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Leading insurers are defining new revenue paths while contributing to communities in the process. This is defined as inclusive insurance, a concept that is playing a key role in the insurance industry’s evolution.

Take two of the major global carriers, Generali and Allianz: Generali has created The Human Safety Net, to support families living in vulnerable circumstances. Allianz has created insurance offerings that cater towards migrants living in Europe. These insurers understand that inclusion at all levels is an urgent priority. The World Bank Group considers financial inclusion, the umbrella financial services term under which inclusive insurance sits, a key enabler to reduce extreme poverty and boost shared prosperity. Women, minority groups, and those in low-income communities are the statistically underserved or excluded population in the insurance market. This is important to bear in mind as underserved customers feel the pressures of the current macroeconomic environment. The need for coverage at affordable prices is growing, suggesting a rising opportunity for insurers with adequate products and services. If we consider this statement as insurers, our mandate is clear: being financially inclusive enables us to better protect the individuals and communities we serve while providing increased premium growth for the sector. Inclusive insurance is a revenue growth opportunity; not a CSR-only initiative.

Two key ways inclusive insurance provides a new source of revenue to insurers

Inclusive insurance in the retail insurance market creates a pathway to protection for those who have otherwise been marginalized, and an opportunity for insurers to expand and capture that market. The two key points of impact are as follows:

1. Attract new customers to traditional products

When insurers expand their circle of protection, they open the door to new customers. First, insurers can provide new, accessible points of connection for consumers. Previously uninsured consumers in this segment have indicated they do not know where to start in the insurance process. It has been learned that because they don’t resemble the historically typical insurance consumer, these consumers may simply assume that they do not qualify to be insured with no further knowledge on how to determine eligibility. It’s important to remember that in this context, emerging consumers differ to other segments in that they may not have had access to family, colleagues or communities to educate them on and introduce them to the financial protection market. Luckily, with the explosion of access via online, social and app-based engagement, there have never been so many options to attempt to reach underserved or excluded communities. Insurers who are taking advantage of these channels and connecting to consumers to influence behavior via an omni-channel approach are positioning themselves for success in capturing available market share. It is the power of conversion driven by easy-to-engage education that is creating market winners for carriers and consumers.

Insurers have an opportunity to also change the perception that their underserved consumers have of their insurance providers. Fifty-five percent of a US sample average of middle and high income consumers owning a home or auto insurance would recommend their insurance providers to others. This compares to only 46% of low-income consumers (score 9 and 10 on a 10-scale range).

2. Create new products that meet the needs of new customers

A. Expand customer base

In addition to attracting new customers to traditional/existing products as illustrated above, companies can also expand their customer base by creating new products/services that meet the needs of the underserved or excluded consumer market (e.g., low-cost products or products with shorter-term coverage).

For example, Allianz’s Emerging Consumers Business aims to provide insurance to the poorest segments of the economy. They operate this program across their entire footprint, including Europe by offering various insurance products for migrants in Europe (also covering family members abroad), life insurance (term, credit, savings-linked life), and personal loans and auto-insurance for the unemployed who require a vehicle to travel to access work in France.

Making insurance more accessible may seem like an obvious win, and an intuitive part of any growth strategy. However, historically this attention to and level of inclusion has not existed.

B. New products and distribution

Create sought-after, innovative new products and creative distribution powered by data and analytics: Inclusive insurance offers an exciting opportunity for innovation across distribution and product. Insurers can evolve the current portfolio of products to extend coverage to this underserved market through creative distribution that can serve in concert, not conflict, with their current distribution landscape and insurers can create new or evolved products with different coverages that are truly tailored to the needs of the segments.

Take the home insurance market, for example. The national average for homeowners’ insurance is found to be $1,854 (for dwelling coverage of $300,000) which is almost 18% more expensive than the top five cheapest home insurance companies. On average, homeowners in low-income areas pay $117 more for home insurance than residents in wealthier districts, a trend that is more pronounced in the largest cities in 34 U.S. states. Despite these consumers paying more, they are under-insured for their needs and over-insured for the portion of the policy that they are largely unlikely to use (e.g., flood coverage in a non-flood zone).

