Science of Insurance Being Put to the Test - Insurance Thought Leadership



June 14, 2021

Science of Insurance Being Put to the Test


New pricing rules loom in the U.K., which make understanding the complexities and behaviors of customer segments more important.

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I started out in the industry in the dawn of Black Monday. Fast forward 30 plus years, and we’re now in the aftermath of the biggest event to shake the industry in decades.

This last pandemic year has brought into focus the digital constraints of the insurance sector, but more so the importance of being able to identify and adapt rapidly to changing customer needs. 

For the U.K., there are new pricing rules looming, too, which will make understanding the complexities and behaviors of customer segments more important. It means traditional insurance models are feeling the test of time again, and insurance providers can no longer fixate on price alone as a differentiator for new customers.

Price is right?

The regulator is clamping down on the practice of ‘price walking’ in the U.K., which has been prevalent in motor and home insurance market. Under the smog of a lack of transparency, the market adopted a practice of quietly creeping prices up, year after year. If there had been clearer communication about introductory pricing for new customers, the story might be different, but change will now be forced on parts of the industry from 2022. The change is set to affect the way insurance companies attract and retain their customers, as well as the role of price comparison websites.

Across the sector, the balance of power in the 4Ps of marketing (product, place, price, promotion) is already shifting, and the skill of building long-term relationships with customers is in demand. Price is still important, but simply being the cheapest is a potential pitfall. If you don’t understand why you are the cheapest and how your price aligns with your customer landscape, you run the risk of creating something that is commercially unviable.

Data-rich companies have the vantage point here, and the role for data analysts and data scientists is growing rapidly as the industry gears up for future models that will rely more on machine-led pricing and optimization and less on human interventions.

Getting closer to the customer

Today, we need to have in-depth understanding of our customers and design products to deliver what they need, at an attractive price – quickly. 

The late ’80s — during the start of my career — were very different than today, but the sector hasn’t kept up with the pace of change. Back then, it would be common for prospective customers to wade through pages of confusing paper proposal forms — filled with jargon that even insurance executives struggled to understand. While this complexity has largely (but not completely) been eradicated, insurance is still known to breed poorly designed products with difficult, one-size-fits-all questions. 

Behavior of consumers is constantly changing, and as an industry we need to keep up. Treating the market like a homogeneous mass doesn’t work anymore. Think, for instance, about small business insurance. Asking a hairdresser about their work at height or a personal trainer about whether they need tools cover, can leave these customers feeling unrecognized and unengaged by an insurance brand.

People want to be able to find and buy what they need quickly, and being reliant on an endless series of profiling questions immediately diverts from the fast digital purchasing journey that people crave. Whether people are buying the latest fashions or a financial services product, they expect a slick, tailored online journey, delivered in the minimum time possible.

The pandemic heightened the pressure for the insurance industry to respond faster. Following Boris Johnson’s announcement of the U.K.’s first nationwide lockdown in March 2020, for example, we saw bike sales rocket, an overnight switch to virtual fitness sessions and a move toward more domestic caravan holidays. Help for customers needed to immediately follow.

It was testing for an industry still hugely reliant on legacy technology and restrictive processes of the past – where product development can take months and changes to existing products are entrenched by digital limitations. 

See also: The Intersection of IoT and Ecosystems

The digital tide

There are signs of the digital tides turning. The latest briefing from CB Insights and Willis Towers Watson suggests investment in insurtech reached an all-time high in Q1 2021, with $2.55 billion across 146 deals. 

Despite the drive for change, poor-quality data can hinder digital initiatives for organizations. For the insurance sector, rapid visibility and interpretation of data is needed to understand why a product is performing as it does – so we can respond to what it is telling us. 

The success of insurance deployment is at a virtual crossroads. AI and machine learning will play an important role in getting the price and positioning right – and getting into the mind of the customer or ‘community’ you service has become more crucial.

The science of our industry is changing, and we need to move with it.


About the Author

Paul Williams, ACII, has spent 30 years in the insurance sector and has led some of the U.K.’s largest insurance businesses and is the CEO of successful insurtech Ripe Thinking.

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