Simply put, the pandemic has changed consumers’ relationships with insurance products. Even though the data says people utilized insurance less — since those who don’t leave their homes are far less prone to injury and illness — the pandemic caused those same homebound consumers to place a higher value on, and desire for, medical and life insurance.
And while collection rates went up, attrition rates fell and response rates for insurance products increased, Franklin Madison Chief Financial Officer Preston Porter told PYMNTS in a recent discussion.
“We saw that it’s vital for [insurers} to be able to offer a wide variety of products to their consumers, because their consumers need it and want it. The other thing that’s really important is being able to provide an insurance offer in the form that these customers want,” Preston noted, adding that as the pandemic winds down, the industry is on the verge of some unexpected changes.
What Isn’t Going to Change
By most measures, 2020 was unusual in terms of how consumers used their healthcare during a once-a-century event that was the pandemic. But because of that rarity, Porter said, insurers are unlikely to overreact in the sense that they won’t take one highly unusual period of customer utilization and then go make “drastic adjustments” to things like premiums based on that.
While some change may be coming, it’s not going to show up fast, as insurance players will be more interested in the longer-term effects following the pandemic when it comes to actual changes in utilization rates.
“I can tell you from experience that anytime you have a low utilization period or low claims over a period of time, what you really worry about is what we call the ‘slingshot effect,’” he explained. “Does the low period get followed by a high period, and so on. We tend to see that during recessionary times or any event that impacts claims rates. Overall, the long-term trends tend to come back to the middle.”
And insurance companies know that, Porter said, which is why they are highly unlikely to make dramatic changes to pricing on the basis of one extremely unusual year. But change still could be coming as an outgrowth of the COVID-19 pandemic, simply because of all the volatility introduced to the system.
As Porter noted, the insurance industry has a lot of experience dealing with volatility, a trait that makes it fairly resilient. So, while premiums are likely to go up, they will likely do so in a more gradual way than consumers are used to.
However, if the volatility introduced by COVID doesn’t start to retreat and the effect of the pandemic seems to be a long-term shift in utilization rates among consumers, that might inspire larger-scale changes to premiums and pricing, he said.
Overall, Porter believes that insurers will have to wait until they have actual evidence of that long-term shift that appears on an actuarial table.
The Changes That Are Coming
Raising or lowering premiums isn’t the only change the industry is capable of making, he noted. In the shorter term, things like new types of insurance products, such as pandemic-related policies or different types of coverage may roll out, as insurers work to custom-build new offerings to meet the emerging needs of customers.
Also likely on the way, Porter predicted, is more collaboration between up-and-coming InsurTechs and old-school, mainstream insurance firms.
“The insurance industry has been kind of slow when it comes to technology,” he said. “I think we’re seeing a host of InsurTech companies pop up to solve those problems. The available technology is actually as good as it’s ever been, with the ability to provide digital offers, access to products and underwriting, and things like that in real time.”
Why the mainstream insurance industry needs better tech is obvious, he said. What is less obvious — but no less important — is how much InsurTech benefits from working with mainstream insurance players. What InsurTech lacks is the marketing expertise, the data, and the distribution to actually access those customers, said Porter.
“What I think we’re going to see from a next-gen perspective is the combination of the technology backend, [plus] the marketing and the front-end data to provide a full-suite solution that works for users’ changing needs,” he said.