Millennials at Large: Potential Disruption in the Current Homeowners Insurance Market
By Scott Amussen
With their fresh outlook, comfort in using high-tech devices, and penchant for sharing vehicles, millennials are potentially changing the way insurers do business. Two trends—the movement of many millennials into cities and their dependence on technology—have rapidly shifted the paradigm for purchasing insurance. Now, as the millennial generation comes of age and begins to settle down, another evolution is underway in the field of homeowners insurance. Insurers seeking to capture this new segment of the homeowners market recognize it’s being largely driven by technology, shifting customer demographics, and changing customer expectations.
Such customers want service on their own terms, and that probably means the new insurance model will have a strong technology component. Insurers need to develop an end-to-end digital underwriting strategy along with a responsive online sales process, much like in the personal auto market. But considerations unique to homeowners insurance include how every property is different, and an end-to-end online process may be more challenging to develop. A primary roadblock may appear in creating reliable replacement cost estimates unique to each property based on location and construction. Essential information doesn’t change because of the sales channel, but any replacement cost estimation process must still adequately cover policyholders.
Reliance on tech
As digital service models become more common across industries, the property/casualty sector must align to the rising expectations of customers. Ernst and Young’s 2017 Property and Casualty Insurance Outlook, when rating external factors influencing the 2017 property/casualty market, showed customer technology expectations as an 8 on a 1-to-10 scale (1 being low in terms of impact). The report also stated in part that “insurers will need to keep up with rapidly changing customer expectations for 24/7 digital access, greater transparency, and self-directed customer experiences. At the same time, price sensitivity will likely drive comparison shopping through emerging online and mobile platforms.”
In a 2017 study, the consulting firm Accenture surveyed more than 32,000 consumers across 18 international markets, including the United States. Respondents were consumers of banking, insurance, and investment advice services and covered multiple generations and income levels. Accenture’s survey also described details about customer needs and the changing ways those needs can be met. For example, 51 percent of those surveyed had purchased insurance online, and 58 percent chose online sales as their preferred method. About 63 percent would share more data with insurers to get new benefits, and 63 percent would share such data to get personalized information that can reduce the risk of loss. It’s not hard to envision a future where digital engagement is the minimum requirement for conducting business, and competition will come from nontraditional alternatives. In fact, that future may already be here. Insurers that don’t make the transition may potentially attract the less-desirable risks.
Millennials were the first “digitally native” generation, and as they grew into young adulthood, they trended toward cities. As they age, that trend is likely reversing. As millennials start families, they’re moving into suburbs and buying homes. Buyers 34 years old and under have become the largest generation of home buyers in the United States, according to a 2016 report from the National Association of Realtors® (NAR). Such buyers represent the fastest-growing demographic in purchasing homes, as they accounted for 30 percent of homebuyers in December 2016, up from 27 percent in 2015.
Changing customer expectations
Customer expectations are evolving rapidly as more companies create new ways of serving millennials. Amazon prioritizes products based on a customer’s previous buying history. Uber made the process for connecting passengers to drivers simple. Netflix delivers a viewer’s favorite shows on demand. Such customer-centric experiences are making customers more demanding and changing how they shop. According to the 2017 Accenture consumer study, 74 percent of respondents said they’d consider buying insurance from companies not in the insurance space, such as Amazon or Google, and 55 percent would consider buying from a supermarket or retailer.
Insurers must deliver an engaging customer experience with an emphasis on ease of doing business, transparency, and value added beyond purchasing a policy. Customers want an efficient shopping experience that’s all about them. Satisfying that need is vital for an insurer’s growth and profitability. According to Bain and Company, satisfied customers who promote their insurers are worth seven times more in lifetime value than detractors. Retaining happy customers costs less than attracting new customers. It’s becoming clear that high-quality customer engagement is vital to business growth.
Homeowners insurance underwriting
A home is typically the largest single asset a person will own, making insurance for homeowners a critical decision. Millennials increasingly want to be empowered to participate, but homeowners underwriting continues to be complex. The amount of necessary property information makes adapting it for online access a challenge, and the user experience needs to cater to a wide range of people with different interest levels, understanding of insurance, and technical know-how.
One key to achieving that goal may be an interactive process that provides homeowners with reliable estimated replacement costs based on current, detailed, and localized reconstruction cost data. Such a process needs to be simple to use and provide a complete end-to-end solution. Prefill can make the process simple for homeowners to calculate estimated replacement costs through a web interface. After inputting an address in an online application, data can instantly prefill to answer many questions about a given property, including year built, total finished square feet, and roof details. Homeowners can easily review and update the data as needed, then click a button to estimate the replacement cost.
To make sure that customers are adequately covered and insurers are effectively anticipating claims losses, replacement cost estimates should be grounded in actual and recent claims experience. Estimates should come in the context of continual real-market feedback that provides the latest data on materials, labor, and other reconstruction costs. In combination with detailed and accurate property-specific information, reconstruction cost data is vital to replacement cost estimates that reflect future claims losses, protect policyholders, and yield an insured-to-value portfolio. Homeowners who make the effort to participate demonstrate some responsibility—policyholders that insurers may want to keep for the long term.
Homeowners insurance is evolving constantly, and the effect of millennials and their buying habits can’t be ignored. Changing technology, customer demographics, and customer expectations pose challenges but also opportunities for insurers that can evolve to meet them. One major challenge may be how to incorporate an estimated replacement cost process into an online buying experience. Insurers that succeed can provide a user experience that empowers customers and enhances transparency—key factors in increasing customer satisfaction.