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Insuring What You Want, When You Want

DIAmond Award winner Trōv is one of the most widely referred to cases when speaking about disruption in the insurance sector. But what is Trōv exactly about? What is the business model? How successful is it? Trōv’s founder and CEO Scott Walchek will share his vision in a keynote presentation at DIA Amsterdam, this May. To warm up, I interviewed Scott last week.

Trōv is the world’s first on-demand insurance platform for single items. It is a mobile app that allows users to insure whatever, whenever. It empowers customers to insure “just the things you care about” for whatever period you prefer. Trōv users simply snap a picture of a receipt or the product code of a product. This creates a personal digital repository for all things tangible. For selected items, Trōv offers a quote to insure each individual item. Customers can then simply “swipe to protect” to purchase the insurance. It is equally simple to “swipe to unprotect.” With Trōv, long contracts are not necessary. Even the claims process is automated with the use of chatbots and available on-demand on a smart phone.

Trōv is founded by Scott Walchek. Scott is a successful technology entrepreneur. Over the past 25 years, he built companies such as Macromedia, Sanctuary Woods, C2B Technologies and DebtMarket. He was also a co-lead investor and founding director of Baidu, China’s largest search engine.

Scott is also one of the 75 thought leaders who contributed to our new book “Reinventing Customer Engagement. The next level of digital transformation for banks and insurers.”

What inspired you to create Trōv?

Scott: “At some point I realized there is an enormous latent value in the information related to the things people own. From obvious things such as receipts and warranties to actually having an overview of what you own and what the current replacement value of each item is. We want to curate ways to turn this into value for consumers. From keeping information on items up to date to, for instance, arranging insurance for these items.

We’re a technology company, not an insurance company. We’re new in this space. So I started with testing our first ideas about a proposition and the assumptions behind it with several senior executives of large P&C insurers such as AIG and ACE. What I assumed is that at the end of the day the core metric of success is the ratio of insurance to actual value. The better this ratio, the better the balance sheet.

Of course, this is an oversimplification, but everyone agreed that in essence this is how over the past 200 years value in insurance is created. Now, what is remarkable is that insurers do not really know what consumers own, and what the exact value of these goods is … What if they did know? This would disrupt markets. It would lead to much better risk assessment driven by real knowledge of the true value of what people really own.”

See also: Insurtech: The Approaching Storm  

Trōv’s main target users are millennials, a target segment that most incumbents find very difficult to reach and engage with. Why does Trōv strike the right chord among this generation?

Scott: “We’re in the Australian market for a year now and entered the U.K. market a few months ago. Around 75% of our users are aged between 18 and 24. It appears that we are successful in tapping into the specific needs of this group. We do this by explicitly tapping into four key millennial trends. The first is “on-demand.” We can see that from how millennials consume entertainment, shopping etc. Services need to be now, 24 hours a day, on my device. The second trend is, “Don’t lock me into a lengthy contract.” We enable micro-duration. Customers can turn their insurance on and off as they see fit. In practice, they hardly do. But it is about the psychological benefit of being able to do so. The third is what we call “unbundled convenience”: “Let me choose what to protect, the things I really care about.” The fourth is: “people/agent optional.” Millennials want to engage with their smartphone without having to talk to an actual person.”

Trōv is based in the San Francisco Bay Area. But you decided to launch first in Australia and the U.K. Why there?

Scott: “Ha ha – there’s a linear story and a non-linear story to that! The linear story is that microduration is still new to the industry, so our hypothesis requires testing. The regulatory environment is important if you want to get to market fast. Australia and the U.K. have a single regulatory authority versus the 56 bodies in the U.S. But we’re also in the process of filing in the U.S. The non-linear story is that I just happened to meet Kirsten Dunlop, head of strategic innovation at Suncorp Personal Insurance, at a conference in Meribel in France. She immediately understood the strategic impact of Trōv, and that is when it took off.”

Because the Trōv concept is so new to consumers, it must be extremely interesting to learn what exactly strikes the right chord …

Scott: “Customers just love the experience. Our NPS is +49. However, we’re learning every day. With a completely new concept such as Trōv, it is impossible to know exactly what to expect, honestly. It turns out that Trōv reveals new consumer insights. There is still a significant number of valuables that our audience wants to insure but that we cannot provide a quote for, for instance. Although more than 60% never turn off an insurance, the ability to switch an insurance on and off turns out to be an important psychological benefit. This appears to be category-dependent. Sporting goods are switched on and off more often than smartphones and laptops.

