Why You Should Pay Attention to Hyper-Personalization

P.S. We’ve released a new platform on assessment.faura.us — check out what we’re up to…

I was talking to someone the other day about how the world is getting more customizable to me, to us as a whole. More people in insurance are requiring software that tends to the needs of the end user, the policyholder, before major events or renewals, instead of the previously digitized focus of improving the aftermath of disasters and customer service. This means that more policies are being sold to me, not you. Me.

Long gone are the days when insurers market a blanket policy to you and expect it to be good enough. No, we are seeing policyholders retaliate after years of being left in the dust with untouched claim requests, false payouts, tiny deductibles, and shoddy digital solutions to all of our biggest problems in life: the money problem.

I won’t talk your head off about how premiums are going up and homeowners are mad about it — we all know that part. But when we dig a little deeper, the root of a lot of those complaints comes down to the value you pay for the thing you buy.

Homeowners have the same blanket policies they’ve had for 10, 15, 20+ years and now, those policies are going up. They haven’t done anything wrong; they’ve simply lived in their home peacefully, never filed a claim, always got renewed, and don’t even know who their insurance rep is. They are, in the majority of cases, relatively disconnected.

And now, we have homeowners who can’t afford their previous insurance package and decide to self-insure. Yes, this is a money problem, but premiums go up and down all the time. It’s not a result of inflation that people are pulling out and deciding not to go with traditional carriers. It’s a result of a) people being unwilling to pay more for the same value or b) people being unable to pay more for less value.

Property insurance is, in the majority of cases, delivering the same value to every policyholder in America: you get a mortgage, you get a roof over your head, and you get protection from the most common threats facing a population. You were once paying 1000 bucks for that. Now, you have to pay 5000 bucks for the same thing because of a wildfire that happened two miles west of your home and burned four acres. You aren’t getting any more tangible value from that policy, and yet, you are forced to collaborate in this one-sided exchange for the bottom line.

Let’s go back to the top, shall we?

Policies are getting more personalized every year. I’ve touched on the fact that the property insurance space hasn’t changed much in the last few decades, and there’s a reason for that. You can’t really offer a ton of extra value with something that doesn’t change year over year, like a house. With auto and life, you’re consistently getting something out of what you put into it (like eating healthy and exercising or going the speed limit and stopping at red lights), which incentivizes change in the person paying for the policy and in the carrier themselves when pricing. Input good -> lower premium. Input bad -> higher premium.

This system is coming into play for properties now because those inputs have changed, but the inputs aren’t manageable by the homeowner. The homeowner can’t determine which locations get dryer in the summer and become more susceptible to wildfires. The homeowner can’t designate FEMA flood zones that are more favorable to them. So all of a sudden, these factors that we’re used to having in our control that majorly affect our premium pricing, are not in our control.

So let’s wrap this up:

• Homeowners are now getting less tangible value for the policies they are required to buy as compared to their previous experiences with property insurance.
• Homeowners cannot manipulate the necessary inputs needed to make a significant impact in the pricing of their premium, like they would with auto and life.
• Homeowners are dropping out of traditional markets, self-insuring, and being scarred by the market at one of the most stressful times we’ve seen so far.

We are at an unbelievably complex intersection of climate and insurance right now and in order to mend the bond between carriers and policyholders, there needs to be more proactive measures that take place and more transparency. If homeowners can’t control the inputs going into their policy, why would they pay for a policy in the first place? If there aren’t any ways to tune a product or service to their liking, what’s stopping them from going with another carrier, stepping out of the market, or going without insurance entirely?

Remember when I said it’s all about the value of the thing you’re buying? Hyper-personalization is a way to add value to that pricing structure to make it more worth your while and the policyholder’s while. Yes, the climate input isn’t something we can manipulate, but we can manipulate our structure’s compatibility with regards to that new climate input.

By personalizing a property and better incentivizing homeowners to take those steps and get rewarded, we implement almost a gamification within the insurance sphere: to get the best insurance experience possible at the best price, risk reduction has to be involved. It’s already taking place with many of the insurtech companies we see revolving around CAT risk, and it’s only going to continue as the climate inputs continue to get more extreme.

Now, this isn’t a bad thing. Yes, it’s going to take time to adjust to, but we’ve done it before with virtually every insurance policy on the books. Everything needs to be personalized at some point because the sector either gets too big and develops specific niches, or the sector itself is relatively niche and requires more manual development. And with personalization, comes the value. With value, comes the pricing. And with pricing, comes positive margins.

It’s such an interesting space to be a part of in the climate/insurance space, because we’re seeing all of this happen in real time. The personalization of policies not only brings some kind of stress relief for the homeowner, but also allows insurers and brokers/agencies to deliver on a better customer service experience, something that has been lacking in recent years according to the majority of policyholders today.

As we expand, I’m sure there will be more information that helps sway us in one direction or the other. For now, we’re trying to understand more personalized policies and risk reduction and how that helps on both sides of the equation. You can check out more of what we do at Faura here.