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.10
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.11However, this space is competitive because insurers could potentially compete with insurance brokers and other risk management consultants and providers.12
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.13Another possibility could be to work more closely with these competitors, through data-sharing and other collaborative services, to strengthen relationships and potentially grow fee revenues or premiums.
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.14In 2023, Chubb launched a new global climate business that provides “risk management and resiliency services” to help those managing the impact of climate change.15
At the same time, personal lines risks are becoming increasingly complex, from insuring autonomous vehicles to increasingly severe and frequent weather events. While this may make underwriting and portfolio management more difficult, advancements in technology are helping make it possible for insurers to assist individuals to predict and prevent losses on a scalable basis.
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.16Broadening preventive efforts could go even further. As stated in our 2024 prediction article, investing US$3.35 billion to bring US homes up to code could reduce losses by US$37 billion by 2030.17
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.18So are technology companies, which are building out risk management platforms for businesses and consumers alike.19These 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.
