Trust, Personalization and Transparency: Foundational for Premium Accuracy – Insurance-Canada.ca

By Stephen Applebaum and Alan Demers —

The insurance industry is at a crossroads. Brewing negative consumer sentiment toward insurance affordability and premium fairness is spilling over as profitability struggles threaten markets. As the industry takes needed action, the approach itself comes into question. Insurers find it difficult to inform and educate a customer base that views pricing as opaque and overly complicated. All of this begs the question; can premium adequacy and trustworthiness co-exist?

Eroding Trust

As trust erodes and consumers grow increasingly skeptical, the industry faces mounting challenges. Recent lawsuits involving individuals’ driving data from connected cars and consumer apps being sold to insurers without clearly informed consent has struck a nerve. Allegations of improper home insurance cancellations based on flawed aerial imagery and related concerns of insurers “spying” on their customers has surfaced. And even more attention has been attracted by the recent reports of non-renewals for many homeowners just prior to the Los Angeles area wildfires and is generating a mix of angst and wake-up calls. But each of these actions are deemed necessary for carriers to ensure viability despite the obvious criticism that they lack transparency.

Insurer profitability has been in the forefront as the P&C industry experienced significant underwriting losses over the last three years. Attendant rate increases and tightening underwriting practices are having the desired outcome with at least, financial recovery in personal auto lines. However, there are consequences rippling throughout with a new reality of high rates as core issues around climate exposure, repair cost inflation, social inflation, and fragile supply chains persist and are in simple terms, passed on via premiums.

Premium Leakage

Premium leakage, a problem fueled by outdated and inaccurate data continues to contribute towards underwriting losses, undermining profitability. Such leakage occurs when insurers are unable to align premiums with the actual risks of their policyholders. This often stems from reliance on stale, incorrect, or incomplete data.  It doesn’t stop there. After policy inception, specifics like garaging location, undisclosed drivers, vehicle use and mileage can change in what truly is a “moving target scenario”. Such inaccuracies create a ripple effect—insurers lose revenue or customers may pay more than they should.

Adding to the complexity is the industry’s reliance on third-party providers that source data from public records and other sources creating a snapshot of information. Data providers sell information to counteract insurance application shortcomings. Insurers needed another way to size up risk with confidence beyond a short list of application questions and biased responses. These sources, while standard practice, are not real-time, can be flawed and lead to broken feedback loops where errors compound.

In some cases, policyholders’ details are “grandfathered in” from the initial application snapshot without updates for years further widening the gap between actual risk and premium pricing.

Personalization and Policyholder Engagement for the Win

As the outlook for auto lines improves, competition is intensifying in early 2025 and is expected to continue for at least the next two years. At present, carriers are addressing high shopping rates and seeking to grow market share in the long term. Customer retention has suddenly been reprioritized to the top as carriers see a profitable growth pathway, emerging from most recent cycles which sacrificed growth just to trim losses. However, with the right approach, these conditions can become opportunities to build stronger, more transparent relationships with customers while improving operational efficiency.

Direct policyholder engagement offers a pathway to address premium leakage and rebuild trust at the same time. By going directly to policyholders and incentivizing them to transparently share their verified information, insurers can ensure accurate, up-to-date information that informs their underwriting decisions. This approach not only improves underwriting decisions and pricing accuracy but also creates a more transparent relationship with customers.

• Gather verified first-party data: Policyholders can directly share critical details, such as real-time mileage and the condition of their vehicles. Unlike third-party reports, this data is both accurate and timely.
• Address stale or missing data points: Insights into garaging locations, prior vehicle damage, and undisclosed drivers can close significant gaps in risk assessment.
• Enhance customer participation: Encouraging policyholders to share their data while giving them full control fosters engagement and trust. When customers understand that their data directly contributes to fairer pricing, they are more likely to participate willingly.

The foundation of successful engagement and personalization is trust. Many consumers view the insurance industry as opaque and unresponsive, often associating it with unwelcome surprises like non-renewals or claims disputes. To counter this perception, insurers must prioritize transparency.

Imagine receiving a clear, proactive message from your insurer: “Here’s why your policy is changing, and here’s how we calculated your rate based on verified data you provided.” Such communication demonstrates fairness and builds confidence. Customers feel valued and empowered, which can translate into long-term loyalty.

Transparency also serves as a deterrent for misrepresentation. For instance, policyholders who understand the importance of accurate garaging information are less likely to provide misleading details, knowing it could impact their claims or coverage down the road.

A Win-Win for Insurers and Policyholders

Personalization and transparency are not just customer-centric strategies; they also drive profitability and operational excellence. By adding personalization and direct engagement with policyholders insurers can:

• Reduce premium leakage by optimizing pricing accuracy, leading to fairer premiums for all customers
• Reduce friction and administrative costs of handling disputes and errors
• Build a loyal customer base that values engagement and honesty

For policyholders, the benefits are equally compelling. Fair pricing, clearer communication, and the assurance that their data is used responsibly creates a more positive insurance experience. These factors foster trust, making customers more likely to renew their policies and recommend their insurers to others.

Looking Ahead

The year ahead offers a pivotal opportunity for the insurance industry to redefine itself. By prioritizing transparency and personalizing policies, insurers can address premium leakage while restoring trust. Companies that lead with these values will not only strengthen their bottom lines but also reshape the industry’s reputation for the better.

About the Authors

Stephen E. Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem focused on insurance information technology, claims, innovation, disruption, supply chain, vendor and performance management. Mr. Applebaum is also a Senior Advisor to Waller Helms Advisors.  WHA is the premier investment banking boutique focused on the crossroads of the Insurance, Healthcare and Investment Services sectors.

Stephen is a frequent chairman, guest speaker and panelist at insurance industry conferences and contributor to major insurance industry publications and has a passion for coaching, mentoring, business process innovation and constructive transformation, applying disruptive technology, and managing organizational change in the North American property/casualty insurance industry and trading partner communities. He can be reached at [email protected].

Alan Demers is founder and president of InsurTech Consulting LLC, with 30 years of P&C insurance claims experience, providing consultative services focused on innovating claims. After initiating and leading claims innovation at Nationwide, Demers collaborates in the forefront of InsurTech, partnering with insurance leaders, startups, design thinking experts and service providers to modernize personal, commercial and specialty claims.

As Vice President of Claims Innovation at Nationwide, Alan conceptualized a vision and road map to build next-generation claims, automating and digitizing claims experiences, progressing from inception through prototype testing. He served as a founding member of the Corporate Innovation Council and played a key leadership role in establishing goals, practices and an innovative culture at Nationwide.

Alan is an accomplished executive leader and has worked for two separate Fortune 100 insurance companies in a number of corporate, national and regional leadership roles among personal, commercial, non-standard and specialty lines claims. Prior to leading claims innovation, he served as head of claims for Nationwide’s commercial agribusiness and non-standard claims. Other noteworthy roles include: field vice president, regional claims officer and national catastrophe director, quality assurance director.

Alan began his career with Aetna as a claim adjuster and advanced to a corporate claim consultant, prior to joining Nationwide in 1995.

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