Insider’s Report on Personal Lines Market: What’s Changed, What to Expect & How to Prepare
The personal lines sector took a beating in 2022 due to significant deterioration in personal auto, as well as rising loss cost severity, pricing pressures and elevated reinsurance costs. Added to these challenges for personal lines insurers is slow overall economic growth, leading to uncertainty and depressed consumer and business sentiment.
This year’s In2Risk 2022 conference outlined some of these pressures affecting personal lines insurers today but also offered ways that the industry and consumers can help the future of risk. The following is a glimpse of some of the changes and what to expect.
The Bad News: Auto
According to the Insurance Information Institute, the low miles driven in the first year of the pandemic contributed to favorable experience, and the industry returned $14 billion to policyholders.
Current miles driven are back to 2019 levels, but with riskier driving behaviors and higher inflation. Supply chain disruption, labor shortages, and costlier replacement parts all contribute to current and future loss pressures, which will result in higher premiums.
The Bad News Continued: Homeowners
For the homeowners insurance line, the national 2022 net combined ratio spiked to 115.4% in 2021, the highest since 2011, thanks to natural catastrophe losses and replacement cost pressures. It is forecasted to improve in 2023 and 2024 while continuing to operate at a loss. Loss pressure and expected catastrophes indicate greater rate increases are needed to restore homeowners insurers to an underwriting profit.
‘Repair and Replace’ to ‘Predict and Prevent’
Technology is being used to change the insurance paradigm. As agents and brokers, we need to change the consumer’s mindset from, “Why do I need to spend money on leak detection technology, that’s what I have insurance for” to “the best claim is the claim that never happens.”
Here’s one example:
The Problem. According to Laurie Conner, president of The Detection Group Inc., water damage represents more than 50% of property loss claims in buildings. More than $16 billion has been paid in water damage losses due to plumbing leaks with an average loss cost of $10,000 for personal risks and $100,000 for commercial risks. Mold is possible within 24 hours and can add $10,000 to a claim. Most big leaks start small and escape manual detection. Early detection dramatically reduces costs, provides peace of mind and benefits all parties — the owner, the carrier, and the agent.
The Solution. It is important for agents to become familiar with the various technologies available to reduce the cost of risk. This might include recommending the installation of strategically placed sensors and whole house automatic shutoff devices via a smart phone app capable of sending actionable alerts to the property owner. Most carriers offer credits for the installation of this technology, which is a benefit to the insured.
The Benefit. Early identification of water leaks reduces water damage losses, lowers utility bills, and improves the risk profile. If the sensors fail, the liability may even be shifted to the sensor manufacturer allowing the carrier to pursue total recovery, including the deductible, through subrogation.
Focusing on technology and prevention will differentiate you from the other agents who are just trying to sell a policy based on price and improve your overall customer experience.
The Good News
The future of risk begins with you. There is a lot of disruption in the world, but insurance is in the business of helping people.
The insurance industry is using technology for more than pricing risks. Technology is an important tool to reduce losses, improve fire safety, manage exposures without physical visits, and encourage resilience. Rather than using Big Data to charge more, it is being used to earn the trust of the consumer.
Technology will not replace people, the human touch or relationships. Technology enables rather than replaces people.
Remember, “know-ware” and technology were created by humans to serve humans.
Discussing and recommending technological advances to our customers makes what we do slightly more interesting than just talking about insurance. Make your own experience with your customer unique and hard to replicate.
Closing Tip: The Meta Universe, Blockchain, Crypto Currency, IoT
Agents need to get educated about how to insure homes and other property purchased with bitcoin. Learn more about the meta universe and blockchain technology and develop relationships with carriers who can meet the demands of younger consumers.
Per Betsey Brewer, CPCU, principal of EPIC Insurance Brokers & Consultants in Pasadena, California, “It is important to get educated about upcoming technologies.” Although she is not insuring autonomous vehicles now, she will be in five years and is learning about the issues now. At the time of a covered loss, who is the responsible party? The programmer? The hardware provider? Ask lots of questions and keep learning.
Betsey continues: “In an age of automation and automatic renewals, we need to keep doing what we do best; asking lots of questions rather than relying on information insureds give us or information on past applications; know your customer!”
Thank you, Betsey!
In2Risk22, an annual conference organized by The Institutes CPCU Society, attracted approximately 1,000 insurance professionals, educators, vendors and other service providers from over 500 companies, representing 78 Chapters of the CPCU Society from six different countries including Bermuda, Guana, Hong Kong, Kuwait, India, Japan and the United States. In2Risk Encore is available on-demand Nov. 18-Dec. 18, 2022.