Steve Jobs gets a lot of credit for re-imagining computing, for making us mobile and for putting technology in our hands that has changed the way we communicate, do business, purchase products — and so much more. But he had some help from things like the availability of increasingly powerful data storage options and more widespread internet connectivity. Jobs’ leaps and bounds are often the outlier. In general, adversity is more often the catalyst for dramatic change.
Prior to the ongoing COVID-19 pandemic, the insurance industry was working hard to overcome the perception of being antiquated and out-of-touch. Now, the challenges presented by a global health and economic crisis have insurance organizations scrambling to fully support a monumental shift in customer risk needs, demands and expectations.
But, remember: Out of adversity comes innovation and invention. For insurers willing to adopt a new mindset and leverage the latest technologies as a way of adapting to market changes, the global recovery that is underway is an opportunity. Insurers can come out of the pandemic stronger and more able to meet new customer expectations and global demands, and ultimately, to accelerate growth.
Unfortunately, change is rarely easy.
At a foundational level, there are operational and technology changes needed to enable insurers to match the pace of future business and succeed in this new era of insurance. And, as the insurance industry continues to evolve, it is important that leaders have the courage to embrace the opportunity that comes with disruption in terms of product innovation, distribution redefinition and new technology foundation.
The last decade has seen shifts in lifestyles, workplace trends and entrepreneurship. New businesses driven by technology — such as online groceries, drone-based businesses and services businesses underpinned by IoT — have cropped up. We have also seen new economies emerge, such as the gig and sharing economies.
Today, there are more small businesses than ever before, more women starting businesses and more people working from home. Expectations are also different. Policyholders demand more transparency into premium calculation or risk assessment; self-service options for bill payment, policy documents and claim status; and an ability to affect premiums through behavior modifications. These changes mean both individuals and businesses are carrying new or existing risk in different ways. Subsequently, true product innovation can no longer wait. The move toward more personalized, on-demand, usage-based insurance (UBI) products is happening across all lines of business, but especially in property and casualty (P&C) insurance, as a way of accommodating and supporting the evolving business landscape.
While many commercial policyholders will still purchase coverage from an insurance agent or broker, the next generation of policyholders expects channel options. In addition to the agent/broker option, insurers today must offer: viable online or direct functionality via a dedicated portal; partnerships with managing general agencies (MGAs) that can cover new geographies quickly; and point-of-purchase, embedded or ecosystem plays through integration opportunities. It’s no longer just about convenience. It’s about awareness and matching the right coverage to the right policyholder, through the right channel, at the right time. Finding the mix of distribution channels that allows for speed-to-market, producer profitability and a greater degree of self-service is key for insurance executives redefining the distribution diagram.
Investments in cloud and next-generation core systems, as well as emerging technologies will support new greenfield business models and insurance products and will accelerate innovation and growth in weeks versus months or years. New commercial coverages — such as those for cyber, cannabis and on-demand or UBI commercial auto — are born digital and are inherently flexible thanks to the nimble technology platforms on which they are built. As confidence in emerging technologies grows, enthusiasm for immediate adoption must be tempered by industry expertise that does not compromise regulatory compliance, privacy or the security of personally-identifiable information (PII).
Throughout history, there has been a strong relationship between disruption and opportunity — driven by innovation in business and technology. The COVID-19 pandemic, among other cultural, demographic and global pressures, is changing customer behaviors and business models and is creating demand for product innovation, distribution redefinition and new technology foundation. It follows that these demands create opportunities to make insurance better and more relevant through the innovative application of technology. But insurance leaders and organizations must be willing to think differently in order to make the most of this open window.
It’s like a scene from an action-packed Marvel thriller! The threatened hero is being chased down the street but sees a route for escape. It’s an alley. (We all know not to go down the alley, but the hero doesn’t listen to us.) At the end of the alley, there is a brick wall. (We all knew there would be a wall or a fence or an iron gate.) There’s no way around the wall. Our hero is going to have to get innovative in a hurry, find and use their superhero capabilities! They save the day. Save people. Save the world.
That’s what COVID has done to nearly every industry. It chased companies into corners. It threatened their markets. It even built brick walls in perfectly good alleyways, separating unprepared companies from the customers they need.
