11 minute read 21 Feb 2022
Changing consumer needs signal major shifts for P&C insurers

Changing consumer needs signal major shifts for P&C insurers

Authors
Charlie Mihaliak

EY Americas Insurance P&C Transformation Leader; Principal, Strategy and Business Transformation

Husband. Father. Teacher. Problem solver. Team builder. Mentor. Happy warrior.

Chris Raimondo

EY Americas Insurance Technology Leader

Passionate about building a better working world. Helping insurers modernize and solve complex business challenges through technology and innovation.

11 minute read 21 Feb 2022

EY research shows how the pandemic changed consumer behavior and created new interest in P&C insurance. Flexible products can spark growth. 

In brief 

  • Consumers are most interested in policies that blur the line between small commercial and personal lines, as well as ensuring that they have the right coverage.
  • Insurers that reorient their operations and technology for greater customer centricity will be best positioned to succeed. 
  • Consumers carefully consider insurers’ environmental and social commitments when making purchasing decisions. 

Increased focus on financial well-being and security. More affordable and tailored alternatives for insurance protection. A desire for flexible and personalized services that address specific needs.

According to recent EY research, consumers’ insurance priorities have evolved in the wake of the COVID-19 pandemic. These changes in priorities are already influencing consumer behaviors in both life and property and casualty (P&C) insurance. The expanding scope and accelerating pace of change present insurers with a generational opportunity to engage consumers with new value propositions and compete on factors beyond price.

This article will examine the evolving consumer attitudes that were captured by our research and highlight the potential impacts and opportunities for P&C insurers. In August 2020 and July 2021, Ernst & Young LLP surveyed more than 300 US consumers as part of a broad global study of the pandemic’s financial impacts. Specifically, we examined consumers’ behavioral adjustments, interest in different insurance products and buying preferences. (You can see the full global results here and review the full methodology here). Our 2020 study also included a survey of 400 small business owners and those findings paralleled with our 2021 research study of the workforce benefits market.

What P&C customers are looking for
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Chapter 1

What P&C customers are looking for

Flexible and tailored products that deliver broader protections and more financial security

The primary finding from our research is the spike in consumer demand for new types of products and offerings. For example, usage-based auto insurance makes more sense for consumers commuting less – approximately 80% of survey respondents said they were interested in usage-based policies. And, since many are working from home, significant percentages of respondents expressed interest in holistic protection-blending products that cover accidents at home and provide protection against cyber threats. Demand for pet insurance has also risen sharply as part of the trend toward more holistic and blended products.

Consumers also show increased interest in policies that pay their mortgage in the case of lost income and policies offering home protection services. Financial wellness and security became more important to more people during the pandemic, which looks like a durable trend, particularly with inflation on the rise.

Small business owners are interested in business interruption policies that protect their revenue from forced operational closures in the event of future pandemics, as well as additional health and hospitalization protections.

Consumers’ engagement behaviors have also evolved, with digital channels now the most preferred for broker and agent interactions. The vast majority of small business owners prefer digital engagement too. As important as digital channels have become, P&C leaders should recognize that true customer centricity requires that more tailored products be closely designed to meet specific customer needs and personalized experiences. Ready access to property and casualty insurance agents and brokers for high-value conversations will remain important for customers facing “moments of truth,” or major life events, when they are exposed to new risks, reset financial goals or have a sensitive claim issue.

Beyond these specific types of protections and engagement preferences, consumers have new and different expectations for affordability, understandability, personalization and flexibility. The survey results also support our hypotheses about the insurance market’s future direction, which are highlighted below. Further, they clarify why and how insurers must transform their operating models and technology if they are to deliver the products and services that customers want and in the ways they want to access them.

Four hypotheses
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Chapter 2

Four hypotheses

An evolving market and changing consumer needs point to high-value products and ecosystems

Hypothesis 1: With more individuals launching small and micro businesses, the lines between small commercial and personal policies will continue to blur. 

From the rise of the gig economy to the Great Resignation, insurance products must keep up with the profound disruptions of the 21st-century economy. As more individuals launch side-hustle businesses or enter retirements that can last decades, they will need unified and affordable coverage that reflects their unique individual situations. Some insurers in certain states have already launched products targeted at this segment, which we believe is poised for significant growth.

This new breed of P&C insurance coverage will feature flexible coverages for the growing number of people who drive part time for ride-sharing platforms, rent out spare bedrooms to travelers, operate craft businesses out of their garages or otherwise seek supplemental income. Homeowners’ policies that feature more extensive cyber coverage likely overlap between personal and commercial lines. Some customers will be in the market for professional liability (e.g., executives and officers) coverage.

