In this piece, Callum Rimmer, founder and CEO, By Bits takes a look at how far we still have to go when it comes to digital insurance.
It is thought-provoking stuff, enjoy.
The stories of Kodak and Nokia are 21st Century fables with a clear learning around adaptation and evolution. Each has universal understanding that is applicable to every sector, geography and service. Only, unlike their childhood counterparts, these cautionary tales are actually true and the endings are not happy ones.
This is something the insurance industry needs to be cognizant of as we enter a post-pandemic world. This is because the last 12 months has forced every sector to review its operating models and approaches to customer experience in light of rapidly changing customer needs and evolving cultural behaviours. This is particularly pertinent when it comes to motor insurance as global lockdowns, social distancing measures and sweeping changes to working habits have led consumers and insurers alike to reevaluate the value of traditional policies.
Insurance at an inflection point
According to the J.D. Power 2020 Auto Claims Satisfaction study, there was a 22% decrease in car insurance claims since the pandemic in the US. In the UK, we’ve seen a few insurers , like Admiral, offer cash refunds to customers as a result of travelling reduced miles and, while a nice gesture, it’s not one reflective of the disparity of the situation – both historical and present.
That is because the insurance industry has been ripe for change for years – long before COVID became part of the vernacular. Motor insurance, and in particular its pricing models, are seen as opaque and unfair, and because it is mandatory if you own a car, motor insurance still feels like a tax rather than a purchase decision. According to this 2018 study (BritainThinks) by the Association of British Insurers, seven in ten (70%) insurance customers agree that, no matter what they do, their insurance premiums seem to go up every year.
There is no doubt consumers are overwhelmingly dissatisfied with the level of service they are receiving so the industry is at an inflection point. It is here the examples of Kodak, Nokia and other defunct brands and products becomes particularly pertinent to those in the insurance sector that don’t want to follow suit.
The customer must come first
Not least because customer expectations have increased markedly. People now rightly expect insurance products and services to measure up to the experiences they enjoy with their other consumer purchases like in banking, retail or fitness. Instead, what they’re getting is cumbersome and one-dimensional products because the insurance industry has been slow to adapt to technology innovation. Efforts to digitise and optimise customer experience have largely failed. Insurance has rested on its laurels for too long.
Insurers should already be considering how to embrace consumer trends in their products for both the short and long term. In many cases, this means catching-up to what is current and urgently putting measures in place to scale and pivot their products and services to respond to ongoing changes in driving habits and digital consumption. Insurers simply won’t be able to survive if they continue to treat customers as they have done up until now – they can’t afford the shockingly low retention rates that they’ve got away with until now.
This is because a holy trinity of mobility, customer expectations and democratised data are dictating innovation. New rating engines and new products are only part of the solution. How insurers interact, engage, communicate and manage data will also be critical. Customers will want to know how answering a set of questions can truly reflect their premium price fairly. The data that can be provided at the onset (and during the life of the project) from open banking integrations, activated vehicle safety features, use of assisted driving features and usage data are all elements that will contribute to future policies. Insurance companies urgently need to put the customer first or they risk losing market share and becoming irrelevant.
Blind to the big picture
Traditional players and those insurers unwilling to meet the speed and scale of change are not going to retain the level of customers they’ve had before, which then by proxy, means they will need to spend more money to go out and win customers back. The answer lies in evolving to offer a product that will retain customers and evolve the wider industry at the same time. As an example, we’ve seen years of insurers concentrating heavily on achieving a high-ranking on price comparison sites, which has led to a situation where, largely, the industry has a commoditised product with little differentiation or USP.
Obsessed with price comparison sites and a race to the bottom on pricing, insurers have neglected to see the bigger picture. Many simply haven’t developed the right mindsets, cultures and approaches to respond to changes in consumer needs and to get on the front foot through innovation. And that’s why, rather than focusing on getting ahead of new (and some would say inevitable) technology innovation and collaborating on solutions to potential challenges, some insurers and legal firms appear to be focused on stifling and delaying progress.
Insurers should also be taking an active role in encouraging policyholders to consider the micro (air pollutants) and macro (greenhouse gases) environmental impact their car usage has. Insurers have no reason not to be helping educate drivers about the pollution their cars emit and helping them to consider how and when they drive. They could be advising on the best times of day to use their car and the best routes to take to limit environmental impact. Intervention, in support of governmental actions, can help to save lives.
Inhibit or innovate?
We’re at a nexus point with car technology of changing user behaviour, changing customer expectations and changing technology. And right now, progress is being held back because of the insurance industry.
Businesses in the insurance industry need to make a choice and pick a side – they can either be an inhibitor or an innovator but, in the long-term there’s only going to be one winner.