Personalization in Insurance and the Death of the Middle Class
Jennifer Overhulse | September 11, 2015
In the beginning, the whole premise of insurance centered around the homogenization and distribution of risk across a group or segment in order to lessen single, individual or personal liability. When premiums were paid to an insurance company, it was with full acknowledgement that the average price being paid should technically be higher for some and lower for others based on certain risk factors. Insurance as it was originally conceived liked the “law of large numbers.” Simply put, it’s just easier for 10 people to pay to recover a loss than for one person to handle the expense alone.
Seriously, insurance was born of the idea that everyone would be better off if risk was shared or distributed across a group, thereby letting everyone absorb just a little. It’s your “Star Trek” moment for the day. How did Spock put it? “The needs of the many outweigh the needs of the few or the one.” You get the gist, I’m sure. Anyway, it seems the idea was sound, and for a couple of centuries, the industry has operated on this single, guiding principal.
Today, the industry seems to be leaning away from the law of large numbers in favor of the power of one. Consumers are enamored of personalized products. Any individual visiting the Amazon home page can easily find recommendations based specifically on what has been viewed recently or purchased previously. It’s comforting, and convenient, when a company or trusted partner really knows where one “lives,” so to speak. That said, it stands to reason that this level of personalization is now hotly demanded not only from Amazon, but from banks, favorite restaurants, and insurance companies as well.
Unfortunately, as more personalized insurance products are brought to market the industry may risk damaging the foundation upon which the industry was built. It is true that today an individual can buy an auto insurance policy which, through telematics, is priced almost exclusively on that person’s behavior, driving frequency, short stops, and overall speed, instead of the characteristics of a broader group based on geography or demographics. It seems my risk is my risk once again, and the trend is moving beyond personal auto. I have to admit, I’m part of this problem, having recently chided my health insurer for increasing my premiums based on characteristics of the risk pool of which they think I am a member.
“I don’t care about your risk pool,” I said. “I am not like these other people and should not be penalized for their poor health habits.”
My health insurer relented, sent my information back through underwriting and proposed a new kind of policy that would give me more personal coverage (and, thankfully, lower premiums if I remain healthy and take steps, literally, to stay that way). That said, and if I am any indication at all, it would appear that consumers are in the driver’s seat and they aren’t giving up control to anyone. The trend toward personalization continues in earnest.
This means that when it comes to insurance, consumers today as a whole don’t want to lend their fellow man a hand. Millennials in particular and as a generation or group, exhibit signs of being concerned about the “greater good.” These individuals may not want to proactively pay to cover risks incurred by others, but will give both time and money when they find a worthy cause. In fact, a Huffington Post article, “Charitable Giving: 75 Percent of Millennials Donated to Charity in 2011,” states: “According to the recent Millennial Impact Report, 75 percent of young people donated to causes last year and 63 percent said they gave their time to volunteer.”
So, since being charitable is also increasing in popularity, why the demand for more personalization and customization in insurance? Isn’t this counterproductive? You tell me. The scary part from my perspective is the impact this trend could have if we play it out to a possible extreme.
Have you heard? According to the talking heads on the Sunday morning talk shows, the middle class is under siege. The numbers seem to indicate those falling into this classification are dwindling in favor of the uber-powerful “one percent,” the very rich; the upper echelon. Is it true?
When you bang these two trends (personalization of products and declining middle class population) up against one another, I think there is a very disturbing potential result. As we continue to personalize insurance policies and risk becomes ruled by the individual again, we perpetuate the idea that the rich get richer (and therefore the poor get poorer), don’t we? Won’t the one percent of “Elysium” moviedom eventually be the only people insured, while those that used to constitute the middle class will simply be uninsurable and poorer than ever?
Consider what happens if I’m a really bad driver? I probably exceed the speed limit on a regular basis. Suppose I’ve had four accidents in four weeks. I probably run red lights. I might also drive more than an hour to work each day through heavily congested areas. And worse yet, I work in a high crime area. Sounds like a pretty high risk policy, doesn’t it? How much do you think those premiums will be every month, and what do you think this all means for the future of insurance?
I know this is likely just a bunch of “big questions” which have few concrete answers. But when you read the news today and find RSA backing out of personal auto before year’s end, and Citizens ditching nearly 300,000 policyholders back out into the private insurance market due to low margins (I suppose), one is left to wonder…when only the one percent are eligible for insurance can the rest of us go back to group policies, risk pools, and homogenized risk? Should we? Or, will we one day all be uninsurable?
Jennifer Overhulse is the principal owner of St. Nick Media Services. She can be reached for further comment or information via email at email@example.com.
- Electronic Chat with Larissa Tosch
- Martha Notaras Will Join ITA LIVE 2019 as a Keynote Speaker
- Five Things to Consider When Evaluating Your Cyber Risk
- ITA Pro Magazine, January/February 2019
- Major Ransomware Attack Could Hit U.S. with $89B In Economic Damages
- ITA Announces 1st of Three Keynote Speakers at ITA LIVE 2019
- Electronic Chat with Jeroen Morrenhof
- Legacy Systems Are Dead. Really? Don't Count On It.
- Now Accepting Nominations for the 2019 ITA Bridge Awards
- It's time to register for ITA LIVE!
- Registration is Now Open for ITA LIVE 2019!
- What to Expect from a Digital Experience Platform Implementation
- ITA Pro Magazine September Edition is Now Available
- It's National IT Professionals Day
- Save the Date for ITA-LIVE 2019
- OneShield Software and UrbanStat Work Together to Improve Real-Time Analytics and Risk Decision-Making
- ITA LIVE 2019 - SAVE THE DATE!
- Insurance Technology Association Announces New Editor-in-Chief
- August 2018 Edition ITA Pro Magazine is Now Available
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Medical Malpractice Insurers Investing in Analytics and Emerging Tech in Face of Market Pressures, Says Novarica
- Insurtech AI Leader Betterview Appoints Dan Shoham, PhD, as Chief Science Officer
- Vermont Mutual Insurance Group Selects One Inc for Digital Payments
- Insurers Embracing Machine Vision for Underwriting and Claims, Says Novarica
- Nationwide partners with Slice Labs to develop on-demand auto insurance for rideshare drivers
- AM Best Requests Comments on Draft Criteria: Scoring and Assessing Innovation
- Majesco Acquires Insurance Software Business in India
- MEMIC Scholarship for Families of Injured Workers Now Accepting Applications
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA LIVE 2019
The tide is up! It's time to register for ITA LIVE 2019, our annual educational and networking conference! Our theme is "The InsurTech Revolution: Cutting Through the Hype." and we'll be bringing in a torrent of industry thought leaders, amazing insight and wonderful perspectives on the world of insurtech and its impact on the insurance landscape.
ITA LIVE 2019 will present real-life examples of true startup technologies that are helping insurers gain real advantage -- and a competitive edge -- in the marketplace. We’ll highlight the more successful InsurTech partnerships, while offering case studies that demonstrate exciting innovation and cutting-edge techniques impacting all aspects of the insurance ecosystem.
Ride the wave to LIVE 2019. Sign up today! We look forward to seeing you in May, 2019!
BLOGS AND COLUMNS
There are so many great advances in the area of smart homes and buildings, it makes me wonder what the actual impact has been, or what I might have... READ MORE
This month, the ITA celebrates Insurance Careers Month and encourages carriers, brokers, agents and our industry associations to plan their own... READ MORE
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE