InsurTech Series #4: The insurer of the future – new business models and service experience

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  • 18. July 2017

Interview with Enrico Pruis, Commercial Director at Virtual Affairs. 

Enrico Pruis

Enrico Pruis

When it comes to ‘customer focus’, insurance companies and their customers speak different languages. 

The digital solutions for ‘self-service’ that have become so popular in many countries sound customer-focused enough, but the driving force behind them is cost reduction. Customer needs are still not being met. Just 29 percent of insurance company customers worldwide admit to being satisfied. And the result? Consumers continue to compare insurers primarily on price and less on trust, quality, customer fit and service. How can an insurer reverse this downward spiral?

New technologies are providing insurers with opportunities to shift their focus – from the traditional compensation for damages to the prevention of damages. This not only creates an abundance of new business models, as an insurer you can now embrace your customers, so to speak, as well as their needs. So instead of ‘pushing’ new products, the focus comes to lie more on service experience. A win-win situation for both parties.

Pay per use

I envisage many opportunities in developing so-called ‘usage-based’ models. These models are characterised by the costs of an insurance policy in relation to the amount or manner of use of the insured object, for example a car or a drone. Because the number of sensors on equipment will continue to rise, these models will increase in their usability. The benefits of these sensors? The risk per policy decreases. Research into ‘Connected Home equipment’ has demonstrated that this results in risks being reduced by some 40 to 60 percent.

Let’s look at an example: the South African insurance company Discovery uses GPS and telemetry to measure the driving behaviour of its customers, and uses the results to help its customers improve their driving skills. This leads to reduced damages and insurance premiums, and increased loyalty. How does it work?

Use of gamification

In its app, Discovery makes use of gamification to stimulate its customers to drive more safely; customers are continually being compared with their peers. Via GPS, the company monitors how its clients behave in traffic, and based on this data it sends them tips on, for example, routes, negotiating corners, and braking behaviour. You can gain points by getting an annual car maintenance check, taking an online driving course, keeping to the speed limits, braking on time, and driving without submitting any claims. Every quarter, Discovery takes into account the number of points you have won, and adjusts your premium accordingly. The bottom line for desirable behaviour is therefore lower costs for the customer and fewer claims for the insurer to handle. But there is also an indirect effect – based on their monitored driving behaviour, customers get relevant incentives (e.g. a skid course) that will further improve their driving, as well as tighten the bond with the insurer. An unintentional positive side effect is that the government is now also using the data to improve traffic streams and dangerous situations.

Research has shown that after taking out an insurance policy, 30 percent of the customers drive better, and on an annual basis 15 percent demonstrate above-average driving behaviour.

Prevention

Even without sensors, you as an insurer can still raise awareness and aim for damage prevention. For example, one insurer will perhaps choose for a (video) content strategy to prevent water damage, while another will launch an app designed to prevent damage to the home. The biggest insurer in the US has developed an online test instructing drivers on the effect of using the telephone while driving. However simple or complex the solution is, remember that customers (almost) never ask for information on their own initiative. A preventive insurer provides relevant info with, for example, a mobile notification at the right moment and in the right place so that the customer can act immediately. This is the only way to achieve a change in customer behaviour.

Insuring new risks

One result of all this innovation is the birth of a new kind of risk. Who is responsible for the choices made by a self-driving car? The ‘driver’, the car manufacturer, or the telemetry supplier?  Who is responsible when the prevention technology hasn’t done its job properly? Or: Wouldn’t the pilot who saw his drone crash in between two marathon runners have been better off with special insurance? Given how rapidly new technologies are appearing, insurance products need to be flexible and modular – allowing your company to respond quickly to changing needs and risks. The sharing economy for example is also looking for an appropriate response from the insurance branch.

The sharing economy for example is also looking for an appropriate response from the insurance branch. Although goods and services are being shared on an ever grander scale, regulations concerning liability have hardly changed over the years. Adapt your policy and cover, and introduce ‘on demand’ insurance in collaboration with sharing platforms. If someone rents out their home via such a platform, they will also want to cover their risks with a few clicks without leaving that platform. The insurer can for example offer a guarantee service that takes care of payments in the case of damages caused by the renter.

The Internet of Things (IoT) – equipment connected to the internet – also offers similar possibilities. For example, a dashboard that displays the status of pieces of equipment and automatically triggers an action. If the customer combines their fitness data and health sensors, the dashboard can give health advice or even contact a physician if necessary. Has the ‘Connected Home equipment’ detected a burglar? The dashboard will notify the police.

Or, for example, the European PSD2 (Payment Service Directive II) regulation that makes it possible to combine different financial propositions (insurances, pensions) from various banks and insurance companies into one high-traffic consumer dashboard. Examples include propositions of community platforms like Google and Facebook, but also retail platforms such as Alibaba and Amazon. If the data collected by these platforms is abused, who is liable? And what if unauthorised payments are executed in the name of the consumer?

Relieving worries

The logical follow-up question is whether or not this results in privacy issues. Curiously enough, in the context of retail these concerns seem trivial for members of Generation Y. Even when the major tech companies obtain the marketing rights to everything you publish as a user, people simply accept it. They feel free to share data as long as they get value in return. What we are observing is a kind of ‘split’, with some people rejecting this state of affairs. Time will tell whether this will simply remain a submovement or become the new reality.

The golden rule for the use of personal information is that you have to prove you are offering true value. If you use the data simply to increase sales, consumer trust will diminish rapidly. My advice is: make sure that all messages and interactions based on this data are at least 80 percent service-oriented. And that the upsell you present is actually perceived as having added value (just in time, just for me).

Conclusion

Discovery has succeeded in getting over a hundred thousand of their customers to allow themselves to be monitored. Clients of the British VitalityHealth share their health data from, for example, pedometers. In exchange for this, they pay a lower premium. But what is even more important is the service they get that helps them lead healthier lives for example. Although price advantage is still a significant trigger today, the effect will certainly wear off in the long term. The insurer of the future will embrace the customer with its service so to speak. Profit levels will continue to fall in the insurance sector, while rising in the area of damage prevention. The insurer is part of an ecosystem that interconnects content, hardware (e.g. sensors) apps and manufacturers. As a result, the customer is increasingly king.

This article is the result of a collaboration with Martin Groen, User Experience Consultant at Virtual Affairs.

About the writer:
Enrico Pruis is Commercial Director at Virtual Affairs, an international software and services company that specializes in transforming digital channels for banks and insurance providers. He works at the intersection of innovative technology, business and marketing. Enrico specialized in helping Insurers setting up new Direct and Online brand labels, from vision to execution.