We’re constantly measuring and improving every step of the funnel. From leaving Facebook to downloading the app, to registration, to actual swipes. We will share concrete numbers on uptake and conversion rates at DIA Amsterdam. But to already share two big learnings: We designed Trōv for use on smartphones, but, much to our surprise funnel figures multiplied when we decided to add a web interface. And we are actually even attracting better-quality customers.”

In Australia, you decided to partner with Suncorp, in the U.K. with AXA and in the U.S. with Munich Re. What are the success factors of a partnership between an insurtech and an incumbent?

Scott: “At the end of the day, it is about relationships and people. We understand their internal challenges. Everyone agrees that real knowledge of individual insured goods and the actual value of those goods improves the loss ratio. But we need to figure out how this works exactly through experimentation. This requires internal dedication, throughout the whole organization, starting at the top. It is not about conducting small pilots, but the willingness to experiment while going all the way, invest for several years and learn as we go what insurance will look like in the future and how consumers want to engage.”

What are your future plans and ambitions with Trōv? We can imagine that Trōv could also be an interesting partner for retailers and producers of durables. With Trōv, they could seamlessly sell insurance …

Scott: “We have three lines of business. The first is what we call “solid.” This is about expanding the Trōv app geographically, covering more categories and continuously developing the technology. Trōv will be launched in Japan, Germany and Canada shortly. Then there is “liquid”; offering white-label solutions to financial institutions, for instance in relation to connected cars and homes. The third line of business is “gas”; basically Trōv technology embedded in other applications; insurance as a service. This could be attractive for all sorts of merchants, telco operators etc.”

See also: Understanding Insurtech: the ABCs  

This would make Trōv even more part of the context in which consumers makes decisions about the risk they are willing and not willing to incur. And it also taps into the exponential growth of connected devices, similar to how machine-to-machine payments are increasingly taking place …

Scott: “Yes. What we’re now doing with Trōv is really the beginning. Trōv is about providing our customers with exactly the protection they want, exactly when they want it. With more and more connected devices and sensors and new data streams everywhere we can make the whole experience so seamless they don’t have to do anything at all.”

M&A: the Outlook for Insurers

Mergers and acquisitions in the insurance sector continued to be very active in 2016 on the heels of record activity in 2015. There were 482 announced transactions in the sector for a total disclosed deal value of $25.5 billion. Deal activity was driven by Asian buyers eager to diversify and enter the U.S. market, by divestitures and by insurance companies looking to expand into technology, asset management and ancillary businesses.

We expect the strong M&A interest to continue, driven primarily by inbound investment.

With the election of a new president and the transition of power in January 2017 comes tax and regulatory uncertainty, which may temporarily decelerate the pace of deal activity. President Trump is expected to prioritize the repeal and replacement of Obamacare, tax reform and changes to U.S. trade policy, all of which have unique and potentially significant impact on the insurance sector. Further, the latest Chinese inbound deals have drawn regulatory scrutiny, with skepticism from the stock market regarding their ability to obtain regulatory approval.

Bond yields have spiked over the last few months and are widely expected to continue to increase. The increase in yields should improve insurance company earnings, which is likely to encourage sales of legacy and closed blocks.

Highlights of 2016 deal activity

Insurance activity remains high

Insurance deal activity has steadily increased since the financial crisis, reaching records in 2015 both in terms of deal volume and announced deal value. While M&A declined in 2016, activity remained high, with announced deals and deal values exceeding the levels seen in 2014. In 2015, deal value was driven by the Ace-Chubb merger, valued at $29.4 billion, which accounted for 41% of deal value.

See also: A Closer Look at the Future of Insurance  

Significant transactions

Key themes in 2016 include:

  • Continued consolidation of Bermuda insurers, with the acquisitions of Allied World, Endurance and Ironshore. Drivers of consolidation include the difficult growth and premium environment.
  • Interest by Asian insurers in continuing to expand their U.S. footprint — accounting for two of the top-10 transactions.
  • Expansion in specialty lines of business as core businesses have become more competitive. This is evidenced by (i) Arch’s acquisition of mortgage insurer United Guaranty as a third major business after P&C reinsurance and P&C insurance; (ii) Allstate’s acquisition of consumer electronics and appliance protection plan provider SquareTrade to build out its consumer-focused strategy; and (iii) the agreement by National Indemnity (subsidiary of Berkshire Hathaway) to acquire the largest New York medical professional liability provider, Medical Liability Mutual Insurance, a deal expected to close in 2017.
  • More activity in insurance brokerage, which accounts for two of the top-10 deals.
  • Focus on scaling up to generate synergies, as evidenced by the acquisitions done by Assured Guaranty and National General Holdings.
  • Continued growth in asset management capabilities, as exemplified by New York Life Investment Management’s expanding its alternative offerings by announcing a majority stake in Credit Value Partners LP in January 2017 and MassMutual’s acquiring ACRE Capital Holdings, a specialty finance company engaged in mortgage banking.

