P&C Insurance: Mind The Gap(s)

By Stephen Applebaum and Alan Demers —

The expression “Mind the gap” dates to the 1960s when it was first announced on the London Underground. The purpose was to warn passengers of the potentially dangerous gap between the train door and platform which are not perfectly aligned. It has since evolved to become a general warning about the danger of open space or gap between two points.

It applies especially well to the many risks and headwinds faced by the insurance industry today. And if unattended, may be irreversible or much harder to close.

The P&C industry is by design, resilient with layers of financial insulation. Reinsurance, surplus capital, low-risk and liquid investment portfolios are just some of these layers with individual state oversight to monitor financial stability. The insurance model has been tested over time during high inflationary periods and severe catastrophic events and alternating hard and soft market cycles.  However, the last three years are arguably the most challenging from fluctuating inflation and worsening climate risks. Meanwhile, there are emerging and widening gaps that both threaten and are reshaping massive segments such as real estate and homeownership.

Climate Resilience Gap

As made painfully obvious by the recent series of extreme weather catastrophes, government and public agencies’ collective ability to respond to these new and greater risks has proven inadequate while the insurance industry is more vulnerable than ever. Each event seems to outpace the last, taxing FEMA, illuminating dated infrastructure and financially straining insurers.

Protection Gap

It is estimated that 50% of insurable global risks are actually insured – in some countries and socio-economic groups the gap is much larger.  The impact of this lack of coverage is the high, and in some cases unexpected, cost of covering losses and replacing property.  Frequently, insurance companies take the brunt of the blame for not properly advising policyholders at the front end.  Affordability is driving the gap further as trade-off decisions are made to partially or self-insure. Most are ill-prepared for this new paradigm.

Trust Gap

Consumer trust and policyholder loyalty is at an all time low within the insurance industry including Health and P&C.  The contributing factors include; years of double-digit premium increases well beyond inflation, protracted and frustrated claims payment experience in the face of losses from increasingly extreme catastrophes, unexpected coverage denials and a trust deficit as policyholder driving data and personal information is being collected and commercialized without explicit permission. All of this is exacerbated by the stark differences between insurance industry customer service levels in comparison to other modern digital experiences. Finally, insurer profits whether reality or perception, are widely considered excessive.

Transparency/Information Gap

The process by which premiums are calculated and claims are adjudicated remains opaque.  Policy language is lengthy, technical and in parts vague and open to debate. Most policyholders are unaware of what information is collected and calculated or disagree with factors such as credit scores somehow accurately predicting risk. Either way there is a missing linkage between premiums and perception of risks, such as one’s self-evaluated driving skills. Most believe they are good, safe drivers for instance.

Legal System Abuse Gap

While the plaintiff bar systematically optimizes the tort system, there are widespread abuses to enrich themselves with oversized fees resulting from astronomic jury verdicts, fueled by litigation funding and mass marketing. Conversely, the insurance industry has basically failed to exert its influence to reform the legal system and unable to keep pace. The industry needs to organize itself and fund a concerted effort to address this problem. Consumers are aware that these sky- high verdicts ultimately translate to higher premiums and expect insurers to do more to protect them.

Talent Gap

The “silver tsunami” is a term used to describe the aging of the baby boomer population. It refers to the potential impact of this demographic shift on the workforce. Many baby boomers are retiring at an accelerated rate. The aging workforce is leading to a “brain drain” as older workers leave their jobs taking their rich insurance knowledge to the pickle ball courts and elsewhere.

The recent shift from analog to digital business processes requires that the workforce receive appropriate “upskilling” or retraining however the insurance industry continues to lag in these initiatives.

Finally, attracting the best and brightest young adults – most of whom are “digital natives”- to insurance careers has proven elusive. It is incumbent on the industry to work together to address the gap starting with image and purpose.

Empathy Gap

As insurers work to leverage new technology there is a loss of human empathy across the enterprise. Claims is especially vulnerable because policyholders are suffering anxiety and stress. Efforts to automate often lead to fewer people resources to meet ROI objectives or are disjointed and yet to be perfected resulting in a bumpy claim process.

Insurers will need to do more to deploy, integrate and orchestrate new technology and coordinated provider services, especially AI while improving and not degrading customer service and satisfaction. Loyalty and retention are at stake.

