Tag Archives: homeowner

Why the Agent Will NOT Be Disrupted

“Google Compare kaput” – Shefi Ben Hutta

A few weeks ago, I published an article here on ITL saying that the insurance industry, in general, would not be “disrupted.” I received both a lot of positive and (politely) negative feedback, including a rebuttal by Nigel Walsh. And then just this week, Google, the single-most-often-pointed-to culprit for the probable insurance disruption, dropped a bombshell: that it is shutting its Google Compare insurance service.

That whisking sound you hear is me taking my victory lap.

All kidding aside, although the urge to take a victory lap is strong, my calmer, rational side realizes that this news does not mean what some might think it means. While my beliefs are that disruption, as has occurred in other industries, will not happen in insurance, Google’s exit from this space is NOT evidence that I am correct. What I believe has transpired is the following:

  1. The insurance business overall is complex. Software cannot eat this elephant whole.
  2. Google underestimated how difficult the business is, especially in the segment Google Compare was fighting for, which is distribution. Getting new customers in insurance is quite challenging. Customers want value in their insurance transactions, which a website and a rater cannot imitate.
  3. Google’s opportunity cost of capital is high, and Google Compare couldn’t meet an acceptable threshold because of its inability to get traction. Brian Sullivan of Risk Information recently said that Google Compare got 10% of the business it forecasted. Ouch!

Those on the disruption side of things promise that, much like the Terminator, Google will “be back.” I actually think that is possible, after some of the issues are ironed out, such as expectations. Once upon a time, I would have been an eager Google Compare customer. So I have no doubt that there is a market for its offering.

But there is a bigger market for insurance customers who want someone else to do the un-thrilling work of getting their insurance in place because those customers either don’t have the expertise or don’t wish to be bothered by the process at all. Consider a recent example in my own timeline.

My current auto and property policies were purchased online several years ago. I didn’t need an agent because I was more than happy to do the work myself to save a few dollars. No longer.

I recently moved across the country, back to the East Coast. The last thing I wanted to do was deal with address and other changes that are required when you move across state lines. I also didn’t want to research all of the licensing and car registration procedures I’d have to go through in the weeks following my move. So I found an agent. Within a couple of days, that burden had been lifted from me. I am less likely to personally do the insurance buying going forward. I would rather be doing something else altogether than researching and buying insurance. The whole experience was well worth the commission paid.

And then there are customers who don’t know much about insurance at all: teen drivers, new homeowners and new parents, to name just a few potential insurance customers where the guidance of a trusted adviser will save a lot of time and future headaches. Can we really expect teen drivers to understand anything more than getting the cheapest policy possible so that they can drive? My newly minted teen driver spent days trying to get her car on the road because she chose the Cockney-accented spokes-lizard insurance, which provided nearly zero support for her real problem, which was the DMV. My response: ”You should have gone to an agent. He would have done all that work for you.” A lesson learned, I hope.

How about a new homeowner trying to get insurance to cover the property and family? An insurance agent will help with issues around replacement values, limits of liability, deductible options and coverage differences between carriers. Can machine learning get to the point where it can replace all of that? Perhaps. But add to this, additional complexities such as how should a family put together auto, property, umbrella and other insurance policies (such as flood, earthquake, jewelry, non-admitted products) together to optimize effectiveness, and I think the technologists looking to disrupt are a long, long way away from being able to effectively deliver the value that an agent/broker is already providing. As the stakes are raised, the human touch will remain invaluable.

This is not to say that the state of the current agency system is acceptable. Agents need to step up their game. Agents have been one of the biggest offenders in not using technology to further their significance. Agents have chiefly been great sales people. They have to be. They are selling an imperfect product whose value is difficult to quantify. In today’s environment, agents need to scale their sales presence outside of the face-to-face transaction toward a digital world. The agent might be able to overcome my objections when we are looking at each other, but, today, I am communicating via digital means, and I can simply ignore the agent. Agents need to use technology to better market to, communicate with an educate customers. They also need to take a page from insurers and use data to understand and quantify risk so that they can recommend the best solutions and not just a policy with the lowest price. Agents are used to providing multiple options to customers; now they need to use data to get an information advantage. Does this mean that agents need to become part underwriter, part adjuster, part actuary while remaining part salesperson to survive? I think so.

