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.