The Insurance Industry's PR Crisis

Insurance insiders understand why premiums need to climb for autos and homes -- but consumers are angry. 

Insurance Industry

The headline in Business Insider couldn't be starker: "Insurance Companies Have Discovered Devious New Ways to Rip You Off." And I think it should be a call to action.

People in the industry understand the need to sharply raise rates for auto and homeowners insurance. Replacement costs are way up, climbing far faster even than the lofty inflation rates of the past two years. The addition of sophisticated electronics in cars and the transition to electric vehicles increase repair costs, too. Frequency of claims is up, as well, and will likely keep increasing, especially for homeowners, as the warming climate causes more and bigger storms and wildfires. 

As costs rise, premiums have to, too. Insurance is a business, not a hobby.

But consumers aren't in the industry and aren't exactly sympathetic to insurers' problems. They just see rates soaring, and they're angry. They will now generate as much pressure as they can on state regulators -- whom they elect, either directly or indirectly -- and we can expect to see a lot more headlines about "devious" insurers.

What to do?

While nothing will eliminate the problem, I think we can take at least some of the sting out of it by doing three things.

First, we need to communicate, communicate and communicate with customers so they understand why rates have to rise. Then we need to communicate some more.

Most of the burden will fall on agents and brokers, who need to explain, in detail, why costs have soared and, thus, why premiums need to climb, too.

Agents and brokers should also be crystal clear about changes in coverage. Many customers are inclined to scale back to reduce premiums, yet will blame agents and brokers or carriers if they have a loss and find that an exclusion they've forgotten about means it isn't covered. Agents, brokers and carriers all need to get customers to acknowledge what they've decided not to cover and to remind them from time to time. A surprised customer is a furious customer. 

It'd be great if the carriers would lean into educating the public about rising costs, but they seem to view talking about the need for rate increases as an opening for competitors to brag about lower prices. So we'll likely just keep being inundated with geckos, emus and all possible permutations of Flo and Mayhem as the carriers hammer away at improving brand recognition. Our colleagues at the Insurance Information Institute are doing yeoman's work on behalf of the industry, but they can only reach so many people through their comments in the media.

Carriers should, at least, help agents and brokers work with customers on how to reduce premiums -- being as specific as possible for individual customers about how they can diminish, say, wildfire risk or the potential for water damage. If the insurance industry demonstrates good will, customers will be at least a bit more sympathetic about price increases. 

Second, we need to be far more aggressive about lowering costs, as a way of diminishing the need for rate increases. Geico just announced that it is laying off 2,000 employees, or about 5% of its workforce, and Farmers Insurance said in late August that it was laying off 2,400 people, or some 11% of its employees. But there are loads of other ways that insurers can become more efficient, too.

Matthew Grant, CEO of Instech, said in a recent conversation that insurtechs have developed lots of ways that carriers can cut costs, and carriers see clear benefits, but "there wasn't really a burning problem, so are you going to make the effort to bring something into the company?" He said insurtechs' cost-cutting innovations always seemed to be "No. 11 on the list of boards' top 10 priorities."

Cost-cutting should move way up those lists -- and carriers should make sure customers know about it, so, again, they see the insurance industry working on their behalf to minimize price increases as much as humanly possible.

Third, the industry should move as swiftly as possible toward the "Predict & Prevent" model and away from the traditional "repair and replace." We have all this data about where the risks are. On the theory that the best claim is the one that never happens, let's use that data to help customers prevent losses, rather than just help them recover after something goes very wrong.

We've published extensively on the topic at ITL, and I'd encourage you to check out some of the very smart pieces. Here is a smorgasbord, based on a search for "Predict & Prevent" on the ITL site. If you have time for just one, I'd suggest this webinar I hosted with Pete Miller, the CEO of The Institutes; David Harkey, president of the Insurance Institute for Highway Safety; and Roy Wright, president and CEO of the Insurance Institute for Building & Home Safety.

Nobody wants to buy insurance, but everybody wants protection.

With all that said, I think the piece in Business Insider is, well, hardly an example of journalistic excellence. While it's posted on the site as a news article, a note at the end describes it as part of an initiative that provides "thought-provoking perspectives, informed by analysis, reporting and expertise." In other words, opinion. 

The piece was written by a professor at an Australian university who wrote a book a few years ago about how businesses are, to quote the subtitle, "extracting data, controlling our lives and taking over the world." The closest the piece comes to quoting someone as saying something negative is a paraphrase of Dame Inga Beale from a talk she gave, and there's no link to the talk, so I can't see precisely what she said or the context for her words. 

The article makes claims that will strike any student of business as silly. Insurers are dinged for focusing on the lifetime value of customers -- something every sentient business does. The article also sneers at usage-based insurance as somehow unfairly intrusive and at how insurers "might look at your home's roof using drones and automated image analysis, or where you're driving based on data from a smart device in your car."

What's devious about any of that?

Where the article delves into issues that could be legitimate concerns -- using AI for "price optimization," based not on risk but on customers' ability and willingness to pay, and "claims optimization," based not on what should be paid but on how much customers complain if claims are denied -- the writer cites no evidence and quotes no one. He also doesn't try to quantify the extent of these alleged practices. He just asserts that insurance companies are guilty.

So, while Business Insider is generally a legitimate publication, I don't take the complaints at all seriously. 

But my analysis of the article doesn't matter. Neither does yours. What matters is that the article is out there and that a lot more like it may be in the works because consumers are angry about soaring premiums.

We as an industry need to change the narrative as aggressively as we can, or we'll let this public relations crisis define us.