Marty Sansone brings over 15 years of insurance industry experience to his role as Vice President, Insurance at the Zebra. Marty has held various leadership positions in operations, marketing, product management as well as sales strategy roles at industry-leading insurance companies throughout his career.
In this expert Q&A, we’ll take a deep dive into the current state of the insurance industry, address the main factors impacting this year’s rate fluctuation, and discuss how the latest developments like data science and telematics are going to change the market.
Jasmine Kim: 2021 was a tough year for the industry, and 2022 started out pretty rough, too. What direction do you see insurance going for the rest of the year?
Marty Sansone: We’re getting into what is considered a hard cycle, where we’re going to see pricing changes, underwriting changes, risk assessment changes, etc. Last year, carriers saw premium reductions and dividends, but carriers also faced billions in catastrophe, coastal claims and floods on top of managing expenses and growth.
** Usually, a hard market is characterized by high demand for insurance coverage but reduced supply. During this time, insurers have less desire for growth and place restrictions on the marketplace to correct budgets and loss ratios. The common characteristics of a hard insurance cycle include higher insurance premiums, more stringent underwriting criteria, reduced capacity (meaning carriers write fewer insurance policies), and less competition among carriers.**
MS: I think this year is going to continue to be a hard market, which means we’re going to keep seeing rate increases and carriers shift their focus to maintain profitability. We’ve already seen carriers shed real estate after deploying remote and hybrid work models, which suggests that they’re already looking to cut costs. As the world opens back up and people return to their jobs and get back on the roads, we need to make sure that we’re getting what we need to maintain profitability and pricing, with underwriting changes being the main focal point.
In addition to maintaining profitability, what do you think is the greatest external challenge the industry is going to face in the second half of the year?
MS: Outside of inflation and continuing climate catastrophes, I would say two big concerns would be the supply chain shortage and secondary coverages.
The continued supply chain delays make repairs take much longer and more expensive to get parts and get your car or home repaired. The severity and frequency of claims is also going up, and carriers are having to pay out more to more policyholders as well. Due to the increased severity of claims, medical costs are also going up. All of these things could be considered as secondary claims, and all feed into an insurer’s profitability and how much they are going to charge policyholders.
So it seems like there’s a domino effect where everything is going to impact rates all at the same time. People seem to be expecting carriers to just be able to bounce back, but the industry hasn’t even fully addressed and recovered from what happened in 2021.
MS: Exactly. I’m saying all of this to say that the greatest challenge across the industry is going to be retaining customers. Hard markets typically drive shoppers into the market, but inflation is making everything more expensive, which makes cars, used cars and car parts less affordable. So what are customers going to do?
Probably look for cheaper coverage?
MS: They’re going to reduce their coverage. This leads to situations where drivers might not have enough coverage, and if they have an accident then they’re all of a sudden out of pocket. I look at this as a potentially vicious cycle of things getting too expensive too quickly. Instead of letting this happen, carriers should focus on retaining customers and get back to baseline profitability from the insurance performance side, not the overall expense performance side.
Why are rates fluctuating so much this year? How does a carrier go about stabilizing rates?
MS: Rate stabilization and rate fluctuations are typically difficult to manage because of two reasons: the industry is trying to bounce back from giving customers lower premiums due to the pandemic, and rates are approved at the state level. State departments of insurance are actually the ones approving rates, and because of that, different states will determine which rate increases and decreases they want to approve at the state level in their respective states.
A big portion of what carriers are going to look at when underwriting will be risk assessment and exposure density. Carriers will want to avoid situations where claims could be clustered together, such as in an area where catastrophes are prone to happen and try to diversify and spread out their exposure/risk.
Wow, so there are so many moving pieces. It seems so overwhelming, how are carriers going to balance all of this?
MS: It’s cyclical. This isn’t the first time the industry has gone through something like this, but the COVID pandemic, delays in rate filing approvals, supply chain shortage and claims severity have definitely created the perfect storm.
What are the most innovative and impactful ways you’ve seen insurers trying to recover?
MS: Definitely the concept of telematics. Telematics has so many different options: user-based insurance, pay per mile, driver tracking and assessment. And the struggle to adopt there is Big Brother; what are you tracking, who is doing the tracking, is it an app or a device, where does it plug into, etc. But as a consumer, an advisor, and having been at a carrier, the concept of telematics is one of the easiest and purest ways to actively dictate the rate and cost that a policyholder is going to spend for their driving behavior. The use of telematics pushes carriers to learn more and make smarter decisions about where they choose to grow their business, where they want to address risk and spread that risk out, and to whom they want to provide coverage.
In addition, more insurers have started to embrace the independent agency market and are placing bigger bets than they have in the past on these agents as a distribution channel. There’s no doubt that the industry is evolving into a digital place, but people still feel more comfortable with a person talking them through their assets and risks and how to protect themselves and their property, with insurance being one piece of the solution. Carriers are starting to provide more resources, access to products and different information to guide independent agents to become true advisors.
Where else do you see big wins in the industry this year?
MS: I’d say data. The industry has always been data-rich, but now we’re able to improve access to information and improve the way to construct rates. Because the last 18-24 months have been so unusual, I think the industry has a chance to win in terms of being more transparent on how machine learning and data science take that kind of random variable information from 2020 and 2021 and work it into prior cycles of pricing rather than just having a knee-jerk reaction. Data science could help the industry and agents to better understand where this volatility should end and start to stabilize.
Do you think the industry is overlooking any particular area where it could have an easy win or has the opportunity to innovate better/smarter?
MS: I feel that innovation in customer service and customer satisfaction isn’t always at the forefront. Typically, the focus is on customers who have filed claims or have gone through the claims experience, but what, as an industry, are we doing for those customers who have never had a claim and are exemplary customers? There’s more offered to consumers who are willing to switch than those who remain loyal for years, absorb premium increases and program changes, and bundle their policies.
I think this new focus on the value of independent agents and being truly trusted advisors could be the answer. Agents could not only continue to guide customers through changes to their insurance needs but also begin to provide tips and suggestions on how to reduce some of their risks. There also needs to be more focus on rewarding loyalty and longevity of customer relationships outside of the sales or claims filing experience.
What are the most common questions you get asked as an industry expert who has been immersed in the industry for over 10 years? What do you wish people asked you more about or were more curious about?
MS: That’s a great question, I think people tend to be most concerned about if they are covered properly in case something were to happen. But let’s be honest, a fair amount of people likely won't experience a major claim, and if they do it will be more minor in nature. I think it's more important to know what exactly your policy covers so there's no gap or overlap.
In addition, I wish folks asked their insurance advisors more detailed questions about the asset they are protecting so they could better understand what would make the most sense in the policy and how to prevent financial exposure. By asking questions like these, customers can truly rely on their advisors to do the heavy lifting for them such as customizing their insurance solutions, claims prevention actions and caring for their assets — be it a vehicle or a home — to boost the relationship while collaborating to reduce risk.