Key trends and insights

Sub-sectors highlights

Life & Annuity – The sector has been affected by factors such as Asian buyers diversifying their revenue base, regulations such as the fiduciary rule by the Department of Labor and the SIFI designation, divestitures and disposing of underperforming legacy blocks, specifically variable annuity and long term care businesses.

P&C – The sector has been experiencing a challenging pricing cycle, which has driven insurers to 1) focus on specialty lines and specialized niche areas for growth and 2) consolidate. We have seen large insurance carriers enter the specialty space. Furthermore, with an abundance of capacity and capital, the dynamics of the reinsurance market have changed. Reinsurers are trying to adjust to the new reality by turning to M&A and innovation in products and markets.

Insurance Brokers – The insurance brokerage space has seen a wave of consolidation given the current low-interest-rate environment, which translates into cheap debt. The next consolidation wave is likely in managing general agents, as they are built on flexible and innovative foundations that set them apart from traditional underwriting businesses.

See also: Key Findings on the Insurance Industry  

Insurtech has grown exponentially since 2011. According to PwC’s 2016 Global FinTech Survey, 21% of insurance business is at risk of being lost to standalone fintech companies within five years. As such, insurers have set up their own venture capital arms, typically investing at the seed stage, in efforts to keep up with the pace of technology and innovation and find ways to enhance their core business. Investments by insurers and their corporate venture arms are on pace to rise nearly 20x from 2013 to 2016 at the current run rate.

Conclusion and outlook

The insurance industry will be affected by the proposed policies of the Trump administration, especially on tax and regulatory issues. Increasing bond yields and the Fed’s latest signal about a quick pace of rate increases in 2017 are expected to improve portfolio income for insurers.

  • Macroeconomic environment: U.S. equity markets have been rallying since the election, with optimism supported by President Trump’s policies to boost growth and relieve regulatory pressures. However, the rally may be short-lived if policies fail to meet investor expectations. While the Fed is widely expected to raise rates in 2017, other central banks around the world are easing, and uncertainty in Europe has spread, with the possibility that countries will leave the euro zone or the currency union will break apart.
  • Regulatory environment: The direction of regulatory and tax policy is likely to change materially, as the president has campaigned for deregulation and reducing taxes. Uncertainty around the DOL fiduciary rule has been mounting even though President Trump has not spoken out on the rule; some of his advisers have said they intend to roll it back. His proposed changes to Obamacare will affect life insurers, but at this juncture it is hard to estimate the extent of the impact given the lack of specifics shared by the new administration.
  • Sale of legacy blocks: Continued focus on exiting legacy risks such as A&E, long-term care and VA by way of sale or reinsurance. In 2017, already, there have been two significant announced transactions, AIG paying $10 billion to Berkshire for long-tail liability exposure and Hartford paying National Indemnity $650 million for adverse development cover for A&E losses.
  • Expansion of products: Insurers will focus on expanding into niche areas such as cyber insurance (expected to be the fastest-growing insurance product fueled by a slate of recent corporate and government hacking). Further, life insurers are focusing on direct-issue term products.
  • Technology: Emerging technologies including automation, robo-advisers, data analysis and blockchain are expected to transform the insurance industry. Incumbents have been responding by direct investment in startups or forming joint ventures to stay competitive and will continue to do so.
  • Foreign entrants: Chinese and Japanese insurers have keen interest in expanding due to weak domestic economies, intent to diversify products and risk and hope to expand capabilities.
  • Private equity/hedge funds/family offices: Non-traditional firms have a strong interest in expanding beyond the brokers and annuities business to include other sectors within insurance, such as MGAs.

How Colleges Can Work With Insurers

If you sit down with just about any college administrators and ask about the vision of their university, you may witness a dramatic change as their voices fill with passion, reserve disappears and the entire tone of the conversation shifts away from being transactional. As an insurance broker specializing in higher education, I have witnessed this transformative moment many times. Unfortunately, the passion for the institution, its vision and its future does not always translate into the insurance submission and renewal process.

