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Next for Insurtech: Product Diversity

As the sharing economy continues to evolve and the autonomous revolution emerges, consumers’ insurance needs are changing, requiring new types of coverage to ensure adequate protection against new risks.

Insurers have begun partnering with insurtech players to build the digital basics, streamlining the quote-to-issue lifecycle and positioning insurers to engage with the 73% of the market who are looking to purchase coverage online. Now, insurers are pushing partnerships to the next level, focusing on product diversity to meet the growing array of customer coverage needs.

Product Diversity Is the Way of the future

Technology has made astronomical leaps in the last two decades, taking society from a pre-internet world of engagement to an environment of connected devices and services. Service providers such as Zipcar and AirBnB have opened a new sharing economy, where individuals using web and mobile apps can share their personal services or amenities, such as a car or a home, on an as-needed basis.

The sharing economy, however, creates risks not typically covered under traditional policies.

See also: How Diversity Can Stoke Innovation  

According to New York Times article, AirBnB offers $1 million in liability coverage to hosts using its platform, but the coverage is secondary to the homeowner’s personal policy, where commercial operations are not usually covered.

“There are also other issues with Airbnb insurance,” said Robin Smith, CEO of WeGoLook, “including the fact that it does not provide coverage if a guest shows up early or stays late. This can potentially be disastrous.”

Risks like these are behind the growing demand for innovative product types. Accenture predicts a decline in the demand for personal auto, starting in 2026, but says that autonomous vehicles will net the insurance industry $81 billion in new premiums over the next eight years.

“Three new business lines — cybersecurity, product liability for sensors and software algorithms and public infrastructure — are going to drive billions in new insurance premiums for the U.S. auto insurance industry in the coming years,” said Larry Karp, global insurance telematics lead in Accenture Mobility, part of Accenture Digital. “Forward-thinking insurers are already putting these new products at the top of their agenda as they look to capitalize on the first-mover advantage.”

While future-thinking carriers may benefit from the autonomous trend, insurers that have not yet built the digital, D2C base will witness declining profitability as demand for key products falters.

“Right now, 70% of the market is asking to buy insurance online,” said Eric Gewirtzman, CEO, BOLT. “When you consider the impact of the sharing economy and the autonomous revolution on encouraging consumers to become technology-savvy, that number is going to grow.”

That puts direct-to-consumer distribution in a new light, making digital capabilities critical to gaining wallet share as well as share of market by supporting greater product diversity.

Why Digital Is So Important to Product Diversity

According to Rick Huckstep, industry influencer and editor on insurtech at The Digital Insurer, before the rise of the internet, insurers bought policy admin systems. Each product had its own core system costing millions of dollars and taking years to implement.

These legacy systems now stand in the way of insurers as they seek to strengthen channel and product diversity. “Engagement with customers and the development of products are defined by the limits of the policy admin system,” Huckstep said.

He then outlined a plan where insurers partner with insurtech players to rapidly adopt digital capabilities while using existing investments in IT. Direct-to-consumer channels of engagement put insurers’ products in front of more consumers and enable more efficient distribution, but partnerships in digital innovation also provide insurers with access to an unprecedented range of new coverage types without the need to take on additional risk or obtain their own carrier appointments.

According to Bain, insurers are leveraging new ecosystems. These synergistic partnerships build on an insurer’s digital foundation and allow insurers to deliver the products and services their customers want or need.

“With ecosystems, we see insurers offering more of the core products and ancillary services consumers require, such as home, auto, business, pet and travel or the ability to compare auto repair shops and book appointments online,” Gewirtzman said. “Making the consumer’s life easier leads to greater customer loyalty for insurers and is an important factor in remaining competitive in the current and future market.”

Overcoming the Challenges of New Product Innovation

To meet consumers’ growing demands for personalization, EY predicts that insurers will need to offer a wider portfolio of products. Digital, direct-to-consumer capabilities become a big part of this equation, giving insurers the opportunity to act in real time, identifying needs and recommending coverage options while the customer is in the act of buying.

According to Huckstep, “Digital speed to market has never been more important,” a statement that is particularly relevant for insurers currently selling exclusively through external agent channels.

See also: Reinventing Life Insurance  

For insurers still seeking a digital identity, insurtech partnerships allow them to leverage existing investments in IT, while making a rapid move toward D2C distribution.

