Based on the concerns of industry executives reported in the latter half of 2017, the property and casualty insurance industry should see a renewed vigor in 2018 when it comes to the industry’s need for digitally-enabled direct-to-consumer distribution.
Preceded only by lack of innovation, the issues of changing customer expectations and the demand for digital channel capabilities ranked as the second and third most important external pressures for insurers responding to InsuranceNexus’ yearly survey. As a result, insurers ranked digital innovation as their number one internal priority this year.[i] Customer centricity, product development and distribution also hit the top-ten list.[ii]
PwC reported similar findings in their InsurTech report. Respondents indicated that customer engagement was a high priority (94%), while respondents to PwC’s insurance CEO survey said they were concerned (78%) about changing consumer attitudes and expectations.
Still, 35% of CEOs expected revenues to improve over the course of 2017, probably because digital and technological capabilities topped their list of areas to strengthen.
Given the interest that emerged during 2017 around customer engagement and the need for digital capabilities, how are insurers likely to use enhanced D2C distribution to improve customer satisfaction in the coming year?
Closing the Channel Gap
According to Eric Gewirtzman, CEO, BOLT in an interview with McKinsey, insurance customers are already interacting across channels.
While 74% of shoppers purchasing auto coverage start transactions online, 22% actually close the purchase through a consumer-facing call center.[iii]
As insurers improve their digitally-enabled direct-to-consumer channels over the coming year and beyond, the gap will close. Executives surveyed in PwC’s CEO study predict that 90% of future interactions will occur through online channels.
Some suspect that this shift in consumer preferences will spell the demise of the agent salesforce or consumer-facing call center, but Gewirtzman disagrees. He believes that the agent population will consolidate, but remain substantial, and instead usher in a need for omni-channel engagement.
“There’s a big difference between being multi-channel and being omni-channel,” said Gewirtzman. “Too often, consumers will get a different experience and different results depending on which channel they use. This has to change. If there is no awareness between the channels, sales are lost.”
For insurers, that means uniting call center operations with online channels. When consumers have a question in the midst of an online transaction, they expect the agent they call to know where they are in the application process and to have access to previously entered data. Frustration ensues when agents have to ask customers to repeat information, resulting in decreased satisfaction.
All-digital startups are finding this out the hard way. “I have attempted to call them several times and each time I get a recorded message that refers me to the app. Absolutely no customer service,” said a frustrated consumer after trying to contact an agent to address questions encountered during a purchase through an InsurTech startup’s app.[iv]
As more insurers add digital channels of engagement or enhance existing ones over the next few years, ensuring a consistent cross-channel consumer experience will be a priority for customer-first organizations.
McKinsey discovered that insurers generating a consistently positive experience across channels realize two to four times more growth in new business and about 30 percent higher profitability.[v]
Closing the Product Gap
recently surveyed over 32,000 insurance consumers and found that 50 percent purchase coverage based on price, while the same number cite the cost of coverage as the biggest factor in determining loyalty.[vi]
The J.D. Power 2017 U.S. Auto Insurance StudySM demonstrated how this looks in action. According to the study, the number of consumers receiving more than a $200 rate increase doubled in 2017 from the previous year, resulting in satisfaction scores that were 188 points lower than for insurers who increased premiums only $25 or less.[vii]
Premium pricing is always going to be sticking point for customer relationships. If there is another insurer offering a less expensive option, customers will switch. One way, insurers can achieve loyalty in the coming year is by offering more products of the same type at varying price points.
Direct-to-consumer channels of engagement put insurers’ products in front of more consumers and enable more efficient distribution, but partnerships in digital innovation also provide insurers with access to an unprecedented range of coverage types without the need to take on additional risk or obtain their own carrier appointments.
We expect 2017 to see more insurers leveraging insurance ecosystems. These synergistic partnerships build upon an insurer’s digital foundation and allow them to deliver the products and services their customers want or need.
To see how this works, we can look at the experience of a top-ten insurer. They found that too many customers were lost when the insurer couldn’t assume the risk or meet requested price points within their existing line of offerings. Rather than change their strategy to a high-acquisition approach over establishing loyal long-term relationships, the insurer set a goal to own the customer household for its entire life time.
To gain access to the coverage options they needed to achieve a goal this ambitious, the insurer partnered with an InsurTech provider, taking advantage of an ecosystem of insurance products. By integrating their own offerings, as well as appointed and ecosystem products into a platform supporting omni-channel distribution, the insurer was able to seamlessly quote alternative coverage when their own offerings weren’t a match for customer needs.
As a result, the insurer grew premiums by $70 MM dollars in less than 10 months.
Partnering for Success
According to InsuranceNexus’ survey, insurers ranked technological advancements and digital channel capabilities at the top of their list of external challenges this year.[viii] This is not a surprise given that legacy systems came in at number two on the list of top internal issues insurers face, falling only slightly behind the need for innovation.[ix]
“Technology has always been a key enabler within the insurance sector,” said Sabine Vanderlinden, industry influencer and managing director at Startupbootcamp. “In today’s highly customer-centric world, organizations that want to thrive will do so through digital excellence; meaning by combining unique customer experiences and omni-channel distribution mechanisms, as well as by reinventing interactions across the insurance value chain, despite legacy constraints.”
