Personal lines insurance is notably price-sensitive. As previously discussed, maintaining a 20+% expense ratio is unsustainable for insurers. Beyond pricing, what truly fosters customer loyalty in the insurance sector, and how can insurers compete to expand their market share?
In this blog, I explore strategies for enhancing customer loyalty and retention, provide forecasts on the evolving risk landscape for auto and home insurance, and discuss Accenture’s predictions regarding how personal lines insurance buying behaviors might shift over the next decade.
The Changing Landscape of Personal Lines Risk
Personal lines insurance has transitioned from being a specialty product to a digital commodity. Initially traded through manual processes, it has now become a globally traded digital product. With approximately 4 billion vehicles and homes worldwide, personal lines insurance represents both a global commodity and a constantly evolving risk.
The risk landscape varies significantly between auto and home insurance. Auto insurance covers a relatively homogenous risk profile, with around 600 common vehicle models globally. The rise of electric and autonomous vehicles is reshaping road regulations and vehicle repair processes, introducing new risks that necessitate product liability and cyber coverages.
Conversely, home insurance covers a heterogeneous risk profile with countless types of homes and building standards. The underlying home risk is significantly impacted by extreme weather, which affects both the frequency and severity of damages. It is reasonable to predict that extreme weather will not only influence pricing but also building codes, adding additional variables to assess.
While home and auto insurance are critical areas for personal lines insurance, consumers are also dealing with large-scale disruptions. Factors such as a volatile economic environment, the residual effects of the COVID-19 pandemic, and the ongoing technological revolution have significantly shifted global dynamics. Today, consumers’ felt need for insurance is high, with concerns primarily centered around rising living costs and climate change—areas where they often feel least protected.
Generational Shifts in Insurance Buying
The core consumer base for insurance is changing. Millennials, the first generation of digital natives, are now entering their peak insurance buying years. Insurers must cater to the unique needs of this demographic. Across all age groups, there is a demand for more, better, and faster services. Consumers expect their specific needs to be met quickly and easily, and they are willing to share their data in exchange for enhanced experiences and products.
Strategic Areas for Enhancing Value Proposition
- Brand Identity in Customer Interactions: Ensure that brand identity is prominent in every customer interaction, creating a consistent and recognizable brand experience across all touchpoints.
- AI-Augmented Employees: Rather than solely focusing on implementing AI solutions, insurers should concentrate on augmenting employees with AI to facilitate more personalized and empathetic interactions, ensuring customers feel genuinely understood.
- Compelling Digital Experiences: Create digital experiences that foster emotional connections. For instance, in travel insurance, providing dynamic updates on extreme weather, popular tourist attractions, and local health advisories can significantly enhance customer engagement. Traditional risk mitigation notifications often fail to create emotional connections with customers.
- Real Benefits for Digital Adoption: Ensure customers recognize tangible benefits from using digital channels, such as significantly faster resolution times and personalized digital interactions, making the digital transition worthwhile.
Creating compelling digital experiences is crucial for enhancing customer loyalty. Recently, we collaborated with an insurer to address low engagement between agents and customers, insufficient customer information, and a lack of visibility in managing leads. Together, the insurer and Accenture deployed an AI-enabled app for customers, which was incredibly intuitive and designed for scalability across Asia. The solution provided automated customer relationship management, marketing content recommendations, next-best-action suggestions, customer insights, and comprehensive agent performance management.
The results? A staggering 424% premium growth and a 671% increase in the sales pipeline, demonstrating that compelling digital experiences are invaluable.
Shifts in Consumer Buying Channels
Traditional methods of purchasing insurance through brokers and agents are expected to decline in favor of direct sales and embedded insurance models. Munich RE has projected that embedded insurance will grow at a CAGR of 25% until 2030, potentially accounting for over $500 billion in gross written premiums globally for P&C lines by 2030.
Consumers are showing increasing interest in embedded insurance offers, where relevant risk protection is integrated into their purchases. For example, the share of consumers likely to buy auto insurance from car dealers has risen from 32% to 42% since 2018. Additionally, consumers are seeking solutions that go beyond traditional home and auto insurance bundling, such as complete house-buying services and home monitoring solutions.
Focus Areas for Insurers
- Performance and Efficiency: Develop superior features and products.
- Experience and Convenience: Delight customers with exceptional service.
- Solving, Not Selling: Play a relevant role in customers’ lives while creating value for all.
