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From Our Partners



GAINING A COMPETITIVE EDGE IN THE RETURN TO PROFITABILITY

In 2024, personal lines insurance is all about adapting to new challenges
through innovation for improved profitability and competitiveness.

ITL Partner: Pinpoint Predictive
March 11, 2024


The theme of 2024 is “new challenges, new rules, new mindset” for the personal
lines insurance industry. While combined ratios are expected to improve this
year as increased rates take hold, expediting the return to profitability will
require finding new ways to solve profitability issues. According to McKinsey,
carriers who double down on innovation can create up to 20 times more value than
their competitors, making this year a prime time for insurance carriers to
boldly innovate. Meeting market challenges will be accomplished utilizing the
next-generation tools that are shaping the future for the insurance industry.
Carriers standing head and shoulders above the competition are the ones
embracing innovation and thinking of how they solve problems differently.

KEEP YOUR BEST POLICYHOLDERS

Consumers hit hard with renewal policies fraught with rate increases and
personal lines experiencing the industry combined ratio as high as 103.4% at the
end of September 2023. P&C Specialist reported auto insurance rates were up
12.3% over the previous year, and homeowners industry-wide rates increased by
10.3%. It’s been a rough-ride for everyone.

As carriers experience loss ratios and combined ratios rising, the cumulative
impact of inflation and rising loss costs are problems big enough they cannot be
solved by one increase. The challenge will be to keep the best customers and
move away from rating plans using the lowest risk individuals to subsidize the
losses seen with their highest risks.

RISING PERSONAL LINES SHOPPING

Additionally, the industry is seeing a rise in personal lines shopping. The
first-quarter of 2023 saw the most shoppers in more than 2 years. Unlike
previous years, shopping is not solely by price-sensitive consumers. P&C
insurers have been seeing more of their best, most loyal, and most profitable
customers shop around for new coverage to ensure that they are getting the best
rate. A recent TransUnion study found over the past 2 years the insurance
shopping population has had more people with high credit scores compared to the
traditional  “shoppers” who were higher-risk consumers.

While carriers scrambled to increase rates in 2023 to fix profitability, many
cut advertising. Yet, with rising price shopping, investing in advertising spend
is advantageous due to the large groups of shoppers and will reap benefits. The
key strategy is to avoid adverse selection and to understand which customers
have an adequate rate and who falls outside of the rating plan at the earliest
possible point.

REDUCE TECH DEBT TO WIN

Gone are the days of allotting all technical resources to replacing legacy
policy administration systems and programming rate changes. In an effort to keep
ahead of market challenges, carriers are starting to shift thinking about
long-term initiatives that tie up technology resources. Those who are able to
devote resources leveraging new tools and digitizing the service and claims
experience, in addition to supporting core operational functions of their
businesses, will emerge as big winners in the evolving industry landscape.

DEVELOPMENT IN AI REGULATION 

Key states like New York, Connecticut, California and Colorado have been early
in contemplation of how to regulate the industry’s use of Artificial
Intelligence, and most recently the NAIC approved a blueprint for using AI and
third parties. The bulletin provides guidance for development of AI-system
programs to mitigate the risk to customers through governance, risk management
controls and internal audits and guidance for contractual relationships with
vendors providing AI solutions.

Carriers should continue forging the path forward to use AI-powered solutions to
solve their biggest challenges, and become more educated on how to evaluate both
internal controls as well as that of their vendor partners to understand the
appropriate risk management framework while leveraging AI.

MEASURE FAIRNESS DIFFERENTLY

Building on the focus on AI regulation, carriers focusing on understanding how
to clearly define fairness in the industry will be well-prepared in the coming
years. In 2021 Colorado’s governor signed Senate Bill (SB) 21-169 to protect
residents from unfair discrimination “on the basis of race, color, national or
ethnic origin, religion, sex, sexual orientation, disability, and gender
identity” by requiring insurers to test their data, algorithms and predictive
models to ensure they are not discriminating against protected classes. Through
dedicated discussions, the industry seeks to understand how to objectively
measure existing bias in current insurance rating and practices and how to
measure this among various protected classes. It’s certain that new perspectives
in rating and underwriting practices are required to ensure the industry upholds
its standards of fairness.

SEAMLESS DIGITAL SERVICE AND DIGITAL CLAIMS HANDLING

With the price shopper market, carriers focusing on improving the service and
claims experience can emerge successful by using technology to provide a more
seamless customer experience in the policy service and claims process. JD Power
reported personal lines insurance companies having a “very easy” digital claims
process see twice as many customers renewing. However, the aim of efforts is not
only to provide a great customer experience, but also drive efficiency to reduce
expenses.  Incorporating new data sources at every operational point, furthers
the seamlessness of how processes are designed. Optimizing the digital customer
experience for customers with new policies, policy changes and during a claim is
key to profitability, customer retention, and operational excellence.

LARGE LANGUAGE MODELS (LLMS)

Generative AI and LLMs (large language models) are a hot topic as carriers
consider how these technologies can be harnessed to automate processes. Key
learnings for carriers can center on what LLMs can and cannot do, and where
human support will be needed. As the rate of new technology increases, carriers
are cautioned that the traditional approach of not being first-movers but
fast-followers may not be a sustainable position.

BEYOND PROOF OF CONCEPT TO TEST AND LEARN

The insurance industry deserves high praise for its willingness to test new
technologies and innovations. However, the number of initiatives lost in the
operational priorities of the business are astounding. This often happens when
the company culture penalizes failed initiatives. The most innovative insurers
are those adopting a “fail fast” mindset where teams become less afraid of
failing and see the opportunity cost of never trying to innovate. The message
for industry leaders is to empower teams to move initiatives with compelling
business results beyond the Proof of Concept phase into an environment of “test
and learn” to see real-world results, and act in an agile manner.

2024 will no doubt bring about major changes as carriers course-correct to
improve profitability. Some of these solutions will take form in the traditional
measures of changing rates and revisiting underwriting rules and some will
incorporate emerging technologies and new ways of thinking. Ultimately, insurers
will need to start doing things differently to ensure a competitive advantage.

 

Sponsored by ITL Partner: Pinpoint Predictive


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ITL PARTNER: PINPOINT PREDICTIVE


ITL PARTNER: PINPOINT PREDICTIVE

Pinpoint Predictive provides P&C insurers the earliest and most accurate loss
predictions and risk scores to fast-track profitable growth and improve loss
ratios. Unlike traditional methods, Pinpoint’s platform leverages deep learning,
proprietary behavioral economics data, and trillions of individual behavioral
predictors to help insurers identify the risk costs associated with customers
and prospects.

Insurtech 100 Awards 2022 | Insurtech Vanguard | AI Breakthrough Awards 2023 |
Global Tech Awards 2023 - Category Winner for AI, AnalyticsTech and Insurtech |
Insurance Awards 2023 - Category winner for Insurtech in World Finance Magazine 

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