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4 Insurers’ Great Customer Experiences

McKinsey research has found that insurance companies with better customer experiences grow faster and more profitably. In 2016, 85% of insurers reported customer engagement and experience as a top strategic initiative for their companies. Yet the insurance industry continues to lag behind other industries when it comes to meeting customer expectations, inhibited by complicated regulatory requirements and deeply entrenched cultures of “business as usual.”

Some companies–many of them startups–are setting the gold standard when it comes to customer experience in insurance, and are paving the way for the industry’s biggest insurers to either fall in line, or risk losing out to smaller competitors with better experiences. Through a combination of new business models, clever uses of emerging technology and deep understanding of customer journeys, these four companies are leading the pack when it comes to delivering on fantastic experiences:

1. Slice – Creating insurance products for new realities.

Slice launched earlier this year and is currently operating in 13 states. The business model is based on the understanding that, in the new sharing economy, the needs of the insured have changed dramatically and that traditional homeowners’ or renters’ insurance policies don’t suffice for people using sites like AirBnB or HomeAway to rent out their homes.

According to Emily Kosick, Slice’s managing director of marketing, many home-share hosts don’t realize that, when renting out their homes, traditional insurance policies don’t cover them. When something happens, they are frustrated, angry and despondent when they realize they are not covered. Slice’s MO is to create awareness around this issue, then offer a simple solution. In doing so, Slice can establish trust with consumers while giving them something they want and need.

Slice provides home-share hosts the ability to easily purchase insurance for their property, as they need it. Policies run as little as $4 a night! The on-demand model allows hosts renting out their homes on AirBnB or elsewhere to automatically (or at the tap of a button) add an insurance policy to the rental that will cover the length of time–up to the minute–that their home is being rented. The policy is paid for once Slice receives payment from the renter, ensuring a frictionless transaction that requires very little effort on the part of the customer.

See also: Who Controls Your Customer Experience?  

Slice’s approach to insurance provides an excellent example of how insurers can strive to become more agile and develop capacities to launch unique products that rapidly respond to changes in the market and in customer behavior. Had large insurance companies that were already providing homeowners’ and renters’ insurance been more agile and customer-focused, paying attention to this need and responding rapidly with a new product, the need for companies like Slice to emerge would have never have arisen in the first place.

2. Lemonade – Practicing the golden rule.

In a recent interview, Lemonade’s Chief Behavior Officer Dan Ariely remarked that, “If you tried to create a system to bring about the worst in humans, it would look a lot like the insurance of today.”

Lemonade wants to fix the insurance industry, and in doing so has built a business model on a behavioral premise supported by scientific research: that if people feel as if they are trusted, they are more like to behave honestly. In an industry where 24% of people say it’s okay to pad an insurance claim, this premise is revolutionary.

So how does Lemonade get its customers to trust it? First, by offering low premiums–as little as $5 a month–and providing complete transparency around how those premiums are generated. Lemonade can also bind a policy for a customer in less than a minute. Furthermore, Lemonade has a policy of paying claims quickly–in as little as three seconds–a far cry from how most insurance companies operate today. When claims are not resolved immediately, they can typically be resolved easily via the company’s chatbot, Maya, or through a customer service representative. But perhaps the most significant way that Lemonade is generating trust with its customers is through its business model. Unlike other insurance companies, which keep the difference between premiums and claims for themselves, Lemonade takes any money that is not used for claims (after taking 20% of the premium for expenses and profit) is donated to a charity of the customer’s choosing. Lemonade just made its first donation of $53,174.

Lemonade’s approach to insurance is, unlike so many insurers out there, fundamentally customer-centric. But CEO Daniel Schreiber is also quick to point out that, although Lemonade donates a portion of its revenues to charities, its giveback is not about generosity, it is about business. If Lemonade has anything to teach the industry, it is this: that the golden rule of treating others as you want to be treated, holds true, even in business.

3. State Farm – Anticipating trends and investing in cutting-edge technology.

The auto insurance industry has been one of the fastest to adapt to the new customer experience landscape, being early adopters of IoT (internet of things), using telematics to pave the path toward usage-based insurance (UBI) models that we now see startups like Metromile taking advantage of. While Progressive was the first to launch a wireless telematics device, State Farm is now the leading auto insurer, its telematics device being tied to monetary rewards that give drivers financial incentives to drive more safely. The company also has a driver feedback app, which, as the name suggests, provides drivers feedback on their driving performance, with the intent of helping drivers become safer drivers, which for State  Farm, equals money.

