The 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 it is ahead of other sectors, COVID-19 has led to dramatic changes in personal lines, necessitating a revisit of current practices.
Distribution Trends
Integrating point-of-sale systems with multiple insurers’ core systems via APIs is accelerating direct sales growth. Direct auto insurers such as Progressive and GEICO are partnering with other insurers to offer homeowners, umbrella, and other coverages through their direct channels.
In addition to direct distribution, insurers are using other types of outlets such as banks, workplaces, associations, and car dealerships to access potential policyholders. Car manufacturers, dealers, and startup companies have been offering car “subscriptions,” which allow the use of cars for monthly fees—including insurance, maintenance, and roadside assistance—as alternatives to leases or purchases.
The Internet of Things: Apps and Social Media
Insurers are white-labeling products from companies with specialized capabilities or expertise, such as American Integrity Insurance Company offering Centriq’s Home Platform App. The app alerts homeowners to recalls and enables them to catalog and manage appliances, equipment, and systems. It also offers maintenance tips and provides access to how-to guides, links to Amazon for ordering parts, parts and accessories guides, and online user manuals through a partnership with Hartford Steam Boiler.
Insurers such as Lemonade are increasingly leveraging social media to follow up on quotes and to close deals. The role of social media for customer intimacy and referrals is growing.
Increasing Digitalization
In core systems, Novarica sees greater adoption of headless implementations in the personal lines space, where the insurer provides the UI for agents and consumers on top of a vended solution. Insurers are developing new digital products with separate expense ratios, pricing algorithms, marketing, and self-service capabilities. Most of these new product offerings do not offer paper document delivery as an option. Insurers and vendors are moving toward building architectures based on microservices instead of vended solution web services and APIs.
Vendors that traditionally have focused on document creation and management, e-commerce, or marketing automation are positioning themselves as providers of portal capabilities. Low-code digital experience platform providers (DXPs) are also putting themselves forward in this space.
Mobile and Telematics in Personal Auto
Mobile applications are increasingly common in personal lines, with mobile accident checklists, agent locators, and claims submissions now considered basic capabilities, though consumer adoption is far from universal. Less common capabilities include capturing application information from photos of driver licenses, real-time viewing of repairs, support for text-to-pay, and video chats.
Novarica estimates current telematics penetration rates at approximately 6%-8%, though policyholder adoption can vary substantially between insurers. Novarica expects adoption to increase slowly but regularly over the next several years. Insurers are seeing increased interest in telematics-based, pay-per-mile programs as COVID-19 continues to curtail driving activity. Some insurers have begun to partner directly with auto manufacturers to share telematics data and offer policies to drivers.
The Impact of COVID-19
Robert Hartwig of the University of South Carolina Darla Moore School of Business estimates that insurers are rebating or refunding roughly 4% of personal auto premiums. Hartwig also projects a $26B-$57B reduction in personal auto losses due to fewer people driving. Car sales, and thus the need for new insurance, have been depressed, though more recently there have been signs of recovery. Positive effects include the fast-tracking of digital initiatives that might have encountered institutional resistance before COVID-19. Reduced business activity, claims frequency, and premium volume mean that insurers must revisit existing models and their underlying assumptions.
Recent Financial Trends
AM Best reported improving personal auto profitability prior to COVID-19, with a 2018 combined ratio of 97.7 and a 2019 combined ratio of 98.7. Investments in claims handling, rating, and underwriting have been paying off. Insurers have also been cutting costs through the use of AI, chat, and mobile applications. Claims frequency has been declining, though severity has increased due to higher medical and repair costs.
2019 personal auto direct written premiums increased 2.8% in 2019, and the University of South Carolina Center for Risk and Uncertainty Management forecast 2% growth in personal lines (auto and homeowners) premium for 2020 as of mid-July 2020. It remains to be seen what the impact of the west coast wildfires and an above-average hurricane season will be.
Technology Priorities
Personal lines insurers are investing in InsureTechs to accelerate learning and diversify R&D efforts, using AI to speed the claims process, deepening their knowledge of the customer, reducing earnings volatility through analytics, and improving self-service capabilities. Core systems remain a high priority to establish a base for future capabilities.
Read Novarica’s report Business and Technology Trends: Personal Lines for an in-depth look at the trends in this space.
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