The scope of the opportunity is truly compelling. According to the U.S. Department of Labor, the number of unincorporated, self-employed workers has increased by 500,000 since the onset of the pandemic, a 6% increase since 2020. And more than 4.5 million new businesses were incorporated between January and October 2021, according to the Census Bureau. That’s a 56% increase since 2019. Only a third of those new companies are expected to hire employees.

Hypothesis 2: As inflation increases, smart shoppers will be looking for more value.  

With inflation a growing concern, consumers are not only paying more attention to their budgets, but they are also looking for more value from every dollar they spend. Insurance is an obvious target when individuals and families look to reduce expenses. Perennial pressures on carriers to reduce costs through expense management, underwriting and claims accuracy will only grow more intense. Of course, that pressure will lead many insurers to invest more in process automation and digitization in pursuit of a lean and flexible cost base. 

But insurers should look beyond cost-cutting to find value creation opportunities. After all, many consumers are asking, “Am I sufficiently protected?” at the same time, they are asking, “Can I find a better deal elsewhere?”  Property and casualty insurers must articulate their value propositions more clearly and persuasively to answer both questions. According to our study, just 53% of consumers fully understand the coverages provided by their personal insurance. 

Beyond educating consumers on why they need certain types of policies and what exactly is covered, carriers must also offer new services that are aligned to consumer needs. For instance, more than 40% of consumers are interested in home protection services and products that pay for after-hour repair services if a claim occurs. 

Discounts are also of interest to consumers. Significant percentages want pay-by-the mile auto policies and would install smart sensors in their homes in exchange for lower premiums. Large majorities of small business owners are looking for products that charge them based on the mileage they put on their business vehicles rather than a set monthly premium. 

Carriers with traditional distribution networks will not be able to rely entirely on their agents to understand and meet these nuanced needs. Advanced digitization of the customer experience will be required to efficiently identify specific consumer needs and satisfy those needs with tailored products and services. A new vision for agent-carrier relationships will be necessary for some carriers to take advantage of the current surge in demand.  

Hypothesis 3: Consumers may not know what ESG and CSR stand for, but they are making decisions based on companies’ commitments to environmental and social issues.

Surprisingly, 59% of consumers worldwide know their insurers’ corporate social responsibility (CSR) stance at least somewhat well, with consumers under the age of 45 most aware of carrier social commitments. An average of 56% of consumers have taken at least some action (such as purchasing or recommending a product) involving insurance or other financial services firms based on a company’s CSR positioning. Reputation is the most critical factor, with 25% of respondents saying that they have allowed a brand’s CSR reputation to influence a purchasing decision. Large numbers of small business owners are also attuned to insurers’ social efforts.

Income equality is the most essential area of social commitment for insurers, according to 50% of survey respondents. Further, nearly 70% of the respondents most impacted by the pandemic consider insurers’ stance on income equality before choosing a provider. The most impacted consumers tend to be younger and have lower incomes, both segments that insurers have struggled to reach in the past. 

These findings suggest that environmental, social and governance (ESG) issues are more than a regulatory matter; they also impact brand reputation and offer possibilities for differentiation. Insurers may consider marketing and advertising programs that highlight their purpose, values and CSR commitments. New products and features can also demonstrate these commitments. For instance, insurers might tailor coverages and offer premium discounts for customers who buy electric vehicles, install solar panels, or take other environmentally friendly actions. 

First-movers and early adopters are moving boldly to launch sustainability-focused products onto the market. For instance, within the construction sector, risk insurance programs encourage the use of more sustainable building materials and the retrofitting of older buildings with more energy-efficient systems and instruments. To combat the risk of damage from extreme weather, insurers are launching parametric micro-insurance solutions for small farmers and agricultural workers. Private flood insurance is helping to address shortfalls from public backstop programs. Based on our market experience, we expect to see significant growth in policies that are designed to promote responsible risk behaviors, as well as positive ESG outcomes, and help organizations and individuals manage growing climate risk.

Hypothesis 4: As consumers demand more convenience, embedded offerings and ecosystems will expand. 

Consumers have grown steadily more comfortable with digital interactions and now expect seamless information sharing and add-on purchases. For insurers, there is an opportunity to embed insurance products upstream into the purchase processes of other products and services. Certainly, more policies will be offered at the point of sale for home appliances, consumer electronics, travel and other purchases – that trend shows no sign of slowing. Carriers should view the growth in the digital “buy now, pay later” offerings as a precursor to increased consumption of embedded insurance.

Smart homes and monitoring systems also give insurers the opportunity to add more value. Consumers can protect themselves against potentially expensive risks (e.g., water leaks) and receive commensurate discounts. The logic behind safe-driving discounts – that low-risk behaviors and preventive actions merit lower premiums – will be applied to commercial, as well as homeowners’, policies. 

