Why now is the time for change in personal lines insurance

As premiums increase significantly, the industry is looking for new solutions to persistent problems. Like it or not, the tools and processes that have helped the insurance industry weather past market changes are not the same ones as the future will require.

So, what are the large issues facing brokers today? Broadly, I see a few critical issues driving current conditions:

1. Manual and inefficient processes
2. Aging population and talent shortage
3. Increasing number and severity of natural disasters

Let’s look at each of these.

Manual and inefficient processes

Personal lines brokerages and agencies are highly process-oriented, with rigorous operational efficiency being essential. In a highly-regulated industry like insurance, structured systems are important to maintain a high level of quality and accuracy across a high volume of transactions.

A lot of similar processes in other industries have been digitized and automated. For example, financial institutions have automated processes like credit scoring, fraud detection and compliance reporting. In insurance, however, there are still a large number of core workflows that remain manual. This results in needing to manage large headcounts simply to maintain existing business, never mind growing it. These are processes that can, without a doubt, be streamlined via digital automation, which will increase real productivity and reduce manual errors.  

Why has this not happened in insurance? It’s a combination of complex data problems that have been difficult to solve, misaligned incentives with existing stakeholders, and complacency across the board. I believe the industry now sees the importance of change and adaptation, and is accepting new technology rapidly as a result.

An aging population and a shrinking workforce

The insurance agent demographic distribution is similar to that of a G7 country - a large aging population. As the average age of the workforce climbs, there aren’t as many young people entering the industry to fill high-skilled roles. For an industry that is heavily reliant on human capital to deliver its services, this shortage of experienced professionals creates widening operational gaps, leading to slower growth, lower quality of service and overwhelmed staff. 

One of the big reasons young people are forgoing a career in insurance? A lingering perception that insurance is outdated. We hear from our customers that manual and inefficient processes are a huge contributing factor to this ‘outdated’ reputation, and not surprisingly, one of the reasons why young people aren’t coming to - or staying in - the insurance industry.

This is something we must change to ensure the success of the industry going into the future.

An increasing number and severity of natural disasters

Natural disasters are increasing both in volume and severity across the US and Canada. We are also seeing extreme outliers becoming common, for example, multiple hottest days on record in a month. As society improves and our infrastructure modernizes, it becomes more expensive to fix. Add these factors together, and it means that the claim amounts that follow from natural disasters have risen exponentially over the few decades, and are continuing to climb. In the US, in the 1980s there were 33 natural disasters with a cost of $220 billion. This has increased every decade, with the 2010s having 131 natural disasters and a cost of $994 billion. The last five years alone have had 102 natural disasters, with a cost of $618 billion, so we are pacing to once again have the most severe and expensive decade.

What does this mean for Insurance brokers and agents? Well, it means that carriers need to raise rates to balance their loss ratios, which ultimately results in significant premium increases to consumers.

Increasing rates on renewal, and more claims, leads to an increase in the number of service calls. However, with manual workflows slowing things down, and a lack of qualified staff ready to assist, brokerages find themselves struggling to handle the increased workloads. Across our customer base, we regularly hear of 40% to 50% of clients calling in to discuss their renewal. This is untenable with the way work is currently done.

Now is the time for change

These issues are combining in North America to create a perfect hard market storm, which, unsurprisingly is leading to a steep increase in overwhelmed and overworked staff. There is more work to do for agents than ever before, less people to do it, and there needs to be a solution to bridge this gap.

Brokers and agents across the nation are playing so much defence, there’s no way to play offence. Instead of providing proactive service at the time of renewal, they’re scrambling to review policies only when clients express their concern about an unexpected rate increase. Ultimately, this means lower retention rates, more staff turnover and less expansion of existing accounts.

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It’s clear that things need to change in the industry. For starters, brokerages should take a page from tech’s recruiting playbook, building better business and cultural practices that are designed to attract and retain young, motivated talent. Improving consumer education on why insurance premiums increase, especially in relation to extreme weather events, is becoming increasingly crucial - both to increase client awareness and improve client experiences. This is something human agents and brokers  should be spending time on with clients.

However, when I look at the current hard market and how best to tackle it head-on, the true agent of change that will drive more of this than anything else is technology, which has the transformative power to enable true innovation in this space, and drive real productivity growth that is sorely needed. 

There are five main drivers of real productivity changes:

1. Access to capital
2. Competition
3. Good government
4. Education 
5. Technological innovation 

Right now, I believe that all of these factors exist in North America (although many people may have a bone to pick with good government - everything is relative). What is lagging in insurance, is technological innovation.

