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10 factors that are reshaping the insurance business in 2015

In Back to the Future II, the far distant “future” was 2015! While we’re not to the point of hoverboards and time-traveling DeLoreans, there have been a lot of technological advancements that permeate every aspect of our lives, as well as new threats that can impact the well-being of individuals worldwide.

The 2015 Crash Course – Smart Connections report from CCC Information Services, Inc. looks at some of these changes and puts their impact on the insurance industry into perspective. CCC’s lead analyst, Susanna Gotsch, has been the primary author of the Crash Course report since 1995. She provides us with some insight and context for the findings in the report.

“The industry has been undergoing change for the last 15 years,” explained Gotsch. “The market has recovered nicely. There are increases across the board for different customers. Weather has had a lot to do with the big swings in volume. There has been a lift from the weather patterns and it’s helping the industry get a little bit of a cushion as they prepare to address some of the things coming down the pike. The economy is healthier and the market has emerged from the recession. Most businesses can do pretty well and while we should not see the same level of volume increases in the past, we will still see some.”

There are a number of factors that will affect the business of insurance in the coming months. Here are some of the key indicators identified by the report.


1. Millennials

Young adults are among the best-educated in America according to the Pew Research Center, but many millennials who have graduated with a bachelor’s degree also carry significant school loan debt and quite possibly still live at home with their parents while they look for a job or work to pay off their debts.

These decisions impact the millennials’ ability to purchase homes, rent apartments or buy cars, which directly affect their need for insurance. While millennials rank cars as necessary as smart phones and social connections, a study by Deloitte found that the main reasons why they do not own a vehicle involve the purchase price, maintenance costs and the fact that many can get around by just walking or using public transportation.

As employment prospects improve for millennials, their need to purchase auto, rental or homeowners insurance should as well, although this technologically-savvy generation will have different expectations than their predecessors. 


2. Technology

From data breaches to new automotive technology and beyond, the world has gone digital and we are connected or want to be wherever we go. New mobile technology allows insurers and their insureds to communicate without ever speaking face-to-face, which is a major change in the customer service dynamic. “Technology is changing how insurers interface with their business partners,” said Gotsch. Many insurers are using technology and their business partners to streamline the process and make it more seamless for customers. “It will be the biggest thing going forward and will drive changes in the marketplace.”

Technology has become mainstream and insurers are working to effectively integrate it into their systems and processes. There are connected cars, connected homes, connected phones, and connected devices, which produce a plethora of information that must be harnessed, sorted and used by insurers to provide key metrics and demographics to help in the development of new products and services.

“Technology and the ability to collect data are seamless and insurers will use it efficiently to drive change in the products that consumers will buy.”


3. Gas prices

As the price of oil dropped to under $50 a barrel in January, gasoline prices were at their lowest since 2009, then started to steadily increase. Now the volatile oil market seems to be reacting again and analysts predict that crude oil could go below $40 a barrel, forcing gas prices back down to $2 per gallon or possibly lower. This is good news for drivers who could save as much as $750 in 2015 over 2014 according to the Department of Energy.

A stronger economy means that Americans will be driving more miles, which can affect the number of accidents. With lower gas prices, drivers are also less likely to use public transportation, which means more cars on the road.

CCC believes that despite higher employment figures, an improved economy and the lower gas prices, a shift in demographic patterns (e.g., car-sharing, more workers telecommuting) indicates that there will be little change in the number of households with vehicles and that the number could actually decline in the future. A spike in gas prices will also have a negative impact on the number of miles driven, particularly for millennials who are still getting established economically.


4. Auto accident claims

There has been an increase in claims frequency which can be attributed to the stronger employment picture and less expensive gas as more miles are driven. The severe winter weather across much of the U.S. sparked an increase in vehicle claims due to excessive snow and ice, frequently resulting in massive pile-ups on major highways, as well as frequent fender benders due to poor road conditions.

An increase in new vehicle sales over the last few years has also led to more claims since there are more cars on the road. New car owners may also be more likely to file a claim if there is an accident, unless they have a high deductible ($1,000 or more), in which case they may choose to pay expenses out of pocket or not repair minimal damage.


5. New vehicle sales

The auto industry continued its recovery with auto sales in 2014 continuing to climb over previous years. According to, sales were up 6% over 2013 and reached their highest number, 16.53 million, since 2009. Analysts are predicting a slight jump for 2015 to somewhere between 16.7 to 17 million.

The average price of a new car according to TrueCar was $33,168, costing consumers approximately $4,500 more than in 2004 because of the additional options included in vehicles such as navigation and entertainment systems, multiple airbag protection systems, and improved technology like back-up cameras and touchscreens.

CCC says that sales of light trucks topped those of passenger cars for the first time in four years, and big pickups captured the top three model spots for the year. Crossovers and SUVs increased in popularity, pushing sales up by almost 12%. And since profit margins for trucks are better than those for passenger cars, auto makers were more profitable.

