How to make the insurance journey more comfortable: The Summary
Retail insurance manufacturing and distribution is being transformed by a combination of digital technology and data in digital form. Consumers can now compare prices and terms from a range of incumbent, new entrant and niche insurance providers, which are using customer data to personalize offerings, retain existing business, manage risks and adapt to changing social behaviour. Short and full summaries of the Future of Finance webinar, hosted in in conjunction with sponsors FinTech Wales, can be found below.
Insurance is now being bought as well as sold. This reflects price transparency, simplification, personalization and a high degree of on-line self-service, assisted by data, AI and telematics.
Lack of legacy systems gives new entrants an edge over incumbent insurers, whose systems tend to be built around products rather than customers.
New and established firms must build a single view of each customer across distribution channels. APIs that allow siloed internal data and third-party data to be integrated facilitate this process.
The accelerating trend towards customer ownership and control of their own data will complicate the implementation of customer-centric strategies, including pricing as well as personalization.
To secure continue access to customer data, insurers must incentivize consumers to share it, either by paying for it or by offering discounts for risk-reducing forms of behaviour.
Adoption of data standards would facilitate integration of data sets and allow more flexible products to be built and rates of automation to be increased without compromising client service.
Data can also help with customer retention and improving the claims experience as well as the sales process. But successful insurance brands emphasise liberation as well as protection.
Insurance, in the old adage, has to be sold. But in the digital age, in which customers can not only switch providers easily but expect personalised offers, great service, high speed and administrative convenience, and the maximum degree of self-service, it has to be bought as well.
Comparison sites have made it easier for new entrants to win business, in niche products as well as general insurance. They also make it easier for customers to compare prices and features and encourage them to search for cheaper and more appropriate deals via reminders and assistance.
Modern retail insurance must combine efficiency with personalization
Providers such as Peppercorn Insurance aim to replace lengthy on-line forms with dynamic conversations between customers and digital agents (robots) based on artificial intelligence (AI) and machine learning (ML). It cuts costs, but it also facilitates the sale of personalized products.
AI and ML offer, in effect, personalization and automation. They depend on data. In motor insurance, for example, telematics data can capture the locations, speeds, fuel consumption, vehicle faults, and even the habits of individual drivers (do they accelerate or brake harshly?).
It is the availability of customer data at this level of detail that is making it economically viable for established insurers and InsurTechs to sell insurance not as a standardized product but as a service tailored to the lifestyles, needs and risk appetites of individual customers.
New entrants have a technological edge over incumbents
With customers purchasing via multiple channels – tied agents, brokers, websites, call centres, and by telephone and email – capturing the data to maintain a single view of an individual customer across channels is difficult. This is easier for start-ups to solve because they have no legacy systems.
Although start-ups do tend to be lossmaking in their early years, when they are building a clientele partly on price and pay-outs, skipping the maintenance costs of legacy systems (and deploying time and labour-saving technologies such as AI instead) allows them to be more efficient.
Legacy systems tend to be built around products rather than customers. Application Programme Interfaces (APIs) do allow data to be shared between internal product silos, and enriched with data from third parties, but it is complex, expensive and time-consuming by comparison with a start-up.
That said, as the work of the Data Innovation Accelerator at Cardiff University with SMEs has found, the benefits of data integration and exchange do not accrue to large companies only. SMEs find it enables them to build a single view of customers and personalize their offerings.
The trend to customer ownership and control of data is a complicating factor
That is why the investment must be made: data is re-shaping insurance services around customers. The associated trend towards customer ownership and control of data is also obliging insurers to invest in systems that can support customer ownership and control of their own data.
In fact, growing hostility to the use of data by large platforms means centralized databases about customers are on the wane. Google, which recently announced that it was planning to abandon cookies in favour of a predictive approach, indicates even the platforms accept change is necessary.
This means that, however convenient amalgamated consumer data sets would be for insurers, they are unlikely to materialize. In future, data will be distributed and fragmented, and its quality constantly eroded by consumer withdrawals of consent to its use.
There is even a (remote) risk that algorithms that used unconsented data will have to be re-run minus the illegitimate data, though insurers will contend that the data which feeds their risk models is appropriately anonymised. Such developments would certainly undermine their pricing models.
Continued access to customer data in the future will require incentivization
Whatever the eventual ramifications of consumer privacy and consent to use of their data, it is already obvious that insurers should be considering how to incentivize customers strongly and smartly to consent to share data with them, so they can develop data-driven products and services.
Paying for data is one option. Insurers are already purchasing data about customers from third party providers such as credit scoring agencies. Purchasing it directly from customers might be preferable, provided the useful data was still available in a convenient (or, better, standardised) format.
Cutting premiums in exchange for evidence that, say, a driver has driven safely for a long time would give consumers an incentive to collect and share such data. Insurers, in offering discounts or insuring a driver for a few hours, would need to have complete confidence in the integrity of the data.
Data standards would facilitate data-driven insurance services
But there is another reason why confidence in data is important. Paying for the use of a vehicle only is less profitable than an annual policy. So it demands greater efficiency in making risk assessments, setting premiums and predicting losses. Accurate data can help meet all these challenges.
Insurers must also prepare for the insurance equivalent of Open Banking, in which customers can authorise existing providers to share data with competitors or providers of additional services. But the data exchanges cannot work efficiently without agreement on and adoption of data standards.
Data also helps to minimise customer churn
A fuller understanding of customers, based on data, helps with customer retention as well as sales. Like many businesses, disruptive insurers such as Bikmo are also trying to turn customer service into model whose revenues are in effect, subscription-based.
The goal is to minimise customer churn. Customer retention entails breaking with the traditional view of contacting customers at renewal or claim points only and building a relationship throughout the year. Vitality, for example, combines health insurance with discounts on running shoes, gym memberships and health checks.
This is less true of car insurance, which is driven by a legal requirement rather than enthusiasm for protecting an asset. It demands convenience, simplicity and accessibility at purchase and speed when claims are lodged. That entails on-line self-service rather than call centre or chatbot queues.
Data can expedite insurance claims
Other forms of insurance, however, must be organized around the customer rather than the law. That includes the claims process, though the number of parties involved in a claim – lawyers, repairers, salvage firms, loss adjusters and so on – makes it harder to automate.
Yet data can help even to expedite the claim process. It certainly improves understanding of customers. Combined with insights into the needs, wants and behaviour of consumers, including fraud, it allows insurers to offer the right cover at keen prices.
Data is making the right cover at the right price easier to buy and claim against. But truly customer-centric insurance entails changing the narrative about its utility too, from protection against loss to protection that liberates the customer to take more risks in life and leisure.
Sponsored by Trade and Invest Wales, in Partnership with FinTech Wales.
Trade and Invest Wales
With an established Financial and Professional Services Sector and home to some of the biggest FinTech companies, including Starling Bank, Monzo, Currencycloud and home grown Admiral, Wales’ FinTech sector is flourishing. The Welsh Government’s Trade and Invest Team helps businesses looking to grow or establish new operations in Wales. Working with businesses to deliver a tailored package of support, including advice on financial incentives and support, skills, recruitment, supply chain, business networks and property and location.
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FinTech Wales is the independent membership association and champion of the FinTech and Financial Services industry in Wales. The association has established an Advisory Board of 20 people including representation from Welsh companies such as Confused.com, Admiral, The Principality and Capital Law. FinTech Wales acts as a global voice and advocate for FinTech, introducing the benefits to FinTech entrepreneurs and innovators of establishing a business in Wales, as well as nurturing and supporting those companies already in Wales.
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