Insurers operate in an increasingly complex world of disparatestate regulations, evolving customer preferences, heightenedcompetition and continuously expanding multi-faceted data.

While these industry trends challenge traditional carriers, theyalso create significant opportunities to build and maintain asustainable competitive advantage.

In 2016, here are five particular industry trends to watch:

1. Enhancing the agent experience

As the agency channel remains the dominant distribution channelin the U.S., carriers are constantly looking for ways to unlockgrowth and enable agents to be more productive.

Insurers are pursuing these goals in a variety of ways,including investing in technologies that increase policy quotes,application throughput and data capture.

Others are taking a different approach by offering sales- andtechnology-focused trainings and product education programs thathelp agents grapple with the nuances of selling new and existingproducts in different regulatory environments.

Carriers are also augmenting commission structures to includeenhanced performance-based thresholds and incentives forgrowth-driving behaviors, such as submitting applications via webportals, which not only facilitates the underwriting process, butalso increases agent productivity. 

Getting the most out of these investments can be a complex task,because of the fact that implementation can be costly andone-size-fits-all programs likely waste resources by includingagents that do not experience the benefits.

Related: 3 key technology trends for the insurance industryin 2016

To maximize program effectiveness, leading carriers are firsttrying these initiatives in a subset of the agent population, andcomparing their performance to a similar group of agents that didnot participate in the program. In doing so, insurers moreaccurately ascertain whether the program is worth investing infurther, where there are opportunities to target the program toagents that respond best, and which agents don't respond profitablyat all.

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UBI can enhance rate fairness an instill safer drivingbehaviors (Photo: iStock)

2. Usage-based insurance  

Since Progressive unveiled its Snapshot several years ago, theindustry has been abuzz with the possibilities of usage-basedinsurance (UBI).

Most activity began in Auto insurance, with a handful ofcarriers leading the pack. However, the rate of adoption willlikely increase in 2016 as technologies advance and carriersincreasingly view UBI as a way to both enhance rate fairness andinstill safer behaviors, such as avoiding cellphone use whiledriving — a factor in one in every four car crashes today,according to the National Safety Council.

A recent Ernst & Young report states that the global UBImarket penetration is still less than 1%, but is expected toexpand to 15% in America, Europe and Asia by 2020. This exponentialgrowth applies across lines and sectors: in small commercial, home,life and health insurance, policyholders could receive lowerpremiums for exhibiting desirable lifestyle characteristics, likeenergy conservation and regular exercise. New YorkCity-based Oscar Insurance is already taking steps to make this areality, giving members cash payouts for each day they walk atargeted number of steps, measured by a free wearable fitnesstracking device.

While UBI is an exciting opportunity for carriers to betteralign premium rates with risk, many questions remain around paymentstructures (Pay As You Drive vs. Pay How You Drive) andtechnologies (such as Progressive's Snapshot app).

Specifically, carriers considering increasing premiums forreckless or unhealthy behavior, rather than simply rewarding goodbehavior, will likely want to quantify whether this adjustedstrategy results in less payouts and reduced total risk, or if itsimply turns away customers who fear that a minor mishap on theroad or an occasional fast food indulgence will have a significantimpact on their rates. Similarly, carriers looking to offer theirservice via mobile app must determine what information at whatcadence they need to collect before funneling substantial amountsof money into building the technology infrastructure.   

Related: Imagining UBI's frictionlessfuture

With so many unknowns, intuition and historic data can only getdecision-makers so far in deciding which of these ideas are rightfor their business. Carriers should consider trying these serviceson a small scale, or piloting new variations of existing programs(e.g., offering services via mobile app) with a small group ofpolicyholders, to gauge whether they generate enough incrementalbenefit to justify their cost, and in which lines. Through thesesmall tests, carriers can also identify the types of customers thatrespond best to each initiative. With this information in hand,they can then target outreach to similar customers that arepredicted to have a positive response to profitably grow theprogram.

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Roll out new technology if it helps make agents moreaccessible, visible and relevant. (Photo: Shutterstock)

3. Investments in digital

Omnichannel strategy is top of mind for executives acrossindustries, and insurance is no exception.

According to the Accenture Digital Innovation Survey, mostinsurers report that they're most focused on digitally enablingtheir traditional channels and processes and exploring newdigitally enabled capabilities, products and customer segments,rather than investing in developing disruptive innovations.