By anticipating a trend, and understanding the importance of the connected car and IoT early on, State Farm has been able to keep pace with startups and has reserved a seat at the top–above popular auto insurers like Progressive and Geico–at least for now. If nothing else, unlike most traditional insurers, auto insurance companies like State Farm and Progressive have been paving the way for the startups when it comes to innovation, rather than the other way around. For now, this investment in customer experience is paying off. J.D Powers 2017 U.S Auto Insurance Study shows that, even as premiums increased for customers in 2017, overall customer satisfaction has skyrocketed.

4. Next Insurance – Automating for people, and for profit.

Next Insurance believes that a disconnect between the carrier and the customer is at the heart of the insurance industry’s digital transformation problem. In essence, it’s a communication problem, according to Sofya Pogreb, Next Insurance CEO. The people making decisions in insurance don’t have contact with the end customer. So while they are smart, experienced people, they are not necessarily making decisions based on the actual customer needs.

Next Insurance sells insurance policies to small-business owners, and the goal is to do something that Next believes no other insurer is doing–using AI and machine learning to create “nuanced” and “targeted” policies to meet specific needs.

An important aspect of what makes the approach unusual is that, instead of trying to replace agents altogether, Next is more interested in automating certain aspects of what agents do, to free their expertise to be put to better use:

“I would love to see agents leveraged for their expertise rather than as manual workers,” Pogreb told Insurance Business Magazine. “Today, in many cases, the agent is passing paperwork around. There are other ways to do that – let’s do that online, let’s do that in an automated way. And then where expertise is truly wanted by the customer, let’s make an agent available.”

See also: Smart Things and the Customer Experience  

While innovative business models and cutting-edge technology will both be important to the insurance industry of the future, creating fantastic customer experiences ultimately requires one thing: the ability for insurance companies–executives, agents and everyone in between–to put themselves in their customers’ shoes. It’s is a simple solution, but accomplishing it is easier said than done. For larger companies, to do so requires both cultural and structural change that can be difficult to implement on a large scale, but will be absolutely necessary to their success in the future. Paying attention to how innovative companies are already doing so is a first step; finding ways to bring about this kind of change from within is an ambitious next step but should be the aim of every insurance company looking to advance into the industry of the future.

This article first appeared on the Cake & Arrow website, here. To learn more about how you can bring about the kind of cultural and institutional change needed to deliver true value to your customers, download our recent white paper: A Step-by-Step Guide to Transforming Digital Culture and Making Your Organization Truly Customer Focused.

Chatbots and the Future of Interaction

When it comes to the list of disruptive technologies, are we giving chatbots enough credit?

Chatbots are only beginning to show their potential, garnering initial headlines primarily due to Lemonade and its chatbot called Maya. That is interesting, considering that chatbots and AI will likely have a greater overall impact than many of the up-and-coming technologies we have grown to accept, such as autonomous vehicles. How is it possible that chatbots are silently sitting on the sidelines?

It’s simple. They aren’t sitting silently. Chatbot development and use is in full swing. The headlines are picking up. Research organizations are putting forward more predictions about chatbots than ever. Chatbots are easier to implement than many technologies and, operationally, they will provide real value. Text-based or voice-carried artificial intelligence and service-focused functions can readily swap with current human-based adviser/service functions. As complex as they are on the back end, chatbots don’t require major hardware investment, such as sensors, and they don’t require an inordinate amount of coding. So, for all of their disruptive potential to the way we do business, they may be far less disruptive to operations and IT, though operations and IT (and customers) stand to benefit from chatbots.

See also: Chatbots and Agents: The Dynamic Duo  

In an era where impatience is growing and speed is rewarded, chatbots can dramatically improve service levels and meet or exceed expectations. They can also make the economics work for providing service and executing transactions for the growing ranks of high-volume, on-demand, low-premium risk products coming to the market. They are the future of nearly all personal business transactions. For insurers, chatbots can be their own distinct channel as well as augmenting existing channels, supporting a multi-channel world.

