The days of assessing risk through the rearview mirror are fading fast. Here's how insurers could drive business growth and help safeguard customers before losses occur.
Over the past year, US property and casualty (P&C) insurers returned to profitability, in part, by raising premiums.
Meanwhile, the recent wildfires in Los Angeles provide evidence of the efficacy of risk management. Building more resilient homes and monitoring the electrical grid in real time could have helped minimize the devastation.
Insurers are in a position to help customers increase their resiliency and prepare for unexpected events. Their expertise in handling and assessing risk scenarios puts them in a strong position to own conversations around prevention strategies. And the explosion of technological advances—from generative artificial intelligence to Internet of Things—is helping make it possible to predict, and therefore prevent, some losses across business lines.
[Insurers'] expertise in handling and assessing risk scenarios puts them in a strong position to own conversations around prevention strategies.
As the potential to provide alternative services matures and expands, and customers increasingly demand predict and prevent offerings, we expect monetized, fee-based services to represent a growing proportion of insurer revenues. Deloitte predicts that fee-based revenue for US P&C insurers will grow from an estimated US$21.6 billion in 2023 to US$49.5 billion by 2030, with a 12.55% compound annual growth rate (figure 1) (see "
Shifting away from a time-tested business model
As customers become savvier about the financial benefits of investing in risk management mechanisms for their personal and business assets, insurers should plan for a future in which their business model of realizing profitability by analyzing and assessing risk through the rearview mirror will change. What's the upside? Significant new revenue streams could materialize.
Currently, P&C insurers derive a majority of revenue from insurance premiums and investment returns.
Therefore, any meaningful increase in service revenues could be a drastic shift for the industry. If insurers can provide services based on their expertise and extensive breadth of data, they will likely find more impactful and sustainable long-term growth. In light of new technological advancements—and the increasingly complex and costly risks customers face—the most value will likely be derived from developing more sophisticated predict and prevent services.
Fee-based services may require new market approaches
Embracing this shift is expected to be a significant adjustment and may even require changes to business models. While offering services at no cost or a negligible cost may work for "simpler" risks, such as providing homeowners a water leak detector, more complex and costly predict and prevent measures could require insurers and customers to share both the costs and savings. For example, in several states, such as Florida, some insurance companies offer discounts to policyholders who fortify their homes against hurricane winds by securing roofs and shutters and reinforcing garage doors.
Today, fee-based service offerings are largely focused on commercial lines, since these contracts are naturally more complex and of higher value. Typically, these services focus on helping companies prevent and recover from losses, ranging from onsite risk inspections to virtual educational tools to help companies and their workers conduct their business in safer ways.
Nonetheless, expanding or doubling down on existing risk management and loss control services could be a successful avenue to grow services revenues. While insurers would likely prefer to provide services to customers that also buy their insurance products, they could also provide stand-alone offerings to nonclients like some insurance brokers do. For example, Arthur J. Gallagher & Co. states that approximately 93% of its risk management services revenue comes from nonbrokerage clients.
Insurers may also look for new operating models to better predict and prevent claims, such as building out partner networks to provide customers a swath of risk prevention services. AXA XL's construction insurance offering, for example, provides contractor clients with a suite of more than 30 tech providers to help them reduce risk and boost risk management.
At the same time, personal lines risks are becoming increasingly complex, from insuring
Examples of preventive measures already exist today. Some insurance companies contract with private companies to provide "wildfire defense services" to help policyholders prepare their homes for potential wildfires as well as respond during a fire.
While the overall costs behind building more resilient homes may be too big of an investment for insurers to bear alone, they could be the drivers of such adoption by providing fee-based services, like guiding customers to build with resilient materials, finding contractors, and installing new technologies. Insurers and customers could share both the costs and savings in these scenarios.
Preventing losses can benefit customers and insurance companies alike. To balance profitable outcomes with meeting their customers' needs in today's risk environment, insurers will likely have to embrace a predict and prevent business model, emphasizing the opportunity for fee-based services to complement their traditional sources of income. While there may be opportunities for insurers to expand their business, timing may be critical to success; others may swoop in if insurers fail to act soon. Insurance brokers, who also have vast amounts of data and expertise in loss prevention services, are a natural competitor.
As rearview-mirror insuring is increasingly relegated to the archives that house typewriters and fax machines, insurers seeking to thrive in the future of insurance should consider how to incorporate advanced technologies and alternative data sources to create a suite of fee-based services that could benefit all stakeholders.
About this prediction
The Deloitte Center for Financial Services' forecast is based on service and fee-based revenues recorded by leading US P&C insurers in their financial statements to derive a baseline estimate for the whole industry. Our analysis factors in two growth scenarios: 1) where insurers "stay the course," projecting service and fee-based revenues to grow at its current rate, without adding significantly more fee-based offerings; and 2) where insurers "follow the leaders," projecting service and fee-based revenue growth based on insurers that have expanded their service and fee-based revenues the most in recent years.
Authors
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Endnotes
1. James Finucane and Thomas Holzheu, "
2. Karl Hersch, James Colaço, and Michelle Canaan, "
3. Ivan Penn, "
4. Lori Chordas, "
5. Sandee Suhrada et al., "
6. Analysis of top 23 insurer annual reports of 2023.
7. Nonprofits Insurance Alliance, "
8. Nonprofits Insurance Alliance, "
9. Analysis of top 23 insurer annual reports of 2023.
10. Khristopher J. Brooks, "
11. New York State Department of Financial Services (NYSDFS), "
12. Kelly Cusick, Michelle Canaan, and Namrata Sharma, "
13. Arthur J Gallagher & Co.,
14. AXA XL, "
15. Chubb, "
16. Lois Beckett, "
17. Cusick et al., "
18. "First Policy, "
19/ CIO Review, "
This article contains general information and predictions only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
Deloitte shall not be responsible for any loss sustained by any person who relies on this article.
