Building the right digital insurance model

Music, phones, photography and banking are just some of the examples of industries that have been transformed by going digital. It’s an inevitable transition for many industries and provides new convenient ways for consumers to engage positively with services.

In terms of auto insurance, this draws the most parallels to the digital transformation happening with Fintechs, says Brian Halk, director at IMS Marketing. For example, the digital transformation in banking enabled existing services to be offered to existing clients in a much more convenient manner, he says, including banking from home, self-service approaches and less wait times – all backed by digital innovation. “The net result was the transformation of negative consumer experiences into positive banking experiences for customers, improving overall banking satisfaction and retention.

“The move to digital transformation in insurance is the result of the same forces. Digital transformation is improving retention and engagement of policyholders with their existing insurers. Prior to digital, policyholders interact less than 1.5 times per year with insurers, with only 14% of consumers satisfied with insurer communication and with 44% having absolutely no interaction with insurers in the last 18 month. This low consumer satisfaction has resulted in high customer turnover, low insurer trust and little value put into the client to policyholder relationship. Digital transformation enables insurers with technical solutions that improve the customer relationship with policyholders, providing engaging and rewarding experiences to existing services that transform the relationship into a positive one – while improving overall policyholder retention for the insurer.”

However, there are many challenges ahead, says Roger C. Lanctot, director at Strategy Analytics. “Auto insurers lag far behind in taking advantage of the proliferation of vehicle connectivity and safety technology to fundamentally alter the way car insurance is underwritten globally,” he says. “The challenge for auto insurers is that they project their rates based on historical vehicle and driver performance, which puts the industry at an immediate disadvantage. Insurers are struggling to find a way to get out in front of technological change in a manner that will allow for deeper cooperation with car makers and enhanced guidance for car buyers/drivers. Very little progress is being made thus far. So far, it is carmakers such as Tesla and Volvo that are showing the way and hinting at a future where car insurance will be taken on board by auto makers.”

The customer relationship
For the auto insurance industry to move successfully into digital a new customer relationship will have to be forged, leading to high net promoter scores (NPS) and higher levels of active recommendation.  Many carmakers are struggling with this concept and are yet to find a consumer-facing value proposition for vehicle connectivity that will help define their brand, says Lanctot. “Point solutions such as Wi-Fi or streaming audio or, most recently, advertising/marketing platforms, continue to miss the mark,” he says. “Many car companies have extended the free periods to access telematics services but they still have not given consumers enough reason to care or pay attention.”

Some auto insurers are working around a reward based system to add more positivity to the consumer relationship dynamic. Halk explains: “The aspects of digital transformation that will lead to a new customer relationship involve the provisioning of both new and existing services in new ways that offer improved consumer value to the user. In the area of auto insurance, the movement towards digital mobile telematics apps that provide drivers with coaching, gamified experiences and rewards is generating a more positive relationship between policyholder and insurer – the policyholder is engaging on a regular, if not daily basis, with the insurer via the app.

“The relationship has evolved from a prior transactional one, in which policyholder engagement centred around negative experiences such as annual premium billing and infrequent accident claims, to one that now positively rewards drivers with discounts, feedback and other incentives on a regular basis. In turn, those drivers that are engaging more with digital and telematics insurance products are also safer. Positive experiences coupled with engagement inevitably lead to brand loyalty and customer referrals.”

Once carmakers find a way to collect more data on the operation of their vehicles, they will be compelled to create new value propositions on their own or in concert with industry partners, comments Lanctot. “The first step is learning how to internally monetise vehicle data, which will ultimately lead to external data monetization opportunities. Collaboration with competitors is the next great challenge facing the industry but the battle against cybersecurity vulnerability is helping to bring the industry together on many fronts.

A digital work in progress

Both our experts agree that for auto insurance to integrate digitally the entire customer experience needs to be improved.  This will mean adding convenience and value so that a more positive experience can be had. One idea could be to automate cumbersome details that are unnecessarily time consuming.

“With automation, comes the opportunity for more on-demand type services, that are delivered in real-time at the precise time when accidents occur – therefore, also offering the consumer the most value,” says Halk. “For example, accident detection and FNOL [final notice of loss] processes can be greatly improved and automated, further providing the policyholder with immediate access to intelligent road side assistance that shows up at the scene of the accident (no action required by the policyholder). Furthermore, a host of services can be offered to the policyholder in a concierge style at the time of an accident, (i.e. media, emergency, family notifications) generating a very positive experience that improves the customer journey and that provides a positive perception of the insurers brand at all touch points.”

Studies show that consumers are already open to digital options, with many embracing insurer apps and digital services, so the real journey is for insurers to examine their processes at all customer touch points and find ways to deliver services faster, more conveniently and providing more positive consumer value and engagement with the insurers services at each touch point, he says.

The subject brings us back to a familiar theme, the effective use of data. Lanctot concludes: “Digitalisation enables the integration of the entire business around a core set of data. Car sharing programmes cannot be launched in isolation. They must be integrated with dealer networks and marketing.  Consumers must be told how car sharing fits seamlessly into the broad multi-modal transportation decision making proposition. Data is at the core of making this happen and digitalisation will speed the proliferation of data throughout the organisation and its many partnerships including dealers.”


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