InsurTech: The Consumer’s Perspective
Welcome back to our InsurTech series!
After exploring the insurance industry’s origins, regulatory landscape, innovations to date, and delving into the key players that make insurance products possible, we now turn our attention to the consumers who are ultimately purchasing and using these products.
This article will begin with a brief overview of the financial state of Americans before examining perceptions and trends relating to health, property, and life insurance. The goal is to understand the challenges and opportunities for consumer-facing insurance product categories. While policy plays a significant role in improving access and outcomes, particularly in healthcare and property categories, we will focus on how companies can better serve their customers and how startups can contribute to this endeavor.
TL;DR -
- Over half of Americans are in financially precarious situations, yet these groups are often the most likely to be underinsured due to lack of access and education regarding these products.
- Confusion about how products work and what is covered is pervasive across product categories, creating issues that impact satisfaction and renewal rates during policy comparison, selection, and utilization.
- We believe technological-driven innovations have the potential to improve product distribution and experiences. Personalized recommendations, easier to understand policies, and speed/accuracy during claims management can help differentiate brands and improve renewal rates.
The Average American’s Financial Wellbeing
The average American is a couple of missed paychecks or an unexpected expense away from a challenging time. Insurance is a tool that can help mitigate against financial instability.
The financial standing of average Americans has been a longstanding topic of concern amongst policymakers and individuals themselves. Despite being one of the wealthiest nations in the world, a significant portion of the U.S. population faces financial instability.
According to recent data, the average American has approximately $8,000 in savings. Similarly, a Federal Reserve report revealed that 37% of Americans would struggle to cover a $400 emergency expense without borrowing money or selling something they own and only about 54% of Americans are financially prepared to handle a three-month loss of income. However, examining this metric by income percentile shows significant variation: the majority of this financial precarity is concentrated within the bottom 59% percentiles of Americans by income.
Over half of Americans live paycheck-to-paycheck and can’t cover small emergencies, leading to high-interest debt or tough choices during crises like medical emergencies or job losses. This financial instability affects individual well-being and the economy by reducing consumer spending and increasing reliance on social safety nets. Proper insurance coverage, however, can help protect against these scenarios.
Overview of Consumer-Facing Insurance Product Categories
Consumers must choose between various types of insurance policies across health, property, and life categories. However, finding a best-fit policy is often challenging and confusing.
Insurance helps protect American families from financial strains caused by setbacks. It allows individuals to manage risks and maintain stability. However, consumers often have mixed experiences understanding their coverage and submitting claims. Below, we discuss three major insurance categories — health, property, and life — and highlight consumer perspectives, challenges, and opportunities.
Health Insurance
Consumers generally like their insurance policies but when asked further about it, most have consistent issues with claims.
Health insurance in the United States is a complex and multifaceted system. The landscape includes various types of coverage such as employer-sponsored insurance, Medicare, Medicaid, and plans purchased through the Affordable Care Act (ACA) Marketplace. The U.S. has some of the highest healthcare costs globally. As such, health insurance is vital for covering medical expenses that can arise from illnesses, injuries, or chronic conditions.
General Sentiments Towards Health Insurance
Most insured adults in the U.S. generally rate their health insurance positively. According to recent data, 81% of insured adults give their health insurance an overall rating of “excellent” or “good.” However, these ratings can vary based on health status and type of coverage. For instance, 91% of adults on Medicare rate their insurance positively, while only 73% of those with ACA Marketplace coverage do so. People in better physical health also tend to give higher ratings compared to those in fair or poor health.
Challenges Faced When Navigating Health Insurance
Many insured adults experience issues with their health coverage despite positive ratings. A nationally representative study by the Kaiser Family Foundation found that 58% of Americans faced problems like denied claims, provider network issues, and pre-authorization hurdles in the past year, especially those in poor health or needing frequent care. Additionally, nearly half found it challenging to resolve these issues. The 2022 Medicare Fee-For-Service Improper Payments Report estimated $80.57 billion in improper payments, with a 15.62% error rate.
Half of insured adults find it hard to understand their coverage, especially Spanish-dominant U.S. Latinos. Affordability is also an issue; 21% of adults reported having skipped prescriptions due to cost, resorting to cutting pills or skipping doses.
Opportunities for Improvement — Health Insurance
Several avenues can improve the American health insurance system through technology and consumer-centric approaches.
- Simplifying Claims Processes: Automating and/or using oversight software to assist with claims submission, tracking, and error detection to reduce denied claims and help consumers navigate their coverage with fewer disputed or denied claims.
- Expanding Provider Networks: Tools could help strategically optimize provider networks based on detected consumer needs. Additionally, clearer ways of finding care in-network for consumers could help prevent unexpected out-of-network costs.
- Enhancing Affordability: Informing consumers about pricing and care options and exploring business model innovations such as subscription-based care or discount programs/partnerships could help both lower costs to consumers and insurance companies.
- Consumer Education: Empowering consumers with accessible platforms that explain health insurance plans, coverage details, and rights. Chatbots or AI tools could provide real-time answers to their questions.