Sometimes, however, it is the crisis that makes the necessity become real. Think about it. The pandemic has obliterated any lingering doubts about the necessity of insurance digital transformation. With rare exceptions, operating digitally is the only way to do and to stay in business. It’s “go digital” or stare at that wall until the unthinkable happens.
And this is where superhero capabilities come into play for insurers!
Some insurers are leveraging their superhero capabilities. They are the Leaders. When COVID rewarded the insurance industry with the ultimate teachable moment, they took the lesson to heart. When something built a brick wall between them and their customers, they made the wall irrelevant. They are focused on today’s business while also creating tomorrow’s business – operating at speed with a multi-focus, unlike others.
Some insurers are trying to keep pace or catch up. These are the Followers. Determined not to let the Leaders get too far ahead, Followers are listening to the lessons of COVID and are launching initiatives and making changes to ensure their success. They are solidly focused on modernizing and optimizing today’s business; however, they are less focused on creating the future business. But they are continuing to gradually fall behind.
Some insurers are in a tight spot. They face dilemmas. These are the Laggards. Laggards generally understand the market dynamics but are clearly stuck in the past and have failed to rapidly move to planning and execution across the array of strategic areas – even for their business today. They are not moving to new cloud platform solutions or incorporating platform and emerging technologies. They are keeping their business focused on the past, rather than the future. If not already in one, they are approaching a downward spiral of relevance that will be nearly impossible to reverse.
Majesco’s 2021 Strategic Priorities first report, based on post-COVID insurer survey results, shows a dramatically widening gap between Leaders and Laggards – 64%, a year-over-year increase of 20% – when looking at their focus on key strategic initiatives in the past year. Followers were “treading water” to keep even with the previous year – with a 12% gap to Leaders.
To explore in more detail the widening gaps, the 2021 Strategic Priorities second report, just published, assesses how insurers are dealing with necessary transformation in the midst of increasing challenges. In today’s blog, we look at the details of this gap. What is it that Leaders and Followers and Laggards are doing differently? What can insurers do to make sure they are positioned to become or remain Leaders?
Despite COVID Challenges, Leaders Are Widening the Gaps
The COVID crisis seemed to come out of nowhere, blindsiding the world with the force of a tsunami. Suddenly, the “usual” way of doing things no longer worked. Adaptability is the new innovator. For example, COVID-19 reduced or eliminated “in person” time for agents, adding a layer of difficulty to distribution. Those who were prepared to digitally shift for everything from communications to support lead generation through alternate channels and launch products in spite of quarantines were in a better position to turn plans into actions.
What Did Leaders Do Differently?
A key to reducing the drastic impact is the ability to rapidly adapt planning – both the plans themselves and the process for creating and altering them. Throughout history, we often see that the difference between success and failure is related directly to the ability to evaluate, reinvent and adapt to the current environment. While COVID forced all companies to adapt, Leaders took advantage of the situation. Leaders exercised their adaptability to a much greater degree than Followers (25% gap) or Laggards (34% gap), as seen in Figure 1.
Figure 1: Impact of COVID-19 on annual planning
Leaders are also more in touch with COVID’s potential internal and external impacts on their companies. Externally, their awareness of the impact to their customers was 26% higher than Followers and 33% higher than Laggards (Figure 2), a crucial insight and strategic difference between Leaders and those trailing them.
Leaders know they can’t assume the customers they serve today will need or want the same products and services tomorrow… or that the same customers will even be there tomorrow. Leaders constantly monitor the changing demographics and dynamics and make short- and long-term adjustments to adapt and thrive in an ever-evolving market. If their current target markets are diminished by COVID, they know they need to adjust their product and service offerings, develop new channels, seek new markets and more.
The State of Insurers Last Year
COVID was a gut punch for all three segments in 2020. Leaders, Followers and Laggards all had setbacks in their companies’ growth and strategic activities compared with 2019. On an aggregate basis, Leaders (-12%) and Followers (-10%) saw similar declines, but Laggards’ (-24%) was twice the decline of Leaders, highlighting their lack of preparedness for the crisis (Figure 2). In contrast, Leaders’ response was to counterpunch and adapt with new approaches to planning underpinned by a greater awareness of the business implications.
Awareness and adaptability matter when responding to change.