Providing innovation to overcome the limitations imposed by legacy technology is one of the areas where InsurTech partnerships could play the biggest role as we move into the future. The InsuranceNexus study revealed that 59% of respondents are already relying on relationships with third-party resources to realize digital innovation goals.[x] Over 80% of the executives responding to PwC’s CEO survey plan to do so over the next three to five years.[xi].
Why legacy constraints pose such a big deterrent in the digital efforts of insurers, can be explained by how policy information is stored and accessed. Before the rise of the internet, insurers bought policy admin systems, one for each product type. All customer data related to the policy was stored within the siloed system. To quote, bind and issue policies, insurers had to access each system independently.
Then came the digital age. Consumers now expect to move across products and channels with ease, simultaneously quoting, binding and issuing multiple policies, but according to , industry influencer and editor on InsurTech at The Digital Insurer, “engagement with customers and the development of products are defined by the limits of the policy admin system.”
Addressing the problem by replacing core systems is a common approach. According to Novarica’s research, 70% of carriers are in the midst of implementing new systems,[xii] but core systems replacements won’t give insurers the customer-first edge they need fast enough.
According to Huckstep, there is a better way, using digital in a two-speed model.[xiii] “Simply, the logic is that, in the slow lane you’d keep the legacy policy admin as the system of record,” said Huckstep. “And for the fast lane, where the insurer needs to be agile, responsive and digital, business functionality would be built into new front-end systems.”
Insurers who partner with InsurTech platform providers that unite product silos, achieve a single point of access to customer data, while extending the benefits of existing technology investments. This approach improves the performance of the quote-to-issue lifecycle and allows customers to effectively bundle multiple policy types in a single transaction.
Cost savings are another benefit of straight-through processing, saving insurers up to 50 percent in costs per gross premiums written.[xiv]
Reaching for a New Horizon
In 2018, insurers will be reaching toward a new horizon, seeking to meet consumer priorities for insurance buying with greater digital strength. Providing seamless engagement across an expanding selection of products and channels will need to be the focus of improvement efforts as we reach the end of the new-year and approach the close of a decade.
There is already significant interest in partnering with InsurTech innovators to become more agile and innovative. In the near term, these partnerships will need to focus on overcoming the obstacles associated with siloed policy administration systems, to meet customer experience standards for fast, efficient buying. In the long term, these relationships will produce more enduring value by giving insurers the means to reduce operational silos and enhance product choice.
What are your thoughts about the future of P&C insurance and where insurers will place their biggest investments and strongest efforts?
Eric Gewirtzman | CEO at BOLT
[i] “InsuranceNexus Global Trend Map 2017.” FC Business Intelligence. InsuranceNexus, 2017. Web.
[ii] “InsuranceNexus Global Trend Map 2017.” FC Business Intelligence. InsuranceNexus, 2017. Web.
[iii] Paul Lucas. “Why Auto Insurance Agents are Still Needed in the Digital Age.” Key Media. Insurance business Magazine, Jan. 25, 2017. Web.
[iv] “Lemonade.” Customer Reviews. Supermoney, June 19, 2017. Web.
[v] Tanguy Catlin, Ewan Duncan, Harald Fanderl and Johannes-Tobias Lorenz. “The Growth Engine: Superior Customer Experience in Insurance.” McKinsey & Company, April 2016. Web.
[vi] “The Voice of the Customer: Identifying Disruptive Opportunities in Insurance Distribution.” Accenture. Accenture Financial Services, 2017. Web.
[vii] “Premium Increases Become Sticking Point for U.S. Auto Insurance Customers, J.D. Power Finds.” J.D. Power. J.D. Power Ratings, June 19, 2017. Press Release. Web.
[viii] “InsuranceNexus Global Trend Map 2017.” FC Business Intelligence. InsuranceNexus, 2017. Web.
[ix] “InsuranceNexus Global Trend Map 2017.” FC Business Intelligence. InsuranceNexus, 2017. Web.
[x] “InsuranceNexus Global Trend Map 2017.” FC Business Intelligence. InsuranceNexus, 2017. Web.
[xi] “Insurances’ new Normal: Driving Innovation with InsurTech.” PwC, 2017. Web.
[xii] Rick Huckstep. “Digital Transformation Is the Strategic Imperative No Insurer Can Ignore.” The Digital Insurer, Aug. 15, 2017. Web.
[xiii] Rick Huckstep. “Digital Transformation Is the Strategic Imperative No Insurer Can Ignore.” The Digital Insurer, Aug. 15, 2017. Web.
[xiv]“From Transparency to Insights McKinsey’s Insurance Cost Benchmarking 2016.” McKinsey & Company, 2016. Web.