In recent years, we’ve seen major shifts and trends that point to where the insurance industry is headed long-term.
Widespread adoption of mobile technologies is streamlining communication like never before, and unlike past years, the majority of insurance companies’ customer interactions are now happening online without ever speaking face-to-face.
Insurance companies are also fully realizing telematics’ ability to collect accurate data about their customers, allowing for innovative new programs based on previously uncollectible real-time data.
However, with growth there are always concerns — especially when massive quantities of data are involved. How insurers collect, use and secure private user data is an issue that will continue to be addressed as this new ecosystem continues to progress. With that being said, I am truly excited about where the industry as a whole is headed in 2016. A shifting customer demographic, game-changing technologies and bold new ideas are combining to bring radical changes to insurance.
For more insight into how this rapid evolution will take place, here are my insurance predictions for 2016:
Millennials will have a greater impact in 2016
For decades, the insurance industry has catered to baby boomers, but now that most millennials are well into adulthood, the shift to this very desirable customer base is happening.
In 2016, the number of millennials with insurance purchasing power will increase like never before. More carriers have started to recognize this shift and will cater their services to these potential customers.
Insurance companies will start marketing more aggressively to this group of people, which could result in more resources being invested in online customer service operations vs. call centers. We may also see companies adjust distribution methods to more accurately match millennials’ purchasing habits, which increasingly favor mobile devices over other purchasing platforms. One way or another, insurance companies will need to capture this demographic, and we’ll see these efforts steeply increase in 2016.
The "Internet-of-Things" will reward smart drivers and homeowners
Today, the number of technology companies that are building innovative tools to provide insurance companies with smart and accurate data is unprecedented.
From how fast you drive to whether you lock your doors to how distracted you are, driving behaviors and habits that weren’t measurable before will begin to affect insurance rates. In terms of auto insurance, this new data will help good drivers more than it will hurt bad drivers. For example, let’s say you don’t have good credit but data shows you’re an excellent driver – there’s a good chance you will still get a good rate that reflects this data. As the connected home continues to unfold in 2016, IoT devices will also start to have a significant impact on homeowners insurance because devices will be able to flag preventable issues to homeowners before they happen.
For example, there are emerging technologies that alert you about water leaks, humidity and rising temperatures – before they become physically apparent. These alerts ultimately result in less damage than if the issue had gone unnoticed for a longer period of time. The prevention of damage will decrease the amount of claims, drive down rates, and you may see carriers providing discounts to homeowners with connected monitoring devices installed. Some carriers might even go as far to start providing these devices to homeowners.
Renters insurance will spike in popularity
Renters have traditionally been a lower priority for insurance companies and haven’t had as many options as other segments because of low premiums and the potential risk of losing money in claims.
However, because many millennials with insurance needs aren’t homeowners, you’ll see a large increase in the amount of policies sold for renters insurance. Millennials account for an enormous portion of the renters market and the majority of them are under-insured. Millennials may put off buying a home until later in life, but will increasingly realize the importance of being insured.
Related: The Chalkboard: Millennial Mindset
Additionally, in the same way it happened with baby boomers, millennials are coming onto the scene fast and are seen as potential lifelong customers for insurance companies. The smart providers will be those who look to build connections with this group of people now through renters insurance. Insurance companies will want to make a great impression on this demographic, because Millennials tend to be very loyal and have equity in their decisions about insurance providers, or any service. Plus, people are buying homes later and renting longer than ever, so the insurance industry will need to adapt.
At its core, the peer-to-peer insurance model makes a lot of sense because it’s predicated on the same principles as some of the earliest insurance concepts.
Originally, insurance was created to protect farmers, homeowners and other people that came together as a collective group for financial support and security.
This model eventually expanded to like-minded automakers, medical providers, small-business owners and so on, and more grassroots peer-to-peer groups fell in favor of large companies.
However, this same concept, with a modern twist, is now taking hold.
The basic premise of peer-to-peer insurance is that policyholders are grouped into a pool, which collects all the premiums paid by the policyholders.
This pool of money is then used to pay off any claims, and in the event that there isn’t any money to cover the cost of claims, funds from outside investors would be used to cover the remainder.
These types of policies will make insurance cheaper because they will be offered online, with very little overhead costs. Reduced operating costs will allow a larger percentage of premiums to be put toward claims.
In 2016, you’ll begin to see certain innovators build the systems and infrastructure necessary to create the peer-to-peer insurance marketplace – and they will take off from there.
Greg Isaacs is president of insurance solutions at San Francisco-based online agency CoverHound Insurance Solutions. He can be contacted at firstname.lastname@example.org.
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