Technology is also affecting how consumers shop for their vehicles. More shoppers are researching their next purchase on their mobile phones or tablets, while 82% still use a laptop or desktop computer.


6. Auto technology

According to the CCC report, automakers are working to keep up with changing technology and are introducing features that will keep drivers synced with the digital world via hotspots, vehicle-to-vehicle communication, and basic navigation, but also keep them safer through crash avoidance and self-diagnostic services.

“The bar has been raised,” explains Gotsch. “We are starting to look at the changes that are happening to the base model. Consumers can buy a safe vehicle with the basics from a technology perspective and basic features and crash avoidance technologies.” Crash avoidance technology has expanded to involve anti-crash sensors and back-up cameras, and is projected to reach $9.9 billion by 2020 according to

While a connected vehicle is attractive to customers from an infotainment perspective, for manufacturers and vendors, the information captured allows them to develop even more new products that will appeal to all generations of drivers.

Consumers also expect their mobile technology to sync effectively with their vehicles and their satisfaction with their vehicles is closely tied to how well their technology systems mesh said a recent J.D. Power study. The rapid evolution of technology is forcing automakers to keep up and Gotsch says that “auto makers are more dependent on suppliers to help introduce technology into the cars. This is where the recall issues arise. The redesigns are happening more quickly and there are challenges with competition.”


7. Auto repairs

All of these technological and safety improvements have affected how vehicles are repaired and it is a far more complex process than 10 years ago. The number of replacement parts required when a vehicle is involved in an accident has increased, as has the repair cost.

“There has been more rapid change in frequency and severity of claims,” explained Gotsch. ”We’re seeing the impact of buying more cars and traveling more distances.”

CCC cites that for a model year 2003-2007 Honda Accord involved in a collision, the average number of replacement parts needed was 10, while a MY 2008-20012 required 11.6, and a 2013 model needed 12.5. The average cost of a repair was up approximately 8%, and the labor costs and refinish hours required increased as well. Gotsch cites the Ford F-150 as an example. “When it comes to the F-150, repairers need special training and equipment to stay current. Customers who had an accident five years ago would have a very different experience today. Repairers have to decide how and when they will make an investment to keep up with the changes.”


8. Business growth

Technology is also affecting how businesses grow and what will identify them as a leader going forward. As technology expands and allows consumers to operate in the digital space, insurers are finding that they must adapt to these changes to meet customers’ growing expectations.

According to Strategy Meets Action’s (SMA) Deborah Smallwood, “…Many insurers have arrived at the inevitable conclusion that becoming a digital insurer is not only a necessary business imperative; it is mandatory.”

Managing the claims process digitally from first notice of loss (FNOL) is becoming the norm as customers, particularly millennials, choose to interact with insurers through social media and electronically by email and texts. Some insurers are developing processes that allow customers to use technology to capture the early stages of claims through video apps. This type of innovation will be crucial to facilitating the process for claimants and meeting their increasingly high expectations. Insurers who listen to their customers will be better positioned to create the products and services they want and need.


9. Telematics

Technology is allowing insurers to gather vast quantities of information and nowhere is this more apparent than in usage-based insurance or telematics. The access to real-time data allows insurers to price policies according to a driver’s habits, whether they are good or bad. While multiple surveys have shown that millennials are more comfortable with pay-as-you-drive insurance, there is far less interest in other age groups. One of the major concerns involves consumer privacy and who actually benefits from the data collected.

“There has been a fairly decent adoption of telematics,” said Gotsch, “many carriers are introducing pay-as-you-drive programs.”

And just because insurers have all of this information doesn’t mean they can use it. “There are regulatory limits as to what can be used from a car. Insurers could merge many data sources to get a more accurate and fine-tuned picture for underwriting. Some people will pay more and some less,” she explained.

Protecting the information collected is another concern because of the increased risks regarding cybersecurity.


10. Data security

All of this technology and information have value, as evidenced by the number of high-profile cyber breaches over the last two years. As more data is captured via telematics, social media, the Internet and other sources, protecting that information becomes more critical and challenging. Businesses cite a cyber breach as one of their top five concerns in multiple surveys. There are also concerns that the collection and use of this data could infringe on personal privacy and civil liberties.

According to the CCC report, Harvard researchers predict that “privacy as we knew it in the past is no longer feasible…How we conventionally think of privacy is dead.”

There are many issues that must be considered as insurers collect and utilize the data gathered. While it provides insights for improving customer service and reaching new customers, it will be the ability to take this information and create new products to meet the ever-changing needs of consumers that will allow insurers to remain competitive and profitable.

Technology permeates every aspect of the insurance process, from online purchases to filing claims and communicating with insureds, to the products and services insurers provide. Gotsch says that as the market becomes more competitive there will be a greater focus on customer satisfaction and a claims experience that meets the customers’ expectations of how they interface with insurers. It will be imperative for insurers to identify and master the tools that will allow them to thrive and survive in this technologically-driven environment.