Building on strong digital capabilities to offer products from an ecosystem of insurance carriers, a leading insurer improved quote conversion rates 4% over a single quarter. Another insurer sold 1.6 more of its own products every time it bundled a solution that included another carrier’s offering.

“It’s successful digital transformations and partnerships like these that prove the case for D2C and product diversity,” Gewirtzman said. “As additional insurers come on board, we’ll start to see more than a few carriers excelling at meeting customer needs. We’ll see an entire industry operating from a customer-focused perspective.”

What’s the role of product innovation and diversity in your customer acquisition and retention strategy?

How to Augment Agent Channels

At the beginning of this year, Deloitte released its predictions for the insurance industry. Topping the list of priorities was the need to “expand digital distribution and virtual service to cut costs and gain competitive advantages.”

For insurers who have relied exclusively on independent or captive agent workforces, the way forward is unclear. How do they establish a digitally based, direct-to-consumer presence when many haven’t yet stepped onto the digital stage?

The Current State of Digital Readiness in Insurance

According to Aite Group, only 20% of auto insurers and 7% of homeowners carriers are currently selling products online, despite the growing number of consumers that are choosing to use these channels.

“Many insurers are tied to core policy admin systems that originated in the last century,” said Rick Huckstep, industry influencer and thought leader at The Digital Insurer. “They remain constrained by the legacy of a pre-internet, analogue way of working.”

These systems, built with a 20-year life expectancy, were entering their twilight years before the current digital revolution, so it’s no surprise that they account for up to 80% of insurer costs. Even more troubling, according to Huckstep, they represent a significant impediment to establishing a digitally-based direct-to-consumer strategy.

For insurers who have focused exclusively on external agent channels for distribution, the situation is more severe. While they usually have a basic one-dimensional web presence, many of these insurers haven’t begun to think about how they are going to establish an attractive online storefront, let alone how they will tie legacy systems into the web frontend.

See also: Why More Don’t Go Direct-to-Consumer  

Implementing a Direct-to-Consumer Strategy

In our recent research, 73% of insurers reported consumer demand for D2C channels of engagement, but only 23% were satisfied with the results of their digital efforts. To be effective, a comprehensive digital strategy needs to tie together all of the key elements related to the customer experience.

For insurers relying exclusively on independent or captive agent forces to sell their products, the three principles below provide a starting point to add D2C channels of engagement into the mix.

Focus on Customer-Centricity

When Amazon came on the scene in 1994 selling books and records, it already had a vision of becoming an international seller of almost everything. Since then, the retailer has evolved into the premier online merchant, setting the standard for customer engagement in the digital world.

Looking closely at Amazon’s example, insurers can learn a lot about developing a D2C strategy. First, even if it seems beyond imagination in the beginning, plan for the end result.

Setting up an online storefront may seem like your biggest challenge today, but where are the technology trends going? Robotics and artificial intelligence are already improving workflows, and blockchain is waiting on the horizon.

Incorporating the digital basics that are available into your distribution strategy provides a base to integrate future advancements as the market changes.

Next, make it interactive. Amazon does more than sell everything under the sun. It interacts with shoppers, offering product recommendations that make it easy for consumers to find what they want at a price they are willing to pay.

Insurers can do the same, gearing their web-storefront to provide product recommendations, alert consumers to gaps in coverage and advise on deductibles and policy limits.

The message here is simple: Think of everything a target customer needs and then create the most efficient and customer-friendly way to deliver it.

Plan for Better Data Handling and Access

When it comes to data, insures have a lot of it, but, according to Aite Group, they aren’t making good use of it.

Currently, insurers use a complicated mix of lead generation techniques, including purchasing leads from outside vendors. As leads come in, data is filed in its own repository according to coverage type, causing product siloes and often resulting in data inaccuracies across systems.

As a result, insurers lack a single view of the consumer where every employee and system has the information necessary to engage in informed interactions with the customer in real time. Mark Breading of Strategy Meets Action calls this the ultimate view, and it’s essential to an effective D2C strategy because customers expect to interact with lightning-fast efficiency.

Imagine you sign into your online banking site, but, instead of being provided a single account overview, you’re required to login separately to see each account. This is the type of engagement insurance systems are set up to provide today, and the experience that many customers receive when purchasing coverage online.