Figure 2: COVID-19’s impact on growth and strategic activities last year
Despite the setbacks of the last year, Leaders continue to dominate with a 12% lead over Followers and a striking 64% lead over Laggards, as seen in Figure 3.
Leaders and Followers were nearly identical in their views of company growth during the previous year, but Leaders averaged a 15% gap over Followers on all the other factors. The largest gap (21%) was in Maintaining/Replacing core systems, and the smallest (12%) was in a new factor added this year: Allocating resources to business as usual/change how we do business.
Figure 3: Gaps between Leaders, Followers and Laggards in assessments of company growth and strategic activities last year
However, the huge gap between Leaders and Laggards was due to four key factors reflected in Figure 3 — all of which are linked to digital transformation and creating the business for the future:
Channel expansion: 103%
New business models: 97%
New products/services: 74%
Reallocating resources: 70%
These gaps reflect a vastly different strategic mindset between Leaders and Laggards, one that is squarely focused on the future and adapting to market challenges while the other is stuck in the past, trying to survive but falling further behind.
The gap between Leaders and Laggards this year is the largest we have ever seen, more than doublingin size since we started tracking these segments in 2018-19. In contrast, the gaps between Leaders and Followers have been steady or slowly shrinking when looking at these in terms of the last year. But that gap is deceiving because it portends challenges when looking out three years. The gap between Laggards and both Leaders and Followers reflects a stark reality that Laggards’ lack of awareness, planning and execution are putting their survival and relevance at increasingly greater risk – something they understand the implications of well.
This scenario aligns with a December 2018 Boston Consulting Group (BCG) article on how some companies successfully navigated disruption and created value, earning the title, “thrivers.” The article states that successful reinvention requires making a large bet—one that can overcome the drag of the old way of doing things. Making that big bet requires leadership, confidence and expertise to eliminate the “knowing – doing” gap. Those who wait – the Laggards – will need to make bigger and potentially riskier bets to gain parity with the “early responders” (the Leaders). As Leaders gain growth momentum, the “knowing – doing” gap grows, leaving Laggards with dwindling options and relevancy in fast-changing market.
The 2018 article seems prophetic in our current pandemic-dominated environment, as illustrated by this quote:
“In a time of technological revolution, shifting regulatory priorities, and fast-changing consumer expectations, most companies will face some form of disruption in their industries or core markets. Some management teams anticipate the coming changes and respond promptly. Others, slow to react, must eventually address a more mature threat. The speed of response matters. Early movers can experiment with new businesses and models. Those that wait have dwindling options and, as our new research shows, must make far larger, more concentrated bets to navigate the disruption.”
Speed matters, particularly during disruptive change.
Has the COVID crisis invigorated your organization or has it backed your planning into a corner and trapped your transformation list under a pile of priority revisions? Are you using your superhero capabilities or continuing down the same path?
It has been a year since the first cases of COVID became known, beginning an upending of the world as we knew it. As COVID hit, our strategies, priorities and plans all took on a new view, a new focus and in many cases a new urgency – through the eyes of digital engagement, for customers, employees and channels. The good news: Many initiatives were still relevant. The bad news: Many initiatives needed to accelerate because market assumptions and strategies changed substantially overnight.
COVID affected all industries, but some were better prepared than others because they were well down the path of digital transformation. McKinsey, in a multi-year, multi-industry research initiative, assessed economic profit by industry and identified what they term an “economic profit gap,” which became evident in 2010 and has been widening ever since. Within the industries tracked, insurance is in the bottom six, showing a gap that was growing even before COVID. This is no surprise, given the influx of capital to insurtech focused on transforming the centuries-old industry.
A Growing Gap Between Leaders, Follower and Laggards
Today, COVID has widened the gap between the top, the middle and the bottom – aligning to our Strategic Priorities research tracking Leaders, Followers and Laggards the past six years. The COVID crisis has exposed and heightened the power of future-ready, digital business models that proved more resilient, which in many cases accelerated dramatic growth. Consider these examples:
Streaming media vs. traditional cable
At-home cooking vs. eating out
Curbside pickup or delivery vs. eating out
Digital e-commerce vs. in-store buying
Home delivery vs. in-store buying
A recent report by Andreessen Horowitz found that, in the first six months of 2020, e-commerce in North America as a percentage of overall commerce increased more than in the entire previous decade – going from 16% in January 2020 to 27% in July 2020, after starting 2010 at only 6%!
