| Sep 29, 2022

Personal Insurance Innovation Amidst Industry Challenges — Is It Possible?

Conventional operations in the personal-lines insurance industry are no longer working. Rising loss costs, inflation and growing risks all pose challenges to the insurance industry. However, these challenges may be overcome by targeted underwriting and digitalization.

Insurance is a cyclical business from a performance perspective, but it’s fair to say we’ve never seen a cycle like the one we’re in now. Traditionally, the personal-lines industry operated conventionally with customers buying bundled policies, not modifying their existing coverage and rarely switching carriers.

Now, personal-lines insurers face an uncertain future as they deal with various challenges like inflation, supply chain disruptions, climate change, cyber risk and a rise in digital fraud. These trends push loss costs higher, threatening future profitability.

However, with risk comes opportunity. The pandemic disrupted people’s lives, so consumers expect more from their insurance company. As a result, insurers must deliver innovative products and solutions to meet customer demand and enjoy a competitive advantage in the market.


Industry Challenges

The industry and economy dynamics are challenging the personal-lines insurance industry, making profitability and growth difficult. Some industry challenges carriers face include rising loss costs, economic and social inflation, and evolving risks.

1. Rising loss costs

Cost of labor, parts and materials contribute to the increase of loss costs. The impact of natural disasters and catastrophes results in more claims, too. Also, driving patterns have returned to pre-pandemic levels, leaving room for more accidents and claims. While safety devices like telematics may help prevent accidents, those features are yet to be widely adopted.

2. Economic and social inflation

Higher inflation has caused expenses, claims, demand for goods and supply-chain issues to rise, as well. As a result, premiums are going up and causing customers to leave their existing insurers to purchase new policies at lower rates. For insurers, this means that restoring profitability is harder because if they raise their premiums, they risk losing customers.

For example, TransUnion’s Q2 2022 Insurance Shopping survey showed customer retention challenges for insurers. Over the previous six months, 39% of insureds shopped for auto insurance, and 21% of those shoppers switched; 30% of insureds shopped for homeowners insurance, and 61% of those shoppers switched.

Additionally, state insurance regulators are reluctant to approve broad rate hikes as they try to tamp down inflation. Even if regulators allow it, insurers risk losing enough customers to offset their higher rates.

And, social inflation is impacting the industry. Social inflation refers to the impact of litigation costs on claim payouts and loss ratios. It threatens the affordability of coverage because it is difficult to predict.

3. Growing risks

With so many online insurance transactions, digital fraud (and cyber risk) is rising. Cyber security risks (data breaches, ransomware attacks) are becoming more common. The cost of cybercrime is expected to hit $10.5 trillion by 2025, according to a recent report.

Additionally, in a hardening market, many personal-lines carriers are spending less money on advertising and taking action to slow new business down so they have time to determine prices.

Lastly, catastrophic climate and weather events, such as hurricanes, are expected to increase in frequency and severity, as are smaller-scale events, such as hail storms, tornadoes and wildfires.

Industry Opportunities

With only a few carriers commanding most of the personal-lines insurance market and hundreds of other insurers making up the rest, competition is fierce. But there are still opportunities to win market share and improve profitability.

Many carriers renew policies year after year without reviewing the risk properly. Failure to adequately price risk leads to missed opportunities. Instead, use targeted underwriting to review your existing  book of business to see if and how it has shifted. Re-underwriting is a non-rate change activity that can improve your bottom line without waiting for rate to earn through.

For example, if customers renovate their homes, they may be under-insured depending on the extent of the changes. For auto policies, several factors cut into profitability, including garage rate evasion, vehicle eligibility and recent violation history. All of these risks would likely impact customers’ premiums, but insurers need the correct data to help identify these risks and price policies properly.

Another tactic is to leverage solutions to provide expense savings or improve pricing. For example, inflation impacts direct mail with postage costs rising and supply chain issues delaying the delivery of envelopes. Instead, increasing digital marketing can allow you to reach more people at a lower cost.

Additionally, some personal-lines insurers offer personal cyber insurance to cover broader cyber risks beyond basic identity theft as an add-on to homeowners, renters or condo policies. However, as of now, only a few companies offer this type of coverage, which provides  an opportunity for others to follow suit.


The pandemic accelerated the adoption of digital capabilities to replace outdated technology, improve efficiencies and reduce expenses. Luckily, consumers gravitate toward digital experiences and are more comfortable communicating with insurers through digital interactions.

While digitalization offers opportunities for carriers, it also brings challenges — namely, digital fraud. From 2019 through 2021, digital fraud in the insurance industry spiked 54.3%, and from the second quarter of 2021 to the second quarter of 2022, it went up 159% — more than any other sector surveyed, according to TransUnion data.

The insurance industry is a significant target of digital fraud because of the large amount of sensitive consumer data insurance carriers possess. And, because some insurance data systems haven’t been updated recently, they may be more attractive for fraudsters to steal data and use it in other types of fraud. Much recent fraud involves data theft to be used in other industries. Cybercriminals aren’t necessarily filing fake insurance claims; they’re using stolen data to submit fraudulent claims for unemployment benefits or tax returns.

The cost of fraud impacts the loss ratio and increases operational expenses, impacting profitability and increasing consumer premiums. To combat this, a more integrated approach layering different fraud detection capabilities can help build consumer trust and profitable growth will help insurers.

What’s Next?

As insurers deal with the ongoing challenges and trends impacting personal-lines insurance policies, the opportunities to increase profitability require out-of-the-box thinking and innovative solutions.

Insurance carriers need to continue doing business as usual, but when there’s extreme pressure from these converging challenges, it’s worth considering a different, more innovative and data-driven approach during difficult economic times. The business can grow — but with data-driven solutions and technologies.

Michelle Jackson
Michelle Jackson
Executive Author

Senior Director, Insurance Strategy, TransUnion

Michelle Jackson leads the personal lines insurance market strategy team at TransUnion. view profile


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