They enter the site, input their personal information and are provided a quote for a single type of coverage. To inquire about other policies they may need, the customer is required to go through the application process again. If they need to make an inquiry with an agent, they have to provide the same information once again.

Direct-to-consumer distribution requires the web frontend to be connected to backend systems in a way that unites product siloes and delivers a 360-degree view of the customer and related products.

Establishing a Customer-Facing Call Center

In the non-digital world, consumers and business owners look to agents and brokers for guidance on obtaining the appropriate coverage. In the digital realm, the best D2C platforms use consumer-entered data, as well as information from third-party sources, to speed the application process, minimize errors, identify coverage gaps and recommend options.

So, what happens when a consumer needs to speak to someone? Even with direct-to-consumer engagement, insurers will need a customer-facing call center to answer questions and help with routine policy inquiries.

Accenture recently surveyed over 32,000 consumers to get their thoughts on the insurance industry. When it comes to getting advice and answers to questions, as many as 86% of these respondents are open to receiving automated support but up to 62% still prefer to receive guidance from an actual person when they have a question or need advice.

Insurers who rely exclusively on independents or captives will need to establish a separate customer-facing call center to support D2C channels of engagement. That call center will also need a cross-channel view to pick up the customer transaction right where they left off during their online interaction.

Planning ahead could net big advantages; Bain reports an increase in customer loyalty when insurers provide multiple channels of engagement. Consumers also report higher levels of trust with omni-channel insurers because consumers feel that the company will work to resolve any issues, an important aspect of a happy customer-insurer relationship.

The Importance of Partnerships

Huckstep, Breading and other industry influencers agree: When adding D2C channels of engagement, insurtech partnerships are the way to go.

Breading feels that the industry will be greatly transformed in 10 years — making it barely recognizable from what it is today _ and a large part of the change will come from insurtech innovation, particularly where distribution is concerned.

See also: The Agent of the (Digital) Future  

Distribution is a hot area for insurtechs in personal lines and is already having an important impact,” Breading said. “Insurtech has been a major trigger for new insurer strategies and will be an important part of the transformation of insurance over the next five to 10 years.”

According to Huckstep, insurtech platforms that build on the significant investment already made in legacy IT put insurers in the “fast lane” toward D2C distribution and outperform attempts at overhauling or moving to new policy admin systems.

“The insurtech digital implementation can be measured in months and thousands of dollars (instead of years and millions),” Huckstep said. “Speed-to-market is the defining characteristic for these tech-enabled platforms.”

At the end of the day, speed-to-market is what it’s all about. Accenture’s study revealed that as many as 51% of consumers are purchasing coverage online, but, according to Aite Group, less than one-quarter of insurers are selling direct to consumer through digital channels. That means a small number of insurers are reaping all of the rewards of digital distribution, while others, particularly carriers that sell exclusively through independent or captive agent forces, lose revenue and market share.

I’d like to hear from carriers with independent or captive agent forces. Are you feeling the push from consumers to offer D2C channels of engagement, and what approaches are you taking to ensure that you have a presence in the new digital insurance economy?

Why More Don’t Go Direct-to-Consumer

According to McKinsey, the goal in establishing a sound digital strategy is to simply meet customers’ expectations.

What sounds straightforward and easy to a digitally advanced industry, such as retail, is a major undertaking for property and casualty insurers, particularly those that sell exclusively through independent or captive agent forces.

As insurers prepare to go direct-to-consumer, they face a unique set of challenges, including the question of where to start.

First, You Have to Know What the Customer Wants

Creating a direct-to-consumer strategy that meets customers’ expectations requires P&C insurers to first understand who the customer is. For them, it’s a task similar to putting together a jigsaw puzzle. Each piece is part of an array of distributed and disparate systems, and there is no easy way to gain a single view of the customer without painstakingly assembling the picture piece by piece.

Samantha Chow, senior analyst at market research firm Aite Group, in an interview with Informationweek said that insurers have data they can’t make heads or tails of because of data integration problems and lack of data governance.

Many of the processes that incumbent insurers use to run their business still operate on legacy technology. Chow says that some top-tier carriers are running as many as 27 aging policy administration systems to support their products. To make matters worse, data across these informational silos is often inconsistent.

