Personal Lines: More Technology, More Problems


Personal Lines: More Technology, More ProblemsThe frequency of customer interactions in personal lines has made these insurers fast adopters of technology, both to drive customer experience and to improve their own efficiency and profitability. While they are ahead of other sectors from a technology perspective, personal lines insurers face increasing loss costs for a variety of reasons, including climate change, increased claims frequency and severity, inflation, labor and material shortages, litigation, and supply chain issues.

Agent Connectivity

The agent connectivity ecosystem has expanded to include digital insurance producers and more established agency management systems, agency management system interfaces, agent portals, comparative raters, data brokers, quote aggregators, and quote/bind platforms. Even established players have evolved their offerings. Agents who predominantly sell personal lines still largely use portals for quoting new business. Insurers and solution providers have been acquiring distribution connectivity platforms to improve producers’ ease of doing business with them.

Most digital producers have invested primarily in front-end processes. They can take advantage of APIs, cloud-based solutions, and microservices. Many insuretech producer startups started as managing general agencies, which have lower capital requirements and less regulatory red tape. Some, such as Hippo, have purchased shell companies and become true insurers.

Mobile and Telematics in Personal Auto

Insurers are seeing increased interest in telematics-based, pay-per-mile programs from prospects as a reaction to higher insurance premiums. Some insurers have begun to partner directly with auto manufacturers to share telematics data and offer policies to drivers. Some auto manufacturers are competing with insurers directly: Tesla is offering insurance, betting that its superior access to data will lead to lower insurance prices than policyholders might obtain from traditional insurers.

The Impact of Economic Changes

Claims frequency and severity are returning to pre-pandemic trends. Some observers note that the duration and timing of driving are changing, particularly in urban areas. Hybrid work and remote work may explain some of the changes.

Insurers are seeing increased costs for everything from vehicles to construction materials for homes to labor and are passing these increased costs on to consumers. Supply chain disruption is ongoing. Chip shortages due to supply chain disruptions are contributing to higher automotive repair costs, and an increase in used car prices means consumers may be more willing to purchase newer, costlier-to-repair vehicles.

Not all homeowners insurance policies offer ongoing replacement value coverage, meaning policyholders could be underinsured. Combined with the challenges in specific state markets, policy administration systems that offer flexibility to change coverages and products are growing in importance.

Upheaval in State Markets

Florida has experienced the most market upheaval, with several insurance companies entering receivership in 2022—a combination of decades of legal and regulatory developments that have increased litigation for property claims. The state also suffers from increased natural catastrophe frequency and severity and higher reinsurance costs. Insurers are raising rates and restricting coverages. In some cases, insurers are canceling policies midterm or withdrawing from markets entirely to avoid higher claims and possible litigation. It will remain an unattractive, high-risk market for property insurers without a significant reduction in claims litigation and claims fraud and actions to make properties more resilient to catastrophes or reduce exposure.

Insurers are also pulling back in California due to significant losses from mudslides and wildfires and have either stopped writing new business since 2019 or placed significant restrictions on new coverage. Combined with the California Division of Insurance’s regulation preventing insurers from non-renewing risks that had experienced wildfire losses and prohibiting rate increases for policyholders, the California homeowners insurance market is becoming less attractive.

Recent Financial Trends

A.M. Best reported improving homeowners/farmowners profitability due to premium growth and a reduction in loss adjustment expense. The line still experienced an underwriting loss due to catastrophe events and higher reinsurance pricing. Personal auto profitability declined dramatically due to higher loss costs.

Technology Priorities

Personal lines insurers are prioritizing investments in agent and customer access; business intelligence, analytics, and AI; and core systems (billing, claims administration, and policy administration and rating). The personal lines market leads the way in industry experimentation with artificial intelligence, especially in claims. Personal lines insurers are also pushing the envelope in digital self-service, but the increase in digitalization means insurers must make a commensurate investment in fraud detection and prevention and identity verification for customer service and claims.

If you’d like to discuss our key findings in the personal lines space, please read our new report Business and Technology Trends, 2022: Personal Lines or contact Martina Conlon ([email protected]), Deb Zawisza ([email protected]), or me ([email protected]) to continue the conversation.