The Future of Risk: A Customer Centric View

The Future of Risk: A Customer Centric View

Article written by Rebecca Bell

At a recent conference, an insurance executive described this as being the most disruptive era our industry has seen in the last 35 years.

Those comments are not made lightly. The business model of risk as we know it is changing, driven by a number of immutable forces: digitization, big data, the development of new vehicle technology and connectivity, the rise of the connected consumer, changing vehicle ownership patterns, and major shifts in mobility habits.

And for an industry where managing and minimizing risk is the core of your business, these are indeed challenging times.

I want to explore one of these forces - the rise of the connected, empowered consumer - and reflect on how as an industry we can turn the challenges it presents into potential opportunities for growth and differentiation.

The empowered consumer

When I first got my driving license, I saw automobile insurance as nothing more than a driving tax. I was young, sure of myself and the very last thing I thought would happen to me was a collision or an incident where I had to file a claim. I am certainly not alone. Few drivers think it will happen to them. And from our research and work with clients across 5 continents, drivers in most markets share one opinion: most of them have a pretty high opinion of their own driving skills and capability. So the relevance of paying out cash for an incident that you think probably won’t happen to you is far from compelling to most people.

At the same time, and apologies for the awful pun, the consumer has been thrust into the driver’s seat. And it’s technology that’s doing this. There’s literally an app for everything. Smartphones give you access to insights about anything, and services to help you do almost every task, are literally right at your fingertips. And it can all be personalized. I can order my pizza my way, tailor my vacation and get my work done without ever having to speak to a person if that’s what I choose. So is it any wonder that a consumer’s expectation for convenience, fairness, cost-effectiveness and transparency might start to influence their insurance experience too?

Photo by Ben Kolde on Unsplash

Rise of the Insurtechs

So with the rise of the empowered, expectant consumer, there’s a gaggle of creatively minded, consumer-centric start-ups and insurtechs ready to respond. Sick of paying insurance for trips you’re not making? That’s OK, just pay for what you use. Frustrated with your insurance premium influenced by ‘other people’s driving’? That’s OK, with telematics we can tie your individual behavior to the price you pay in a way that’s fairer and reflective of reality. Want to see your loyalty and safe driving rewarded? That’s OK, your premium will decrease if you stay loyal to us and your loyalty will unlock plenty of other benefits that you’ll value too. Fearful that your insurer will hassle you if you have an accident? In-car tech, dash-cams and easy-to-use claims tools will simplify the claims process and provide vital evidence for a fairer outcome.

Policyholders can now be more demanding of a transparent, rewarding relationship with their insurers. But the question is, does this new age of an empowered policyholder put the insurer at a disadvantage when it comes to managing a profitable relationship? The short answer is no.

This new era of connectivity and personalization of relationships hands insurers opportunities like they’ve never had before to engage with policyholders.

The Smartphone Era

In our case at The Floow, we are convinced of the power of the smartphone in this dynamic. By using a smartphone app not only to monitor trips, you can also put a utility app into the hands of your policyholders with the opportunity to create value and relevance like never before. And the potential penetration of this engagement tool is incredibly high - in the US, Pew Research and Statista both put smartphone penetration in the adult population at 77%, with Pew estimating that 94% of 18-29 year olds own a smartphone. In younger demographics, the smartphone is now the primary device used for all search and web productivity, overtaking desktop by quite some distance.

But getting space in prime smartphone real estate isn’t easy. The exponential growth in video and photos means storage is a becoming a premium. It’s incredibly easy to add and delete apps that don’t deliver value to free up space, and that value has to be felt tangibly in one of the following areas:

• seeking pleasure and avoiding pain

• seeking hope and avoiding fear

• seeking social acceptance while avoiding social rejection

Social science research suggests the act of simply monitoring a trip is enough to provide a slight uplift or improvement in driver behavior, but what if we were to create an app-based engagement tool which helps the driver tap into one of these emotions more deeply? The realization that their driving may be less impressive than thought could help policyholders avoid the financial cost(and possible social rejection) of being a bad driver. The driver may seek hope that they could improve their behavior to deliver them a safer driving profile, and in the process, save some money.