Many people, including some insurance brokers, view buying and selling insurance as a passionless transaction. Information about the college—such as financial statements, property values and loss experience—is gathered, tabulated into Excel spreadsheets and forwarded on to the underwriting arm of seemingly interchangeable insurance carriers. Underwriters review volumes of data about the college to decide whether the insurance company can comfortably provide a college with a certain level of insurance coverage in exchange for a fixed annual premium.

See Also: A Practical Tool to Connect Customers

The information provided to an underwriter creates a story about the college. Depending on how the information is received and presented, the story can be positive or negative. To the underwriter, sometimes the insurance submission can be as horror-filled as a Stephen King epic or as romantic as a Nicholas Sparks novel. Of course, the insurance submission is not a work of fiction.

One of the first things that statistics students learn is that the same information (data set) can be used to draw multiple and sometimes competing conclusions. Where one person may see positive potential, another may see an organization in decline. The conclusions drawn from the data set by different insurers and underwriters reviewing the same information may vary significantly.

Why?

Though the information contained in a submission or application may be objective—meaning the information has not been altered or manipulated—the conclusions drawn from the information are less so. The underwriting process involves both subjective and objective analysis. And how the data is interpreted may have a significant impact on the underwriting decision and, ultimately, on the total premium an organization pays.

Using Data

According to a Harvard Business Review article, data can be used as a visual mechanism to direct the narrative surrounding a particular situation. The key is to:

  1. Identify the narrative or the core message the audience should walk away with;
  2. Identify your target audience and figure out what they are interested in—is the presentation to an underwriter, claims adjuster, insurance company executive, etc.?;
  3. Remain objective and offer a balanced viewpoint—your credibility will suffer if what is being said cannot be supported by the facts;
  4. Not censor the data—do not exclude unfavorable information, and this is especially important in an insurance setting as failure to disclose information can constitute insurance fraud; and
  5. Take the time to edit—not the data itself, but how the information is presented.

There are many different methods for presenting the narrative of an institution in the most positive light possible while still providing objective information. The first step to understand both the positive and negative elements. This allows the institution to showcase itself in the best light possible. A failure to fully engage in this process may leave the narrative open to misinterpretation, create questions about unexamined negatives and result in overlooking one or more positive elements.

Communicating the story of an institution involves a deep understanding of the goals and vision of the institution, and there is no one better to communicate that story than a passionate college administrator. However, understanding what drives your institution is not enough—and that is where administrators need to leverage key professional relationships. Selecting the right broker is a key step in driving the narrative forward. A professional partner brings market knowledge and the ability to help transform the narrative from numbers into a story that honors the vision of the administration.

Developing Key Relationships

The majority of colleges and universities work with one or more insurance brokers to engage with the insurance marketplace. At minimum, a broker working with an institutional client assists in (1) identifying insurable exposures, (2) preparing recommendations for coverage types and limits, (3) identifying potential insurers to approach, (4) developing the insurance submission, (5) negotiating pricing and coverage terms and conditions with the markets and (6) presenting the carrier quotes to the institution.

Institutions at every level can rely quite heavily on the services and recommendations of their insurance brokers. The broker can play a critical role between having a well-structured insurance program and having a potential mess of overlapping coverage, gaps in coverage, inconsistent coverage terms, out-of-balance limits and potential claims issues. The broker can also act as a key resource in communicating the organizational narrative to the underwriters.

There are four key elements a broker adds to narrative development:

