The Difficulties of Piloting Insurance for an Online World

By Chris Siudzinski

NewsDirect, October 2022


All around we see a strong willingness to embrace a more customer-centric online model for delivering, marketing, and managing insurance programs. Advanced technologies continue to inspire insurers to transform the insurance space.   

And yet, while many insurance programs have gradually moved online, the digital experience does not come close to meeting consumer expectations. The many innovation cycles that are required across several fronts result in a slow pace of change.

A lot of energy and enthusiasm has generated a great many ideas for future insurance programs and developed technologies that align with a more customer-centric online model. The challenge comes from testing and experimenting to see which of these ideas will work and how they will be sustainable.  This piloting step may have to be repeated over and over, and initial ideas may need to be scrapped completely before arriving at success.

This article will identify the key reasons why insurance innovations take so much effort and dig deeper into the underlying causes. It will also show why it’s so important to take an efficient, tactical, and intentional approach when innovating to avoid over-building and over-investing.

Nature of Insurance

Insurance is unlike other products that are successfully and consistently marketed and managed online, such as a commercial flight or a subscription service for streaming entertainment. It differs in two basic ways: Insurance is an Asymmetrical Wager, and a Long-Term Promise. Let’s break that down.

Asymmetrical Wager

  • Premiums are small relative to large benefits. For only a few hundred dollars an insurer will value a life for up to a million dollars, or it will agree to pay the consumer years of medical treatment or income replacement.
  • The wager can stay open for 10 or 20 years or even an entire lifetime.
  • If the insurer incorrectly projects the odds, it has agreed to years of losses.
  • If the product is over-priced, the market will catch-up and offer lower prices, and the business may never take off.

Insurers are fine with this uneven wager. It’s what they do best and because they expect to pay claims, they make sure to project the odds as accurately as possible. But a new technology that adds a small underlying change to a program may dramatically shift a wager that lasts a long time and is (rightly so) an unbreakable contract with the consumer. Wager dynamics can become unpredictable.

Long-Term Promise

  • A policy is a contract, legally binding with years of precedents and other traditions undergirding it.
  • It contains clear and well-defined language not easily altered or amended.
  • Regulators and lawyers will enforce the promise with little opportunity for do-overs or nuanced interpretations. 

Contrast an insurance policy with the standard Terms and Conditions we find with other online products—those splash screens we quickly click through. Often those Terms and Conditions can be changed by a company unilaterally as it refines its products and services. Insurers, on the other hand,  are locked in, even if it turns out they have promised more than they realized. There is no easy way to move the consumer onto a better product once the contract has been agreed to.

The nature of insurance makes each minor adjustment within the insurance ecosystem an unknown wager within an unalterable framework. To counter this, insurers use years of experience and data that they can rely on to help them navigate the terms of the Asymmetrical Wager. The online innovated space is different enough that the insurer’s institutional knowledge might not be as effective, making terms of the wager unmanageable. The stakes are high.

The Wager/Promise Framework 

Innovation is trying to improve how both the wager and promise is marketed and managed, while each testing iteration must be treated as seriously as any other mainstream insurance offer. Because each iteration is only one step, it’s important to be very careful and thoughtful as each step is taken. We want to make sure the knowledge gained along the way is as useful as possible.

To help avoid missteps and to better understand the testing pitfalls, we identify several areas and considerations where piloting insurance is problematic.

Risk and Rates

To fully capitalize on technological changes and other improvements we must proceed through several mini-steps that change the nature of the insurance wager.

  • Underwriting: It’s a data rich environment with many wonderful new underwriting approaches that have value seen clearly on an intuitive level, yet:
    • Rate history is based on a static past underwriting approach, so quantifying impacts of a new approach requires sophisticated analysis.
    • Eliminating an underwriting question may create anti-selection.
    • Substituting a reliable data source for another may change the risk profile.
    • A relaxed method for underwriting may allow traditional underwriters from other insurers to skim off the better risks.
  • Market:
    • New marketing means the underlying population may have a different demographic or health-status mix than the mortality or morbidity data profile used in prior pricing.
    • Technology may bring insurance to underserved populations with unknown risks.
    • Messages may drive unforeseen behaviors.
  • Term Length: The impact of small tweaks can carry forward and multiply year after year.
  • Pricing Margins: Adding margins to cover pricing unknowns can make the final pricing uncompetitive. And with some risks no margin may ever seem sufficient.


The regulatory framework has tremendous value for keeping consumers safe, but it also can lack standardization across both geographies and product which creates additional complexities when insurers have to keep track of multiple versions of a product being tested simultaneously. Regulations also tend to focus on past practices instead of anticipating new approaches.

