Insurers operate in an increasingly complex world of disparate state regulations, evolving customer preferences, heightened competition and continuously expanding multi-faceted data.

While these industry trends challenge traditional carriers, they also create significant opportunities to build and maintain a sustainable 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 channel in the U.S., carriers are constantly looking for ways to unlock growth 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- and technology-focused trainings and product education programs that help agents grapple with the nuances of selling new and existing products in different regulatory environments.

Carriers are also augmenting commission structures to include enhanced performance-based thresholds and incentives for growth-driving behaviors, such as submitting applications via web portals, which not only facilitates the underwriting process, but also increases agent productivity.

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

To maximize program effectiveness, leading carriers are first trying these initiatives in a subset of the agent population, and comparing their performance to a similar group of agents that did not participate in the program. In doing so, insurers more accurately ascertain whether the program is worth investing in further, where there are opportunities to target the program to agents that respond best, and which agents don't respond profitably at all.

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

2. Usage-based insurance

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

Most activity began in Auto insurance, with a handful of carriers leading the pack. However, the rate of adoption will likely increase in 2016 as technologies advance and carriers increasingly view UBI as a way to both enhance rate fairness and instill safer behaviors, such as avoiding cellphone use while driving — 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 UBI market penetration is still less than 1%, but is expected to expand to 15% in America, Europe and Asia by 2020. This exponential growth applies across lines and sectors: in small commercial, home, life and health insurance, policyholders could receive lower premiums for exhibiting desirable lifestyle characteristics, like energy conservation and regular exercise. New York City-based Oscar Insurance is already taking steps to make this a reality, giving members cash payouts for each day they walk a targeted number of steps, measured by a free wearable fitness tracking device.

While UBI is an exciting opportunity for carriers to better align premium rates with risk, many questions remain around payment structures (Pay As You Drive vs. Pay How You Drive) and technologies (such as Progressive's Snapshot app).

Specifically, carriers considering increasing premiums for reckless or unhealthy behavior, rather than simply rewarding good behavior, will likely want to quantify whether this adjusted strategy results in less payouts and reduced total risk, or if it simply turns away customers who fear that a minor mishap on the road or an occasional fast food indulgence will have a significant impact on their rates. Similarly, carriers looking to offer their service via mobile app must determine what information at what cadence they need to collect before funneling substantial amounts of money into building the technology infrastructure.

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

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

3. Investments in digital

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

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

For example, carriers, including Geico and MetLife, have developed mobile apps and online portals to deliver information to policyholders in real time, and make agents more accessible, visible and relevant when possible. As insurers introduce these programs, it is critical to properly educate agents on how to leverage these channels. By bringing technology-focused training sessions to agencies and then comparing their incremental impact on agent performance and customer satisfaction, carriers can more confidently assert which initiatives are effective brand builders and which truly improve the customer experience across all contact points.

In addition, as insurers rationalize the massive spend they have traditionally funneled into mass media channels, such as TV and radio, they are increasingly exploring digital channels as an avenue through which they can more effectively use marketing dollars to personalize their messaging and grow their business.

Carriers can now design and deploy highly relevant messages via online ads and e-mail campaigns to attractive customer segments with a high propensity to buy and similar behavior to the company's preferred policyholders. To ensure that each campaign is truly driving incremental business from the right customers, insurers should carefully analyze each campaign with a test and learn approach, in which they deploy the ads in some markets, ZIP codes or to some customers, and then compare their performance to similar markets or customers that did not receive the ads, controlling for external factors (e.g., regulations or extreme weather events).

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

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

4. Technology enables smarter claim handling

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

Recently, there has been extra incentive to further enhance claims handling as a result of the "social media effect," where customers air their grievances regarding poor claim handling to thousands of people via Facebook and Twitter.

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

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

Livegenic was also recently recognized for its mobile, real-time video platform that enables claims professionals to see what the customer sees without disconnecting from the phone call, accelerating the claim handling cycle from seven to 14 days to seven to 14 hours.

As many of these initiatives require significant resource investments up front, insurers should closely monitor their immediate impact on a range of key performance indicators, including customer satisfaction and cost, to understand their true value.

For example, if an insurer invests in programs to improve the efficiency of their call center claims processing, they will want to determine the incremental impact on the number of calls needed to close a claim successfully, number of customer complaints, and more.

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

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Learn from insurance disrupters to address pain points (Photo: Shutterstock)

5. Learning from growing tech startups

Nearly every industry has encountered disruptive start-ups that ultimately 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 than in most industries.

However, the list of tech-startups finding a foothold in the industry is growing longer, including Oscar, Metromile and SimplyInsured. The growth of these companies is largely because of their ability to address key pain points in the industry. For example, Oscar helps individuals navigate the complex health system in an easy, safe way.

While most insurance executives may not see these players as a significant threat to their business, larger players can learn from their focus on improving the customer experience with simplified processes and refined product marketing. Most leading insurers also share these key priorities, and are investing in various agent training, marketing and IT initiatives to bring them to life.

For example, some carriers are investing in systems that enable current and prospective policyholders to interact with the company through multiple channels, and others are simplifying their product marketing strategies and materials to highlight the elements of each policy or service that matter the most to customers.

As these trends shape the industry in 2016, insurers must be able to innovate quickly. However, initiating any proposed change haphazardly can lead to significant erosion of a company's book and reputation. To minimize the likelihood of incurring unnecessary losses or tarnishing the brand, insurers should test each new program on a smaller scale in market to determine its true incremental impact.

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

John Howard, senior vice president and leader of the insurance practice at Arlington, Va.-based software company Applied Predictive Technologies.

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5 tech upgrades carriers must make in 2016

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