Parts of the insurance industry also experienced this surge. AccuQuote, a national online life insurance agency, saw a 20% to 30% uptick in life insurance applications. This aligns with a Forbes report that said that online life insurance sales increased 30% to 50% for companies with speedy apps that used data/algorithm-driven underwriting, particularly for people 45 and under, the prime growth market of millennials and Gen Z. Another Forbes article reported that P&C usage-based insurance (UBI) accelerated in North America as people reevaluated traditional auto insurance. Prodigy, a provider of software for auto dealers that lets customers compare and buy insurance when they purchase a vehicle, said that online insurance sales grew 300% in 2020 and that millennial buyers tended to gravitate toward UBI.
Redefining the Future Out of a Crisis
History tells a great story of opportunity and innovation for those who embrace disruption. Looking back at other crises and catastrophes, there is a strong relationship between disruption and opportunity – driven by innovation in business and technology.
Think about the Spanish flu. It increased interest in epidemiology and established the national disease reporting system; World War II brought radar and computers; and the 2008 financial crisis gave rise to the sharing and gig economies and insurtech. Out of every one of those catastrophic or major events arose fascinating and world-shifting new businesses and technologies that helped us adapt to a rapidly changing world.
Now, a year after the emergence of COVID, companies – both insurers and those who are insurer customers – realize we will never go back to “normal.” Companies with resilient, future-ready digital business models were better-positioned to ride the trends, embrace disruption and thrive during the crisis, increasing their competitive advantage and establishing them as a next-gen leader.
Leaders Hit Hyper-Acceleration
Our new Strategic Priorities 2021 report, based on post-COVID insurer survey results, shows a dramatically widening gap when looking at insurers focus on key strategic initiatives the last year between Leaders and Laggards of 64% – representing a 20% growth in the gap from last year. Followers were “treading water” to keep even with the previous year – with a 12% gap.
Even more concerning is the widening gap with Leaders in the next three years of 102% for Laggards and 28% for Followers, reflecting a 40% and nearly 10% gap growth for each! These gaps do not bode well for insurers’ ability to grow and remain relevant with the ever-increasing pace of change and disruption.
Insurance companies have a unique opportunity to re-envision their future of insurance today and redefine their strategies and priorities for 2021 and beyond.
The COVID crisis along with other customer, demographic, technology and market boundary shifts are changing risk, customer behaviors and expectations – creating the demand for new risk products, value-added services and customer experiences that the insurance industry must respond and adapt to. These shifts create opportunities to make insurance better and more relevant through the innovative application of technology. Most importantly, we have the opportunity to make the change happen if we break down the silos and long-held business assumptions, embrace next-generation technology and ecosystems, and more!
Look at the accomplishments of Operation Warp Speed in the face of an “impossible” challenge! The approach delivered the first approved vaccine in less than nine months as compared to the “traditional” process, which could take 10 to 15 years!
Think what insurance could deliver – new products, customer experiences, services and much more. Instead of taking years … what can we do in weeks or months? The impossible is possible!
So how do you position yourself as a Leader, climb the economic power curve and become strong innovators?
Know where you are in the Knowing-Doing Gaps from our Strategic Priorities research that define Leaders that are accelerating digital transformation with resilient digital business models. Then rethink and reprioritize your strategies and priorities to take advantage of the shift and opportunities unfolding. Most importantly, execute on these priorities with focus and urgency.
This year’s Strategic Priorities report is more important than ever for insurers to assess where they stand and how they will respond, because “business as usual” is no longer a strategy in this time of dramatic change and pressure.
It is time for bold moves.
Finding the right balance between optimizing today’s business and boldly creating tomorrow’s business is more important than ever. Are you ready to strike that balance and rise as one of the post-crisis leaders?
“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security—we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.” — Satya Nadella, CEO Microsoft
This statement was on April 30– just two months into COVID – and reflects the pace of change and acceleration of digital transformation across all industries, including insurance. The pace of change in insurance continues to gather speed and dominate C-level discussions and planning.
