What’s coming

As already mentioned a few times, I’m reiterating here a warning on trends I believe will be coming to insurance consumers that most people won’t like. In it’s simplest form, insurance is a funding mechanism that takes money from a large group to subsidize a small group. If small enough in size, or small enough in what is demanded, the large group usually contributes enough to care for the small group.

But when the Texas power grid goes down, or when wildfires ravage the West (annually), or when climate change brings a hurricane/tornado/flood-of-the-week, or when inflation and supply-chain interruptions make cheap things expensive, or when people consider their insurance a disincentive to take preventative loss mitigation investments (it’s called Morale Hazard and the definition is below), or when texting & driving is rising and not falling, or when insurance companies sell using red herrings, the small group and their demands outpace the contributions made by the large group.

And if the spike in size of the small group were an anomaly or aberration to the trend, no big deal. But it’s not. And as the market creators for the exchange between the large group and the small group, the insurance industry is about to make significant changes to increase the size of the large group and reduce the impact of the small group in response.

• Premiums will be going up, up, up as supply will be going down, down, down
• Proof that you invest in prevention will affect qualifying for insurance to subsidize your future losses
• Data science will outpace customer service – winners will compete on proactive knowledge, not reactive care
• You caring about you will be the big deal. Risk management shoppers > insurance shoppers

I think people believe that insurance is manufactured by a company and then sold to consumers like a car or bicycle. Insurance is just a reflection of the decisions and experiences of the collective. The money used to pay claims is ours. It didn’t come from an insurance company, it came from us and there’s not enough of it to go around. So the model is broken, either in the amount needed or the nature of the exchange. The banal “How can I get the best coverage for the best price?” isn’t asking the right question. The right question is, “How do I reallocate my insurance dollar to my loss prevention dollar so I won’t need an insurance dollar?”.