Property, Liability, and Casualty Insurance
While homeowners’ and auto insurance is becoming challenging to access in certain geographies, categories like renter’s and pet have room to grow.
Property, liability, and casualty insurance are key components of the American insurance scene, offering financial protection for categories such as home ownership, auto, and pet ownership. We will start by introducing these categories and then discussing opportunities in the broader category.
Homeowners and Renters
American consumers often find homeowners and renters insurance as necessary but frustrating due to high premiums, manual claims, and unclear policy terms. Homeowner’s insurance, in particular, is becoming increasingly inaccessible due to companies leaving geographic regions or unaffordable given rising policy premiums. Only about one-third of U.S. homeowners understand their natural disaster coverage, and, while 55% of renters have insurance, most can’t identify what it covers. Renter’s insurance in particular shows significant opportunities for continued growth.
Auto Insurance
Auto insurance is another major component of property and casualty insurance. It typically includes liability coverage for bodily injury and property damage caused by an accident, as well as coverage for damage to one’s own vehicle. Consumers generally recognize the necessity of auto insurance but often feel overwhelmed by the variety of coverage options available. While cost and coverage are important factors when selecting auto insurance, a majority of Americans don’t shop for auto insurance annually. Millennials, however, are significantly more likely than other generations to shop annually.
Pet Insurance
Pet insurance is a growing segment within property and casualty insurance. (Yes, while often considered family, pets are classified as property). These policies cover veterinary expenses for pet illnesses or injuries. Pet owners see insurance as valuable but often find policy details confusing. Premium costs can deter owners, especially for certain breeds or older pets. Filing claims can also be more cumbersome than other property categories.
In 2023, the industry experienced a ~22% year-over-year revenue increase while surpassing the $4 billion mark for the first time. Additionally, 2023 was the fifth consecutive year that the industry grew over 20%. This growth makes sense for millennials in particular, who cite pet ownership as a source of companionship amongst a rising cost of living. Half of pet owners would take on debt before cutting their pet budget and 36% of dog owners reported a willingness to spend more than $4,000 out of pocket for life-saving medical care for their dogs.
Opportunities for Improvement — Property
- Simplified + Digital Policy Management: User-friendly platforms could simplify policy management.This can include dashboard overviews, self-service options, and digitized workflows for documentation, real-time updates, and communication.
- Education Through Personalized Comparison Tooling: During discovery and selection, generative AI could be used to improve policy comparisons for an individual’s specific circumstances.
Life Insurance
There are several underinsured groups, like women and U.S. latinos, within this category. A particular challenge with life insurance is the signup process.
Life insurance in the U.S. provides financial security to beneficiaries upon the policyholder’s death through a contract with an insurer. In exchange for premiums, the insurer pays a sum to the beneficiary. Coverage can also include terminal or critical illnesses. There are two main types: term life insurance, which covers a set period, and permanent life insurance, which offers lifelong coverage with a cash value component.
The general sentiment towards life insurance among American consumers is mixed. Many recognize its importance for financial planning and security, particularly for families with dependents. However, there is also a significant portion of the population that remains uninsured or underinsured due to various factors such as cost concerns, lack of understanding about different types of policies, and perceived complexity. Additionally, traditional methods of purchasing life insurance involve lengthy processes with multiple intermediaries, which can be cumbersome.
The life insurance market sees a particularly sustained gap between coverage by gender and race/ethnicity. Women are less likely than men to own life insurance. Just 49% of women own life insurance, compared with 55% of men. This represents the fifth consecutive year of life insurance ownership declines for women. U.S. Hispanics also have the lowest rates of life insurance coverage relative to other racial/ethnic groups.
Opportunities for Life Insurance
- Customer Education and Engagement: Analytic-driven customer segmentation and embedded distribution channels could better engage prospective customers who may be underinsured. AI-driven customer service tools can enhance responsiveness and provide personalized support and education throughout the policy lifecycle.
- Digital Platforms: Leveraging modern software solutions to create intuitive digital platforms can simplify the policy comparison, selection, and management process. Advanced data analytics can help detect underinsured individuals and recommend policies more closely to individual needs.
Universal Opportunities
Across categories, traditional insurance feels opaque and impersonal. These current challenges pose opportunities to enhance the consumer experience as they compare, select, and manage their policies.
We believe the following areas will be important new areas of technology-innovation across categories:
Comparison
- Personalized policy comparisons to determine best-fit solutions
- Improved understanding of policy terms and conditions
Selection
- Embedded distribution and seamless end-to-end journeys
- Increased policy customization
Management
- Improved digital management of policies
- Modernized, error-free customer service
Ultimately, in a market where the policies are similar, better pricing and operational efficiency, delivered through technology, can help insurance companies better capture and retain consumers and begin to change brand perceptions and the policyholder experience.
That’s all for now! Stay tuned for our next post where we’ll dive into trends regarding where venture capital funding has flowed into the InsurTech sector.
ABOUT CHINGONA VENTURES
Chingona Ventures invests in pre-seed and seed-stage companies in often-overlooked markets, partnering with founders at the earliest stages of development. The firm seeks to invest in financial technology, future-of-learning, future of work, and health companies based in the United States.
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