For example, carriers, including Geico and MetLife, havedeveloped mobile apps and online portals to deliver information topolicyholders in real time, and make agents more accessible,visible and relevant when possible. As insurers introduce theseprograms, it is critical to properly educate agents on how toleverage these channels. By bringing technology-focused trainingsessions to agencies and then comparing their incremental impact onagent performance and customer satisfaction, carriers can moreconfidently assert which initiatives are effective brand buildersand which truly improve the customer experience across all contactpoints.  

In addition, as insurers rationalize the massive spend they havetraditionally funneled into mass media channels, such as TV andradio, they are increasingly exploring digital channels as anavenue through which they can more effectively use marketingdollars to personalize their messaging and grow their business.

Related: Is a mobile app in your agency'sfuture?

Carriers can now design and deploy highly relevant messages viaonline ads and e-mail campaigns to attractive customer segmentswith a high propensity to buy and similar behavior to the company'spreferred policyholders. To ensure that each campaign is trulydriving incremental business from the right customers, insurersshould carefully analyze each campaign with a test and learnapproach, in which they deploy the ads in some markets, ZIP codesor to some customers, and then compare their performance to similarmarkets or customers that did not receive the ads, controlling forexternal factors (e.g., regulations or extreme weather events).

Decision-makers can then use insights from these analyses totailor and target marketing programs.

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Monitor claims resource investments based on customersatisfaction and cost (Photo: Shutterstock)

4. Technology enables smarter claim handling

Insurers know that they can increase customer satisfaction andensure appropriate payouts by adopting a faster, more efficient andhigh-quality claims process.

Recently, there has been extra incentive to further enhanceclaims handling as a result of the "social media effect," wherecustomers air their grievances regarding poor claim handling tothousands of people via Facebook and Twitter.

As a result, insurers are investing in call center enhancements,as well as technologies that expedite the claims handlingprocess.

For example, products such as Allstate's Fast Mobile e-Payment and MasterCard Sendenable carriers to send claim payments directly to customers in asingle day.

Livegenic was also recently recognized for itsmobile, real-time video platform that enables claims professionalsto see what the customer sees without disconnecting from the phonecall, accelerating the claim handling cycle from seven to 14 daysto seven to 14 hours.    

As many of these initiatives require significant resourceinvestments up front, insurers should closely monitor theirimmediate impact on a range of key performance indicators,including customer satisfaction and cost, to understand their truevalue.

For example, if an insurer invests in programs to improve theefficiency of their call center claims processing, they will wantto determine the incremental impact on the number of calls neededto close a claim successfully, number of customer complaints, andmore.

Related: Insurance customer relationship management in thedigital age

Over time, executives will also want to analyze how these claimhandling programs impact retention and market share in order toinform further investments.  

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Learn from insurance disrupters to address painpoints (Photo: Shutterstock)

5. Learning from growing tech startups

Nearly every industry has encountered disruptive start-ups thatultimately become action verbs — Uber, Airbnb, Google, etc.

To date, insurance has had limited exposure to such disrupters,largely because of the fact that barriers to entry are higher thanin most industries.

However, the list of tech-startups finding a foothold in theindustry is growing longer, including Oscar, Metromile andSimplyInsured. The growth of these companies is largely because oftheir ability to address key pain points in the industry. Forexample, Oscar helps individuals navigate the complex health systemin an easy, safe way.

While most insurance executives may not see these players as asignificant threat to their business, larger players can learn fromtheir focus on improving the customer experience with simplifiedprocesses and refined product marketing. Most leading insurers alsoshare these key priorities, and are investing in various agenttraining, marketing and IT initiatives to bring them to life.

For example, some carriers are investing in systems that enablecurrent and prospective policyholders to interact with the companythrough multiple channels, and others are simplifying their productmarketing strategies and materials to highlight the elements ofeach policy or service that matter the most tocustomers. 

As these trends shape the industry in 2016, insurers must beable to innovate quickly. However, initiating any proposed changehaphazardly can lead to significant erosion of a company's book andreputation. To minimize the likelihood of incurring unnecessarylosses or tarnishing the brand, insurers should test each newprogram on a smaller scale in market to determine its trueincremental impact.

Executives can then act confidently in allocating funds to ideasthat work and cutting investments to those that don't.

John Howard, senior vice president and leader of theinsurance practice at Arlington, Va.-based software company AppliedPredictive Technologies. 

Related: 3 ways insurers can compete against new marketentrants

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