How COVID-19 Could Change Insurance For the Better [The Simple Dollar]
The COVID-19 pandemic has already changed every industry on earth — air travel, retail, healthcare, you name it. There are so many things we can’t control about the novel coronavirus, but one thing we can do is ensure some of its lasting effects on the world are positive.
In response to the pandemic, some insurance companies have already made positive changes. For instance, back in March, auto insurance providers announced refunds and discounts to compensate for the fact that we aren’t driving as much these days.
“There aren’t many positives to the situation we’re in,” says Raymer Malone, a CFP with High Income Protection I spoke with over the phone last week. “However, for people looking to buy insurance in the future, they will be met with a more pleasant experience than before.”
The pandemic presents a unique opportunity for the insurance industry to evolve and support more people than ever before.
Insurance could be more accessible and affordable
“The biggest change that we’re seeing is that insurance carriers are being forced to adopt new technology in today’s socially distanced world,” Malone says. “E-applications, e-policy delivery, and waiving of physical exams are all innovations that are marching to the forefront.”
And this shift isn’t only relevant for a society battling an incredibly infectious disease.
“For the consumer, this will likely lead to access to more attractively priced insurance products (through increased competition), a simplified application process and ultimately a better purchasing experience overall.”
Digital insurance startup companies have been able to lure some customers away from the largest insurers by offering these types of solutions, even before the global pandemic made them a necessity. While insurers have begun investing in these types of companies (insurtechs raised $6.37 billion in 2019 alone), this could solidify the need for more investment in technological innovations in the long-term.
Now, insurers are being forced to take these steps on their own. This pandemic won’t turn large, traditional insurers into a lean, scrappy startup (they also have a lot of loyal customers that like things the way they’ve always been) but it may encourage an accelerated growth in this area.
Coverage options could be more personalized
As electronic systems are improved to enable better customer experience, they can also be leveraged to provide more accurate pricing based on consumers’ actual driving for auto insurance. While traditional auto insurance prices are based on primarily historical and personal information like history of traffic incidents and age, usage-based policies determine your risk based on how you drive (measured by miles driven or other driving-related factors.)
“One of the trends that we have seen at CMT that has also been observed by JD Power is the increase in interest in personalized pricing of insurance policies powered by telematics,” Ryan McMahon, VP of Insurance & Government Affairs at Cambridge Mobile Telematics (CMT).
With a traditional policy, your risk has been predetermined and you’re charged a fixed premium every month regardless of whether you drive 10 miles or 100 miles a day, but people are now driving a lot less.
“There has been a sustained rise in individuals who want to save money based on how they drive, and as the gaps grow between those that drive safely, those that drive less and those that do not, there will be a greater need for the insurance industry to respond with options that give consumers the most flexibility and greatest control over what they pay for insurance at a time where our economy has slowed considerably.”