  • 50+ State: Applications, policies, disclosures, and sometimes pricing, cannot easily (if at all) be standardized across all geographies.
  • State Filing and Approval Process: Each product version may need to be approved so modifying features and applications can become cumbersome.
  • Use of Data and Other Privacy Considerations: Certain practices that protect consumers can create additional friction and may be a hindrance for consumer-centric approaches.
  • Contracts: Products created during the testing phase cannot unilaterally be turned-off so customers cannot be shifted to improved versions.
  • Hard-walled Product Categories: Property and Casualty or Life and Health, Life or Health, Accident or Sickness, Individual or Group. These long-established binaries make it difficult to test potential hybrids or bundled products, or even uncategorized protection needs.

Marketing and Advertising

Testing to determine what consumers want is important for any product. Established patterns for non-insurance products allow A/B testing for messaging and feature offerings. With insurance we can only market what was built and already exists: No phantom products, no vaporware.
Here are some other common difficulties associated with testing marketing messages:

  • Some messaging to gauge interest may not be allowed due to regulations or may need to be consistently shared with regulators.
  • Common attention-grabbers such as “free” or “discounted” or “try it without obligation” are generally prohibited.
  • Messages must match contractual provisions so developing shorter descriptions to streamline marketing is often difficult.  

The Build: Maintaining a Product Infrastructure

Insurers often insist that a single iteration of testing should contain a complete insurance program. The entire support apparatus is typically built in a structure that must be long-lasting. 

And it’s extensive work: Agent training, developing actuarial memos and rate manuals (all states), creating customer service infrastructure, financial reporting, valuation systems for reserving, commission payment tracking and invoicing, pricing thousands of “cells,” contracting with reinsurers, connecting systems to data providers, call-centers training, designing policy admin systems that can adjust for customer-driven changes in coverage or benefit level, beneficiary tracking, constructing methods for premium payment and collections, building systems to send regulatory-required disclosures, and so on.

Early testing versions are rarely an unqualified success, yet a product from a lackluster launch needs to be maintained even when there are only a few consumer purchases. And the next product iterations must be maintained in the same way and managed if those few consumers remain customers.

An approach to testing that fully builds all components of an insurance program is costly and unwieldly, yet it often remains the standard practice within the industry.


Let’s point out why testing can be costly:

  • Testing may require ongoing, multi-builds, including new product structures that need to be filed and approved by regulators again and again.
  • Testing marketing to untapped consumer groups or using new messaging channels requires financial commitment without knowing the response rate or how long it will take to build awareness and response.
  • Mispriced product iterations that have high claims ratios can become expensive.
  • Keeping the promise alive, even for the early programs that insurers have pivoted away from, will incur ongoing maintenance to support.

Challenging the Status Quo

And there is always some level of resistance to change:

  • Too much tech: Better technology systems cannot always be integrated with current ones. The new tech may be more efficient but necessitates a second system to support, compounding the maintenance load. 
  • Security: New systems were never pressure-tested in the real-world and must be able to meet rigorous security standards to protect consumer data and other resources.
  • Other Channels: Established insurers must consider how independent agents and the brokers who manage their employer accounts will react. Innovations may disrupt these relationships so expanding to other channels can risk the current success of the high-volume channels that already exist.
  • Investments: How much will this cost again?

These challenges are real concerns and while they were once powerful preventors of innovation, they are not as insurmountable as they were before.   

Summary: The Way Forward

Because testing is arduous, the tendency is to jump ahead and hope to arrive at a successful endpoint by skipping the piloting stage. Yet this often results in over-building and spending where energy is zapped, and programs are dropped.

It’s better to plan instead for a multi-stage process and make sure we are ready to pivot. This was a key takeaway from an earlier webcast the Marketing and Distribution Section presented this year where we explored how the three-party partnerships of InsurTechs, insurers, and reinsurers hold many of the key elements for innovation.

Potential roles identified in this partnership were:

Marketing Companies and InsurTechs: Maintain clear-eyed perspectives and recommendations on how their offerings can and should be tested in real environments to minimize costs and conclusively prove sustainable value.

Reinsurers: Bring broad risk management and pricing expertise while curating the best solutions and providing long-term support.

Insurers: Embrace alternative build and testing strategies that initially better position the wager and promise until the innovation is closer to implementation status. This can require developing product, underwriting, and other approaches outside of the typical comfort zone.

It’s a thrilling moment in our industry. Capital is flowing, opportunities are in abundance, and there’s a willingness to adopt and adapt new ideas and technologies. Yet innovation will take time and true success may only come to those who can most efficiently pilot their programs before the funding and patience runs out.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Chris Siudzinski, FSA, MAAA, is lead actuary and founder for INSKI Consultants. He can be contacted at