Today’s changes require insurers to gain clarity on how to succeed in the future of insurance. Future market leadership will be defined by a new digital foundation and business model that embraces customer, technology and market boundary changes with vision and energy. This year’s Strategic Priorities report found that forward-thinking leaders are digitally transforming their current business, while also disrupting it by building their business model for the future. The gap between Leaders, Followers and Laggards over the last year and the next three years is staggering:
In the past year, Laggards had a 41% gap to Leaders; and Followers, had a 15% gap to Leaders.
Over the next three years, the gap widens, with Laggards falling 62% behind Leaders and Followers trailing Leaders by 21%.
The era of succeeding as a “fast-follower” is long gone. Today’s Leaders are reallocating their investments into digital transformation that gives them a compelling, engaging, customer-centric approach that differentiates them.
How do your strategies align to what Leaders are doing? What specific plans can you take to improve your odds of success? How can you accelerate your digital transformation? These questions and more are what the just-announced strategic alliance between Majesco and KPMG are focused on: to provide a sustainable, risk-optimized route from strategy through execution.
Gartner’s Emerging Risks Monitor Report from earlier this year noted that “organizations are concerned about their ability to keep up with a rapidly changing business landscape, driven in part by concerns about their own organizations’ lagging and misconceived digitalization strategies.” This is a profound statement. Insurance still embraces decades of legacy business assumptions and technologies that are roadblocks on the path to digital maturity.
Why is this important? Because KPMG’s research, compiled from various studies, found that digitally mature organizations outperform less mature organizations. How? Digitally mature organizations had 25% higher revenue growth and 31% higher EBIDTA over the last three years, 11% higher Net Promoter Score and higher speed to market by 17 months! Digitally mature organizations not only operate more effectively, they are obsessed with their customers and with defining, unlocking and preserving value for both the customer and their business.
For too many insurers who lack digital maturity, this difference and the growing gap between Leaders and Followers and Laggards should be a strong motivator to move forward on the journey and get ahead of the curve … now.
Visionary leaders see the market, customer and technological trends as a many-fold opportunity for insurance — and are preparing to use new sources of data, reach new market segments, offer innovative products needed by customers, create exceptional customer experiences, leverage new channels and more. KPMG’s recent report, 2020 CEO Outlook, found that the top priorities were focused on: digitization of operations (74%); new digital business models (70%); the creation of a seamless experience (73%); and a new workforce model augmenting people with AI (66%).
Majesco’s research echoed a similar sentiment and indicated that leaders are moving forward with a cloud-based no-code/low-code platform using microservices and open APIs (64%); are envisioning and experimenting with new digital experiences (68%); and are focused on digital ecosystems and partnerships (45%) that will allow them to stay out ahead of the trend and the marketplace.
This is why Leaders are accelerating their digital journey across three key areas as depicted in Majesco’s Digital Maturity Model (below):
Digitize – Create Portals for Traditional Products & Channels for Digitization & Automation of Existing Processes
Innovate – Launch Innovative Products & Services to Transform to Digital Operating and Business Models
Insurers can start at any point on this maturity curve – from focusing on today’s business or by creating the business for the future. Regardless, having a single digital no-code/low-code platform with rich insurance content and a robust digital ecosystem of partners to enable this journey across a wide array of business scenarios is crucial for success.
But acceleration means traditional methods have to be adapted to meet the time pressures.
Digital Maturity — From Good to Great
The book by Jim Collins, “Good to Great,” published nearly 20 years ago, is still so relevant in today’s digital age. While many different concepts were discussed in the book, the key to success was leadership. A key to that leadership is having the right people in the right positions to create an environment for success. They have a vision and goals for success and constantly review and act on data or results to “make it better.”
In today’s digital world that is about creating an environment that enables “test and learn” and innovation. And the theme is speed to market.
Nearly every time you turn on a light switch today, you are witnessing the power of trends upon shifting markets. Though lighting isn’t going away, the types of bulbs we use and their supply chain has been in flux for the past two decades.
On May 27, 2020, General Electric stopped making light bulbs entirely (after 130 years), selling its lighting division to smart home company Savant Systems. All of the other major lighting players have also been negotiating a market and industry in the midst of change. Government mandates for lower energy bulbs have removed most incandescent bulb manufacturing operations from the market. LED bulbs not only use much less energy, but the bulbs last far longer — so the sales of bulbs will drop over time.