Improving Driver Behavior via App-based Rewards

Our experience has shown those drivers who check their score weekly show significant improvements in driving behavior, and when added with an element of rewards for safe driving and behavioral improvements, we see a sustained uplift in driver scores. Rewards are evidenced to be significantly more effective than insurance discounts alone in encouraging score improvements. This feels counter-intuitive considering the value of a driver discount is usually worth much more than a free coffee once per month. Our research shows that in the lowest decile drivers, when regular, small value rewards are offered, driver scores increase by as much as54% compared to offering an insurance discount at the policy renewal. That’s significant.

March of the Bots

In younger demographics, there’s evidence that people want self service and prefer to do most tasks on the smartphone without ever having to speak to a person. A Forrester survey found customers are using mobile applications as the preferred method to quickly get answers and service resolution without waiting on the phone until a customer service rep becomes available.But if customers don’t get quick answers to their questions, they will go elsewhere. This is a major reason for the adoption of chatbot based technology in customer service businesses, including insurance. According to Gartner, by 2020 the average person will have more interactions with a bot than with their spouse, and85% of all customer interactions will take place without a human. That’s a colossal shift, but one that offers considerable margin gains for insurers if they are able to adopt the technology in the right way to facilitate those ‘moments of truth’ during the policy lifecycle when policyholders need help most.

Elsewhere in this publication you’ll read how our partner Liberty Short-Term is using a chatbot to accelerate the quoting and registration process and provide supportive feedback to the driver after completing trips. All of this can live in the app, or those conversations can transition seamlessly between different tools, such as WhatsApp or Messenger.

Whether it’s a chatbot or a person delivering the service, it’s got to be right because today’s consumers aren’t afraid to switch. Or to put it more positively, embracing a successful customer experience will deliver tangible business value. According to a Walker study, when compared to their peers, the top companies leading in user experience outperformed the S&P index by 35%; by 2020, customer experience will overtake price and product as the key brand differentiator.

The Predictability of Smartphone Use

One massive problem with the smartphone is that people just can’t leave them alone, even while driving in the car. There are countless examples of how smartphone distraction has led to accidents and deaths, leading to regulatory changes to discourage usage. At The Floow we test the correlation between smartphone use and the likelihood for claims via our ‘Distraction’ score. We have found this to be the single most predictive score that we measure. This presents an unexpected benefit from using the smartphone as a telematics sensor that you simply can’t get from an OBD device, fitted device, or even a fully connected vehicle.

Photo by Fabio Spinelli on Unsplash

Price Me Happy

All of these techniques can drive engagement and deliver convenience and value for the policyholder. But what about the topic of pricing and fairness? If the rise of the empowered consumer has created anything, it’s a degree of challenge to traditional business models that have ‘always been that way’ in favor of new ways of doing things that are inherently ‘fairer’ and more convenient to the consumer. The classic business school example of this is the case of Uber and AirBnB which have democratized their respective markets by putting power and choice into the hands of the consumer via the promise of fairer prices and greater transparency. I was looking at Twitter today and saw one young driver complaining about his high premium as he considers himself a better and safer driver than many older license holders. Addressing this problem is squarely where telematics has positioned itself, and as the auto market continues to harden and rates rise, this is a welcome solution for drivers both young and old. And it’s certainly true that the promise of fairness - of being priced for your behavior rather than your demographic profile - is a psychological benefit in an industry which is often accused of not being fair to the consumer.

So Where Could All This Be Going?

If you accept the thesis that the connected consumer’s life is centering around the smartphone and that it presents many benefits for safety, fairer pricing and brand engagement, the big question is where could all this be going for the insurer? Setting aside the complex enabling business models and scoring standardization challenges for a second, I don’t think it’s unimaginable to contemplate a future where telematics could help to identify a unique driving ‘fingerprint’ for each policyholder - your own unique driving DNA. This would enable insurers to price with confidence, and drivers to consider their auto insurance policy as something that’s both fair and useful.

Whatever the future holds, the winners in this marketplace will be those who effectively embrace the valuable benefits of insurance and can at the same time knit together strategies for customer engagement and relevance. The Floow is excited to be working with partners to help to make that happen.