The insurance industry is full of smart, well-intentioned people working hard to make it better. We know this because many of them are our clients. Yet, despite these efforts, progress continues to be stymied by a broken system weighed down by legacy baggage and a profit motive that too often eclipses the best interests of people
At the beginning of 2024, insurance companies began releasing yearly earnings reports. Report after report indicated that despite record insured losses, 2023 was the P&C insurance industry’s most profitable year ever. These massive insured losses, coupled with the highest profits on record, underscore the paradox and problem at the heart of the insurance industry: what is good for business isn’t always good for people.
While the industry itself appears to be thriving, policyholders are grappling with a different reality. They are burdened with inflating premiums, increased risk, reduced coverage, and a surge in claims denials, all within an increasingly unaffordable economy.
Who wouldn’t find this maddening?
And it’s not just policyholders who are taking a hit. The industry’s workforce is also under strain. As Baby Boomers retire, insurance companies are struggling to fill the void. A recent study of independent agents revealed that over half would leave the industry for a better work-life balance. Similarly, 70% of GenZ employees, not just in insurance but accross industries, are ready to switch jobs for better technology. This doesn’t bode well for the industry’s future.
The rise of AI presents a potential turning point for insurance. While it could be the key to a brighter future, it also risks more deeply entrenching existing issues. Will AI enhance customer experience and streamline processes, or will it simply replace human interaction––the one thing both policyholders and the industry’s employees like about insurance—and further disenfranchise and alienate policyholders by automating claims denials (as is happening elsewhere)? The answer to this question could shape the future of the industry.
In all of this, one crucial fact stands out: the insurance industry has a people problem. The people who buy insurance are paying more and finding less value in it. The people who work in insurance are leaving, and the industry can’t replace them.
Five ways insurance is failing its people
Over the last year, we conducted dozens of moderated research sessions. We interviewed or surveyed hundreds of industry stakeholders—from policyholders, agents, brokers, IT professionals, and others contributing to the abovementioned problems.
Through this work, we identified five of the biggest people problems currently plaguing the insurance industry.
1. People are struggling to see the value of insurance
When it comes to insurance, the idea of a “product” is a tricky one. Unlike physical goods like cars or digital offerings like software, insurance products don’t neatly fit into any product category. Most are simply a promise—a commitment to provide support, services, or compensation if a specific event or incident occurs.
And unlike many of the products we know, love, and use today–digital, physical, or otherwise–it’s becoming increasingly challenging to pinpoint what needs or desires insurance products fulfill.
They ostensibly exist to make us whole if something unexpected happens. But whether they do this is debatable. And for most of us who buy insurance, it can be hard to know exactly what we are buying. Most of the products on the market today were designed decades, if not centuries ago, and built to address the needs of a society and people who no longer exist.
This misalignment between the needs of people and the products insurance is selling is core to many of the issues we come across in our project work and in our research.
For example, we’ve found that some employee benefits products are often so misaligned with customer needs that they’ve been customized out of recognition.
Product managers and sales reps work tirelessly to adapt these products to fit countless customer use cases, but this only highlights how poorly the original product is serving today’s employers and employees. This excessive customization also adds complexity, creating user and customer experience issues that are nearly impossible to resolve in seamless, elegant, or efficient ways.
“Some of these products get so overloaded with add-ons that it feels like I’m constantly chasing my tail. I think I’ve solved some usability issues, only to have someone bring up a new use case or customization that breaks the whole thing and forces me to start over. It’s like trying to design a system that works for everyone and no one at the same time. At some point, you realize the problem isn’t just the design but the product itself.”
Cait Smith, UX Design Lead at Cake & Arrow
2. A flood of low-stakes insurance offerings is leaving customers feeling overwhelmed and disillusioned
Whether buying a concert ticket, booking a flight, or planning a wedding, there is now insurance for every occasion, event, purchase, plan, or download. While some of this insurance may offer real value, its ubiquity can be exhausting from a consumer point of view and can make people feel as if they are being nickel-and-dimed for things that should just be baked into the price of a purchase. This phenomenon creates distrust in the insurance industry and diminishes the perception of value these products may otherwise have.
We saw this play out firsthand when conducting research with consumers around an identity theft insurance product:
“Why would I pay extra for identity theft insurance when my credit card already covers this? It feels like every little thing I buy comes with some kind of insurance option, and honestly, it’s exhausting. These kind of add-ons are everywhere. They feel scammy not like something I actually need.”
User research participant describing his feelings about identity theft insurance
Truly embedded insurance (baked into the price of an item, not sold as an add-on) solves this issue but can adversely diminish the brand visibility for insurance. But considering the insurance industry’s not-so-stellar reputation, would that really a bad thing?
3. Bad claims experiences are poisoning perceptions of insurance
The insurance industry has been pumping money into digital transformation for years. During the pandemic years, it finally began to make notable progress, especially in customer self-service and claims automation.
Still, despite these advancements, claims experience continues to lag, perhaps, in part, because claims automation doesn’t always equal a better claims experience. In fact, there are certain aspects of the claims experience that most people don’t want automated. Meanwhile, these poor experiences could be putting $170 billion in premiums at risk over the next few years, according to Accenture.
In our research with homeowners, we repeatedly heard about poor claims experiences. Even for homeowners who reported “good” experiences, when we dug a little deeper, we found that the experiences themselves were often frustrating but felt worth it when the policyholder was eventually compensated—even if they had to fight for it.
In addition to complaints about getting the run around from customer service reps and confusing digital interfaces, we also heard that many people felt they were left to their own devices when it came to resolving their claims, like it was their job—not the insurance company’s— to make sure the claims were paid. And once the check arrived—the point at which most insurance companies would consider a claim resolved—many homeowners found the actual work was only getting started.
