critical that they keep their finger on the pulse of their customers and stay on top of these factors, including the following:

1. A Seamless Experience: Customers expect intuitive and easy-to-navigate omnichannel experiences across not just their 'choose' journeys but also in their 'use' journeys.
2. Optionality: Customers want personalization and value options that cater to different circumstances and risk tolerances and allow changes over time.
3. Value for Money: Economic uncertainty has led to consumers becoming increasingly price sensitive, with a growing willingness to exchange personal data for value.
4. Transparency: Driven by a desire for more clarity and trust in their interactions with companies, customers are demanding clearer information about coverages, pricing and claims processes.

How Some Insurers Are Reacting to These Trends

Some insurers are ahead of their peers in identifying and responding to these trends quickly:

• Customer Experience: USAA has made member experience a priority, using AI to track customers' life events and proactively reaching out with customized service. End-to-end experience design ensures customers are supported through every stage of life change.¹
• Optionality: Progressive is great at providing optionality. It offers policy customization options, including add-ons like roadside assistance, accident forgiveness and a vanishing deductible. It also offers other insurance products that customers can bundle.²
• Value-for-Money: Progressive is also a good example of value for money letting customers compare prices. Its Name Your Price tool can be used to suggest a price customers are willing to pay, and it shows the best coverage options to meet customers' budgets.³
• Transparency: Metromile (part of Lemonade), the pay-per-mile car insurance company, saves customers money with in-car tracking devices that help with calculating accurate rates and build trust with their customers. They make it clear what the collected data is used for and how it lowers customer premiums.⁴ Allstate is recognized for its transparent pricing and policies. It was ranked No. 1 overall in Transparency Awards in 2020.⁵
• Coalition: Members from Boost, Branch, Clearcover, Lemonade, Root Insurance and others, have launched an advocacy group called InsurTech Coalition that aims to shape the industry's future. The group is also aiming to work towards providing transparency, better pricing as well as improved customer experience and reimagining insurance products to manage risk more efficiently. It is also looking to collaborate with regulators in building new frameworks to support emerging technologies and companies.⁶

Best Practices for Navigating Customer Expectations

For insurers, meeting customer expectations is a key differentiator and provides a competitive advantage. Addressing this requires a concerted effort across customer service, sales and marketing, and product innovation. Here are a few things to consider:

• Know your target customers - Know their needs, wants, behaviors and attitudes. Go beyond qualitative research to understand your customers; combine it with a data-driven approach to know your customer microsegments, their values, each of their unmet needs and a much richer bank of insights.
• Evaluate the customer journey: Leverage these insights to design and implement initiatives that address unmet needs across touchpoints and the customer 'choose' and 'use' journey. Look at digital not as a channel but as an enabler of the optimal customer journey - customers are not exclusively online or offline customers, they are omniline customers. Companies that lag in digital maturity may need to navigate your digital strategy back on course.
• Address the gaps: Re-evaluate product offerings with respect to customer needs and competition and align the value of insurance to distinct and evolving customer needs. This may require more sophisticated underwriting.
• Develop a customer-centric sales and marketing approach: Sales and marketing activations will differ based on customer segment, product familiarity and complexity in the customer's buying decisions. Products that are low in familiarity and high in complexity in the buyer's decision process (e.g., life and annuity) require collaborative and consultative sales and are better suited for contextual and content marketing. Insurance is an intangible product and customers are passively loyal. Rethink loyalty programs to retain customers. Remind them of your presence and the value that is constantly, and silently, being delivered.

Customer expectations are evolving at a rapid pace and insurers are facing mounting pressure to adapt swiftly or risk falling behind. Recognizing the challenges inherent in this dynamic environment, industry leaders are increasingly turning to external expertise to navigate these shifts effectively and rapidly.

Footnotes

1. Morgan, Blake. "USAA's Proactive Approach to Major Life Events." Forbes, 20 Mar. 2023, www.forbes.com/sites/blakemorgan/2023/03/20/usaas-proactive-approach-to-major-life-events/?sh=7ff27a7b64de.

2. "Auto Insurance Discounts." Progressive, www.progressive.com/auto/discounts/.

3. "Auto Insurance." Progressive, www.progressive.com/auto/.

4. "Privacy Policy." Metromile, www.metromile.com/privacy/.

5. "2020 Transparency Awards." Transparency Awards, www.transparencyawards.com/2020-awards/.

6. "First-of-Its-Kind Insurtech Coalition Launches to Shape the Future of Insurance." PR Newswire, www.prnewswire.com/news-releases/first-of-its-kind-insurtech-coalition-launches-to-shape-the-future-of-insurance-302000890.html.

Originally published by 13 May, 2024

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