For the modern agent or broker, Google Compare was not seen as a serious threat. Top agents know the value they bring and are not easily substituted for with technology. Twenty years from now, the landscape for buying insurance will look very different from today but I wager that, for many of the reasons I have outlined here, the insurance agent will still have a significant role for consumers who value their time and possessions.

trends

13 Emerging Trends for Insurance in 2016

Where does the time go?  It seems as if we were just ringing in 2015, and now we’re well into 2016. As time goes by, life changes, and the insurance industry—sometimes at a glacial pace—does, indeed, change, as well. Here’s my outlook for 2016 on various insurance topics:

  1. Increased insurance literacy: Through initiatives like The Insurance Consumer Bill of Rights and increased resources, consumers and agents are both able to know their rights when it comes to insurance and can better manage their insurance portfolios.
  2. Interest rates: The federal funds target rate increase that was announced recently will have a yet-to-be determined impact on long-term interest rates. According to Fitch Ratings, further rate increases’ impact on credit fundamentals and the longer end of the yield curve has yet to be determined. Insurance companies are hoping for higher long-term rates as investment strategies are liability-driven. (Read more on the FitchRatings website here). Here is what this means: There will not necessarily be a positive impact for insurance policy-holders (at least in the near future). Insurance companies have, for a long period, been subsidizing guarantees on certain products or trying to minimize the impact of low interest rates on policy performance. In the interim, many insurance companies have changed their asset allocation strategies by mostly diversifying their portfolios beyond their traditional holdings—cash and investment-grade corporate bonds—by investing in illiquid assets to increase returns. The long-term impact on product pricing and features is unknown, and will depend on further increases in both short- and long-term interest rates and whether they continue to rise in predictable fashion or take an unexpected turn for which insurers are ill-prepared.
  3. Increased cost of insurance (COI) on universal life insurance policies: Several companies—including Voya Financial (formerly ING), AXA and Transamerica—are raising mortality costs on in-force universal life insurance policies. Some of the increases are substantial, but, so far, there has been an impact on a relatively small number of policyholders. That may change if we stay in a relatively low-interest-rate environment and more life insurance companies follow suit. Here is what this means: As companies have been subsidizing guaranteed interest rates (and dividend scales) that are higher than what the companies are currently (and have been) earning over the last few years, it is likely that this trend will continue.
  4. Increasing number of unexpected life insurance policy lapses and premium increases: For the most part, life insurance companies do not readily provide the impact of the two prior factors I listed when it regards cash value life insurance policies (whole life, universal life, indexed life, variable life, etc). In fact, this information is often hidden. And this information will soon be harder to get; Transamerica is moving to only provide in-force illustrations based on guarantees, rather than current projections. Here is what this means: It will become more challenging to see how a policy is performing in a current or projected environment. At some point, regulators or legislators will need to step in, but it may be too late. Monitor your policy, and download a free life insurance annual review guide from the Insurance Literacy Institute (here).
  5. Increased complexity: Insurance policies will continue to become more complex and will continue their movement away from being risk protection/leverage products to being complex financial products with a multitude of variables. This complexity is arising with products that combine long-term care insurance and life insurance (or annuities), with multiple riders on all lines of insurance coverage and with harder-to-define risks — even adding an indexed rider to a whole life policy (Guardian Life). Here is what this means: The more variables that are added to the mix, the greater the chance that there will be unexpected results and that these policies will be even more challenging to analyze.
  6. Pricing incentives: Life insurance and health insurance companies are offering discounts for employees who participate in wellness programs and for individuals who commit to tracking their activity through technology such as Fitbit. In auto insurance, there can be an increase in discounts for safe driving, low mileage, etc. Here is what this means: Insurance companies will continue to implement different technologies to provide more flexible pricing; the challenge will be in comparing policies. The best thing an insurance consumer can do is to increase her insurance literacy. Visit the resources section on our site to learn more.
  7. Health insurance and PPACA/Obamacare: The enrollment of individuals who were uninsured before the passage of Obamacare has been substantial and has resulted in significant changes, especially because everyone has the opportunity to get insurance—whether or not they have current health issues. And who, at some point, has not experienced a health issue? Here is what this means: Overall, PPACA is working, though it is clearly experiencing implementation issues, including the well-publicized technology snafus with enrollment through the federal exchange and the striking number of state insurance exchanges. And there will be continued challenges or efforts to overturn it in the House and the Senate. (The 62nd attempt to overturn PPACA was just rejected by President Obama.) The next election cycle may very well determine the permanency of PPACA. The efforts to overturn it are shameful and are a waste of time and money.
