Transformation—what does it mean to the insurance industry?
Change is coming to the insurance industry in the form of digital transformation. To date, the industry has lagged compared to other industries such as entertainment and retail, but change is accelerating. With it will come modifications to the insurance business, not the least of which could be new business models and new approaches to risk assessment.
Digitization, apart from implying the use of the internet to communicate with and attract new customers, has other strategic facets. For example, the use of data to increase the number of touchpoints with customers and prospects, improving risk analysis and selection, speeding the underwriting process, and automating and simplifying the customer onboarding process.
Industry winners will be those who can readily accept and adapt to the changes. That is, insurers who have invested in digital technologies, developed flexibility in both their IT architecture and their decision-making processes, democratized their data access, and who can deliver strong consumer-centric experiences. In short, data-driven businesses who are organized to acquire, support, maintain, update, and leverage data throughout their organizations.
Data quality matters
Whether you are collecting data directly from consumers, from third parties, or generating it internally, accuracy is paramount. Having accurate contact data for each consumer is vital when matching data both from different departments and different data providers.
Inaccurate contact data means poor match rates and less intelligence about customers and prospects. This, in turn, means less reliable insights and potentially higher risk. It could also mean you are quoting higher premiums than necessary, making your offers less competitive.
Data inaccuracy also impacts customer satisfaction and experience. Already, consumers don’t hear from their carriers enough—maybe one or two correspondences a year. When their contact data becomes out of date or is otherwise compromised, likely those consumers receive no communications at all. Then, when a notification does get through, it’s simply a request to pay the next premium. In other words, this is not a memorable experience for your customers.
The year-end holidays are the traditional time to send account summaries and other notifications. Make it a time to engage all your customers with seasonal wishes and valued advice for the coming New Year. You can point to new services and new options to sign-up without having to engage a broker— something that most millennials and more educated consumers much prefer. Get the most value out of your quality data.
The more data, the better
As more data sources become available, the volume and value of such data will become more important to the industry. More data means the ability to build better and more dynamic risk models. Below, we will discuss how higher volumes of trustworthy data can benefit all types of insurance companies like auto, health, and life insurance.
For example, there are several companies now offering vehicle insurance on a pay-by-the-hour (PBTH) basis. For drivers with low annual mileage, PBTH policies offer lower premiums and the ability to switch carriers more easily. For insurers, these drivers represent potentially lower risk and hence lower costs, enabling them to offer more competitively priced policies.
As the auto industry prepares for the advent of electric and autonomous vehicles, they are adding more sensors and more intelligence to each new model. Insurers who can take advantage of the data generated, perhaps in collaboration with vehicle manufacturers, will be in a stronger position to deliver disruptive new products. For example, policies geared towards those who stick to the speed limit, break less aggressively or have fewer lane changes. Whatever attributes make most sense for insurance risk minimization.
Of course, these changes will not just affect automotive insurance. The proliferation of health apps makes it increasingly possible to monitor blood pressure and oxygen and glucose levels as well as a host of other parameters such as heart rate, exercise, and sleep. Translating such data into risk profiles will be complex but those who succeed may be able to offer more than just reduced premiums but also personalized advice, education, and encouragement for customers to lead healthier lives. Being a better partner to consumers, in this way, can lead to stickier relationships and lower churn rates.
Beyond auto and health, more data will also help property and casualty (P&C) and life insurers. Examples here include: the availability of more granular data on property location and related weather, population, and crime statistics; data on consumers’ DIY spending by location, average arrival times for emergency services within a district, details on the availability and usage of sports and entertainment activities, and so on. Such data provide opportunities to better assess risk, offer advice to mitigate risk, and to create new solutions providing personalized coverage.
McKinsey1 estimates that advances bought about by digital transformation can cut cycle times by 50 to 70 percent and reduce administrative expenses by 20 to 30 percent. What’s more, that “forward-looking carriers” will be able to turn the insights gained from their data into new approaches that use “value-added services and 3rd. party partnerships” to create ongoing conversations with customers that will positively impact churn and upsell/cross-sell opportunities. Finally, insuretecs and advanced carriers are experimenting with entirely new business models. McKinsey indicates, that “a few innovators are already experimenting with on-demand coverages that allow consumers to buy insurance for specific event- and location-based risks”.
How Experian can help
If you are working on your digital transformation strategy, Experian can help. It all starts with collecting and maintaining accurate and complete data on your customers and prospects. It continues by adding additional data from third party sources to enrich your understanding of who your customers are, where they are, and what their needs are.
To best determine what data validation software is right for you, understand the state of your database. Experian has a Data Report Card that will assess the quality of your entire customer data set. The report will quickly identify areas that need attention including:
- Record duplications.
- Degree of completeness like identifying missing date of birth, SSNs, contact data, location data, and so on.
- Out-of-range variables like age and client sign up date.
- Invalid contact data like address, email, phone, geolocation, and test data.
- Data entered into incorrect fields.
- Addresses and other contact data replicated across numerous consumer records, which may indicate possible fraud or bad data entry practices.
- Address moves and changes.
- And more.
Creating the imperative for data accuracy across your organization is the starting point towards becoming a mature, data-driven business.
As insurance companies reduce their risks and become more competitive in the market, the advantage will move to those who are more adept at managing and leveraging the coming flood of data. Choose to be proactive about your data strategy and take the first step now.
1Harnessing the Power of Digital in Life Insurance, McKinsey & Company, Financial Services Practice, October 2016
