As if by design, the motor industry is moving forwards at pace. Nowhere more so than in insurance as it evolves towards less driven miles per person, either through the cost of driving, social change, or ecology. So much of our lives has been impacted by the pandemic and motoring has not escaped what has turned out to be a massive force for change. Not only has driver behaviour altered, impacting vehicle usage, but technical innovations in many areas of life have led to higher expectations in customer interaction and service from customers.
As a consequence, the insurance industry is at a flection point. On the one hand it is faced with an ageing pool of established drivers with operations built to match how this demographic interacts with its services. On the other, new generations of digital native road users are constantly entering the field that have come to expect nothing but the very best levels of service, instant response times and competitive and fair pricing. All of this is set in the backdrop of a socially conscious consumer and a macro economic environment that has forever changed how, when and where people can work.
It means the insurance industry is facing multiple challenges at once. Existing technology and pricing models need to change. Compulsory use of telematics based on behaviour and use are inevitable and have to be factored into the mid and long term future of the industry. Yet at the same time, businesses must do more with less. The cost of acquisition must become lower.
Thankfully, there is good news for the industry too. The rise to prominence of usage-based insurance (UBI) allows insurers to react quickly, cost-effectively and implement better engagement solutions to expand their customer base. Indeed, it is this type of model that is the gateway to the inevitable future of the insurance industry.
Three major changes are required
It’s fair to say that, for the majority of consumers, motor insurance is more pain than pleasure. Fluctuations and unjustifiable increases in premiums, very little interaction with the insurer - except on renewal or in the event of an accident - and an opaqueness to activity many drivers consider purposefully designed to keep them in the dark. No surprise it is seen as an additional tax on driving. But those days are over.
The insurance industry also falls remarkably short of other industries, particularly in financial services, when it comes to investment in technology. But the sector is at a tipping point. Businesses must have the ability to create best-in-class customer applications that are tailored to each policyholder that helps them manage their cost, environmental impact and control their digital experience
In today's on-demand economy, there are new technologies and models to cement customer loyalty, to reduce price sensitivity, churn rates, and drive revenue up. These same technologies can help control costs across operations and reduce the dependency on investment income. But as part of the evolving mobility ecosystem, insurers must not only participate in the disruptive changes taking place, but lead them. To do that, three major changes need to be realised:
1.Innovate the offer
Standard annual insurance propositions are on their way out. They do not fit how people use their vehicle and are unfair to drivers. Indeed, of all the trends we are seeing in the motor industry, the move to a UBI model is arguably the most critical for insurers. It takes two forms:
- Pay-as-you-drive: The number of miles driven during the given policy period is considered as the key factor in coming up with the policy premium.
- Pay-how-you-drive: Driving behaviour (i.e., how safe is the driving) during the given policy period is considered as the key factor in coming up with the policy premium.
Insurers today must begin to adopt one, if not both, of these approaches.
2. Catch up with other service industries
Expectations are rising at an accelerated pace, and the choices available are forcing old products to be modernised while competing against new and innovative digitally transformed programs of insurance. Today, an insurer's relationship with its customers is characterised by a new level of immediacy, and this is forcing businesses to think about how they can add value to interactions. They want the same seamless intuitive customer experiences they find elsewhere in their lives, enabling them to manage a key expense to fit their circumstances. Digitally enhanced services are no longer a nice-to-have. Slick interfaces – whether on desktop, laptop, iPad, or mobile – are commonplace. Perfected user experiences have reshaped customer expectations, and it’s a shift the industry cannot ignore.
3. Increase revenue from existing customers
According to The State of Connected Customer report, 84% of customers say the experience a company provides is as important as its products or services – and yet, there is a massive divide between customer expectations and what most insurers are actually delivering. But as a recent report from the IBM Institute of Business Value revealed, 42% of customers don’t fully trust their insurer, and most insurers (60%) agree that their organisation lacks a CX strategy. This leaves the industry with significant room for improvement. On average current motor insurers manage to communicate with customers just once in the annual lifespan of a policy, at renewal time. This failure to engage, to reward and thank customers is noted and perceived as the insurer not ‘valuing’ the customer.
Insurers are not looking to the future and they should be. The industry is still spending too much time and resource on modelling and pricing for ‘the now’, and not ‘the tomorrow’.
The ability to engage now, make a quick decision and learn outweighs the risk associated with the unknown. Procrastination and worse, wilful ignorance, will cause insurers to fail. Driver’s circumstances vary hugely and personalised insurance policies are seen as the answer to addressing those differences. Where once this just wasn’t possible, today’s technology means that greater personalisation is within the grasp of insurers.