  8. Long-term care insurance: Rates for in-force policies have increased and will almost certainly face future increases—older policies are still priced lower than what a current policy would cost. This is because of many factors, including the prolonged low-interest-rate environment, lower-than-expected lapse ratios, higher-than-expected claims ratios and incredibly poor initial product designs (such as unlimited benefits on a product where there was minimal if any claims history). These are the “visible” rate increases. If you have a long-term care insurance policy with a mutual insurance company where the premium is subsidized by dividends, you may not have noticed or been informed of reduced dividends (a hidden rate increase). Here is what this means: Insurance companies, like any other business, need to be profitable to stay in business and to pay claims. In most states, increases in long-term care insurance premiums have to be approved by that state’s insurance commissioner. When faced with a rate increase, policyholders will need to consider if their benefit mix makes sense and fits within their budget. And, when faced with such a rate increase, there is the option to reduce the benefit period, reduce the benefit and oftentimes change the inflation rider or increase the waiting period. More companies are offering hybrid insurance policies, which I strongly recommend staying away from. If carriers cannot price the stand-alone product correctly, what leads us to believe they can price a combined product better?
  9. Sharing economy and services: These two are going to continue to pose challenges in the homeowners insurance and auto insurance marketplaces for the insurance companies and for policy owners. There is a question of when is there actually coverage in place and which policy it is under. There are some model regulations coming out from a few state insurance companies, however, they’re just getting started. Here is what this means: If you are using Uber, Lyft, Airbnb or a similar service on either side of the transaction, be sure to check your insurance policy to see when you are covered and what you are covered for. There are significant gaps in most current policies. Insurance companies have not caught up to the sharing economy, and it will take them some time to do so.
  10. Loyalty tax: Regulators are looking at banning auto and homeowners insurance companies from raising premiums for clients who maintain coverage with them for long periods. Here is what this means: Depending on your current auto and homeowners policies, you may see a reduction in premiums. It is recommended that, in any circumstance, you should review your coverage to ensure that it is competitive and meets your needs.
  11. Insurance fraud: This will continue, which increases premiums for the rest of us. The Coalition Against Insurance Fraud released its 2015 Hall of Shame (here). Insurance departments, multiple agencies and non-profits are investigating and taking action against those who commit elder financial abuse. Here is what this means: The more knowledgeable that consumers, professional agents and advisers become, the more we can protect our families and ourselves.
  12. Uncertain economic and regulatory conditions: Insurance companies are operating in an environment fraught with potential changes, such as in interest rates (discussed above); proposed tax code revisions; international regulators who are moving ahead with further development of Solvency II; and IFRS, NAIC and state insurance departments that are adjusting risk-based capital charges and will react to the first year of ORSA implementation. And then there is the Department of Labor’s evaluation of fiduciary responsibility rules that are expected to take effect this year. Here is what this means: There will be a myriad of potential outcomes, so be sure to continue to monitor your insurance policy portfolio and stay in touch with the Insurance Literacy Institute. Part of the DOL ruling would result in changes to the definition of “conflict of interest” and possibly compensation disclosure.
  13. Death master settlements: Multiple life insurance companies have reached settlements on this issue. Created by the Social Security Administration, the Death Master File database provides insurers with the names of deceased people with Social Security numbers. It is a useful tool for insurers to identify policyholders whose beneficiaries have not filed claims—most frequently because they were unaware the deceased had a policy naming them as a beneficiary. Until recently, most insurers only used the database to identify deceased annuity holders so they could stop making annuity payments, not to identify deceased policyholders so they can pay life insurance benefits. Life insurers that represent more than 73% of the market have agreed to reform their practices and search for deceased policyholders so they can pay benefits to their beneficiaries. A national investigation by state insurance commissioners led to life insurers returning more than $1 billion to beneficiaries nationwide. The National Association of Insurance Commissioners is currently drafting a model law  that would require all life insurers to use the Death Master File database to facilitate payment of benefits to their beneficiaries. To learn more, visit our resources section here. Here is what this means: Insurance companies will not be able to have their cake and eat it too.