Further, ecosystems make it easier for P&C insurers to distribute the types of hybrid products that consumers desire.  According to our survey, products that blend features of health insurance with homeowners’ policies would be popular. Insurers must undertake important changes to their technology infrastructure and operating models if they are to capitalize on the ecosystem opportunity.

Enabling the necessary innovation for today’s opportunities and challenges
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Chapter 3

Enabling the necessary innovation for today’s opportunities and challenges

Reorienting operations and technology to meet customer needs

Traditionally, insurers have product-centric organization structures that are focused on selling a handful of core products, rather than customer-centric organization structures that are designed to help individual consumers with unique needs find the ideal solutions at the best prices. The product-centric organizations are grounded in functional operating models – from product development, marketing, sales and services, to finance, technology, data management and analytics – that further inhibit the collaboration necessary for true customer intimacy.

Given the lack of integration, customers that wanted to buy different products from the same carrier often had the experience of working with different companies – especially when their agency was organized by product specialists. The bottom line is that existing organizational models and technology infrastructures are serious impediments to customer-centric innovation. And, near-term economic pressures almost always favor enhancements to existing products versus developing entirely new offerings that can satisfy shifting market needs. 

Rigid technology platforms that are costly to update and launch new products make the “test and learn” nature of product innovation difficult to afford. Many carriers are further constrained in offering broad protection and services because products exist on multiple policy administration systems. 

Rising customer expectations and shifting needs have made this approach untenable for the future. Emerging products and services, which require continuous customer journey analysis, marketing, price monitoring and timely promotions, cannot work in the traditional siloed model.

Leading carriers have begun to reorient their organizational charts and operating models around customer needs rather than product portfolios. Agile approaches can enable faster, smoother interactions among cross-functional teams, reducing overall product development costs and enabling more rapid market testing.

Given the shift in preferences to digital channels and need for deeper customer intimacy, distribution must be examined closely to determine which brokers and agents are set up to assist and guide customers to find the right solutions and clarify the value proposition. Compensation models for distributors may need adjusting. The same is true for siloed performance incentives based on metrics for a single product. These moves are essential because customers want products that bridge traditional lines of business. 

More agile product innovation cycles can give customers and carriers the ability to more easily tailor products and add features in real time. They can easily add new people – not just children, but adult relatives or partners – to their policies. Beyond new offerings (e.g., policies for pets, legal services and cyber coverages), insurers will need to expand their capabilities for usage-based offerings and products and services that can be turned on and off seamlessly and in real time.

To stay competitive, insurers must adopt nimble, cloud-based platforms and architectures that allow them to quickly design, code, test and launch new offerings at much greater speed than in the past – days and weeks rather than months or quarters. Plug-and-play digital architectures will allow multiple policy systems to easily communicate and share data, as well as strengthen connections with InsurTechs and other partners that can provide complementary capabilities. Such an architecture will be necessary for insurers to develop micro-commercial bundles within personal policies, expand usage-based and IoT-connected policies, offer warranty and other embedded products via different platforms, or create their own ecosystems.

All of these trends and opportunities reflect the expanding definition of customer centricity. In the past, a strong mobile app or online portal was viewed as a major step forward for insurers. Today, however, consumers are looking for solutions that can be fully personalized and are frictionless to buy. The quality of the products and the overall experiences are the right metrics to gauge just how customer-centric insurers are.

Methodology

The EY Insurance Consumer and Small Business Survey 2020 was conducted by the EY Quantitative Economics and Statistics (QUEST) group and fielded August 3–5, 2020, to a panel of approximately 306 US consumers aged 25–55 who are current homeowners or renters. In July 2021, EY QUEST surveyed 307 anonymous participants who were selected to align with US census demographic profiles about their COVID-19 impact and challenges, their financial position, concerns and outlook, and their insurance product and purchasing preferences.

Summary

As the initial pandemic impacts gradually fade into the rearview mirror, it’s clear that customers’ needs have changed and that they are more interested in insurance than they have been in a long time. For P&C insurers , there is a huge upside opportunity, but also a lot of work to be done if they are to fully capitalize on it. 

About this article

Authors
Charlie Mihaliak

EY Americas Insurance P&C Transformation Leader; Principal, Strategy and Business Transformation

Husband. Father. Teacher. Problem solver. Team builder. Mentor. Happy warrior.

Chris Raimondo

EY Americas Insurance Technology Leader

Passionate about building a better working world. Helping insurers modernize and solve complex business challenges through technology and innovation.