Chatbots are growing in use and importance

In Majesco’s Future Trends 2017 Report, we discussed the impact and potential of chatbot growth. Chatbots aren’t growing merely because they have service potential — they are growing because automated non-human service is gaining acceptance among the Gen X, Millennial (Gen Y) and Gen Z cohorts.

Chatbots’ appeal and growth will likely make them one of the technologies to break out of age-based stereotypes. WeChat, China’s most popular chat app, is a great example. With nearly 1 billion users (889 million people), its impact is felt across generations and is even spurring older generations to adopt mobile technology. WeChat is popular — its users interact for an average of 90 minutes per day. Because it uses voice commands, it is also learning from conversations, illustrating the potential of chatbots to gain something from each interaction.

Business Insider said that 80% of businesses will be using chatbots by 2020, with 42% believing that chatbots will improve the customer experience. In addition, 29% of customer service positions in the U.S. could be automated with chatbots or other technology.

Chatbots offer immense potential for customers to interact with an insurer, through direct interactions within messaging or other social media apps.

Other technologies and their impact on chatbots

The “automated home” race between Amazon’s Alexa, Google’s Home, Apple’s HomePod/Siri and many other technology providers will enhance chatbot adoption and use. The more people become comfortable with interactions that are non-human, the easier it will be for people to feel comfortable in a chatbot purchase and service environment. Insurance is already adopting chatbot use and ramping up chatbot availability.

In the past year, for example, insurtech saw a rapid rise in the use of chatbots within startups ranging from Elafris, which enables customers to download auto ID cards and pay bills, to Denim, which markets to consumers and links them with insurers or agents for renter or homeowners insurance.

Robo-advisers represent a chatbot with real AI integration and rules management that can go beyond outside customer service and well into day-to-day executive assistance.

In July 2015, Zurich shared how it was using robo-advisers in two ways: First to accelerate and improve policy processing and issuance that improved quality and accuracy for international casualty programs. Second, Zurich used them in the U.K. to conduct routine diary reviews for open claims that traditionally required attention by human operators.

In the quest for improved customer service, quality, accuracy, speed and efficiencies, robots and robotics have significant opportunity for insurers. From automating processes to interacting with customers, the potential seems limitless, as well as creating a starting point for cognitive applications.

A natural link: AI and Chatbots

Cognitive systems help visualize, use and operationalize structured and unstructured data, pose hypotheses based on data patterns and probability and understand, reason, learn and interact with humans naturally. As a result, the systems help organizations create knowledge from data to expand nearly everyone’s expertise, providing continuous learning and adapting to the environment to out-think the competition and the market.

AI and cognitive computing technologies like IBM’s Watson have been touted as the link between data and human-like analysis. Because insurance requires so much human interaction and analysis regarding everything from underwriting through claims, cognitive computing may be insurance’s next solution to better analyze and price risks using new data sources, while adding an engaging and personalized advisory interface to their services.

A savvy insurance technologist can easily begin to draw the lines between that kind of intelligence management and its potential when linked to chatbot advisory and directive services. Just as many of today’s advisors and agents have experience in underwriting, tomorrow’s chatbot may carry with it the ability to market, gather data, quote, underwrite, issue policies and settle claims without human intervention. Putting one face on an insurance company probably couldn’t get more complete than that.

See also: Hate Buying? Chatbots Can Help  

For now, we can see the seeds of this complete chatbot value chain in its beginnings. At the recent SVIA InsurTech Bootcamp in August that we were involved in, we saw and discussed the array of opportunities to leverage chatbots, AI and cognitive … highlighting the opportunities unfolding.

In June of this year, PolicyPal, a Singaporean startup, announced the launch of its AI-enabled mobile app, which includes a chatbot supported by IBM Watson Conversation technology. The app not only helps prospects through the insurance selection process, it explains complex insurance concepts to consumers to enhance their overall insurance knowledge. The AI, having educated itself, is in effect giving back through chatbot interactions. That is the future of insurance interaction, a market where both parties have something to learn and gain from the insurance relationship.

When Gartner asserts that, “Chatbots will power 85% of all customer service interactions by the year 2020,” that may be enough to drive some business leaders to look into all that chatbots have to offer.