What Can You Do?

The Insurance Consumer Bill of Rights directly addresses the issues discussed in this article.

Increase your insurance literacy by supporting the Insurance Literacy Institute and signing the Insurance Consumer Bill of Rights Petition. An updated and expanded version will be released shortly  that is designed to assist insurance policyholders, agents and third party advisers.

Sign the Insurance Consumer Bill of Rights Petition 

What’s on your mind for 2016? Let me know. And, if you have a tip to add to the coming Top 100 Insurance Tips, please share it with me.

How On-Demand Economy Can Prosper

Even some of the most successful innovators in history would tell you, “Don’t quit your day job.” George Eastman worked full-time while tinkering in his mother’s kitchen on the inventions that let him found Eastman Kodak in the late 1880s. A century later, Steve Wozniak worked at Atari while developing the computer that he and Steve Jobs would turn into Apple. The fact is: No matter how great the idea, or how great a worker’s skill, it’s hard to mesh with an existing enterprise or any other group.

The reason is explained by Nobel laureate economist Ronald Coase in his influential 1937 essay, “The Nature of the Firm.” He theorized that people choose to organize themselves in companies and corporations rather than contracting their services out directly because of transaction costs. He cited: search and information costs; bargaining and decision costs; and policing and enforcement costs. “Within a firm, these market transactions are eliminated, and in place of the complicated market structure with exchange transactions is substituted the entrepreneur coordinator, who directs production,” he wrote.

Essentially, marketing, selling, pricing, negotiating and getting paid as a self-employed person isn’t all rainbows and unicorns – the work critical to running a business can be enormously complicated, time-consuming and costly.

Thanks to technology, much has changed since 1937. Mobile connections, broadband and ubiquitous data have reduced transactional search and information costs considerably. It is much easier, faster and economical for a small business to effectively compete with larger firms.

There has been a major shift in our buying behavior, too – consider how profoundly Amazon or iTunes has altered the way we discover, compare and purchase goods. Companies like Uber have used technology to reduce our search and information costs, as well as our bargaining and decision costs and policing and enforcement costs. If reducing one transactional cost shifts the economy, then reducing all three transforms it….

We are now officially unlocking the potential of the on-demand economy – one that will revolutionize the 21st century workplace and workforce. It’s so new, we haven’t decided on a name for it yet; it goes by various monikers like Uberization, the gig economy, the on-demand economy, the access economy and the peer-to-peer economy.

This on-demand economy offers the exchange of goods and services between individuals instead of from business to consumer. The people providing goods and services aren’t necessarily employed by the company connecting them with the customer, either. Many are independent contractors or freelancers.

