The Insurance Buyer of Tomorrow wants more than just peace of mind. Is active risk management the holy grail for insurers?
By Ben Constant
Stepping back and looking at what the sector currently provides, the first question to ask is what insurance customers of today really want. Is it peace of mind in the knowledge that they are financially protected by a policy, or will they in future want far more than the traditional subscription, accident, claim, compensate model?
We believe there will be a shift from insurance being seen as a ‘necessary evil’ towards becoming more of a ‘social good’.
You’re not trusted anymore
Let’s start with the basics – buying insurance on a subscription basis provides in return protection to an event that may or may not occur. Traditionally, customers have valued the highest possible level of cover for the lowest possible price. This has worked well for centuries and insurance firms are often some of the oldest organisations in existence. Whilst there hasn’t been much change to this model over the years, there are some emerging shifts in buying behaviour which we believe will drive disruption:
Other subscription services provide more value: there has been an increasing shift to a subscription type service within other sectors which provides more value – for example within media you can subscribe to the FT or to Netflix and you get in return a suite of services 24/7. With insurance all you receive from your subscription is in effect peace of mind. The majority of customers only interact with their insurance providers once a year on renewal – there is no or little interaction for 12 months of the year – so where is value and brand loyalty built? According to at least one survey, price was cited as the main driver for switching insurers. This therefore suggests firstly that insurers aren’t offering any differentiated value, and secondly that despite this, loyal customers are likely to be paying more than switchers.
Customers pay upfront to be covered by an insurance policy at the ‘point’ in time: the price set for the subscription is set at the perceived risk at the point of purchase. Does this help to reduce risk? The 40-a-day smoker may be motivated to cut down by sky-high premiums, but this is hardly a concerted effort by the insurer to reduce the risk of the customer developing lung disease. Nor is it a real-time risk avoidance. So then, why not?
It has all been a bit cosy – but no more
Insurance companies have not historically been known as being front runners for innovation or digital advancement. However, a report by McKinsey suggests that insurance customers are already looking for innovative services tailored to the digital age. Customers of tomorrow will be expecting a lot more than just financial protection from their insurance providers. So how can insurers keep up with the developing needs of the customer? We think there are three priority areas for insurance firms to focus on:
Firstly, shift gears and evolve from an insurer to risk manager. The customer of tomorrow is looking for more value from their subscription service. They want their insurance company to provide a service that can help minimise the risk of the event occurring. This is mutually beneficial for both insurer and customer. No customer wants to be inconvenienced by an event which they deem worth insuring against, and no insurance company wants to pay out the expensive claim.
‘A clever person solves a problem. A wise person avoids it.’ (Einstein)
Helping customers to avoid disaster would fundamentally add value. Looking at solutions to help make this happen, we believe that the decreasing cost of existing technologies, along with other emerging technologies, offer insurance companies a fantastic opportunity to take their standard products and develop them into something innovative.
Let’s look into some detail to see what could be done differently. 28% of claims in 2017 were for water damage, with the average claim for a burst pipe being £25,000. Could insurance companies offer the extra value of disaster avoidance by partnering with a tech company to install sensors on piping that immediately shut off the water supply when a leak is detected? Or perhaps sensors could monitor and feedback live data of the pipe condition to the customer’s smartphone, alerting them when maintenance is required and recommending local plumbers? One barrier is the protection of data – but customers appear to remain willing to share their data for a financial reward; 77% of customers are willing to exchange personal data for lower premiums, faster claims settlements or more tailored insurance coverage recommendations. 
Some organisations are starting make a move – AXA has already begun to work towards this goal with its ‘Ambition 2020’ strategy, part of which they say involves adapting their business model ‘from payer to partner…developing further in areas such as prevention and care’. A bold an innovative strategy. PWC surveyed over 1000 Startupbootcamp partners and 80% of respondents believe the future of insurance lies in prevention. Partnering with new technologies will play a key role in facilitating insurers to offer this value-adding service.