The ‘surcharge’ low-income homeowners pay equates to about 1% of the median income average across the largest cities’ lowest-earning neighborhoods. This figure can reach as high as 11% in some states.

The European Market Opportunity

In one example from 2021, the philanthropic branch of a European Insurer worked with Accenture to create a business case for developing inclusive insurance solutions that would solve for the ‘protection gap’—the difference between economic and insured losses—which hinders young families and migrants trying to build economic resilience. Accenture conducted inside-out and outside-in analysis to help the foundation understand the market opportunity, potential for investment and the social and financial impact of inclusive insurance. An approximate €250 billion market opportunity in Europe was uncovered through new insurance products and changes to premiums. It was calculated that between €188bn – €385bn of insurance premiums would be competed for in Europe through 2025 due to ESG trends disrupting the market. Within this larger market opportunity, the client began to explore inclusive insurance opportunities specifically valued at between €4bn – €14bn.

Conclusion:

There is no doubt that financial inclusion is a prominent topic of discussion among consumers, governments and regulators. The G20 has voiced its commitment to financial inclusion and advancing diverse leadership teams in insurance that represent all interest groups. By embracing inclusive insurance, companies not only establish themselves as industry innovators, but future-proof their business for the regulation of inclusion by ensuring they are doing everything necessary to innovate for historically excluded consumer segments as a business imperative for growth. Inclusive insurance presents a clear opportunity for insurers to generate revenue and to embody the core values of the industry to support and protect individuals, businesses, and societies while increasing the sector’s economic opportunity. If you’d like to learn more about how insurers can continue to see the people behind the policies, build relevance and grow, please read our Insurance Consumer study. If you’d like to discuss in more detail, please reach out to Heather Sullivan or Nina Munoz.

The way consumers shop for insurance has greatly changed over the past 20 years. From the rise of digital direct (and more recently, embedded) to having the option to provide data for better prices, consumers have more influence than ever before.

The core elements underpinning these changes, increasing capture and use of data and the technological capabilities to leverage and connect that data to insurance products, will continue to drive the way consumers shop for insurance, whether they choose to do so through an agent or work directly with a carrier, OEM, or other service provider. Specifically, we see a world where consumers will be able to aggregate and own their data as a personal risk “wallet”, where Generative AI will support both consumers and agents in matching risk to capital more effectively, and where niche or challenged pools of risk will be able to access insurance through new entrants who create the opportunity to match those risk pools to alternative capital.

To better illustrate those futures, and discuss the implications to insurance carriers, we will use three distinct lenses of the consumer- the mirrored consumer, curators, and the collective.

Mirrored consumer

A mirrored consumer is a rich data profile- a kind of digital twin- derived from aggregated first-, second- and third-party data that makes it possible for businesses to anticipate consumer likes and dislikes in real time. The profile can include data from sensors, wearables and haptic technologies that together create intelligent networks of digital twins and threads. It can also include data about the property that consumer owns or uses as well as their behaviors. It offers a more holistic, day-in-the-life understanding of individuals and their households.

The premise of a mirrored consumer offers several interesting futures for carriers. Specifically, carriers often focus on a finite amount of data to underwrite a risk, which is limited to what a consumer/agent tells the carrier and what the insurance carrier can accurately glean and legally use to underwrite from 2nd and 3rd party sources. We see a future in which insureds create their own risk exposure “wallet” where insureds compile the data that would typically be leveraged to underwrite as well as adjacent data that a carrier may not have previously had access to in order to create a much richer and more complete data profile. Insureds will be able to take this “wallet” with them to different carriers to get the best price and coverage, weighing the inherent trade-off of sharing more or different data relative to the value offered by the carrier for that increased access. Further, we see a future in which instant updates are provided on an insured’s exposures to carriers (with the insured’s permission) to get more accurate pricing and turn coverage on or off. For example, the sale of a car acting as a trigger to remove that car from the policy, the replacement of a roof acting as a trigger to re-rate a home, or healthy activity acting as a trigger to reduce life premiums could all be plausible scenarios of “instant updates” leveraging this consumer lens.

