Over the past 20 years, consumer insurance buying behavior has altered significantly. Consumers have more power than ever before from the emergence of digital direct (and more lately, embedded) to the choice to supply data for better rates.
Whether consumers choose to shop for insurance through an agent or direct interaction with a carrier, OEM, or other service provider, the fundamental elements underpinning these changes—increasing capture and use of data and the technological capabilities to leverage and connect that data to insurance products—will continue to drive consumer behavior. Specifically, we see a world in which consumers will be able to aggregate and own their data as a personal risk "wallet," where Generative AI will support both consumers and agents in matching risk to capital, and where niche or challenged pools of risk will be able to access insurance via new entrants who create the possibility to match those risk pools to alternative capital.
We will apply three different lenses—the consumer-the mirrored consumer,
curators, and the collective—to better show those scenarios and explore the
consequences to insurance companies.
Mirrored consumer
Rich data profiles, sometimes known as digital twins, are created using pooled
first-, second- and third-party data that enable companies to instantly
forecast consumer likes and dislikes. Data from sensors, wearables, and haptic
technologies—which taken together form intelligent networks of digital twins and
threads—can all be included on the profile. It can also incorporate consumer
behavior along with information regarding the property they own or utilize. It
presents a more whole, daily perspective of people and their homes.
A mirrored consumer presents carriers with several fascinating future
possibilities. Specifically, carriers often concentrate on a restricted amount
of data to underwrite a risk, which is limited to what a consumer/agent tells
the carrier and what the insurance carrier can lawfully extract and legally
utilize to underwrite from 2nd and third party sources.
In order to produce a far more rich and full data profile, insureds will establish their own risk exposure "wallet," where they gather data traditionally used to underwrite as well as adjacent data a carrier may not have previously had access to. Weighing the natural trade-off of sharing more or different data relative to the value supplied by the carrier for that additional access, insureds will be able to carry their "wallet" with them to multiple carriers to obtain the best pricing and coverage. In order to achieve more precise pricing and turn coverage on or off, we also anticipate a future whereby instant updates on an insured's exposures to carriers with permission are delivered.
Using this consumer lens, one could theoretically sell a car acting as a trigger to remove that car from the policy, replace a roof acting as a trigger to re-rate a house, or engage in healthy activity acting as a trigger to lower life premiums.
In market, we find a few instances of the reflected customer materializing. The
State of California developed a proof of concept earlier this year placing
automobile titles on a private blockchain.
Imagine being able to save the title to a car you drive right in your digital wallet. That title might cause your present auto policy to include that vehicle, or it could cause the title to be transferred and coverage for that vehicle to be removed. The same could hold true of other kinds of property. Last year State Farm also made a $1.2 billion equity investment in ADT. More closely working with ADT will help State Farm be more able to forecast and stop losses from happening, therefore improving its value proposition to its insureds—ADT users. Through these alliances, insurance companies will be able to better grasp consumer behavior and the degree of risk reduction or introduction they bring about.
There are numerous steps a carrier should take in the near- and medium-term to
answer the future of a reflected consumer:
Target market
• Tighten the definition of the target consumer and the data you believe you
will need from them to underwrite their risks; increasing amounts of data
allows for deeper segmentation and will tip the scales in favor of specialists
that can personalize experiences, coverage, and value-add services against
generalists.
• Bring claims experience data forward to identify the kind of customer to seek
against legacy paradigm of using historically based models to estimate future
losses.
Distribution and buy experience
• Look for strategies to approach the encounters or life events that will set
off fresh coverage requirements or modifications in coverage
• Use relationships to create sales prospects and improve consumer data and
insight access.
• Find methods to enable more seamless and effective carrier, agency, or
consumer data interchange.
Product, cost, and underwriting policies
Leverage Generative AI and Large Language Models to dynamically request details
from consumers and bring structure to unstructured data and inputs to further
develop the capacity to give personalized products at tailored costs for
consumers.
• Create plans for using first, second, and third party data including the
enormous volumes of unstructured data, balancing cost against efficacy on
pricing accuracy.
Verify tech stack to ensure policy admin systems and rating/pricing engines can
manage real-time requests.
Curators
More advanced than today's chatbots or recommendation systems are curators.
These highly automated artificial intelligence middlemen, digital personal
shoppers, require little human contact. While some curators will assist
businesses to increase selling, others will advocate on behalf of consumers to
improve buying.