See also: 9 Elements for Customer Portals  

It seems that insurers have the wrong type of data, as well. According to Mark Breading, partner at Strategy Meets Action, insurers are limited by a customer view that delivers only “an awareness of the current and former products owned by the customer, the performance of those products, information related to product needs of the customer and perhaps some relationship information like the agent involved.”

In direct-to-consumer distribution, insurers need to expand their data sets, tracking consumer activity across products and channels as well as gathering information from third-party sources to gain a broader understanding of the customer, their lifestyles, purchasing preferences and buying behavior.

A single view of the customer is essential to respond to their complete coverage needs in real time and is a primary component of D2C engagement.

Setting up the Online Storefront

Amazon set up shop in 1994 as an online book and music seller, but rapidly evolved into an international retailer of just about everything.

The fact that Amazon’s sales last year topped $135 billion underscores the effectiveness of the strategy: Make it easy for customers to find and buy the things they want, when they want them.

As customers enter Amazon’s site, searching for products is fast and simple. They can easily compare pricing and then select the items that meet their needs. In many cases, purchasing is accomplished in a single click.

When insurers try to recreate this type of environment in insurance, they run up against some impressive obstacles. For one thing, rapidly quoting, binding and issuing products that our housed in separate silos requires a central point of access. Only a handful of insurers have this today.

Then there is product diversity. Consumers expect insurers to meet their coverage needs, but what happens when they can’t? The Amazon experience would dictate that the insurer offer products from other carriers to augment their own selection, similar to Amazon’s army of third-party sellers.

“It’s an idea whose time has come,” said Eric Gewirtzman, CEO, BOLT. “Insurers who position themselves to meet more of the needs of their customers, even if it means offering products from other carriers, will be recognized as customer-first organizations.”

Customers Still Need Agent Support

Our research of top carriers indicates that 77% are seeing demand for D2C engagement, but providing online access to products and services also means setting up agent support for digital channels.

A customer with a leading D2C insurer recently needed to obtain insurance for one of her vehicles in another state. Her daughter was registering the vehicle where she was attending college, but, given the significant cost advantages, the customer wanted to keep the teen-aged driver’s coverage bundled with the original policy.

Unique situations like these often require support from an agent licensed in the specific state. In this example, much of the transaction was started online. Because all information was available to the agent, digital paved the way for a faster and more efficient response to the customer.

Committing to a D2C strategy means providing agent support to field questions and issues from direct channels. For insurers that work exclusively through independent or captive agents, that means setting up or gaining access to licensed resources to support D2C channels and ensuring they have streamlined access to information customers enter online.

Despite Challenges, Now Is the Time to Move

Looking into insurer’s thoughts on the future, John Cusano of Accenture remarked on the company’s research with 563 insurance executives.

“In our survey, we found that 87% of insurance respondents agree that we have entered an era of technology advancement that is no longer marked by linear progression, but by an exponential rate of change,” Cusano says. “What’s more, 86% say that their organization must innovate at an increasingly rapid pace just to keep a competitive edge.”

See also: Why Customer Experience Is Key  

Part of that innovation is advancing toward an omni-channel strategy that includes direct-to-consumer capabilities. Eric Gewirtzman of BOLT, in an interview with McKinsey, said, “Insurance customers are already moving between various channels.” Now insurers need a strategy that fulfills the customer’s demands for direct-to-consumer purchasing.

Disruption from outside forces and continuously evolving consumer expectations is forcing the industry out of its protective shell and onto the cusp of change. Despite the challenges, the insurers who realize the greatest wins in the changing environment will be the ones who begin now to evolve into highly competitive digital institutions of the future.

What P&C Insurers Are Missing

Twitter feeds of industry influencers lit up about ZhongAn’s recent $1.5 billion stock offering. There was a feeling in the air that the P&C insurance industry had finally turned a corner, reaching for direct-to-consumer distribution with open arms.

However, customer satisfaction studies from J.D. Power indicate that U.S. insurers aren’t quite there yet. While more consumers shopping for auto coverage use D2C channels for quoting, only 10% of those quotes turn into new business.

Consumers have high expectations when purchasing products through digital channels, so insurers need to provide more than a pleasant experience. They need to provide a wow moment.