In market, we see a few examples of the mirrored consumer coming to life. Earlier this year, the State of California built a proof of concept that put vehicle titles on a private blockchain. Imagine being able to store the title to a vehicle that you own in your digital wallet. The addition of that title could trigger the addition of that vehicle to your current auto policy, or the transfer of that title could trigger a removal of coverage for that vehicle. The same could apply to other forms of property. As another example, last year State Farm made a $1.2B equity investment in ADT. By more closely partnering with ADT, State Farm will be better positioned to predict and prevent losses from occurring, enhancing its value proposition to its insureds that are ADT customers. By forming these partnerships, insurers will gain a better understanding of consumers’ behaviors and the extent to which they mitigate or introduce risk.

To respond to the future of a mirrored consumer, there are several actions we recommend a carrier take in the near- and medium-term:

Target market

• Tighten the definition of the target consumer and the data that you think you will need from them to underwrite their risks; increasing amounts of data allows for deeper segmentation and will tip the scales in the favor of specialists that can personalize experiences, coverages, and value-add services vs. generalists.
• Bring claims experience data forward to define the type of consumer to pursue versus legacy paradigm of using historically based models to predict future losses.

Distribution and purchase experience

• Explore ways to get closer to the interactions/life events that will trigger coverage changes or new coverage needs.
• Leverage partnerships to increase access to consumer data and insights and generate sales opportunities.
• Determine techniques to make the carrier/agency/consumer data exchange more seamless and efficient.

Product, pricing, and underwriting

• Leverage Generative AI and Large Language Models to dynamically request information from consumers and bring structure to unstructured data and inputs to further refine the ability to provide tailored products at tailored prices for consumers.
• Develop strategy for use of 1st, 2nd, and 3rd party data, including the vast/increasing amounts of unstructured data, balancing efficacy on pricing accuracy vs. cost.
• Confirm tech stack, including rating/pricing engines and policy admin systems can handle real-time requests.

Curators

Curators are much more sophisticated than today’s chat bots or recommendation engines. These digital personal shoppers are highly automated AI intermediaries that need little human interaction. Some curators will work on behalf of consumers to improve buying, while others will work on behalf of companies to improve selling.

In an insurance context, a curator has the ability to augment the role that has traditionally been played by the agent/ broker, including automating certain activities that the agent/broker performs today. From an agent/broker perspective, a curator can help the consumer find the best coverage and price, leveraging data about the consumer, their property, their behaviors (e.g. telematics), their risk appetite and preferences. Further, instead of the traditional process of shopping/remarketing at renewal, the curator can always be shopping, leveraging the most up to date data on a consumer (including new transactions/assets that might require additional coverage on new or existing polices) and market appetite to constantly search for the best match at the best price. This has the dual benefit of reducing level of effort a consumer must spend on what is largely an unenjoyable insurance shopping experience while creating time and opportunity for the agent/broker to improve productivity and deepen consumer relationships. The idea of the curator can extend beyond risk matching to negotiation– we see a future where the curator can negotiate with different carriers to get a better price for comparable coverage through highlighting different elements of a consumer’s risk wallet.

In our latest insurance Insurance Consumer Survey, 60% of respondents across all demographic groups said they would be willing to share a lot of data for faster, easier services. So, in an era where the use of curators will be increasingly more common, there are a few actions we recommend carriers take in the near- and medium-term:

Target market

• Develop an understanding of what types of consumers are most likely to value a curated experience (which may require consumers to share data but facilitates up-to-date coverage and optimal pricing relative to a traditional experience).

Distribution and purchase experience

• Design the desired consumer experience by product/coverage (e.g., what is the trigger, how is that trigger detected and how often is it acted upon, what actions are performed autonomously versus when does the consumer need to review and approve).
• Develop perspective on the role and value prop of carrier field staff when curators have greater proliferation.

