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Aug 5, 2015

The Innovation Enigma: Personal Auto Leads the Way

It doesn’t seem to matter who you talk to, insurance as an industry is almost always categorized as a follower instead of a leader when it comes to innovation. I’m not saying this is without good reason. In the face of a mission to protect policyholder assets, taking a conservative approach seems somewhat prudent, don’t you think? Unfortunately, “keeping the lights on” doesn’t typically take a company forward, resulting instead in stagnation and eventual decline. So, believe me when I tell you this is a fine line the insurance industry is walking. Can innovation at some point become mission-critical?

At the upcoming ACORD2015 conference in Boca Raton, the discussion about innovation and what it takes to lead the industry will be front and center. One session in particular, “The Innovation Enigma: Personal Auto Leads the Way,” will use personal auto as a jumping-off point by asking the question, “Why is personal auto leading the way when it comes to innovation?”

While insurers may not exactly be running scared from next-generation technologies, few are at the head of the adoption line, leaving little doubt about the industry’s wait-and-see, let-others-take-the-risk approach. Personal auto insurers, however, seem willing to throw the baby out with the bath water when it comes to not only technology, but product development, and even the insurance business model itself. 

In a world transformed by the way Jeff Bezos and Amazon do business, consumers are demanding more customization across industries. Apparently, on-demand delivery of product information, personalized products, and intelligent recommendations based on buying behaviors and lifestyle choices are the flavor of the month, even when it comes to insurance. And, more so than any other type of insurance business, personal auto insurers have found a way to deliver by incorporating telematics data into rating, moving away from static products and batch billing to flexible coverages driven by the fundamentals of usage-based insurance (UBI), and forsaking risk pools for personalized coverages. 

New insurance products in this segment are being reverse-engineered to fit modern lifestyles, and perhaps more importantly, to fit the way Millennials in particular want to consume insurance. This is a generation of renters and ride-sharers who don’t want to be locked into a rigid, long-term insurance relationship. Interestingly, utilizing these new technologies and data sources to build more flexible, personalized insurance products seems an idea with a serious conflict with the fundamental platform on which the entire industry is built. If the main idea behind insurance (as a concept) is to take a risk and homogenize it by distributing it among a larger group, isn’t a policy based on the driving habits of a single individual in a single vehicle counterintuitive?   

There is a new enthusiasm for, and recognition of, the need for innovation today, and personal auto is leading the way. The enigma is why personal auto seems more willing than other segments to adopt new technologies or to incorporate game elements into reward programs which incent good, low-risk behaviors. The scary part for other segments is the very real possibility that the changes in personal auto will eventually negate the need and that business in this segment will decrease, or worse yet, become all together obsolete. 

Personal auto insurers, however, are making a Nietzsche play, chanting “What does not kill me, makes me stronger!” while continuing to invest in business model change. What can other insurance industry segments learn from the transformation taking place in personal auto? It seems now may be a very good time for the rest of the industry to attempt to translate the language personal auto is speaking into tangible business results on a more enterprise level.

Jennifer Overhulse is principal owner of St. Nick Media Services. She can be reached for comment via email at