The Story Behind the Lemonade Hype

I am a sucker for new stuff. I bet many of you are, as well. If news of the iPhone 7’s release date caused you to immediately organize your camping gear for a week-long sidewalk holiday at your local Apple store, then you know what I am talking about. Beyond our excitement for the next iPhone or Tesla, apparently we also get all giddy for new insurance, as well.

Recently, an insurer named Lemonade has popped up on the scene and has caused quite a ripple. Here are some recent news headlines:

Wow! Give that publicist a raise. That is some quality publicity.

But it was when I saw this headline, “The Sheer Genius of Lemonade – A Whole New Paradigm for Personal Lines Insurance,” on InsNerds that I knew I had to speak out. Next thing I know, my good friend Tony Canas at InsNerds convinced me to write this response.

To start, this article is NOT a criticism of Lemonade or what it is trying to bring to the consumer. Insurance is in desperate need of heart and soul. No, what this article will do is splash some cold water on the hype inferno that appears to have taken over the sane minds of our industry. Allow me to go point-by-point with my issues:

Is Lemonade really peer-to-peer insurance?

Whether it is called peer-to-peer — or fashionably referred to as P2P — Lemonade ain’t it. Lemonade is a standard insurance company. You pay premiums, and the company pays claims from the general pool of funds. There are no peer groups insuring one another. There is no distribution model of peer invitations or referrals. The only “peer” element of the business model is that you will, as a customer, be grouped with others like you for the sole purpose of dispersing any underwriting profits to a charity of the group’s choosing. Now, there is a reason for this, but, seriously, was anything I just described even remotely connotative of peer-to-peer? Want to know what peer-to-peer looks like, see Friendsurance or Guevara.

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Is Lemonade really insurtech?

Sure, Lemonade is an online-only firm. And, yes, you can buy its insurance products through an app on your phone, where a bot named Maya will help you with your coverage selections, but Lemonade is still just an insurance company with a fancy website. I can buy insurance from other insurance companies where I can choose from dealing with a website, walking into an agent’s office or calling an agent over the phone. Lemonade has eliminated two options and given me a sole option that is little different from what I could have had before. And before you start screaming, “But I don’t want to call anyone or drive to any office,” just keep in mind that having options makes the experience better. Insurance is complicated enough that, occasionally, I would like to call someone or walk into an office and scream my head off. I deserve that option!

See also: Could an Incumbent Act Like Lemonade?  

What about the bot and the machine language? Isn’t that technology? It is technology in the sense that there are computer scientists engineering a robot to replace a human. But if the experience is crummier than just dealing with a human, it is a wasted effort.

In an attempt to play fair, I will reverse my position on this one — if it can be shown that the robot can handle the firestorm that comes when the company is hit with its first major natural catastrophe.

But isn’t it awesome that Lemonade’s underwriting profits go to charity?

One of the big marketing ideas coming from Lemonade is the unique feature of aligning the interests of policyholders and the insurer by taking excess profits and donating them to charity in the name of the peer group. Fraud is a big deal in insurance, and most insurers have systems in place to detect and counteract fraud. The charity angle from Lemonade is an attempt to prevent fraud from happening by linking the monetary loss because of fraud not to the big-bad insurer but to a softer, more sympathetic victim. Fundamentally, if you are a Lemonade policyholder and your claim is fraudulent is any way, you are depriving some charity of much-needed funds.

It is an interesting concept, but I don’t believe it will have much of a financial punch. The first drawback is that property insurance — being exposed to natural catastrophes (CAT) — is subjected to infrequent but occasionally massive losses. What appear to be underwriting profits in the quiet years between CATs are really opportunities to strengthen your balance sheet for the inevitable hit. As Lemonade expands to other states, its inability to build surplus because of the charity and the corporate status (see below), will really hamper the company’s business model. Lemonade is now, and will fully be, reliant on reinsurance to back its entire program. That by itself is not terrible, but, with full reliance on reinsurers, the excessive profits that the company thinks it will avail itself of, in reality, just go to the reinsurer. Think about this: If the reinsurer is taking all the risk, why would Berkshire Hathaway or Lloyds of London (two of the reinsuring entities for Lemonade) not want to profit from the transaction? These excess underwriting profits will simply transfer from insurer to reinsurer. My prediction is that the charitable donations will, in most years, be nonexistent or minuscule in comparison with premiums paid.