In an insurance environment, a curator can help to complement the job that has
always been performed by the agent/broker by automating some of the tasks they
now complete. Leveraging data on the consumer, their property, their activities
(e.g., telematics), their risk appetite and preferences, a curator can help the
agent/broker locate the optimum coverage and price. Further, the curator can
always be shopping, using the most current data on a consumer (including new
transactions/assets that might require additional coverage on new or existing
polices) and market desire to constantly search for the best match at the best
price instead of the conventional process of shopping or remarketing at
renewal. This creates time and opportunity for the agent/broker to increase
production and strengthen customer relationships, therefore minimizing the
quantity of effort a consumer must spend on what is essentially an unenjoyable
insurance buying transaction. The concept of the curator goes beyond risk
matching to negotiation; we see a time when the curator can highlight various
aspects of a consumer's risk wallet to negotiate with several carriers to
obtain a cheaper price for comparable coverage.
In our most recent Insurance Consumer Survey, 60% of respondents from all
demographic categories said they would be ready to provide a lot of data for
quicker, simpler services. Therefore, in a time where curators will be more and
more used, there are few steps carriers should take in the near- and
medium-term:
Target market
• Gain knowledge on the kinds of customers most likely to enjoy a tailored
experience (which might call for consumers to provide data but promotes current
coverage and best pricing relative to a traditional experience).
Distribution and buy knowledge
• Design the intended customer experience by product or coverage (e.g., what is
the trigger, how is that trigger identified and how often is it acted upon,
what actions are executed autonomously versus when does the consumer need to
evaluate and approve)?
• Change your viewpoint on the value and contribution that carrier field
employees bring when curators are more plentiful.
Product, cost, and underwriting of price
Product, cost, and underwriting policies
• Outline operational and technical skills to account for a world in which
curators are continuously shopping their consumer's risk (making sure a
distribution partner's use of curators does not create operational overload
inside your own company).
• List the signals or data points that would be used to start coverage modification.
• Look at additional episodic/periodic coverage to accommodate consumer
changing wants.
As greater frequency of shopping suggests that a consumer may be less brand
loyal, brainstorm other ways to make consumers "sticky" through
up-sell/cross-sell (demonstrating advocacy for the consumer), value-add
services, delivery of promised services/outcomes, etc.
Collectives
Digital technology have brought people closer in ways never imagined in the
days of analog, therefore shrinking the planet. Within the framework of
physical goods, we have seen a rise in boundaryless, worldwide virtual groups
embracing their purchasing power, which has produced our last consumer lens,
the group.
Insurance has long been based on pooled risk—that is, the collective—which has
advantages and disadvantages. We pay for the entire pool of risk together,
including drunk drivers, other sinister actors/actions, etc. These risk groups
have changed depending on zip code, age, gender, and a host of other variables
throughout years. Better risk wallets built for individual customers will
attract demand from buyers that the collective is even more granular and closer
to the level of individual risk profiles offering more suitable coverage to
price.
Beyond more customized pricing, we find insurance collectives developing around
the goods and services insurance is meant to safeguard. The constant expansion
of digital commerce and simplicity of purchasing and bundling help to enable
this. By customizing their product offers and including their insurance offers
into the purchasing experiences of the underlying goods and services, carriers
may more satisfy the needs of the collective. Many insurance products now
reflect this already happening. To provide auto insurance on the cars they sell
to consumers at the moment of purchase, several OEMs are teamed with insurance
firms. Several carriers are working with ride-sharing companies to provide
coverage catered to the particular requirements of hybrid personal/business
drivers. An airline ticket purchase now includes travel insurance right there.
One possible future of growing insurance company concentration on specialty or
challenging areas of risk—like MGUs or captives—is incrementally rising
proliferation of these entities. Existing insurance models could be threatened
by this as non-traditional companies combine increasingly varied data and
analytics skillsets, rising amounts of non-traditional risk data, and expanding
alternative capital to fight for this business. This is beginning to show up in
markets already. With $1B in in-force premium and focusing in coastal property
risk using unique data and analytics and better capital to risk matching,
Carrier should look at the following near- and medium-term activities to get
ready for the possible future the collective consumer reflects:
Target market
• See the consumer risk profiles and risk wallets that would fit your target
market more precisely.
Purchase experience and distribution
Distribution and buy knowledge
• Create the purchasing experience that would allow customers and agents to be
more at ease with more microscale tailoring of risk solutions instead of the
current state of predetermined deductibles, limitations, coverage options.
• Specify methods and techniques needed to properly sell to affinity groups
(which will be unique and more scalable than standard agency distribution).
• Get ready to keep including the insurance buying procedure into other
business dealings.
Product, cost, and underwriting policies
• Develop skill in product pricing that will help you to precisely price smaller
risk pools.
• Create scalable strategies for developing and pricing goods targeted for
various affinity groups (along with the special data that the affinity group
may offer).
• Create scalable strategy to balance risk exposure over your portfolio since
rising coverage variations for a specific customer deliver.