Forrester's 2021 predictions: Claim leakage top carrier concern
Forrester Research forecasts four trends insurers should watch in 2021.
Forrester Research, Inc. is projecting claim leakage to become the top priority for carriers in the coming year, which is also expected to see a return to “old school” individual disability insurance, propelled by the gig economy, as well as more interest in usage-based coverage (UBI).
The research company highlighted these four issues as major market movers for the year ahead:
1. Claim leakage is mission-critical
The American Property and Casualty Insurance Association has estimated that paying all COVID-19-related claims, regardless of exclusions, would amount to $1 trillion per month, noted Rep. William Lacy Clay at a recent hearing by the House Finance Subcommittee on Housing, Community Development, and Insurance.
Forrester expects big losses from COVID, as well as increases in extreme weather events, to drive more intense scrutiny of claim leakage. As a result, the research company anticipates a flurry of investment in smart analytics to identity leakage weaknesses and a “1990s-style focus on claim leakage, with management consultants returning with an improved playbook.”
2. UBI policies to grow, but tech evolution needed
Forrester projects a 50% increase in ownership of UBI policies, as connected (continuously priced) insurance will impact everything from paying claims to help customers avoid losses. Still, in its early stages — about 5% of U.S. adults have a UBI auto policy — more people working remotely, in turn driving fewer miles, is expected to increase penetration of UBI policies by 7%-8% this coming year.
This has been gaining more stream, as GM recently launched OnStar Insurance with the aim of starting as a “traditional product, but our goal is to add more and more usage-based datapoints as the product evolves, and only do it with the consent of the customer,” Stuart Fowle, GM brand and innovation communication manager, told PropertyCasualty360.com.
3. Gig economy could drive individual disability
Individual disability sales will grow by double in the U.S., according to the research company, with the shift from traditional employees to contractors lifting the sector. By 2028, half of the American workforce will be freelancers, or part of the gig economy, according to Statista.
In addition to not receiving traditional employee benefits, contractors are also excluded from workers’ comp, which means injury or illness can lead to no income. While individual disability and accident insurance can protect a gig worker’s paycheck, there is a need for new channels to leverage these policies, Forrester reported. This will move traditional disability insurers to take a page from startup’s digital sale models for the individual disability market.
It is important to note that this increase is drawing off a small base — the sector’s 2019 new policies growth rate was sub-1%, according to Forrester.
4. Gap grows in funding for InsurTech
Investor interest in insurance startups leveraging digital distribution is growing quickly, in part thanks to the allure of successful IPOs. As a result, investors are embracing established players in the InsurTech space. This is limiting opportunities for smaller companies still in the seed-stage, leading to anticipated funding declines of 20%-30% for these startups during 2021. This gap, however, does open up the door for increased M&A activity in the InsurTech space by the more established players, according to Forrester.
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