Technology acts as the intermediary automating the handling of pricing and payments, vetting providers through a user-rating system and matching providers with consumers’ needs. This intermediary speedily brings together supply and demand via a platform that can be controlled by an app on any mobile device. The platform makes information available and accessible in the manner most efficient for the business, ensuring that transactions that are started are more likely to be concluded. The platform often obviates bargaining, directly polices its members, enables community-driven self-policing and enforces the terms of interaction. The costs of this coordination is added to each peer-to-peer transaction.

The new economic model is a highly efficient, productive and cost-effective marketplace. Platforms like Luxe, Lyft and Uber offer transportation services; Caviar, Doordash and Munchery deliver food from local restaurants; Instacart will shop for and deliver grocery orders; AirBnB, HomeAway and Onefinestay connect renters and homeowners offering available space with people seeking accommodations; Handy, Taskrabbit and Thumbtack will help a household find an available plumber, drywaller, cleaner or furniture assembler; and delivery services like Postmates and Shyp will pick up, pack up and send packages.

There appears to be no lack of supply or demand in this rapidly evolving phenomenon. Almost 53 million Americans currently serve as providers to on-demand platforms, at least part-time. Having goods and services on demand satisfies our need for “instant gratification” and allows consumers to find a broad array of competitively priced services 24/7 – they can get what they want, when they want with the touch of a few buttons.

The advantages for providers are many, too. No longer saddled with the time-consuming chores of the self-employed, like marketing and promoting services, negotiating transactions or chasing down payments, the on-demand economy provides freelancers with a turnkey, hassle-free method of accessing a large market of ready-and-willing customers whenever they want to work. It’s freelance freedom and flexibility with almost no barriers to entry.

You don’t need to be an economist to envision how the on-demand economy business model can benefit the marketplace as a whole: The Ma & Pa local restaurant that can easily deliver through a fleet without incurring staffing costs can substantially expand its market and service underserved markets. People can now use their cars to transport passengers and generate income rather than leave vehicles parked in driveways, resulting in a very good use of underutilized resources;. And, when a student can help an eBay seller package and deliver parcels on the fly, a job and professional support network are created that had not previously existed.

The new economy is here. It’s poised to democratize the marketplace and its workforce by maximizing underused assets, creating jobs, expanding markets and meeting the needs of underserved markets, all while creating a faster, easier way for us to get what we want, when we want it.

But this new business model comes with new world challenges as the distinction between personal and commercial activities becomes blurry. To thrive, policymakers, regulators, insurers and the companies enabling the new economy will have to work together to design a platform that protects consumers when they are operating as businesses.

Will Policies Break Down Into Apps?

With the news that Uber is partnering with Metromile to offer Uber drivers “pay-per-mile” insurance, along with AirBnB announcing host protection insurance to supplement existing insurance policies on rooms and houses, we may be seeing the first cracks in the decades-old marketplace for all-encompassing insurance policies.

And really the change should not surprise us. After all, it was just a few years ago when an airline ticket bought you everything: the seat you wanted, free drinks and hot meals even in the economy cabin and transportation for your luggage. These days, your ticket buys you admittance to the inside of the airplane-and basically nothing else. Every other option is now on an a la carte menu-Wi-Fi, beverages, meals, bags, preferred seating, movies. The whole experience is an upsell by the airlines.

Now that the door has been cracked a bit, what might be next? Well, as seen with the awesome app MyFitnessPal being acquired by UnderArmour, in industry after industry the advantage is all about the apps and the data. And if apps in cars can now track how far we drive and how often we’re slamming on the brakes, to save us money on our auto insurance, might we also be able to save some money on our health insurance by providing our health data to our carriers as well?

Fitbit

After all, when I step on my Fitbit Aria scale, it knows my weight and body mass index (BMI). MyFitnessPal knows what I’m eating and drinking, and, if I’m lying, the scale will catch me. If I go paleo and lose 10 pounds or complete an hour of CrossFit every day, shouldn’t I be rewarded with a lower health premium? Previously, you’d have to take a blood test and tell the underwriter if you were a smoker. But what if my rates could vary based on how healthy a lifestyle I’m leading?