  1. Market Knowledge: Insurance brokers keep abreast of developments in the marketplace, including insurer appetites: Like any company, insurers have target or preferred customers. Being in an insurer’s target class can provide premium discounts and coverage enhancements. Insurers typically understand the risk exposures associated with their target customers and are comfortable underwriting these risks and adjusting claims. For the insurance client, this means (1) access to expertise from an insurer that understands your institutional risk and (2) comfort in knowing the insurer has an understanding of institutional risk and will be unlikely to cancel or withdraw coverage in the event of a claim. Ultimately, it does not make sense to send an application to an insurer that does not understand or have a comfort level with higher education risks. Insurance brokers also keep abreast of market conditions. For the past few years, insureds have enjoyed relatively stable insurance rates and coverage offerings. It is currently the norm to see flat program renewals and even rate decreases in several key insurance coverage lines. However, it is unlikely that this trend will continue long -term, and it may be significantly affected by: 1) Mergers: The insurance market is changing as insurers look to increase market share and underwriting profit while minimizing exposure to catastrophic losses and unprofitable lines of business. 2) New Market Entrants: There has been an influx of third-party capital into both the insurance and reinsurance markets, resulting in lower insurance prices in the short term. The question is whether these new entrants are here to stay and whether capital levels have peaked.
  2. Underwriting Guidelines/Expectations: Understanding how underwriters use information is a key element of the narrative development. Different insurance carriers use underwriting information differently. Customizing the insurance submission to highlight critical (or essential) information that will be viewed favorably by the underwriters make a big difference.
  3. Risk Analytics: Analytical services provide a more complete picture of organizational risks, claims trends and opportunities for improvement. These services may include claims dashboards, benchmarking analytics, property valuation and catastrophic loss exposure analysis. This is really where brokers can distinguish themselves. Effective use of analytics allows the institution to home in on key risk and loss drivers and develop a risk management plan to address problem areas early. Early identification processes and plans can be communicated to underwriters as part of the application process. This can be critical for institutions with past losses, as it demonstrates steps to control future loss and an awareness of university exposures.
  4. Alternative Program Structures/Alternative Risk Transfer Options: Not every risk can be transferred, and not all risks are adequately covered by buying off-the-shelf insurance products and services. Taking control of the insurance conversation may require a needs-based assessment of academic, administrative and financial processes to determine optimal (1) coverage types/limits and deductibles/retentions, (2) feasibility of self-insured or captive programs, (3) needed coverage enhancements and (4) key contributors to loss/potential losses.

Tips for constructing and delivering your narrative

Start early. Waiting until a couple of months before program renewal does not provide a great deal of time to develop a cohesive narrative or to allow underwriters the time needed to develop a real understanding of the institution. In fact, it can be beneficial to begin the conversation with a prospective insurer years before moving coverage from a current insurer. This is important even if there is a comfort level with the current program structure and insurance providers. Organizational risks are not static, and insurance programs change over time. Engaging in regular dialogue with underwriters at different insurance companies allows multiple carriers to develop an understanding of the college/university’s operations and risks. Developing alternative carrier relationships provides a backup plan.

See Also: Are Customers Like Berliners?

Know and understand your institutional risks and objectives. This includes both the positive and negative aspects. It can be easy to focus on the positives, but, as with an ostrich hiding its head in the sand, that may result in overlooking key dangers to the continuity of the college itself. You should:

  1. Create an internal risk review team made up of a diverse group of institutional stakeholders, such as human resources staff, facilities/housekeeping, faculty, administrative staff, board of trustees, alumni and students.
  2. Engage an objective third party, such as a risk consulting firm, or use the institution’s insurance broker’s analytical team.
  3. Participate in peer-review activities by engaging with administrative and risk management personnel at other institutions. Participating in risk management round-tables and discussions such as those provided by United Educators, URMIA and other educational insurers/associations can assist in planning for common areas of concern.

Use the data as a guide. As much as insurance brokers may wish otherwise, underwriters are pretty savvy people and will usually catch on to most omissions. It is very hard to recover from a situation where the underwriter feels misled about the organization—there is a loss of trust, respect and partnership that is impossible to get back. Be open and objective about the current position of the college/university. But do not allow the negative information to be all the underwriter sees—provide mitigating information such as steps the college is taking to: (1) improve loss experience, (2) attract higher enrollments or (3) renovate aging infrastructures. Underwriters want to write business, and most of them are looking for a reason to say “yes.”

Do not rely solely on the insurance application. The application gathers the minimum amount of information that an insurance company needs to underwrite a risk. If the institution is working with an insurance broker (as most do), it is important to collaborate with the broker rather than just cede the submission development process entirely to the broker. A broker (regardless of how good she is) is never going to be as passionate about your institution as you are. Get to know your underwriters—go to lunch, meet them at conferences, attend a carrier networking event or even schedule periodic conference calls. If all your organization is to an underwriter is a few sheets of paper submitted 90, 60 or even 30 days prior to a renewal, you will not get the underwriter’s full attention or consideration. Engage your underwriters.

What Does 2016 Have in Store for Us?

