January is always a time for resolutions, but no one can do it all on their own.
Every independent agency relies heavily on its carrier partners for support. As you ring in the New Year and begin to forecast your agency’s short-term future, what’s on your wish list in terms of coverages, products, issues and trends you’d like to see them tackle by 2020?
According to the 2018 Future One Agency Universe Study, agents believe these are the top five most important issues for carriers to address:
- New insurance coverage/products to sell: 51%
- Clients’ cyber risks/data security: 41%
- Sharing economy: 36%
- Usage-based insurance: 30%
- Internet of Things for commercial lines: 25%
Here’s a sneak peek at the status of these trends as we look ahead to 2020.
Internet of Things: Commercial Lines
Whereas Internet of Things (IoT) applications are off to a slower start in personal lines, “the business case is clear for commercial,” says Ellen Carney, principal analyst, digital business strategy at Forrester Research, Inc.
“You can clearly see applications for fleet management, for fuel management, are there problems with this piece of heavy equipment—insureds can use IoT systems to better maintain their vehicles and construction sites and properties,” Carney says.
“Broadly speaking, the IoT is, in concept, a wonderful thing,” agrees Jay Sarzen, senior analyst on the insurance team at Aite Group, a financial research and advisory firm. “You’ve got all these connected devices, and they’re all spitting out data back to the carriers to inform them about the true nature of the risk at hand.”
That’s an idea more readily adaptable to commercial lines, “because there’s no real cause for privacy concerns,” Sarzen points out. “It’s just a way to monitor the health of a particular machine, or the pipes at your flower shop, or whether your freezer’s cold enough that it’s not going to give everyone dysentery. If you’re using the IoT to track these things on a real-time basis, you can use that kind of information to write a whole lot of risks more confidently.”
Mark Breading, partner at Strategy Meets Action, believes “there’s an important role agents can play in the education and sales process” surrounding the IoT. “But insurers are still trying to figure out, what’s the value proposition? Do they provide individual IoT devices? Or do they need to package something for a small business where there’s multiple devices that improve safety, and identify accidents and perils as they’re happening?”
“There’s a lot of experimentation going on,” Breading adds. “But ultimately, if you can reduce your losses and increase engagement, if people are managing risk better, it’s a win-win: discounts on premiums, discounts on the devices and, hopefully, fewer losses.”
So far, the most common UBI applications have been in personal auto. But even though “for the last three years, UBI has been the only way you could save money on your auto premiums if you wanted to keep the same coverage,” Carney says, “consumers still just don’t want to be tracked.”
According to Forrester research, 33% of consumers say they are unlikely to purchase UBI, compared to 28% who are likely to purchase and 21% who fall somewhere in the middle. But despite that level of interest, Carney says actual adoption of UBI remains in the 2-3% range.
“There’s still a natural reticence to having your insurance carrier know how hard you’re braking, how hard you’re taking that corner turn,” Sarzen explains. “For many people, and I’ll even count myself in this, you go through the whole process only to find it doesn’t even give you that big of a discount. A lot of people weigh the pros and cons and they say, ‘The pros just aren’t that good that I need to have my insurance carrier looking over my shoulder.’”
Due to what Carney calls the “creepiness factor,” UBI is perhaps more readily applicable on the commercial side. Especially in a space as challenging as the current commercial auto market, “you basically just have to convince the business owner they can get a benefit and reduce their risk by implementing some of these things,” Breading says.
“A lot of carriers are hesitant to write trucking and transportation because there’s just too much unknown—you can’t control the actions of a rogue driver who might fall asleep at the wheel on a crowded interstate and plow into 12 cars,” Sarzen agrees. “But if you have technology in place that allows you to reasonably gauge the actions of the operators, that might make you a little more comfortable writing it.”
Carney believes UBI in personal lines could have a brighter future if carriers shifted their focus to making the driving experience more enjoyable. “So far, the gamification thing is a little bit trivial—points, merit badges,” she says. “Maybe it’s an interesting all-in application where your dinner is ordered and you’re brought there the fastest way, or you get to see the Christmas lights on the way home. The point is that no one wants to be chided for their driving. As I tell carriers, ‘I had a crappy day at work—don’t tell me I’m a crappy driver on my way home.’”
And James Castell, home/auto specialist, Castell Insurance in Sequim, Washington, believes adoption of UBI would increase among personal auto customers if agents did a better job selling it. Although most of the agency’s personal lines clients are retirees over the age of 55, Castell Insurance has been the No. 1 adopter of RightTrack®—Safeco’s UBI offering.
“Our usage rate is over 30% on new business,” says Castell, who observes that his fellow agents are hesitant to offer UBI for two reasons: Either they believe it’s taking money out of their commission, or they put off the offer because they plan to use it as a retention play later on.
“That’s doing a disservice to the client,” Castell says. “The way I see it, give it to them right up front, tell them, ‘Yeah, your rate’s probably going to go up in the next year or two because rates are going up across the board, but at least you know right off the bat you’re saving 15-18%, and you’re getting priced accurately instead of just being a number on a spreadsheet.’”