Philips Lighting, another stalwart industry player (125 years old), decided that instead of leaving the business it would develop Philips Hue, a connected lighting solution. Smart homes have now given rise to smart lighting, including smart bulbs — digitally driven bulbs that can adapt themselves to the experience that a customer wants. Many can be controlled via home networks and mobile phone apps. Philips also chose to spin off a whole new brand, Signify, that would embrace sustainability and energy-efficient lighting.
Auto insurers are going to have choices like this to make. Auto insurance, coincidentally, is also a 120-year-old “established” industry, based around a policy transaction. Will insurers continue to provide traditional insurance in traditional ways until they are forced down a dead-end path, or will they embrace new trends, new technologies, new services and perhaps a new mobility ecosystem approach? Will they reinvent themselves to become next-gen mobility customer experience providers?
What are the trends pushing auto insurers to adapt their business models?
Why should auto insurers begin creating mobility ecosystems and customer experiences that will transform their purpose and their profits?
We consider five trending points that are driving change, including:
The Auto Insurance Buyer – A Shifting Demographic
New Data Sources
Ownership vs. On-Demand Mobility
New Auto Insurance Sources and Providers
Let’s briefly consider these trends and how they may affect auto insurers.
Trend 1: The Auto Insurance Buyer
For purposes of simplifying analysis within the Mobility Survey, we created two generational “super segments” by combining two different age groups, Gen Z and millennials and Gen X and Boomers. As expected, the Gen X and Boomer segment is more active than their younger peers in buying or influencing purchases of household services, insurance and financial products. Three exceptions were in individual life insurance and voluntary benefits, where the segments purchased at equal rates, and Amazon account usage, where Gen Z and millennials have a slight lead.
The older super segment has sizable leads in personal lines P&C insurance (auto and home/renters), employee benefit health insurance, investments and annuities. All of these products are good fits for the 30- to 60-year-old “sweet spot” for insurance and financial products, given they are at a life stage with the greatest insurance and financial planning needs as they establish households and families and accumulate wealth and possessions that need protection.
In 2021 – one year away – millennials, all by themselves, will meet and begin to surpass the older super segment. The young super segment’s dominance will accelerate four years later when the first members of the Gen Z generation also turn 30, vaulting this new generation to buying dominance. Providers of household services, insurance and financial products that have not adjusted their business models, products and customer engagement experiences to meet the needs of this new “sweet spot” buyer market will find themselves challenged and left behind.
The insurance industry will need to adapt to this new super segment of new customers.
Figure 1: Insurance buyer “Sweet Spot” populations by generation in 2000 vs. 2020
Trend 2: Advanced Technologies for Vehicle Safety
Nearly 60% of Gen Z and millennials and half of Gen X and Boomers who own or lease a car have at least one type of newer safety or convenience technology in their vehicle. Navigation systems and blind spot detection are the most popular among both segments. The Gen Z and millennial vehicles have higher rates of collision avoidance systems, surround view systems, automatic braking and automatic parking.
These technologies were expected to depress auto insurance premiums thanks to fewer accidents. However, insurers’ experience to date has not matched this expectation. The cost of repairing or replacing these more sophisticated vehicles with advanced technologies is greater than the savings derived from lower frequency. Some of these technologies have indeed shown benefits, but the translation to lower premiums has been minimal. For example, NAMIC found that electronic stability control saves a customer an average of only $8 on the annual premium. And, “those who pay for blind spot warning, driver alertness monitoring, lane departure warning, night vision or parking assistance systems save nothing at all.”
Is it possible that eventually the impact of these technologies will overtake the cost of maintenance and repair? In theory, yes. The greater number of high-tech vehicles that are on the road, including the autonomous vehicles of the future, the greater the chance that vehicular accidents will drop. There are, of course, an unknown set of circumstances related to COVID-19 and auto use. Will a significant percentage of the workforce stop commuting? Will public transit commuters begin to use their vehicles to avoid exposure? Or, will technologies such as driverless vehicles create an entirely new commuting scenario? Lilium, a German aviation startup “unicorn,” has plans for bringing flying taxis to the skies by 2025, which will further change the mobility options. The answers may lie in the rise of mobility ecosystems, which we’ll examine later.
Trend 3: New Data Sources
Connected devices (and other data sources) are enabling underwriting and pricing based on mileage, location and driving behavior, which could lower premiums, while also making them potentially less predictable. Surprisingly, there are very similar levels of interest in these new data sources between the two generational super segments.