We recently conducted a survey of P&C insurers. What we found is that the “wow” experience is eluding many. While 68% say they view digital distribution as the most important aspect of their future growth, fewer than 25% are fully happy with their efforts to date.

The elusive “wow” factor is holding many insurers back from realizing the benefits of going direct-to-consumer.

What are they missing?

Raising Acquisition Rates in P&C Insurance

Insurers that aren’t online are missing the chance to engage with nearly 70% of the market. That’s the number of consumers who prefer to use online channels to research coverage.

Turning a casual observer into a customer depends on the strength of your D2C capabilities. Some websites are off-putting. They speak primarily about the insurer, provide a complicated quoting process and fail to advise customers on coverage gaps. In this digital environment, the customer feels like a pawn, being moved through a complex series of maneuvers to determine product pricing or to purchase insurance coverage.

If we turn this scenario around to one where the website speaks to the customer, provides easy quoting of insurance products and advises the customer on coverage gaps, we see a more personalized shopping experience emerge.

See also: 3 Ways AI Improves P&C Economics  

In case you’re wondering how open consumers are to this type of digital advisorship, Accenture has an answer. It recently polled more than 32,000 consumers and found that 74% are open to advice about insurance from digital sources, and many find that it’s faster, offers greater convenience and delivers more impartial guidance.

A comprehensive direct-to-consumer strategy plays a strong role in acquisition rates. A leading D2C insurer expanded its digital capabilities and saw new business increase 8% in the quarter the enhancements were made.

Supporting Customers in their D2C Experience

While consumers are keen to embrace digital, what happens when they have a question that can’t be answered online? They are going to need an agent, but after experiencing the top-tier digital bliss of your D2C channel they aren’t going to be inclined to purchase if the agent is slow or less personal.

Industry influencer John Cusano said that to complement digital distribution channels, and remain relevant to their customers, insurance advisers need to use an array of digital tools to efficiently manage routine tasks as well as to service increasingly demanding and knowledgeable customers.

That means uniting siloed systems and giving agents a single view of the customer across products.

When insurers get this right, it plays a big role in generating new business, as is evidenced by a prominent insurer in the D2C space. This insurer recently enhanced the digital experience for its consumers and internal agency. As a result, conversion rates rose to 35%, and sales doubled year-over-year.

Customer Loyalty Is Possible in P&C Insurance

Bain’s recent survey of 172,000 insurance customers confirmed what many in the know have been indicating for a few years now. Frequent interactions generate loyalty.

Historically, insurance has been a low-touch business. Insurers send out renewal papers with a request for payment every six months to a year and, beyond that, only engage with customers if there is a claim.

Consumer demand for high-quality touch points goes back to digital pioneers like Amazon. They’ve constructed a business out of putting customer needs at the forefront and generating a “wow” experience from the first interaction.

As customers make their way across a site, they are guided by product recommendations and pricing comparisons. Each of these touchpoints make customers feel central to the buying experience, and they come back for more.

This is where D2C comes in for insurers. Digitizing customer information makes for more efficient data retrieval and better application of consumer analytics. The insights derived can pinpoint interaction opportunities, including cross-selling moments, all in real time.

According to Bain, the more touchpoints the better, as insurers that master the art see net promoter scores that are 15 points higher than other insurers.

D2C Adds up to Stronger Acquisition, Retention and Loyalty

In our survey, 77% of insurers are seeing demands for direct-to-consumer channels of engagement. That’s because consumers have grown accustomed to interacting through the channel that is most convenient in the moment, and they like the simplicity of purchasing online.

Insurers with strong D2C channels send a clear message to consumers. It says they are in touch and ready to put their customers at the center of their business strategy. Customers deliver loyalty in return, driving up retention rates and buying more products.

See also: P&C Insurers: Come Out of the Dark Ages  

To better serve customers and encourage retention, a top customer-experience leader recently improved its direct-to-consumer offering. Despite increasing its advertising budget, the insurer reduced its expense ratio and increased conversions 4% in a single quarter.

Are you still searching for a digital identity? If so, what are the main impediments you’re facing?

3 Ways to Maximize an Insurtech Partnership

In reading recent reports on insurtech, it was heartening to see the number of insurers that have chosen to gain the market-leading capabilities and tools they need to succeed by partnering with innovators. Many of the major insurers on the list are seeking differentiation, focused on augmenting their product lineup with a new offering, such as State Farm’s and Allstate’s partnerships with Openbay to provide non-collision auto repair services. Others are expanding distribution through a new channel such as an app.