Over the past few years, more and more carriers have developed endorsements for personal auto insureds who drive for a ridesharing company like Uber or Lyft, and for homeowners insureds who rent out their homes on websites like Homeaway or Airbnb.
But in the years ahead, the sharing economy will continue to expand far beyond the limits of cars and homes. “Let’s say you’re living in the suburbs on half an acre, and you’ve got a riding lawnmower. Well, there are 168 hours in the week, and if it takes you three hours to mow the lawn, that means it’s sitting idle for 165 hours,” Sarzen points out. “You can theoretically monetize those hours by renting it out.”
In the Pacific Northwest, Castell cites websites like hipcamp.com, where you can list your property for those looking for backyard camping; outdoorsy.com, where you can rent out your RV or trailer; and veggievinder.com, where you can sell surplus produce you grow in your personal garden.
The concept even applies to pets: On rover.com, dog owners can find local pet-sitting options—a win-win for someone who loves dogs, but doesn’t necessarily want to deal with the responsibilities of owning one.
“People are getting wise to the fact that they can utilize their assets to make money,” Castell says. “It’s a shift in mindset for our society that people are trying to utilize what they have, and the money is there to be made, but they don’t realize it’s not covered. I don’t think there’s currently any good, wide-sweeping product for that mindset.”
Cyber Risk and Data Security
Although nearly 200 carriers wrote cyber insurance in 2017, according to Aon, Forrester’s research shows that only 12% of small business owners have purchased cyber insurance. And as cyber exposures continue to evolve rapidly, carriers are having a difficult time keeping pace.
“What you’re still typically getting is simple data breach coverage—money to inform consumers about a breach and to pay for two years of credit monitoring,” Sarzen says. “A slightly less common option that is increasingly being offered is expanded coverage to include business interruption, denial of service, ransomware—that sort of thing.”
Sarzen believes one of the biggest challenges in the cyber market is risk modeling. “There are a lot of carriers now that are chasing cyber business and they’re not necessarily pricing it appropriately, because they don’t fully understand the risks,” he says. “And I get it—you want to strike while the iron’s hot. But a lot of these carriers could be setting themselves up for potential disaster because they’re using actuarial assumptions based on professional liability insurance.”
In the years ahead, expect more carriers to team up with cyber risk modeling firms to develop underwriting methods that “more accurately reflect the true nature of cyber risk,” Sarzen says.
More carriers may also venture into the personal lines space—and not just on the high net-worth side. Jack Smith, executive vice president and owner at William A. Smith & Son, Inc. in Newburgh, New York, has seen plenty of high net-worth cyber endorsements (although he believes sublimits are still too low), but none so far for the average middle-class personal lines client.
“Who are most of our customers? They’re not the 1%—they’re the 99%, and they have just as much exposure to this too,” Smith points out. “Sure, they may not have as many assets, but there could even be more exposure when you think about the fact that any amount of money stolen could be a lot more of an issue than $100,000 from a multimillionaire.”
Other New Coverages
Along the same lines as the sharing economy, Castell points out that the side hustle mentality is leaving many consumers without insurance coverage—and they don’t even know it.
“You’ve got people signing up to be a dog-sitter or a counselor or a masseuse or a hairdresser, and they’re doing it out of a converted garage or a room in their house, and most carriers don’t know that,” Castell says. “There’s a real gap for home business exposures.”
Breading expects microinsurance, also known as on-demand insurance, to gain traction soon. “Maybe someone just wants travel insurance for one day, or they want to insure their expensive camera because they’re taking it out to a wedding,” he explains. “This has big implications for agents, because how are they really going to make money on that, when it’s a $1 premium for a flight delay policy?”
But with InsurTechs like Trov and Verifly gaining popularity, “we’re moving in that direction,” Breading says. “This is the way millennials like to do things, which means there’s a potential for huge volumes. I think of all of that as net additional for the insurance industry. You’re not going to replace traditional policies—it’s for new, different things that require different kinds of coverages.”
But traditional coverages won’t necessarily be immune to change. Owen Thomas, agent and senior account executive, Dial Insurance in Lumberton, North Carolina, believes the flood insurance market, for example, is in dire need of new solutions for policyholders—whether that means a more effective, efficient NFIP or new flood coverage options in the private market.
“Folks are still not getting answers from FEMA about Matthew, and that was two years ago,” says Thomas, whose community was also ravaged by Hurricane Florence last fall. “If you’ve got a $1-million claim, contractors are not going to do $100,000 worth of work and have to wait months for the insurance money to come back around. You’ve got businesses that are losing anywhere from $100 to 100,000 a day in revenue because they have to shut down while they’re waiting on that claim payout.”
Overall, Smith would like to see carriers “become as adventurous as our technology economy in terms of trying new things,” he says. “Carriers tend to hold on to yesterday for too long. The agent’s value is in actually advising people on what their risks are and what’s available to protect them, and the faster a carrier can help us do that by evolving their products to cover these new exciting things, the better.”
Jacquelyn Connelly is IA senior editor.