The COVID-19 shelter-in-place actions slashed the number of miles driven – by an estimated 50% between mid-March and mid-April. This is spurring speculation and debate about the pandemic’s longer-term effect on mileage-based or usage-based insurance. Although streets and roads have fewer vehicles on them, numerous states and cities have reported increases in speeding and reckless driving and fewer but more severe accidents. From an insurer perspective, broader usage-based/UBI models would be the preferred approach post-COVID-19, rather than simply tracking miles driven.
Despite the growing acceptance of new data sources, with the potential for variable premium by the month, the traditional six-month term with a set premium is preferred by both generational groups. However, Gen Z and millennials have a higher interest in a usage-based model that is automatically triggered by sensing when the car is parked or being driven.
Within the Gen Z and millennial segment, 28% of respondents indicated they have used a device or app to record their mileage or driving behavior as compared with only 15% of the older super segment. Both generational super segments showed strong interest in a smartphone app that provides real-time alerts and advice about driving behavior and conditions. Interest is even higher if following the advice leads to discounts on the next insurance bill.
Trend 4: Ownership vs. On-Demand Mobility
There is growing popularity and use of non-owned vehicles and alternative mobility options like rideshare, rentals (traditional and shared economy) and other local or urban rental options like scooters and bicycles. With their increased usage comes the threat of an offsetting level of private vehicle ownership and leasing, leading to a declining need for personal auto insurance. This declining ownership could accelerate if more people work from home, eliminating the need for the traditional “two-car family” and using alternative, on-demand mobility.
All-inclusive vehicle subscription services are a relatively new mobility option offered by several auto manufacturers (currently, most are luxury brands) and third-party services. Most allow the customer to switch vehicles on a periodic basis and pay a set monthly fee that covers the vehicle, maintenance and insurance. A surprisingly high number (30%) of Gen Z and millennials indicate they are using or have used a service like this – nearly four times higher than the older generation, indicating interest in different access to mobility options as compared with “owning” a vehicle. Some of these users likely correlated these experiences with micro-term car-sharing company’s such as Zipcar.
Nearly 26% of Gen Z and millennials and 20% of Gen X and Boomers indicate they would or definitely would consider a vehicle subscription the next time they go to purchase a vehicle. When you add in the “maybes,” these numbers jump to 71% and 61%, respectively.
Figure 2: Usage of mobility technologies and participation in mobility trends
Gen Z and millennials use car-sharing services more frequently than Gen X and Boomers. Over a third (35%) traveled this way for five or more days in the previous month, compared with only 18% of Gen X and Boomers. Clearly, this is an established mobility preference within the younger generation that will fuel a growing market for on-demand rideshare coverage and indicates, once again, the potential decrease in car ownership by this younger generation.
Trend 5: New Auto Insurance Sources and Providers
Most of the consumers we surveyed said they still own or lease one or more vehicles. The traditional purchase methods for auto insurance are still the most preferred channels — agents/brokers or direct via an insurer’s website. This is consistent from the last couple of years from our consumer research.
However, Gen Z and millennials also indicate strong interest in insurance embedded in the purchase cost of a vehicle, or buying insurance from a vehicle manufacturer’s website, an affinity group, car dealership, or car shopping website – about 25% higher than the older generation. Interestingly, this group also showed strong interest in purchasing insurance from three of the “tech giants,” Amazon, Google and Facebook – a wake-up call for both insurers and those selling vehicles. For a better glimpse, see Fig. 3 below.
Figure 3: Interest in traditional and new sources of auto insurance
If we look at all five of these trends in aggregate, auto insurers are facing a light bulb moment. Many of these trends will likely accelerate as we reconsider our work lifestyles moving to the home coming out of COVID-19. If changes are going to occur in demand levels, channel types and service offerings, can auto insurers compensate by bringing the right kind of change to the market? Can they invent their own supply chains of opportunity?
In our next mobility blog, we look at this supply chain in depth. Auto insurers are redefining themselves as mobility companies and in the future will be seeking to own the mobility experience using a vast mobility ecosystem, ideally building those ecosystems around their brands. Those who will lead the mobility shift are the ones who have prepared their business systems and models that will focus on the customer mobility experience and foster non-traditional products and services.