November 12, 2018
How Insurtech Helps Build Trust
by Tom Hammond
The ability to gather and parse massive amounts of data has changed how insurers and their customers regard the trust relationship.
The insurance industry was built on mutual trust. Insurance companies trusted their insureds to give truthful accounts of losses and the events that caused them, and insureds in turn trusted their insurance company to pay what was owed under the terms of the insurance contract.
The ability to gather and parse massive amounts of data, however, has changed the way insurance companies and their customers regard the trust relationship, Wilds Ross at KPMG says. Available data can now help insurance companies create personalized coverage for each customer, but it can also raise doubts in customers’ minds as to how that information is protected and used.
Here, we explore some of the biggest trust hurdles to arise in recent years and how insurtech is poised to address the twin issues of privacy and transparency to rebuild trust.
A Crisis of Trust?
Customers are pretty evenly split as to their trust in insurance companies, according to data journalist Paul Hiebert. Forty-seven percent of Americans say they trust insurers, and 43% say they do not. There’s a clear generational trend, as well, with a greater lack of trust in customers younger than 55. Further, only 42% of people agree that insurance companies act in the best interests of their customers.
As a result, many people are choosing to go without insurance rather than work with an insurance company they don’t trust. For instance, 83% of California homes lack earthquake insurance, financial columnist Liz Pulliam Weston writes, in part because customers don’t trust that available earthquake policies will come close to addressing their needs after a catastrophe.
See also: Insurtech Starts With ‘I’ but Needs ‘We’
Insurtech startups are sensitive to the atmosphere of mistrust and are capitalizing on it, say Jagdev Kenth and Grace Watts at Willis Towers Watson. For instance, German startup Friendsurance uses the trust built in a peer group to take a sharing economy approach to insurance. Meanwhile, Lemonade publishes its flat fee of 20% of premiums and its donation of unused money to charity each year.
“We have been giving insurance a free pass for way too long,” says Sophie Grønbæk, co-founder and CEO of insurtech startup Undo. “The products are confusing, which means that customers are completely dependent on the insurance company.”
The power to change this relationship — and the atmosphere of suspicion it has created — lies with insurance companies, and insurtechs are taking an early lead. “The insurtechs can use their cost efficiencies to provide bespoke policies that create an intimacy with a customer and that, in turn, builds trust,” says Etherisc co-founder Stephan Karpischek.
Yet the use of technology for its own sake creates additional uncertainties, particularly when it comes to privacy.
The Links Between Privacy, Transparency and Consumer Trust
“Consumer trust in insurance has been badly hit by distrust of financial services following the banking crisis,” Fairer Finance’s Melissa Collett says. This mistrust sprang from countless stories of people losing their homes and life savings — a catastrophe that, in turn, sprang from a lack of privacy and transparency in the financial industry.
The mistrust spillover carries with it the same concerns in customers’ minds. Can insurance companies be trusted to keep their information safe, particularly in a world where identity theft and digital compromise is rampant? What are insurers doing with their information — and their hard-earned premium dollars — anyway?
While state and federal regulations set the bar for privacy in many ways, insurance companies that rely solely on regulations for guidance often find themselves at a loss, entrepreneur Jason T. Andrew says. Because lawmaking tends to lag behind the rise of the social problems it addresses, concerns about data breaches and identity theft are already common — and customers want to see every business, including insurers, taking an aggressive approach.
Even insurance companies with a strong commitment to privacy, however, may not be able to build trust on that commitment alone, particularly if it is not communicated or demonstrated clearly.
Customers want to know how, where, why and with whom their information is shared. Thus, the shift to a customer-focused model has started to encourage transparency among insurance companies, consultant David Cabral says. Transparency sells, which means customers are hungry for it.
Yet when it comes to implementing transparency, many insurance companies find themselves with little regulatory guidance. “Consumer protection in most domains of financial regulation centers on transparency,” University of Minnesota Law School Professor Daniel Schwarcz wrote in a 2014 article for the UCLA Law Review.
Insurance companies, however, are an anomaly: State regulations of insurers typically don’t address transparency at all. Where transparency regulations exist, they’re often misguided or poorly written, which can make consumer trust issues worse.
Building transparency and the trust that comes with it, then, lies in the hands of insurance companies rather than in the regulatory power of the state. And as Risk Cooperative founder and CEO Dante Disparte writes, insurtech ventures are demonstrating technology’s myriad opportunities to build that transparency.
Building Trust Through Technology
Technology alone won’t solve the trust problem. Far from being neutral or disinterested, algorithms have been found to replicate societal biases in everything from job recruiting to evaluating parole requests, FiveThirtyEight’s Laura Hudson reports.
Meanwhile, interactive voice tools like Google Duplex have been criticized for misleading customers who believe they’re talking to a human, reporter James Ball points out.
Instead, insurance companies seeking to build trust with customers — and to rely on their own ability to trust those customers in turn — will need to apply technological solutions thoughtfully to their current processes to produce results consistent with their own visions, missions and goals.
“Gathering data is only beneficial to insurance companies insofar as it raises the profit/policy ratio or increases the overall policies sold rate,” Sureify CEO Dustin Yoder writes, arguing in favor of a well-thought-out approach to customer privacy and transparency.
See also: How Insurtechs Can Win Consumers’ Trust
Cake & Arrow’s Christina Goldschmidt suggests that to improve customer trust relationships, insurers could learn from the application of e-commerce tools in the retail sector. By using tech tools like a SaaS platform to establish consistent workflows, enable customization, build a more interactive marketing approach and protect customer information within a de-siloed company, insurers can make it easier to provide trustworthy service and to gather trustworthy data.
Building trust with customers is a multi-step process that technology can facilitate, says Alex Schmelkin, also at Cake & Arrow. For instance, tech tools can make it easier to allow customers to interact with the company via their preferred channels; help insurance company staff stay on track with the company’s goals; and incorporate new products, services and tools to provide a better customer experience.
The single best step may be to talk more about customers and less about tech. By focusing on words like tech and digital, companies are focusing on the tools, not the customers, says Zaid Al-Qassab, chief brand and marketing officer of telecommunications group BT.
“Write a brief that’s about your customer and business results you hope to achieve,” Al-Qassab says. “Let’s talk about target audience and how to sell to them” — and how to leverage technology to do so in a trustworthy fashion.