Personal lines are characterized by low margins, high transaction volumes, and—especially in recent years—high combined ratios and unpredictable claims costs. Insurers are facing market challenges as competition increases and the nature of personal lines risk evolves. But they also have opportunities to transform their businesses by leveraging technology.
Market Challenges
Insurers are facing higher loss costs due to increases in claims frequency and severity, inflation, reinsurance costs, and supply chain issues. They are passing these costs on to consumers (to the extent that they can) in the form of higher rates. This in turn causes knock-on effects that insurers must navigate:
- More shopping around: Higher rates for personal lines insurance are driving consumers to shop more, with an increase in purchases of auto insurance and homeowners’ insurance from separate insurers. Consumers are also seeking premium reductions through usage-based insurance and, in some cases, are self-insuring or not purchasing insurance at all.
- Catastrophe and geography concerns: Insurers are excluding natural catastrophes from coastal policies and areas with wildfire risk, raising deductibles. Some insurers are not offering coverage in certain areas or through certain channels or are requiring additional up-front documentation. They are also tightening their underwriting and only selling bundled policies.
- Competing on customer and agent experience: Insurers continue to look for ways to improve the customer experience while creating competitive advantages through enhancements to products and services. Insurers are focused on improving the ease of doing business from a distribution standpoint, whether through application prefill or distributor access to underwriting attributes.
Opportunities in AI and Data
Creating savings in personal lines requires quick decisioning, powered by high-quality data and analytics.
- Leveraging AI: A high transactional volume combined with relative simplicity makes personal lines a natural choice for AI usage, especially in claims. At this point, data and analytics initiatives generally are higher priorities than digitalization. These projects aim to detect and prevent fraud, identify prospects in unpromising geographies, and provide required data to regulators and reinsurers.
- Data management: Insurers have an imperative to understand and manage their data better, with more frequent and detailed information for regulators and reinsurers. Insurers must improve their assessment of claims to address homeowners insurance fraud. They may use third-party service providers for valuations and digital underwriting to free up budgets for data initiatives.
Creating New Opportunities Through Technology
Alongside opportunities (and obligations) from leveraging AI, analytics, and third-party data, technologies like telematics and Internet of Things (IoT) give insurers new ways to collect data, as well as the potential to prevent losses by highlighting hazards, rather than simply paying claims as they happen.
- Telematics: Middle-market insurers that haven’t yet launched telematics offerings are considering programs, seeking potentially safer drivers. Insurers that have more established telematics products are looking to expand the benefit they gain from these offerings by leveraging claims data in their adjustment workflows.
- Property intelligence: The market and demand for property intelligence solutions have grown substantially in the past five years, particularly with the increase in frequency and impact of natural catastrophes, resulting in significant increases in reinsurance costs. Property intelligence solutions can identify pockets of opportunities even in areas prone to floods or wildfire and enable carriers to more properly price all risks. Vendors are also partnering with imagery and third-party data providers to provide real-time accurate risk and damage assessments at the individual property level.
Conclusion
Datos Insights believes that personal lines insurers must move beyond rate increases and a reactive approach to true transformation deploying intelligent technology (AI, automation, data and analytics) to remove operational waste and optimize underwriting selection and pricing.
If you’d like to discuss our key findings in the personal lines insurance space, please read our new report Business and Technology Trends, 2024: Personal Lines or contact Deb Zawisza, Martin Higgins, or me to continue the conversation.