It’s the time of the year when we look back fondly at the year just gone and look forward with trepidation and excitement at the year ahead. 2015 was, all in all, a good year for most, with a number of significant events that saw a good end to the year. Weather, on the whole, was mild, with the UK floods over Christmas being responded to well by all. Regardless of the news/political agendas, we are still investing £2.3 billion into flood defenses over the coming years.

As we look forward, here are my thoughts on how we start 2016. What do you think? As always, I look forward to your feedback!

1. FinTech and InsurTech. 2015 will be remembered as the year of the zone, loft, garage and accelerator. This trend will continue with a new level of maturity and focus. We will see the emergence of the first three to four successful candidates from accelerators, as well as more failures (we need more to help hone the focus). Either way, this trend will continue upward as we look for the next unicorn and existing carriers worry about FOMO (fear of missing out).

We will see more acquisition in this space, too, where existing carriers acquire to improve or extend their value chain and reach — for example, as we did last year with Generali and MyDrive.

2. Evolution of IoT. The Internet of Things buzz has reached a fever pitch. (I’ve even written about it myself.) 2016 will be the year we all realize it’s just another data/automated question set, from connected homes, cars and fridges to the connected self. Focus will move to strong use cases and business cases, but anything here on its own will not survive. It needs a partner – or three.

3. Digital and data. 2016 will continue to be a big area of growth for both, and I’ve bundled them as I believe they are intrinsically linked. That said, if you haven’t done anything here yet, you are very late to an already crowded party. Both will continue with huge levels of interest and hype, but both need to move into genuine execution of the plans made last year. Ultimately, the only thing that matters here is the customer. Don’t just have a plan because others are doing it. It needs to be right for you and your particular customer segment.

4. M&A will continue but will slow. 2015 saw a record-breaking year for M&A in the insurance world. As the economic climate changes and we see interest rates rise in 2016, I see this slowing down, while the current set of newly combined companies focuses on bringing together the multiple new units into a cohesive, efficient, fighting machine.

5. Will the CDO survive? (By CDO, I mean either the chief digital officer or the chief data officer.) As with my first point, the focus and drive in these areas has been great; there has been the right effect and a wake-up call. However, for organizations that implemented these “change agents” and “purposeful” disruptive roles, I suspect we will see a move back to a focus on the chief customer officer.

6. New business models. To take advantage of all this data, technology, customer intent and more, we need to find and be clear on what the new business model will– and needs to– be.

7. What we buy and sell. We need to move away from a product mindset and become more relevant and more convenient – my two favorite terms when it comes to insurance. Rick Huckstep did a good piece on engagement insurance, which, to me, sums up how we better embed ourselves into daily life, rather than once a year or in the current cycle. This is where organizations such as Trov will come into play. Trov and others will be more integrated into our everyday lives, becoming more convenient, seamless and relevant to us, driving more engagement. From a convenience perspective, companies such as Cuvva made the news last year. This is just the start of things to come. The key questions are whether they can scale and whether they will make money. Peer-to-peer also made lots of noise; however, I think the same questions here apply.

I still feel we will move away from the current product mindset we have today to just buying complete cover for the individual and anything she does, regardless of where she is. I previously called this the “rise of the personal SME.” I expect to have insurance rather than five to 10 products.

8. Cyber is the new digital. While the last few years have focused heavily on digital transformation and data, this year will see a big shift in focus to cyber, both on the buy and sell side, with organizations moving quickly to not be the next headline for the wrong reasons. So, each organization needs to have the right measures in place, followed by the right cover. For carriers, this means new products and opportuniti,es with specialists including ACE, XL Catlin and Beazley already making strong moves.

We started 2015 by saying that the risk was simply too big to cover and finished it with calls for a government-backed reinsurance scheme for cyber, as we have already created for floods. Is it a real need or a political agenda? My view is that it’s a real need, regardless of the politics.

9. Partnerships and bundling. Like many of the points above, on their own, partnerships and bundling are significant issues and opportunities but perhaps don’t answer the key questions around relevance, engagement, etc. For this, I see a big rise in the partnerships between insurers and third parties or the orchestration/bundling of services that just happens to include insurance. Insurers could become the systems integrator for lifestyle services, by default increasing relevance and engagement.

Finally, let’s not take our eye off the here-and-now. Organizations will continue to need to run the ship, BAU is still BAU (business as usual). We must aim to reduce internal costs and inefficiency. Not one organization I have spoken to over the last year is not riddled with legacy and has clear ambitions to reduce costs and improve efficiency – all to further drive support for the year of the customer.