Secondly, don’t insure me, insure my lifestyle: most insurance buyers have no interaction with their providers outside of the renewal process. This means no brand interaction and no loyalty encouraged. We believe there are opportunities to change this – let’s look at Car Insurance as an example.
Emerging technologies and data could lead to some increased personalisation of pricing, as well as live risk prevention based on driving style, weather conditions, traffic information all coalesced with live feedback of brake and tyre wear and tear. Is this so different from the traditional model of entering an estimate of how many miles per year you drive and how many years of no claims bonus you have accrued?
Assume for the last three years a consumer drives 20,000 miles a year and renews on a twelve monthly policy. Circumstances change and the number of miles driven drops to 5,000 miles – so the risk has reduced significantly but the cost didn’t. What if the consumer is looking for more ad hoc service to match a lifestyle (say in cities) where a car is driven a handful of times.
There is innovation starting to appear. ‘By Miles’ insures customers parked – and therefore unused – cars for a low fixed yearly cost. They are then charged an additional fee per mile driven, monitored by a ‘miles tracker’ and smartphone app each time they require coverage. This model could become increasingly tempting for the customer of tomorrow, as consumer concern about climate change and sustainability escalates. 81% of global consumers state they are willing to consume fewer products to preserve natural resources, whilst 73% of millennials are willing to pay more for sustainable goods. This suggests that the customer of tomorrow will likely want to travel from A to B in the most environmentally friendly way possible.
Thirdly, sharing is (potentially) caring: 50% of respondents to a survey run by Claims Rated said that they had trusted that insurance companies would pay out, falling to just 37% of 16-29 year-olds. This is because when claims are made, there is inherent conflict between company and customer who are now wrestling over the same coin, causing a sluggish pay-out process.
Peer-to-peer (P2P) insurance works through pooling customers based on a defined commonality, with each customer paying an amount to join the pool. This is different to a premium, as the payment (minus a small flat fee) remains with the customer. It is effectively held in escrow until either a peer makes a claim, or at the end of the policy term, at which point whatever is left following the pay-out of claims is returned to the customer. The pooling of customers with a shared affinity acts as a disincentive to fraudulent claims. The customer of tomorrow is task rich and time poor. They don’t have time to deal with complicated claims processes in which they have to fight with for their money. P2P insurance cuts out this battle as there is no conflict of interest between the platform and the insured. Some P2P insurers allow customers to upload pictures of damage onto an app whilst filling out only very basic information.
One example is P2P ‘Lemonade’ who have taken this a step further. To help disincentivise fraudulent claims, they group customers based on common causes they care about. Any residual premiums left after paying claims are donated to the groups common cause / charity. Thus, any unsubstantiated claims are taking away from the insured’s cause of choice.
P2P loans are now an established product, with the likes of Zopa surpassing £2bn lent through its platform in early 2017, and global market share of P2P lenders is predicted to reach 45% by 2020.
There are emerging signs on what the customer of tomorrow is looking for, and how organisations can step up to deliver the changing needs. We could see three groups of customers emerging – The Avoider, The Lifestyler, The Sharer – with consumers either fitting within one of these groups or a diverse mix of all three, with active risk avoidance likely to be the real catalyst to true brand loyalty.
In return, insurers will have to differentiate and build an innovative ecosystem of technologies that allow the insurer, not just the customer, to be an active party in ensuring that the customer is minimising risk and avoiding disaster.
Insurance is no longer just the necessary evil. Those who achieve this will be adding the value that future customers seek, and therefore likely building the brand loyalty that insurers of today have failed to achieve.
Moorhouse has a proven track record of turning customer strategy into action for major private and public sector organisations. Whether it’s identifying emerging customer trends, optimising the customer journey, or developing business models that meet customer needs – we help our clients understand and serve the Customer of Tomorrow.
To discuss how your organisation can meet the needs of its Customer of Tomorrow, please contact: James Easterbrook.
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