My second issue with the charity angle is that I don’t think it will bring the alignment of interest that Lemonade expects. One reason is that, if I am correct about the excess profits not materializing, then just the intermittent scheduling of charitable givings makes the whole exercise uninteresting to the insured, in my opinion. If Lemonade can’t provide a significant charitable donation in most years, the alignment will lose its appeal simply because the policyholders won’t be able to hang their hats on it. Perhaps worse, the charity angle may lose effectiveness because Lemonade is also marketing that it pays claims “super fast.”  Super fast claims handling (which, on Lemonade’s website, the company touts as a check in minutes), invites fraud. I think there is a major conflict of the business model. If your marketing message is that you can get a claims check in a few minutes without having an adjuster or claims rep work the claim, then your message is music to those upon whom the charitable message will have no impact. An an insurance buyer and seller, I know that out of super low prices, super fast claims handling and excess profits to charities, I can only choose one of those angles. More than one seems difficult. Getting all three strikes me as impossible.

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A broker by any other name…

Lemonade is a broker by another name. Another of Lemonade’s selling points is that insurers have a conflict of interest because they make money by denying claims. Lemonade purports to have absolved itself of this conflict by not actively acting like an insurer. Here’s how:

Lemonade is actually two companies. It is a risk-bearing insurance company AND a brokerage firm. When you buy a policy from Lemonade, the 20% fee goes immediately to the brokerage firm. The remaining 80% stays with the insurer. The paper on which the insurer is based is a B-corporation, which essentially makes it a non-profit. So it is the brokerage part of the business that is the money maker. That is the entity that secured all that seed-funding. Sequoia Capital knows a thing or two about making sound investments. It doesn’t do non-profits. And once the fee from the premiums the policyholder pays gets swept into the Lemonade’s brokerage company, it will not be used to pay claims, at all… ever. It is income, free of insurance risk. If the insuring entity ever goes insolvent, all the fees will be protected.

There is nothing wrong with this. The model has already been used successfully by other insurers. But, by acting as a broker, Lemonade has shifted its risk from the risk of loss or damage of the client toward that of a trusted adviser that only has one product to sell and gets a 20% commission for selling that one product. What if its product is NOT the best choice for the client? Will Maya the bot steer the buyer elsewhere like a traditional agent would? No. How forcefully will Maya point out all the flaws and gaps of Lemonade’s ISO style homeowners policy? Will Maya give direction to the insured about the flood or earthquake policy the client really should have but can’t buy through Lemonade? Somehow, I can’t match the hype and excitement of seeing a broker selling an average product, even if it’s sold via a robot.

See also: Why I’m Betting on Lemonade  

Lastly, I want to challenge the major premise of Lemonade — that insurers make money by denying claims. As a professional in the business for 20 years, I find that this is the one selling point that Lemonade and its marketing keeps touting that upsets me the most. It upsets me because it isn’t true. In fact, I have seen the opposite. I have seen emails or communications from senior executives to staff adjusters onsite during a natural disaster that flat out instructed adjusters to move quickly, be fair and, if there is any doubt about the damage, settle IN FAVOR of the policyholder. I am not naive enough to believe insurers never play fast or loose with their claims handling, but, by and large, insurers pay their claims. In the property area in which Lemonade competes, those policies it sells are legal contracts. Many a court battle has been fought to word the contract so that claims can be settled quickly and fairly. Lemonade is implying that it will be different; it is almost implying that it won’t deny claims. Are there really claims that insurers have denied (and acknowledged via the court system) that Lemonade would not have denied? I seriously doubt it.

Look, I like new things. You like new things. Lemonade is the new thing on the 300-year-old block. But the shiny new aspects that Lemonade is bringing to the table don’t appear to be worthy of the hype, in my opinion. I give them an “A” for effort in maximizing the hype to drive attention and sales. But insurance is all about the long game. The real key performance indicators (KPIs) are retention, combined ratios and customer satisfaction. Those will take years to sort out. Is Lemonade truly in it for the customer; does it really want to revolutionize the business model; or is the exit strategy already in place?

The world is watching. I hope it succeeds.