Road to profitability: How are you adapting to radical changes in U.S. insurance?
As an industry, insurers have to ask themselves some tough questions now in order to navigate the future they all face.
Change is always risky, but complacency during times of dynamic change is a larger risk to any organization. The winds of uncertainty are swirling around us with some hardening markets across the insurance landscape. The opportunity for change is right in front of us. Digital technology is accelerating change for the better and utilizing that technology to your advantage means taking new risks but reaping the rewards.
Our team talks a lot about challenging the status quo and constant improvement – thinking differently and challenging the insurance industry to think differently. We recognize it can be hard to take that first step, but there is never a perfect moment to embrace change. At a certain point, you have to launch and learn. What you will find is that the learning itself is what brings about real innovation. The sooner you start, the better positioned you will be heading into 2024 and beyond.
As an industry, we have to ask ourselves some tough questions now in order to navigate the future we all face:
- How do we better segment and price our existing portfolio based on all the data at our disposal?
- How do we best educate the market in the face of regulatory uncertainty?
- Can anything be done to mitigate troubling home combined ratios with catastrophic storms growing in intensity?
- What can we learn from adjacent industries about electric vehicles (EVs), where the fleets are scaled and risk can be measured?
- And perhaps even most importantly looking ahead, where does artificial intelligence (AI) fit into all this?
The magic lies in the data
In 2024, how do insurers respond? By keeping up with the pace of change, which is much easier said than done. But there is magic in data and analytics paired with technology. One of the biggest threats to insurers when it comes to keeping their customers happy is time – especially during the claims process. A key focus for us is using data and analytics to be able to say ‘yes’ and fast-track claims with confidence – to then say, “I feel comfortable in closing this claim,” collapsing time for both you, the insurer, and the consumer.
Insurers must be vigilant in integrating data-driven insights into their workflows from underwriting to claim, and it’s up to us to consult on how to best leverage the data at your disposal to resolve consumer claims quickly. It’s not always about simply introducing a new solution, but helping insurers implement solutions in a way that drives their long-term strategies is key to all of our success.
That same consultative mindset also means educating the trades, regulators and markets so we can take a more proactive position on innovation and consumer benefits while also working with influencers on regulatory and compliance questions.
What does that look like? Often, I talk to my colleagues and peers about “making it real” for the market, especially in the face of change. Let’s look at examples across different insurance segments where the data is making a significant impact for insurers who leverage it correctly.
- Advanced Driver Assistance Systems (ADAS), Automatic Emergency Braking (AEB), connected mobile apps, digital keys, 360-degree cameras, over-the-air updates and the symbiosis between the vehicle and smartphone devices through infotainment displays have turned the driving experience from purely analog to a high-tech encounter behind the wheel. That data is now being utilized in telematics exchanges, and insurers can capitalize on this robust information as an avenue to glean more informed data on driving behaviors, ticketing and enforcement initiatives. With only 22% of consumers using their driving and vehicle data for discounts on their insurance premium, there is an opportunity for growth in telematics adoption.
- Electric Vehicles are gaining popularity and claims departments are learning on the fly in some cases. The U.S. insurance industry has a unique opportunity to learn from other markets and develop strategies to stay ahead. According to our internal analysis of claims data in the Chinese market, claims frequency of EVs is on average 56% higher and claims severity on average 52% higher, than those of internal combustion engine (ICE) vehicles across all vehicle price ranges. Claim frequencies are even higher for those households where garages contain an EV and ICE vehicle versus those with just one type of vehicle. With EV sales in the U.S. projected to surpass one million by the end of 2023, the time to learn and stay ahead is now.
- The home insurance market needs technology more than ever before. While it is hard to predict catastrophic storm events that continue to plague the industry, we can look for other ways to drive profitability. 45% of home losses originate from perils inside the home. AI-driven, consumer-led survey platforms are now driving more accurate interior, exterior and aerial data insights needed to help improve property underwriting. You must continue to review your own business to help ensure your existing portfolio is driving the expected profitability.
- In commercial insurance, our research tells us that small commercial companies of 50 employees or fewer make up over 95% of the market with roughly 41 million quotes being made annually between new business and renewals. There is massive opportunity in the commercial space for innovative thinkers to infuse data directly into their existing workflows to improve automation efforts and to continuously review their portfolios at renewal.
- Contributory data information can help carriers see what you are missing from an even more granular standpoint, whether it’s duplicate records or outdated ownership change dates for newly acquired vehicles, helping insurers find 5% more current owner and 27% more prior owner damage events.
- In the personal auto insurance market in 2022, we saw 9% of rate added to the market, and currently project the market will add another 14 points by the end of the year.
AI and the possibilities ahead
Will the use of AI in 2024 separate the market leaders from those unwilling to change? There’s a high probability given past innovation. The foundation of AI is not new, but it has certainly evolved beyond anything we imagined back then.
If you take a look at history, many of the inflection points that dramatically changed society as we know it were underpinned by technology – from the first industrial revolution, to machines, to electricity, to common household goods as we know them today.
But let’s take a quick step back. AI should be thought of as an enabler of human excellence, not a replacement for it. The ultimate goal of how we use AI is not that it tells us what to do, but rather how it can give us insights on next steps and enhanced decision-making. After all, our industry relies on human oversight. That’s not going to change.
Again, let’s look at examples of how to make that real in the market:
- In the claims space, the opportunity is there to use large language models (LLMs) – for severity prioritization and analysis as well as data infusion and insights.
- In home, gathering interior and exterior intelligence about the risk is beneficial to the consumer and insurers in the event of a claim.
- The largest of datasets can benefit from improvements in scale, speed and accuracy. And this is just the tip of the iceberg. It all goes back to change. While it may feel like a risk, we can turn it into an opportunity. We can all improve if we embrace technology to work smarter. The time for change is now.
Bill Madison is chief executive officer of the insurance segment of LexisNexis Risk Solutions. He is responsible for all auto, home, life and commercial insurance business including solutions for underwriting, claims, and analytics, for the U.S. and international markets. Contact him at Bill.madison@lexisnexisrisk.com.