Fee-based risk management services an opportunity to drive growth for insurers: Deloitte

Fee-based risk management services, a service that is already provided for free by many insurers, can boost US property and casualty (P&C) insurer’s revenues, according to a recent report by the Deloitte Center for Financial Services.

Over the past year, raising premiums helped US P&C insurers return to profitability, but Deloitte analysts argue that doing this continuously is not a sustainable, long-term path for success.

At the same time, events such as the recent wildfires in Los Angeles have proved the efficacy of risk management, mechanisms – like smart home devices and relatively simple automatic water leak detection and shutoff systems – that can also help individuals protect their assets from day-to-day risks.

Many insurers are already offering services such as risk management services, data-sharing, and white-label partnerships.

But few monetize them, as some insurers offer them to customers at no cost in the hope that the cost to provide these services will be offset by a resulting reduction in claim costs.

“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,” the report states.

The industry is witnessing an acceleration towards modernised service offerings, and insurers need to adapt, the report notes.

Currently, P&C insurers derive a majority of revenue from insurance premiums and investment returns. But even those who are already monetizing other services, are only seeing minimal returns.

“While some insurers are championing goals that can provide more services to predict and prevent losses for customers, others are discontinuing entire programs and searching for other ways to provide value,” said analysts.

Adding: “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, the report highlights. 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 prevention measures may require insurers and customers to share costs and savings.

Today, fee-based service offerings are largely focused on commercial lines, since these contracts are naturally more complex and of higher value. But there is an opportunity for insurers to expand these services into the personal insurance sphere.

This is particularly relevant given the escalating complexities of modern risks, including the increasing frequency and severity of weather-related events and the advent of autonomous vehicle technologies.

For example, strategic investments in residential dwelling resiliency measures could yield substantial reductions in weather-related claims losses. Insurers and customers could share both the costs and savings, benefiting both parties.

To thrive amidst current risks and customer demands, insurers must likely shift towards a “predict and prevent business model”. This shift would need exploring fee-based services, complementing traditional revenue in order to balance profitability.

The report concluded: “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.

“So are technology companies, which are building out risk management platforms for businesses and consumers alike. These competitors, however, could also be partners under the right circumstances, either in an affiliate network or a joint offering.

“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.”

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