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Keys to Loyalty for P&C Customers

In a rapidly changing industry, some P&C insurers are pulling ahead of their competitors by focusing on customer satisfaction and retention.

“The insurance industry as we know it is at the edge of a new business environment,” says  Michael Costonis , head of Accenture’s global insurance practice. “Breaking away from the pack and capturing new revenue opportunities requires a shift in business mindset – a shift from product-focused to customer-focused.”

Customers want extra benefits, and one way to provide them is to offer value-added services. Travel companies and other insurance branches are already exploring the benefits of value-added services for retaining customers, as  Jamie Biesiada  at Travel Weekly points out. Because P&C insurers have been slower to adopt this strategy, however, many opportunities for capitalizing on this strategy remain.

Here, we look at some of the most popular value-added services in P&C insurance, which of these services focus on building loyalty and how to create the right service offerings or packages to encourage your customers to stay with your company in the long term.

Value-Added Services: The State of the Industry

For many years, P&C insurers have struggled with the challenge of selling a product that is substantially similar to their competitors’ products. “Because customers don’t discern much difference between insurers, companies end up competing largely on price,” write Bain & Co. partners Henrik Naujoks, Harshveer Singh and Darci Darnell . A downward spiral occurs, in which costs and profits are cut and customers jump ship the moment they see the same coverage for a few dollars less.

See also: How to Build Customer Loyalty in Insurance  

When insurers compete on price, customers do what Brandon Carter at Access calls the services shuffle: quitting or threatening to quit their insurance providers to access the same price-lean deals that new customers receive. “My goal is to pay less in a system that actually punishes people for being loyal customers,” Carter explains. Focusing on cost decimates loyalty. Focusing on value can boost it.

Yet insurance companies aren’t making value-added services their first choice when it comes to customer retention  Tom Super, director of the P&C insurance practice at J.D. Power, adds that many P&C insurers are turning to digital tools to court customers, particularly in the auto insurance business.

But digital technology is only a tool. The insurers that will stay ahead of their competitors in the race for customer retention and loyalty are the ones that best leverage that tool to provide the value customers want, says Mikaela Parrick  at Brown & Joseph.

Which Value-Added Services Boost Customer Loyalty?

Value-added services provide an extra benefit that enhances the core product or service. This additional service may be offered at little or no cost for the customer, yet it may make both the customer’s and the insurer’s work easier.

Connecting experience-based services to the product and brand can be a powerful way to encourage loyalty, adds Roman Martynenko , the founder and global executive vice president at Astound Commerce. While this approach is most commonly seen in retail, P&C insurers can adapt it to their needs. A top-of-the-line mobile app or a personalized starter kit featuring smart tools for each customer’s home can make customers feel like they’re part of a family.

Unique, innovative or specially tailored value-added services can also help encourage loyalty and boost customer interest by becoming a cornerstone of an insurance company’s brand.

Value-added services don’t have to be expensive or complex, suggests Mike McGee of Investment Insurance Consultants. For instance, a disaster preparation email sent at the start of tornado or hurricane season can help customers take loss-prevention steps, address safety and feel supported by their insurer, at very little cost to the insurance company.

Partnering with other companies can boost loyalty for both organizations while providing value-added services that attract customers, digital transformation executive Fuad Butt says on the IBM insurance industry blog. For instance, working with telecommunications providers to offer reduced-rate packages can help both companies succeed.

A highly specific partnership that uses existing technology to add value for both customers and companies is the recently announced alliance between Hyundai Motor America and data analytics firm Verisk.

“Hyundai customers will have access to their portable Verisk driving score, which can lead to discount offers on UBI programs and support driver feedback that helps improve their driving,” says  Manish Mehrotra , director of digital business planning and connected operations for Hyundai Motor America. A similar arrangement through an auto insurer can help both insurers and drivers have access to more information to improve safety and make better choices.

Choosing and Implementing Value-Added Services in P&C Insurance

The changing landscape of insurance offers one significant advantage to companies seeking to improve their value-added services: access to data about why customers remain loyal.

“The connections that enable excellent customer experiences aren’t always easy to make,” says Chris Hall of Pitney-Bowes. Siloing fragments customer information, leaving staff without a complete picture of each customer. This fragmentation makes it difficult to determine which value-added services will actually pique customers’ interest.

If data access is an issue, start by de-siloing information to get a better sense of each customer. Then, find the services that best support your organization’s key differences from your competitors.

Kirk Ford , compliance and T&C manager at RWA Business, suggests first considering how you’d like your clients and customers to perceive your brand in relation to competitors. Balance your differences against your similarities so that customers see they’ll receive all the services they need, but with the value-added extras that make their relationship with this particular insurance company meaningful.

See also: The Future of P&C Distribution  

However your insurance organization chooses to add value, resist the urge to announce it to customers merely as being higher-quality. “It doesn’t matter whether or not a company can pull off quality or exceptional service because quality and customer service rarely are differentiating strategies,” adds  Mac McIntire , president of the Innovative Management Group.

Instead,  Ryan Hanley  formerly of Agency Nation, now at Bold Penguin, recommends finding ways your value-added services can improve customer lives. When customers feel a sense of shared values, they’re more likely to stick with their insurance company, rather than risk their luck with a company that may not share those values—even if the prices are lower.

