In the coming years the insurance industry is set to be transformed by the digital revolution and the Internet of Things. While some insurers have embraced the digital revolution, others have a wait-and-see attitude that may soon put them at competitive disadvantage. In this article Yves Colomb and Steve Shurety, both insurance experts at Towers Watson, note that for those hesitating to jump on the bandwagon, digital change may come faster if considered as just another tool.
Big data and how it will revolutionize the way we do business is receiving a lot of attention of late. For many insurers, big data is a challenge, but it has a familiar feel. Gathering, organizing and understanding data has always been at the heart of the insurance business, and insurers have built capable data analytics teams. The difference now is that there is much more of it, and it must be analyzed and applied in new ways to win and retain customers while better managing risk and capital.
While big data is at least conceptually familiar to insurers, the rise of digital media poses a different kind of challenge. Research by Towers Watson and other companies suggests many insurers feel some anxiety about a new technology that, while eminently desirable, also introduces risks that could cause serious harm to their company's reputation and business interests. Indeed, rather than developing digital media programs, some executives are taking a wait-and-see attitude, hoping to let others blaze a trail and then learn from their mistakes.
But with markets changing so rapidly, doing nothing is extremely risky in itself. Worse still, insurers face potential competition from not only other insurers, but also formidable digital giants like Google, Facebook and Amazon — companies that are flexing financial muscle, expert at digital media, good at analyzing customer needs and entirely capable of providing insurance products if they choose to do so.
So an obvious question is how an industry so comfortable with technology in one form — i.e., big data — seems so cautious or even apprehensive about technology in the form of digital media. The inescapable reality is that digital media promises to radically transform the way customers interact with their insurance companies. Some companies have already gotten a good start. But others need to play catch-up — and fast. Here are four steps to get you started.
1. RECOGNIZE DIGITAL MEDIA IS JUST ANOTHER TOOL
A good first step is to recognize digital media for what it is: just another marketing communication and sales tool to support distribution, albeit one that is far more complex, often involves third parties and requires constant attention. Like previous advances such as data processing and the Internet, digital media offers both advantages and disadvantages.
It does offer increased visibility, enhanced brand recognition, improved communication and, most importantly, the potential of becoming closer to customers. When used skillfully, digital media is an extremely efficient and effective way to acquire new customers and retain them. However, these benefits come at a cost. For insurers, the era of information asymmetry has ended. Consumers now base their purchasing decisions on many sources of information. For simple commodity-like products, price comparison sites zero in remorselessly on the cheapest options.
Digital media adds another dimension. Not only can consumers find the lowest price, they can also find what they believe to be the best value by seeking advice from people like themselves. When asked what most influenced their buying decisions, 90% of consumers polled in a recent survey responded, "the opinions of like-minded people," while only 14% said advertising, according to a statistic cited in a report issued by the National Association of Insurance Commissioners. In another survey, 80% of consumers said they consider other opinions before making a purchase. The numbers skew even more among the young, who weigh customer opinions/reviews very heavily in their buying decisions.
2. GET STARTED
Digital media offers unparalleled access to customers but requires a fundamental change in the way a company thinks. To succeed, insurers need to create an ongoing dialogue with customers. That dialogue also needs to occur internally. For digital media to work, it needs to be understood and accepted by everyone in the organization. Buy-in from top management is needed, as well as a mission statement that explains the importance of digital media for the company and how it will be used to help achieve the company's goals. That statement should be endorsed by senior management and distributed to everyone.
Importantly, any plan should include representatives from all departments and functions, as well as an internal communication program to educate employees about the need for embracing digital media. Communications should explain how a plan will work, why it's important and the intended strategy. Progress should be chronicled, wins underscored and employees kept informed.
Create a dedicated transition team. Start by assessing your current customer relations. What do customers like about your company, and what don't they like? If you were a customer, what would you change? Have the transition team look for internal factors that could get in the way. For many insurance companies, old technology is a major roadblock. Most legacy systems were designed to make life easier for the insurer. Digital media is about making life easier for customers, and making their choice of timing, product and service more flexible. This will demand a change in the level and type of service insurers must provide. Culturally, there may be an initial resistance among some employees that will need to be overcome. Hopefully, the communication program that is developed will help ease employee reluctance and create enthusiasm as changes are implemented.
Work closely with agents and distributors to develop support materials that will give them the edge when selling and servicing your products (e.g., smartphone apps, online price comparison calculators and downloadable information for consumers).
