Alan Demers is the President and Founder of InsurTech Consulting, helping clients innovate and modernize P&C insurance. Alan was interviewed by Chris Luiz, CEO and Co-Founder at Scout InsurTech.
Alan, you and I had a discussion, and you brought up some of the current issues you see in the insurance industry. Can you talk about those? And what got us here?
“It has been a wild ride, and it mostly centers around profitability—whether it’s the profitability of insurance companies or the costs borne by consumers and small businesses paying the premiums. We're really at a crisis point that seems ongoing, especially in homeowners.
A lot of attention goes to climate and weather exposure, which is valid, but other big cost factors are easy to overlook. Inflation, legal abuse or social inflation, and changes in technology—especially in automobile repairs—are all impacting auto insurance lines. Even before COVID, there was an insurance-to-value problem brewing, particularly in the property space. Then property rebuild values soared during COVID, and insurance companies had to adjust to these new realities.
For instance, the average home cost has sharply increased in recent years, which has significantly impacted premiums. With that and ongoing issues like distracted driving, the result is higher premiums, reduced coverage and a growing protection gap.
This gap manifests in various ways: higher deductibles, consumers dropping coverage and becoming self-insured, more restrictive policy language or being forced from admitted markets into excess and surplus lines. We've even seen a rise in state run FAIR plans. At the end of the day, these trends demand our attention.”
You mentioned the coverage and protection gap. Can you discuss what you're seeing and what options might help solve it?
“As I mentioned, larger deductibles are becoming more common, even for basic claims like auto insurance. Consumers are more hesitant to file claims for fear of surcharges or losing their coverage. This leads to new needs and opportunities for the industry to tackle.
More extreme examples are playing out in places like California. We don’t have exact numbers, but it’s evident that some people dropped or lowered their coverage before the fires because premiums were unaffordable.
Looking back, 2024 showed some signs of recovery—reinsurance rates were stabilizing, and insurance rates were leveling off. But, affordability for 2025 remains a major issue, creating significant coverage gaps. Flood insurance is a good example; it's often unavailable or too expensive, forcing people to go without it.
Carriers are starting to shift priorities from expense containment to loss ratio management. Predict-and-prevent technology is one way forward, though adoption remains low. Sensor technology like electrical safety detection devices, water detection systems and telematics for safe driving can mitigate risks.
New products like parametric insurance might also help. While it doesn’t close the entire gap, it provides a layer of financial support for out-of-pocket expenses. And then there’s the rise of climate tech, which offers better modeling, forecasting and planning. These innovations can save lives and help mitigate risks, and I think they’ll play a bigger role going forward.
Either way, the insurance ‘crisis’ protection gap presents all sorts of new opportunities for insurtechs and innovation to address.”
Where do you see additional opportunities for the industry to use existing technology more effectively?
“A lot of focus in the recent past has been on insurer expense reduction—digitizing processes and improving efficiency. These are valuable, but we need to focus more on indemnity loss cost containment with fairness in the forefront. I say this as the industry also faces a trustworthiness dilemma. Although claim payments most often go to third parties there’s great friction and angst when policyholders and claimants are squeezed in the middle during the claim process. In other words, the push/pull over settlement amounts for medical providers, attorneys, contractors, body shops and others spills over and fuels distrust.
Technology is already being leveraged to better predict and prevent losses, mitigate claims costs and improve underwriting and pricing accuracy. While there’s ample room in terms of adoption and efficacy, more is needed to tighten claim cost accuracy by removing disagreements over things like repair pricing, communication breakdowns and sharing of information with a concerted effort on affordability. Technology can ensure claims are paid fairly and accurately, curbing unnecessary costs and even better when ecosystem providers are better aligned.
It’s not about cutting payouts unfairly but using technology to minimize losses upfront.”
We’ve covered a lot about technology in the industry. What excites you most heading into 2025?
“I’m optimistic about how the industry might recover from the current profitability crisis. Despite challenges like wildfires and unpredictable climate events, insurers are generally well-prepared through reinsurance and catastrophe planning.
There’s also a competitive race among top carriers to define their futures—deciding which lines of business to focus on and whether to pull back from property lines. I expect we’ll see mergers and acquisitions, which could reshape the industry landscape.”
What do you see as the future of AI in the insurance industry?
“Like many, I see AI as the future. Early on, people thought AI would quickly replace humans, but it has evolved into a model of ‘humans in the loop,’ which is more palatable to employees, employers and consumers.
There are concerns about AI being used ethically, but it has clear potential. Current applications include summarizing documents, auditing and quality reviews. For example, insurance companies spend a lot of time on quality reviews, which are often lagging indicators. Real-time AI-driven audits could identify weaknesses and improve performance instantly.
I’d also like to see better categorization of AI applications. Right now, everything falls under the umbrella of AI, but there’s a need to differentiate between predictive analytics, chatbots, computer vision and so on. Clearer distinctions would help track progress and adoption, recognizing the whole industry is learning.
That said, we’re still in the early stages. Challenges like legal and regulatory constraints, data quality and data availability need to be addressed before we can fully realize AI’s potential in automating processes and improving outcomes. Those who embrace AI and remove the obstacles will have the advantage. The future is certainly bright for insurtech."
Scout InsurTech Thanks Its Presenting Partner
And Our Scout InsurTech Partners
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