Product, pricing, and underwriting

• Outline operational and technical capabilities to account for a world in which curators are constantly shopping their consumer’s risk (making sure a distribution partner’s use of curators does not create operational overload within your own organization).
• Identify the data/signals that would be leveraged to initiate coverage change.
• Investigate coverages that are more episodic/periodic to account for changing needs of a consumer.
• Brainstorm alternate ways to make consumers “sticky” through up-sell/ cross-sell (demonstrating advocacy for the consumer), value-add services, delivery of claims services/outcomes, etc. as increased frequency of shopping means that a consumer may be less brand loyal.

Collectives

Digital technologies have made the world smaller, bringing people together in ways that were impossible in the days of analog. In the context of physical products, we’ve seen an uptick in boundaryless, global virtual communities embracing their purchasing power- leading to our last consumer lens, the collective.

Historically, insurance has been built on pooled risk (or the collective) and that has benefits and downsides. As a collective, we pay for the whole pool of risk – drunk drivers, other nefarious actors/actions, etc. Over the years these risk pools have shrunk based on zip code, age, gender, and a host of other factors. As better risk wallets are developed for individual consumers, there will be a demand from buyers that the collective is even more granular and closer to the level of individual risk profiles providing more appropriate coverage to price.

Beyond more individualized pricing, we see insurance collectives being formed around the products and services that insurance is designed to protect. This is facilitated by the continued growth of digital commerce and ease of purchase and bundling. Carriers can better meet the needs of the collective by tailoring their product offerings and embedding their insurance offers into the purchasing experiences of the underlying products and services. This is already occurring in a number of insurance product lines. Multiple OEMs are partnering with insurance companies to offer auto insurance on the vehicles that they sell to consumers at the point of vehicle purchase. Several carriers are partnering with ride sharing services to offer coverage tailored to the specific needs of hybrid personal/commercial drivers. Travel insurance is being embedded in the process of purchasing an airline ticket.

Incrementally, we see one potential future of increasing proliferation of insurance companies focused on niche or challenged areas of risk (like MGUs or captives). This is a potential threat to existing insurance models, which will amplify in intensity as non-traditional entities use a combination of increasingly differentiated data & analytics skillsets, growing amounts of non-traditional risk data, and burgeoning alternative capital to compete for this business. We are already seeing the start of this in market. SageSure is a quickly emerging Managing General Underwriter with $1B in in-force premium that is specializing in coastal property risk through proprietary data and analytics and better capital to risk matching.

To prepare for the potential future that the collective consumer represents, carriers should investigate the following actions in the near- and medium-term:

Target market

• Develop a more refined view of the consumer risk profiles/risk wallets that would be within your target market.

Distribution and purchase experience

• Design the purchase experience that would get both agents and consumers more comfortable with tailoring risk solutions on a more micro scale (vs. the current state of set deductibles, limits, coverage options).
• Define distribution strategies and tactics required to market effectively to affinity groups (which will be different and more scalable than traditional agency distribution).
• Develop capabilities to continue to embed the insurance purchasing process into other commercial transactions.

Product, pricing and underwriting

• Create product pricing expertise that is effective at pricing accurately for smaller risk pools.
• Develop scalable approach to develop and price products geared to different affinity groups (and the unique data that the affinity group might provide).
• Develop scalable approach to balancing risk exposure across your portfolio as increasing coverage variations for a given consumer are provided.

What’s next

As we’ve highlighted in this blog post, insurance carriers will need to be ready for a future where their product and underwriting models are revised and rebuilt to be even more flexible to new and different sources of data, where they can easily engage with consumer and agent digital curators, where they are constantly remarketing and having to remain competitive, and where they can drive new sources of differentiation and consumer value relative to other capital providers in the market.

If you’d like to discuss in more detail, please reach out to Erik Sandquist, Heather Sullivan, or Bob Besio. Additionally, if you’d like to learn more about these consumer lenses, please look to our perspective on Shopping without Shopping.