There’s an odd contradiction in some of what the insurance industry does; the industry is built on predicting risk and strategizing risk sharing, yet in many ways it is victim of knowing its own concerns and reacting to and pricing the reaction, and not working to mitigating the effects of the outcomes. And in at least one case looking to backfill its model to fit corporate strategy and perhaps not customer choice.
Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.
Backfilling, or buyer’s remorse?
Allstate Insurance (US P&C carrier) recently announced its digital insurance brand, Esurance, will be discontinued as part of Allstate’s migration into being an omnichannel carrier where customers have options under one access point/model for agency based or digital insurance acquisition and service.
Looking back to 2011 with Esurance being a $1 billion acquisition by ALL, wherein the company’s CEO announced, “Allstate is uniquely positioned to serve different customer segments with unique products and services,” said Thomas J. Wilson, Allstate’s president, chairman and chief executive officer. “This transaction provides immediate incremental growth in customer relationships and makes Allstate the only company serving all four major consumer segments based on their preferences for advice and choice.”
Appears that ALL figures customers in 2020 expect only one access point that will provide purchase options. Here’s the thing- Allstate had internal rules that inhibited customers from switching agents and/or internal brands, not external barriers; this change will reportedly alleviate the ALL system problem, and empower agents to better serve customers (per leadership and aligned with a previously announced commission decrease) as ALL migrates into being an insurance technology company. But what of the 1.5 million Esurance policyholders who consciously chose the Esurance model, and may balk at being tied in with the legacy brand? And, will marketing costs truly be saved if digital customers still need targeted messages? It’s certain that Allstate’s advertising partners will create a clever omnichannel ad campaign, but legacy brand is legacy brand, and buying culture is buying culture- can ALL be a cleverer digital carrier under the parent name than was Esurance? Additionally, will rolling the Esurance policies into the parent change how staff handle claims? Perhaps, but the effects of several years of underwriting losses for the Esurance PIF will not disappear simply because those claim customers are now called Allstate customers. Would it have been a more direct action to fix the Esurance claim handling issues? And what does this move in combination with centralizing customer service away from agents suggest for the agency model?
Maybe a good idea earlier in the finance value chain?
Swiss Re announced this week the placement of US $225 million in parametrically triggered cat bonding for Bayview Asset Management’s MSR Opportunity Fund, covering mortgage default risk for Bayview’s loan portfolios in the states of California, Washington, Oregon, and South Carolina. Bayview does manage ‘credit sensitive’ loan portfolios and derivative funds that include packaged mortgage portfolios, so a parametric product is an immediate hedge in the case of an event that meets the USGS survey index associated with the bond. Seems a suitable move for the management company as it does not have direct ownership of properties but does have exposure to indirect loss if there are mortgage defaults for its funds mix of loans. Makes one think- loan originators would be doing the market a service if along with property insurance requirements for loans in the respective states there would be either an EQ insurance requirement, or even a parametric option for mortgagors in the event of a trigger occurrence. Hedging ‘up the food chain’ is good for the portfolio manager but does not help address the potential cause of default. Swiss Re also has the unique opportunity to market the parametric default risk products to primary mortgagees. It’s a changing risk mitigation world.
Problem hiding in plain sight
First California, now Australia in the news due to property owners encountering challenges with property underinsurance and unexpected increases in property repair costs. These concerns are not new and become front burner issues each time a significant regional disaster occurs, always attracting the attention of those who sit at the head of the political insurance table, the insurance commissioners. California’s commissioner enacted a moratorium on policy cancellations in brushfire areas (1 million property owners involved), and Australia’s Treasurer Josh Frydenberg recently asked Aus property insurance carriers for detailed information to help the government and population better understand where insurance recovery efforts stand. Not Dutch boys with fingers in the dike, but certainly ex post actions for circumstances that pre-existed the respective regions’ disasters.
At least in California the primary drivers of the problem are property owner valuation knowledge (or lack of it), ineffective underwriting valuation tools, policy premium and market share competition driving carrier lack of enthusiasm for change, and unpredictability of post-disaster rebuilding costs. Also- misconception on the part of the public- few policies (close to zero) include wording of restoring to pre-loss condition, or replacement with like kind and quality. The reality of the underinsurance problem is that there is now a de facto rise in insureds’ ‘deductibles’ after a disaster due to inadequate coverage limits. The ‘deductible’ effect is mitigated by insureds employing personal property settlement proceeds in the dwelling rebuild costs, but all in all it’s a relative fools’ game. The worst effect is the extreme hardening of the property insurance market to the point where dwelling insurance becomes unavailable and/or unaffordable. The easy fix is better upfront estimation of rebuild costs, but even with that there is then a problem for carriers- the marginal premium increase suggested under current methods in moving from a $500K limit to a $750K limit is far less than a comparable change from $250K to $500K, so is there an overarching lack of motivation to raise coverage limits? An unexpected related potential effect for carriers- earlier triggering of reinsurance treaties due to the weight of maximum losses and lessening of rei appetites for renewals under existing agreements. Without question structural changes (no pun intended) are needed in property policy valuations and underwriting for areas where the frequency of regional disasters is high.
*Contrarian viewpoints of an industry observer, not to be confused with that of mainstream press, and presented in the light of knowing that there are many forward-thinking players in the industry who will work to lessening the effects noted above.
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