Marketing Gap

The P&C Insurance industry – specifically personal auto and home carriers – continue to offer essentially the same products they have been selling for decades. However, today’s consumers bear no resemblance to those in the past. Needs, expectations and preferences have changed dramatically and legacy insurance institutions are quickly becoming irrelevant when making purchasing choices.

Product Gap

One prominent characteristic of the “new consumer” is their expectation of personalization in goods and services. This is the opposite of the “one size fits all” approach that the legacy insurance industry still pursues.

Consumers want dynamic, real-time, fit for purpose, bespoke insurance products and if one carrier cannot provide it there are others who will.  Record high insurance shopping rates are a reflection of these preferences.

Consumers have embraced connected devices (cars, smartphones, watches, sensors) and the associated products and services but insurers are badly lagging other segments in leveraging these from a product perspective, exposing themselves to competitive risk from technology providers.

Distribution Gap

Independent insurance agents and brokers place about 62% of all P&C insurance premiums in the United States (including commercial lines and personal lines) yet they are not as effective as they could be.

Brokers do a fair job of marketing new prospects but are generally much less effective at customizing coverage to personal needs and even less so of staying in touch with relevant communications and basically go silent until policy renewal approaches.

Although the vast majority of auto insurers offer telematics-based insurance products, market penetration stands at only 16% of policies. Agents typically do not proactively promote these products because they are not proficient at explaining them and fear alienating their prospects.

Embedded insurance (insurance bundled at point of sale of a product or service) is seeing rapid growth outside of insurance but carriers are behind the curve. This not only represents lost revenue and new customer acquisition opportunities but allows non-traditional providers to take market share.

Innovation Gap

Insurance C-Suite executives talk up innovation and transformation but very few invest sufficient effort and resources beyond catching up with technology and even fewer have strategic plans to close this gap. Yet, technology is making a difference in numerous areas and expected to do so well into the future.

It is incumbent on insurance CEOs to regularly communicate and clearly articulate their support of innovation and to ensure that adequate resources are being allocated and applied. It requires nothing less than a cultural makeover and addressing outdated constructs that impede breakthrough progress.

Closing The Gaps

The role of innovation and insurtech cannot be overstated for an industry that historically is people and labor intensive . Closing these gaps is vital for the insurance industry and its contributions to the economy and consumer livelihoods. Long term insurance stability is in the best interests of investors, financiers and risk takers of all types including businesses and consumers. Minding the gap is foundational for industry success in 2025 and beyond.

About the Authors

Stephen E. Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem focused on insurance information technology, claims, innovation, disruption, supply chain, vendor and performance management. Mr. Applebaum is also a Senior Advisor to Waller Helms Advisors.  WHA is the premier investment banking boutique focused on the crossroads of the Insurance, Healthcare and Investment Services sectors.

Stephen is a frequent chairman, guest speaker and panelist at insurance industry conferences and contributor to major insurance industry publications and has a passion for coaching, mentoring, business process innovation and constructive transformation, applying disruptive technology, and managing organizational change in the North American property/casualty insurance industry and trading partner communities. He can be reached at [email protected].

Alan Demers is founder and president of InsurTech Consulting LLC, with 30 years of P&C insurance claims experience, providing consultative services focused on innovating claims. After initiating and leading claims innovation at Nationwide, Demers collaborates in the forefront of InsurTech, partnering with insurance leaders, startups, design thinking experts and service providers to modernize personal, commercial and specialty claims.

As Vice President of Claims Innovation at Nationwide, Alan conceptualized a vision and road map to build next-generation claims, automating and digitizing claims experiences, progressing from inception through prototype testing. He served as a founding member of the Corporate Innovation Council and played a key leadership role in establishing goals, practices and an innovative culture at Nationwide.

Alan is an accomplished executive leader and has worked for two separate Fortune 100 insurance companies in a number of corporate, national and regional leadership roles among personal, commercial, non-standard and specialty lines claims. Prior to leading claims innovation, he served as head of claims for Nationwide’s commercial agribusiness and non-standard claims. Other noteworthy roles include: field vice president, regional claims officer and national catastrophe director, quality assurance director.

Alan began his career with Aetna as a claim adjuster and advanced to a corporate claim consultant, prior to joining Nationwide in 1995.

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