“It’s like they didn’t actually care if my fence got fixed or not. All the problems I had with the contractor were my problems now. Once the check was in the mail, they washed their hands of the whole thing.”
Homeowners policyholder describing how she felt after receiving a check from her insurance company for damage sustained to her home during a hurricane
This kind of experience doesn’t just undermine the value of insurance, it poisons people’s perception of it. Not only are homeowners tasked with project managing their own claims to ensure their insurance company makes good on its promise, but they are also frequently left to manage the process of repairing their homes on their home, with little guidance and support. Unfortunately, this is what many have come to expect from their insurance carriers.
As one homeowner put it:
“I don’t have any particular allegiance to my insurer, but I definitely don’t feel like there’s some incredibly better experience out there that I’m missing out on.”
Homeowners policyholder describing how he feels about his insurance carrier
4. Automation is alienating customers instead of connecting with them
In the last decade, insurers have doubled down on ‘self-service,’ assuming younger customers prefer to handle things alone. But this assumption has turned into a self-fulfilling prophecy.
To cut costs, insurers outsourced customer service to offshore agencies with minimal training and rigid scripts, making the experience for policyholders increasingly frustrating. In response to this frustration, the industry turned to chatbots and other essential technologies to replace human reps, creating a customer service cycle that’s frustrating, impersonal, and ineffective. The result? Customers can’t resolve issues on their own and struggle even more when they try to speak with someone—often met with scripted responses no better than chatbots.
Generative AI might help address some of these profoundly entrenched issues, but there will always be situations where people need to talk to others. Our research has shown that while self-service tools and digital interfaces may test well in controlled settings, they often fail to meet real-world expectations, especially in high-stress or emotional situations like filing a claim or purchasing a policy.
In research settings, it’s hard to replicate the emotional weight of filing a claim after a disaster or urgently needing coverage. An interface that seems fine during testing can feel overwhelming or even infuriating in these moments. That’s where qualitative research is invaluable—not just testing the usability of tools but understanding the emotions behind real-life scenarios.
For example, in our climate research, we started by asking people to share their most frustrating claims experiences. We then designed solutions based on their stories and tested them again in the context of those real-life scenarios. What we found was clear: there’s a time and place for technology—like checking a claim status—but people overwhelmingly prefer to interact with a human for more personal, emotional moments.
Filing a claim isn’t just about efficiency; it’s about reassurance and emotional support, something only a person can genuinely provide.
“When you experience that type of trauma, you don’t want to interact with an app; you have no time to just wait for them to review it. You want to call and speak with someone and say, let’s deal with this now.”
Homeowners policyholder speaking talking about filing a claim after her house was damaged in a fire
This is a critical lesson for insurance in the age of AI, which threatens to turn everything into a digital interaction.
5. Complexity and operational inefficiencies are frustrating employees and leading to burnout
While the insurance industry made significant strides with digital transformation on the customer side of things, they have remained woefully behind when it comes to the back office and employee experience, expanding the gulf between front-end efficiencies and operational realities.
Part of this is that these types of internal transformations tend to be costlier, more complex, and harder to align with short-term business goals. They are often deprioritized despite their importance in supporting long-term innovation and employee satisfaction.
One thing we have seen in the work we do with our clients is the way that the structure of these companies (not unrelated to the structure of their products) can get in the way, not just of better employee experiences but of customer experiences, too.
“One of the biggest challenges in insurance is managing all the different stakeholders—carriers, brokers, employers, employees—who all have their own priorities. Then you’ve got siloed teams within companies, where different groups work on their own portals or products without talking to each other. When there’s no alignment or shared understanding of the end user, it’s tough to create a seamless, cohesive experience.”
Jen LaRue, Head of Product, Cake & Arrow
This disconnect between customer-facing transformation and back-office realities isn’t just a matter of inefficiency—it creates ripple effects that compromise employee and customer experiences.
When silos and misaligned priorities are at the core of your business, fragmented processes that frustrate employees and confuse customers are the result.
For lasting digital transformation to take foot in insurance, the industry will need to go beyond sleek customer portals or AI-powered chatbots; they will need to fundamentally reimagine internal structures and workflows to foster alignment, collaboration, and shared focus on the end user.
Keeping insurance human in the age of the algorithm
At the beginning of every project, we ask our clients what their greatest differentiator is. They almost all say the same thing: the people.
When insurance companies start eliminating people from customer service, replacing agents with tools, or automating roles without a clear strategy for maintaining human connections, what then remains as their differentiator? The unique, empathetic, and trusted relationships that define the industry risk being replaced by a transactional, commoditized experience.
Given the people problems the industry is already facing—frustration, confusion, and disillusionment from customers and burnout, disengagement from employees—it’s not just irrelevance insurers risk, but outright disdain.
Connecting the long-term success of the industry and its shareholders to the satisfaction of the people who comprise it—policyholders, employees, brokers, agents, and others within the insurance ecosystem—is not just good business; it’s essential for the industry’s sustainability and, what’s more, for society.
Addressing the insurance industry’s people problem demands action:
- Recenter and restructure the business around customer needs. Innovate with new products that meet today’s complex realities and collaborate with regulators to bring those products to market.
- Thoughtfully leverage AI and other technology through a human-centered lens. Use AI to address inefficiencies, but don’t stop at automation for cost-cutting. Instead, explore how AI can enhance employees’ work, distribute workloads equitably, and create better customer outcomes.
- Remember your differentiator. Insurance is, at its core, a people’s business. Don’t erase people from the equation. Instead, use technology to empower employees and
The future of insurance depends on reconnecting with the people it serves. Now is the time to act.