In our experience, insurers that start a partnership with an insurtech that focused on a narrow goal, such as gaining homeowners coverage to enhance their existing auto, inevitably expand the relationship, because the right insurtech partnership rapidly positions insurers for greater growth and prosperity.

Banking on the Power of an Insurtech Partnership

Banking on the digital savvy of an insurtech innovator can deliver powerful results, but in our experience focusing on the following three areas produce the greatest overall outcomes:

  • Empower agents: In the initial talk about digital distribution, many assumed that agents would be ousted from their traditional roles and forced into a position of obscurity. We don’t see this happening, and neither do leading insurers, as 50% of consumers still want to speak with an agent when they have questions or concerns.

The problem is, when you put an agent up against the Amazon experience, the agent comes out as woefully inefficient, taking too much of the consumer’s time to manually plug reams of information into multiple back-office systems to generate a quote.

See also: What’s Your Game Plan for Insurtech?  

Agents are still a powerful force in the industry, but to keep their competitive edge they need the ability to speed the quote-to-issue lifecycle. One leading insurer stands to improve premiums by $100 million to $150 million by the end of this year because it streamlined the agent’s tasks to offer seamless product bundling in a single transaction.

Overhauling legacy systems won’t get other insurers there fast enough, but partnering with the right insurtech will.

  • Add product and channel choice: I mentioned the Amazon experience above, because it has shaped so much of consumers’ shopping preferences and expectations. As we see by following insurtech funding and partnerships, traditional insurers are realizing the direction that consumers are pushing the industry and, in an attempt to get ahead of the game, are differentiating themselves and the service they provide by partnering with insurtechs to add channel and product choice.

We see tremendous benefits for insurers that focus on meeting more of the customer’s needs. Consider a leading insurer that introduced coverage options by selling other carriers’ products to augment the insurer’s auto lineup and added 72,000 policies in less than 10 months. Another gave agents access to additional home products and grew policies sold from less than 8,000 a month to 57,000 a month.

Of course, product choice isn’t complete without giving consumers the ability to engage with insurers through their channel of choice. One top-five insurer, well known for digital prowess, has been reported to own quote conversion rates of 35% through agent channels and as much as 53% through direct purchasing.

The problem for most insurers comes in attaining digital capabilities and the extensive range of products they need to acquire and retain customers. Developing products can take a year or more, and overhauling legacy technology to add digital channels of engagement and efficiently distribute new offerings is an arduous task. Neither course of action will make traditional insurers competitive before leading digital rivals pass them by. Partnering with insurtech innovators to bundle products from other carriers with their own and distribute them with top-tier digital capabilities, can.

  • Streamline the quote-to-issue lifecycle: During a recent advertising campaign, one client generated 3,000-4,000 quotes a day, but not by simply cranking up advertising power or frequency. Instead, the client supported the extended marketing campaign by digitizing the quote-to-issue lifecycle for 80% of desktop traffic and 100% of mobile users. Smart app capabilities and automation allowed consumers to enter minimal information and automatically generate rapid quotes. The experience is similar to Amazon’s product purchasing environment, where customers search for a product, are immediately presented with options and click to buy the items they want. This is the future of insurance, and, by partnering with a leading insurtech provider offering a SaaS-based digital distribution platform, this insurer is providing the future today.

Coming Back for More

Insurers that focused on a simple goal, say of improving product selection or extending delivery channels, often expand the relationship to include more offerings and new distribution capabilities. One top-five insurer partnered with a leading innovator to enhance product selection for in-house agents by bundling products with those from other carriers through a digital distribution platform, and three years into a five-year contract signed up to offer additional product options, added 367 agents and extended the relationship to also offer the insurer’s products and carrier appointments direct-to-consumer via digital channels.

See also: 3 Misconceptions on Insurtech  

Why? Because within the first two years, the company found itself presenting 70% of customers with an offer, converting 35% of those quotes and doubling sales year-over-year. With outcomes like these, who wouldn’t expand the relationship?

To learn more about selecting the right insurtech innovator to power your growth, download our infographic: InsurTech Innovators Arm Incumbents to Meet the Customer-centric Imperative.