In many cases, insurers will need to hire new talent to create and implement an effective digital media plan. Digitally skilled workers are in high demand. Their expectations of the workplace are very different from those of previous generations of new hires — flexibility and a certain degree of independence are important to them. Insurers will need to adjust to reflect these expectations and also be ready to adjust pay scales to attract this talent.
3. ENGAGE THE CUSTOMER
Some types of insurance are better suited for digital media, so you will need to evaluate the way consumers engage with your products. For instance, high-volume, standardized consumer products like term life or auto are good candidates because they have large client bases and the potential for customer portals that would reinforce customer contact and might provide commentary on product developments (health tips, for example, or collision avoidance) and advice, as well as customer-managed service support.
Once it is determined that the insurance sold is a fit for digital media, customer engagement can begin. Differentiate your company by finding ways to deliver a better end-to-end consumer experience. For example, several insurers have developed smartphone apps that make filing a claim quick and easy. A driver can now contact the insurance company, provide evidence of the damage using a smartphone's built-in camera and file a claim in just minutes.
A Florida insurer realized that very few customers ever bothered to read their homeowners policies — a real problem since understanding a policy can help avoid disputes or disappointments. So the company created a video that reviews what is and is not covered in a standard homeowners policy, and posted it on their website.
Another large insurer developed an online game in which customers are encouraged to set life goals (e.g., home ownership, college education for their children and retirement security) and are then educated and advised on ways to achieve these goals. The insurer's website keeps track of a customer's progress, sends a reminder when it's time to take another step toward stated goals and advises how to do it.
Catastrophe response has always been a key challenge for insurers. Digital media offers carriers an improved communication capability and an opportunity to reach out to customers. Special web pages can be created to explain claim procedures, locate temporary offices, contact adjusters, list toll-free phone numbers and provide message boards, among other services. Customers appreciate and remember such efforts to help in times of need.
Unlike personal lines, which tend to be simple and standardized, commercial insurance is usually complex and intermediated. Even so, digital media can help attract and retain customers.
Buyers of commercial insurance usually seek advice from consultants or intermediaries who understand their businesses. Carriers can provide these advisors and intermediaries the tools they need to better service their clients. For example, they can create portals on their sites that contain information on specialty lines. One carrier created a portal designed specifically for plumbing contractors. Specialist brokers use these portals as sales tools. Their customers can access pages with news about regulations, products, new projects or industry developments. The portal even has a forum for plumbing contractors to exchange information.
Again, when it comes time to renew, commercial insurance customers are more likely to stay with the carrier that has provided a positive experience and understands their business.
4. DEMONSTRATE VALUE
Just a few years ago, the typical carrier had only two regular interactions with the customer, one at the time of the sale and one at renewal. Now, with the advent of digital media, interaction must be continuous and effective. Consumers are bombarded with various lower-cost offers and messaging. Insurers need to move beyond these basic interactions and create a regular conversation with customers that engages them at every touchpoint. Like a feedback loop, every interaction must reinforce the customer's perception of value: signal, feedback, adjust, repeat.
THE MARKET AHEAD
Some would argue that when it comes to interacting with customers, insurers can't possibly compete against digital giants like Google, Facebook and Amazon. But more ominously for insurers, these digital companies have a huge amount of data on customers and prospects. They know what people like to wear, their state of health, that perhaps they tend to drive fast or that they go skydiving. They know what they buy and their behavior when they buy. They know much about their attitudes and opinions. They know where people go on vacation, what they do in their spare time and their disposable income. With such detailed information, they can very actively engage with their customers, learn what they want and create highly personalized products and experiences.
Insurers do have some advantages over digital companies, however. Above all else, they understand insurance risk — a complicated product where the manufacturing cost is apparent only after a certain amount of time. It is surprising how often noninsurers entering the field find this concept difficult to grasp. Over many years, insurers have gathered the actuaries, data managers and underwriters needed to provide skilled risk pricing, product managers who know the risk implications of product cover and claim managers able to deliver fair settlements efficiently. These capabilities remain critically important regardless of how data-smart and nuanced a digital brand may be in customer access.
Of course, digital companies can acquire insurance companies, or at the very least, the talent needed for core insurance functions. But in the near term, the digital giants such as Google are more likely to be a data and distribution partner for selected insurers, albeit with the expectation that they will realize the value of the collateral they bring. One thing is certain: Whether the big digital companies are in the game or not, insurance will remain highly competitive, and in a digital age, the advantage will go to those insurers that embrace digital media fully and innovatively, engaging the interest and sustained loyalty of their customers.
An article from Yves Colomb (Towers Watson New York) and Steve Shurety (Towers Watson London).