Technological innovation is also the only lever that can be increased exponentially, and continuously over time. Technological innovation over the last 200 years is the key driver behind the unprecedented advancements in industries like healthcare, agriculture, and transportation and logistics. These innovations generate both societal change and collective wealth. 

Agencies need to become more efficient and effective, unlocking sustainable productivity to deliver a better service and experience to their clients. The important thing to note here is that both of these changes (productivity and increased service) need to happen in tandem to be successful. 

Clients expect and deserve a modern experience, and brokerages can’t keep up their current pace forever. Technology can — and will — solve both of these problems at the same time if it’s properly adopted and utilized by the distribution channel. This becomes even more critical when you factor in advancements in AI. If agencies don’t modernize now, they risk being left behind as we move toward the next generation of digital-first insurance.

We are at a tipping point. Everyone realizes change needs to happen in the insurance industry, but few know what this change looks like or how to make it happen. This is why Quandri is building our Renewal Intelligence Platform. We’re creating the change we think needs to happen in the industry, one renewal at a time. 

Why focus on the renewal?

In my view, the renewal is the core of a personal lines brokerage. It’s the point where most clients interact with their agent, and therefore where their experience with an agency is driven from. For most clients, it’s the only touchpoint they will have with their broker each year. Based on our customer research, it typically takes two to three renewal terms before a personal lines policy turns a profit. Therefore, ensuring client retention up to that point (and beyond) is critical to driving sustained profitability.

The renewal is also where a lot of expansion revenue is driven from. Understanding what changes have occurred throughout the year, protecting additional assets, and rounding out the policy is most naturally done at renewal when the client is thinking about their insurance and in the buying cycle. Similar to SaaS businesses, where a lot of our expansion revenue comes at the time of renewal.

The renewal is a revenue engine for agencies and deserves to be treated as such.

Doing this takes a lot of work. This is especially true if your team is relying on manual and inefficient processes to service the client, whose expectations of a modern experience increase every year. Layer in a hard market on top of that, where, according to our customers, 30% to 50% want a policy requote and it’s safe to say the current renewal process requires a facelift. 

Considering the importance of the renewal event, there is sorely little tooling in place to manage the process and deliver an exceptional client experience. Policy and client data is often reviewed manually, with people going through policies line-by-line to see what coverages are included, what changed year-over-year, or if there are any missing discounts. This is an astounding volume of data to review across an entire book of policies. Because of this, this data set is not used to its full potential to make data-driven decisions regarding which renewals are high-risk, identifying expansion opportunities, or assessing E&O risk in your book.

Instead, most brokerages handle the renewal process reactively, servicing clients who call in rather than proactively reaching out to strategically significant accounts. The squeaky wheel gets the grease.

At Quandri, we see the renewal as the foundation of a brokerage, and yet in most cases, it’s being handled in a manner that is inefficient and at its worst, downright archaic. Solving the renewal problem will start to resolve the broader productivity problem, and if we can help our customers solve this, we’re well on our way to changing the industry to what it can be.

What is Renewal Intelligence?

At its core, Renewal Intelligence ingests and understands everything about an account upon renewal - driving insights, risks and opportunities to your front-line staff on every single renewal. Quandri will help segment your book and prioritize the risks, opportunities, or quote options for front-line staff to follow up on. Using data engineering, workflow automation and artificial intelligence, we can understand and categorize all of this data, and run it against our Insurance Intelligence Engine, which is effectively an understanding of all carriers, coverages, underwriting guidelines and regions, so Quandri can provide accurate and relevant insights to brokers. In the future, this will also mean communicating these insights out to end clients on behalf of the agency, for the clients they can’t get to manually.

The customers that we work with at Quandri have attributed our technology to helping them  drive higher retention rates and increase upsell and cross-sell rates across more accounts — all while spending less time manually processing work. This is because the people who used to spend hours manually working in the renewal process can now use Quandri’s Renewal Intelligence data to help them focus their time and attention on proactively reaching out to high priority accounts. This makes life easier for your front-line workers, reduces overwhelm on staff and contributes to business profitability. Most importantly, this enables a modern and client-first insurance experience that clients expect. 

We are entering a very exciting few years for the insurance industry, where solutions for these critical problems are going to be created and adopted at scale. We are on the precipice of massive innovation, and if history has taught us anything, whenever a disruptive technology comes around there are always winners and losers. To emerge as winners, brokers and agents need to act fast, embrace change and rethink the status quo. Those that do, will ride the wave of digital transformation and become next-generation leaders in insurance. 

Jamieson and I are building Quandri because we are passionate about enabling this future for brokers. We look forward to working with you to help turn it into a reality.

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