And once you drive your health through this gap, you can disaggregate any part of our lives into the proverbial Chinese menu of costs. Might I pay more for life insurance if I drive my family vs. flying, which is inherently less safe? What about feeding my travel itinerary into an app and getting personalized travel insurance based on what I do on vacation? And don’t get me started on the “Internet of Things.” We already provide our thermostat and carbon dioxide levels to Google through their Nest products-shouldn’t we get a rebate from our homeowner’s policy for keeping the house at a cool 68 degrees?
Digital Thermostat

What’s interesting about these scenarios is how easily they flow once you get started. Which is how the whole apps market works-you break down a process into pieces and start to handle the individual parts.

So why wouldn’t we want to do the same with our insurance?

As younger people continue to lead the movement toward the sharing economy, showing less propensity to care about exchanging data for cost savings, it’s an increasingly interesting question. In a recent survey by the National Association of Insurance Commissioners (NAIC), 43% of drivers between the ages of 18 and 29 said they would consider enrolling in a pay-per-mile insurance policy-and that’s with only a few carriers offering such programs. There’s no doubt that the world is moving to this model.

Of course, the $100,000 question is, “when is enough, enough?” Will altruistic motivation among younger people to lower greenhouse gases and pollution triumph? Will $200 a year less in health insurance premiums be worth the cost of sending your Fitbit data to your health insurer? Will I choose to let someone track my movements in my house in exchange for preferential rates on my homeowner’s policy?

While we can’t say for certain right now, it’s not a huge leap to expect that, at some point, we’ll all be asked to “name our price.”

Is Verizon About to Outmaneuver Insurers?

Today, my (snail) mailbox contained a postcard from Verizon offering to turn my car into a connected car. To be more precise, the offer was to my 22-year-old daughter — neither my wife nor I got the same offer. In essence, Verizon provides a device that plugs into the OBD port, a second device that clips on the visor and a smartphone app to control the service. This is an excellent example of other industries seizing on opportunities that should be prime territory for insurers.

Verizon’s hum service (www.hum.com) includes capabilities in six areas: roadside assistance, diagnostic alerts, a vehicle locator, a certified mechanics hotline, maintenance reminders and hotel/car rental discounts. It’s being pitched as a great holiday gift — just plug it in, and you are ready to go!

This is by no means the only offer of this type. Other companies such as Automatic Labs (www.automatic.com) sell OBD devices that provide a variety of services. Automatic has a “Do not disturb” app (Androids only) that keeps the phone quiet while someone is driving, to minimize distractions and reduce the urge to text. The Automatic device/apps will also alert the driver when she is exceeding the speed limit, track when the ignition is on/off, send help if you crash and trigger actions like closing the garage door when you leave the house.

At SMA, we’ve been advocating more varied value propositions for telematics for some time. Some insurers outside the U.S. have ventured into value propositions that have included vehicle location, vehicle performance and some of the other services offered by Verizon. But, in the U.S. today, the primary value proposition for personal auto is the potential to reduce premiums; a few companies are providing other services, such as encouraging safe driving.

What is frustrating is that the insurance industry was the pioneer in telematics and experimenting with the use of OBD devices, car navigation systems and mobile apps based on real-time vehicle data. These efforts stretch back to the late 1990s, with pilots by UK-based Norwich Union, then Progressive and others. Unfortunately, most insurers have been thinking about the potential in the context of current insurance products — a coverage-based view.

The connected world is emerging rapidly, presenting many opportunities to provide services to homeowners, businesses, vehicle owners and other segments. Many of these services are aimed at improving safety and providing peace of mind to individuals and businesses.

Hmmm… sounds curiously like the core mission of the insurance industry.