However we look at things, 2016 is looking like it will be an exciting year. I look forward to sharing it with you!

Build a 720-Degree View of Customers

It’s a sad day when your local water utility or parking enforcement offers a better mobile or online customer experience than your auto or life insurer. Customers cannot easily quit their local utility or government. They can readily switch their insurance carrier — and customer defection now exceeds 10% (according to J.D. Powers & Associates), awakening CEOs and investors to the need for substantive change.

Consumer markets have changed dramatically. PRNewswire reported in December that 89% of consumers prefer online to in-store shopping. A decade ago, 80% of personal auto policies were placed with an agent, according to McKinsey. Those days are gone.  In addition to the alarming rate of customers who have already defected from their insurance carriers, a full 20% of customers are “at risk” of leaving their current carrier, according to J.D. Power & Associates. With the higher costs of acquiring new customers, these trends are expensive and troubling.

Customers have been sending loud and clear messages about their expectations and their willingness to change providers. Customers expect and demand all of the following from their insurers:

  • Price transparency
  • Self-service
  • Multi-channel access
  • Enriched and consistent customer experience
  • Personalized and painless service

Without all of the above, customers are likely to be dissatisfied and, ultimately, leave. New entrants are making it even easier for consumers to change carriers. In one industry survey of 6,000 insurance customers, nearly one-quarter said they would consider buying insurance from Amazon, Google or another online provider. Moves to online sales and service are accelerating, and new entrants have added a greater sense of urgency to knowing their customers and innovating to better serve them.

Customer loyalty is the key to long-term growth and economic performance for insurers. Bain research shows that the value of a customer who is a loyal promoter of her carrier is worth an average of seven times that of a customer who is a detractor of the carrier and two to three times that of a passive customer. Loyal promoters “stay longer, buy more, recommend the company to friends and family and usually cost less to serve,” according to Bain.

The economic imperative is clear. Insurers are hurrying to transform from product-centric business models to customer-centric business models. Many insurers have made, or are in the process of making, this transformation. Keep reading to discover how and why to jump-start your own digital transformation and evolution from product-centricity to customer-centricity.

The New Normal

Dozens of factors have changed how insurers must sell and service in today’s marketplace. Smart phones, Facebook, telematics and online quotes are only some of the factors. Demands for customer intelligence and customer engagement have never been higher.

The requirements for baseline customer engagement are significant, including integrated and realigned internal technology. The basic technology and data required to support seamless customer experience across channels can also be leveraged to do much more. But, for starters, insurers must implement:

  • A single view of the customer across silos, including third-party data and attitudes/preferences
  • Cross-channel interactions and access via more channels
  • Customized, personalized content
  • Continuous technological improvement

Enterprise-wide, comprehensive customer intelligence is the baseline. Gartner reported in August 2014 that insurers are most underinvested in data initiatives targeting customer intelligence (57% of survey respondents indicated that customer intelligence was the area most in need of greater budget). Most insurers continue to lack a single view of their customer — the major prerequisite to customer intelligence. Without the single, 360-degree customer view, insurers are ineffective at generating better service, segmenting, profitability and loyalty.

Achieving a complete and reliable enterprise-wide view of a customer is only the first step. The real business opportunities emerge when you synch your enterprise view with the 360-degree online and social media view of your customer or prospect.

Prerequisite:  The 360-degree View

Insurance CEOs agree that data and analytics will be the backbone of the transformation required in their industry, with 86% telling Gartner that this is one of their top priorities. The first application for data and analytics in customer intelligence is a single view of the customer. Yet it is estimated that only 25% of carriers have a single customer view.

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The 360-degree view is essential for improving both bottom-line and top-line performance. Reliable, unified customer views enable major gains in customer service (retention) and marketing effectiveness (cross-sell and upsell), not to mention claims and fraud. The consumer 360 was the backbone and first step one insurer took to drive cross-sales revenue. This large insurance and financial services firm was able to quantify marketing effectiveness and audience behavior, enabling the company to make informed tactical decisions that ensure more efficient marketing spending.

In this case, the development and implementation of closed-loop marketing analytics across key enterprise business units, utilizing predictive models, segmentation algorithms, churn analysis, modeling and funnel analysis, delivered the ability to continuously analyze  and understand data from more than 25 million customers and prospects every week. With 360-degree customer views, insights can be delivered from data that allow this insurer to clearly see how enterprise marketing efforts can improve cross-sell and boost revenues.

