July 11, 2016 | Written by: Lynn Kesterson-Townes
Categorized: Client Stories
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Empowered consumers, connected millennials, technological innovation, digital distribution, and new competitors – taken together, these represent potentially explosive dislocations in the insurance industry. What do they mean for the future of insurance? Some say that new competitive business models are dooming the insurance industry to reduced premiums and agent and customer disintermediation. So, what does an insurer need to do to survive today?
First, an insurer should leverage its marketing capabilities to build the customer relationship first and sell insurance second! How to get started? Be social! eMarketer reports that “nearly every millennial between the ages of 20 to 30 said they used social networks (96%) and instant messaging services (95%) in 2015”. Insurer beware! According to lifehealthpro.com, not only will millennials make sure you have a Twitter account, they will check to see make sure you are answering questions on Twitter. Similarly, it’s not enough to launch a Facebook business page — Are you replying quickly to questions posted there? Are you on LinkedIn? Do you have an easy-to-navigate website?
And, then there are reviews. Millennials want to read them (think Yelp!). So encourage everyone who uses your products to share their opinions. Then, distribute this content everywhere! Post reviews on your web site and your Facebook page. Tweet them out! These things must all be in place before millennials will even look at your products and services. If you do this, you can sway millennials favorably in your direction at the exact moment when they are deciding what to buy.
Speaking of having a nice website, Effective Coverage, a national online renter’s insurance provider, has over 100 videos on its website that answer questions about renter’s insurance. Why? Because when millennials have questions, they want answers instantly. Millennials won’t wait for business hours to get things done. If your website can’t provide answers at any time, millennials (and some of the rest of us too!) will move on to someone else’s web site who will. But, if you can provide answers on demand, you have a good start at building a relationship and eventually selling insurance products.
The explosion of posts on services like Instagram and Four Square attest to the fact that most of us like hearing about what others are up to! Build on these customer stories by leveraging big data and analytics to develop customer profiles that resonate with your target customers. This can help convey a comfort level to millennials and customers new to insurance products that you know what they need. Besides, it’s shocking how many of us make purchasing decisions based on what our peers are doing!
Second, experiment with distribution. Gone are the days when local agents were the key to selling insurance. According to propertycasualty360.com, “67% of millennials are purchasing directly from insurance companies, leaving agents out of the picture.” Here’s just one example. French insurer AXA has funded “PolicyGenius, an online-only insurer that sells life and disability insurance, along with policies that cover renters’ possessions and pets.” Since its inception in July 2014, PolicyGenius has been visited by more than 300,000 users. According to Bloomberg, “More than half of its customers are millennials”.
Since local agents don’t appear to be a growth opportunity, consider using cognitive computing to provide self-service virtual customer service agents. These empowered advisors never sleep and can speak in a customer’s native language to answer questions and sell policies. Cognitive agents would allow a rapid expansion of distribution outlets for insurance sales. For example, according to Accenture, there are now 3 million patients at 7,000 healthcare clinics in the U.S. With cognitive agents in place, why couldn’t all of them become places that sell life insurance? Similarly, why couldn’t cognitive agents sell auto insurance in every single car dealership?
Third, experiment with new products and new product features. Haven Life is addressing the instant gratification desires that customers have these days by providing 90 days of temporary coverage until the required medical underwriting is completed. I don’t know how Haven is evaluating risk, but cognitive computing can be used to transform underwriting so that an insurer can identify risks much more quickly as well as tailor an insurance product for a specific customer’s needs. In fact, Swiss Re is already using cognitive computing to improve its underwriting process.
Let’s go a step further. Why not use cognitive computing to help policyholders avoid the pain and suffering of damage? Let’s look at auto insurance. Let’s say that the Weather Company can predict where a hailstorm will hit your area. This data combined with a prediction of your likely driving route during the hailstorm can spur a message from your insurer, advising you of the hailstorm and directing you around the area (if you are far enough away) or to the nearest public parking structure under which you can take cover. Drivers who avoid the storm area or who take cover will avoid damage (or substantially reduce it) and fewer (or smaller) claims will result. Furthermore, drivers who show a willingness to change their driving behaviors based on weather input will likely receive a price discount as well!
Consider developing a peer-to-peer insurance product. Millennials love transparency. Combining social networking and insurance, peer-to-peer insurance allows individuals to form their own insurance networks which openly tracks claims. Any premiums not paid out in claims are then returned to the peer network that originated them. Since friends and families tend to recruit their own peer-to-peer insurance networks, frivolous claims are discouraged. The insurer wins by paying fewer claims and the policyholders win by reducing the cost of their insurance.
Of course, the ultimate in risk protection will be insurance that molds itself around a person’s lifestyle – insurance as a service. Consider a world where your insurance rates fluctuate minute by minute depending on your unique risk context. According to TechCrunch, cognitive computing, accessing real-time data from IoT sensors and APIs, will allow insurance providers to tailor protection on an ongoing basis, taking into account a policyholder’s individual factors and circumstances – thus, providing a completely personalized microinsurance policy. Given these advantages, it’s no wonder that a recent IBM IBV study, “Innovating Insurance”, found that “95% of insurance executives intend to invest in cognitive capabilities.”
The handwriting is on the wall. It’s a brave new world in insurance today. In order to succeed, insurers must understand their policyholders within their unique contexts and offer products and services that engage them via their preferred marketing and distribution touchpoints.
There is no question in my mind that insurance business models will be transformed – perhaps disrupted. But, even traditional insurers are not consigned to failure – if they have the foresight and perseverance to evolve into providers that today’s customers seek.
For more information on IBM’s thought leadership on the insurance industry, check out IBM’s Institute for Business Value, including our most recent publication “Innovating Insurance”. To learn how to build a complete understanding of each customer’s unique, personal situation and proactively offer insurance solutions that help them cope, check out IBM’s Commerce solutions for Insurance.