Personalization

Once an insurer has a reliable customer view, the work of improving customer experience and satisfaction can begin. Consumers value personalized experience. Two-thirds of consumers are more likely to trust and engage with brands that allow them to customize and share personalization and contact preferences. More than half of consumers feel more positive about a brand when messages are personalized. According to Harris Interactive, 86% of consumers quit doing business with a company because of a bad customer experience, up from 59% four years ago. That statistic should serve as a wake-up call to invest in personalization — the key to enhancing consumer engagement.

Implementing advanced consumer engagement (ACE) via a variety of data management and analytic strategies and solutions, there are five key elements of personalization:

  • Profile-based:  Move from generalized segmentation to personalization customer demographics, providing a “segment of one.”
  • Behavior-based:  Determine customer affinity through individualized understanding of customer insights coming from interactions, enterprise assets, dark enterprise assets and external assets, not just observations. Use these assets and customers’ behaviors to truly understand your customer and drive personalization.
  • Collaboration-based:  Customization should extend to integration with relevant tools, relationships and touch points (including experiential).
  • Adaptive:  Personalization features should leverage explicit consumer feedback as well as implicit feedback from closed-loop consumer responses and be flexible to changing behaviors and attitudes.
  • Channel-optimized:  Identify and personalize combinations of markets, segments and media tactics to adjust integrated marketing efforts to optimize market-specific channel effectiveness.

The following guidelines will also help ensure success, when embarking on an advanced consumer engagement (ACE) program:

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Choose platforms that will allow you to grow by scaling hardware, rather than doing costly rewrites. Assume that your next step is market domination. This allows the enterprise to focus on innovative customer experiences rather than performance tuning.

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Invest in architecture and standards that enable agility. Solutions should be as simple as possible.

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Quality should always trump quantity, when it comes to data. Value your data by focusing on core data-quality issues, first. Information will always be more valuable to your consumers than data. Reliable information comes from quality data in context.

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Position your ACE program to engage with consumers and quickly adapt to consumer feedback. Build in processes to show you value consumer feedback. Provide updates and enhancements quickly in smaller releases, continually enhancing the customer experience. By 2020, the customer will manage 85% of the relationship with an enterprise without interacting with a human, according to Gartner. There is plenty of room for improvement via quick iteration, especially in the realm of customer self-service.

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Seek partners who specialize in applying a data and analytics mindset to customer engagement.

With ACE and robust data and analytics, the options for business optimization and growth are practically limitless. Three main areas for insurers to make strides in are cost management, customer acquisition and retention and new products/pricing.

Cost Management

With baseline programs in place (360-degree customer views and personalization), digital- and data-mature insurers can make significant gains in cost management. For starters, satisfied and loyal customers cost less to serve. Technology is a critical component of cost management, segmentation and customized pricing goals. Let’s start with cost management.

Customer Acquisition

Digitally mature insurers can improve customer acquisition by leveraging segment differences uncovered from a new wealth of customer intelligence. Opportunities are exposed by consumer analytics and competitor information gleaned from internal and external data sources. Real-time consumer and competitor data can be a goldmine for uncovering segment opportunities.

McKinsey has reported that while the motivation for insurance companies to invest in analytics has never been greater, firms should not underestimate the challenge of capturing business value.

New Products and Pricing

Real-time and third-party information is increasingly having an impact on pricing. Only insurers with robust customer and competitor data and analytics can take advantage of this. Insurers with ACE across multiple channels are best poised to exploit opportunities for new products and customized pricing to drive business growth.

An enterprise-wide, validated, timely view of all consumer interactions with the enterprise (from structured, semi and un-structured data) composes the first 360. Integrating this internal view with the consumer’s relevant online interactions adds another 360 degrees and far more data and touch points for influencing consumer behavior. Online is where buying decisions are being influenced and, often, made. Do you know which brands your consumer‘s friends are touting or bashing online? Can you predict a spike in demand or a specialty product, before your competitors? Developing a full 720-degree view of consumers is the next level of advanced consumer engagement.

Imagine having the ability to tap into customer behavior with the help of a self-teaching solution that continues to learn over time with each customer interaction, enriching each profile. This is the reality of today, supporting a comprehensive platform for consumer identification, attribute enrichment and engagement that enables personalized consumer conversations that evolve and improve throughout the lifecycle of the relationship. The ability to develop new products that can be delivered to consumers who want them, through their preferred channel, at a lower cost, is here today.