One way to connect with customer values is to change your company’s language surrounding insurance. “If you can sell insurance and not talk about insurance, it’s a win-win,” says  Rusty Sproat , founder of Figo Pet Insurance. He notes that many customers find insurance language obscure and frustrating. That’s why Sproat’s company focuses on providing quality information on pet care and health, switching the conversation to insurance only when necessary to complete a transaction.

Finally, don’t shy away from technology—but use it as a tool rather than a cure-all. Smart home sensors, telemetrics for vehicles and other tech tools are increasingly common in U.S. households, plus they can greatly improve the customer experience, says  Ramaswamy Tanjore  at Mindtree. Consider the best ways to manage telemetric or other data, as well as how to position these tools to best showcase their value to loyal customers.

How to Prepare for Self-Driving Cars

For decades, privately owned, privately insured cars have been so common that few people have questioned these models of transportation and the associated risk.

Property and casualty insurers deal with thousands of individual vehicle owners and drivers as a result. Insurers deal with those drivers’ mistakes, too. A study by the National Highway Traffic Safety Administration (NHTSA) estimates that human error plays a role in 94% of all car accidents.

The entire auto insurance industry is built on this humans-and-their-errors model. But autonomous vehicles stand to turn the entire model on its head — in more ways than one.

Here are some of the biggest changes self-driving cars are poised to make to the auto insurance world and how P&C insurers can prepare for the shift.

Vehicle Ownership

Most conversations about self-driving cars and insurance focus on questions of fault, compensation and risk.

In a 2017 article for the Harvard Business Review, however, Accenture’s John Cusano and Michael Costonis posited that an even bigger disruption to P&C insurance practices would be a change in patterns of vehicle ownership.

“We believe that most fully autonomous vehicles will not be owned by individuals, but by auto manufacturers such as General Motors, by technology companies such as Google and Apple and by other service providers such as ride-sharing services,” Cusano and Costonis writes.

Indeed, companies like GM and Volvo are already exploring partnership with services like Lyft and Uber, as keeping self-driving vehicles on the road as much as possible amortizes their costs more effectively.

Paralleling the autonomous vehicle/ride-sharing partnership trend is a decrease in vehicle ownership. Young adults and teens are less interested in owning vehicles than their elders were, Norihiko Shirouzu reports for Reuters. Instead, they’re moving to more walkable areas or using ride-sharing services more often, already putting pressure on auto insurance premiums.

See also: Time to Put Self-Driving Cars in Slow Lane?  

U.S. roads are likely to be occupied by a combination of human-driven and self-driven vehicles for several decades, Cusano and Costonis estimate. As ownership trends change, however, P&C insurers’ focus on everything from evaluating risk to branding and outreach will change, as well.

Connected closely to the question of ownership is a second question: Who is at fault in a crash?

Fault Ownership

NHTSA’s statistics on human error as a crash factor imply that reducing the number of human drivers behind the wheel would reduce accidents. A McKinsey & Co. report agrees, estimating that autonomous vehicles could reduce accidents by 90%.

Taking human drivers’ mistakes out of the equation means taking human fault out of the equation, too. But questions of human fault stand to be replaced by even more complex questions regarding ownership, security and product liability.

Several automakers have already begun experimenting with approaches that upend traditional questions of fault and liability. Concerned over the patchwork of federal and state regulations in the U.S., Volvo President and CEO Håkan Samuelsson announced in 2015 that the company would assume fault if one of its vehicles caused an accident in self-driving mode.

The statement appears to apply to Volvo’s vehicles during the development and testing phases, according to Cadie Thompson at Tech Insider. It is too early to tell whether the company will extend its acceptance of fault to autonomous Volvo vehicles that function as full-fledged members of the transportation ecosystem. Nonetheless, the precedent of automakers accepting liability has been set — and, as automakers continue to explore partnerships or other models of fleet ownership, accepting liability or even providing their own insurance may become part of automakers’ arsenal, as well.

Ultimately, Volvo seems unconcerned about major liability shifts. “If you look at product liability today, there is always a process determining who is liable and if there is shared liability,” Volvo’s director of government affairs, Anders Eugensson, told Business Insider. “The self-driving cars will need to have data recorders which will give all the information needed to determine the circumstances around a crash. This will then be up to the courts to evaluate this and decide on the liabilities.”

Meanwhile, in Asia, Tesla is trying another method: including the cost of insurance coverage in the price of its self-driving vehicles, according to Danielle Muoio at Business Insider.

“It takes into account not only the Autopilot safety features but also the maintenance cost of the car,” says Jon McNeill, Tesla’s former president of sales and services (now COO of Lyft). “It’s our vision in the future we could offer a single price for the car, maintenance and insurance.”

Doing so would allow Tesla to take into account the reduced accident risk of the autonomous system and to lower insurance premium prices accordingly. This might reduce the actual cost of the vehicle over its useful life.

The NHTSA has already found that accident risk in Tesla vehicles equipped with Autopilot are 40% lower than in vehicles without, and the company believes insurance coverage should reflect that, according to Muoio.

If P&C insurers don’t adjust their rates accordingly, Tesla is prepared to do so itself.

Future Ownership

Property and casualty insurers seem torn on how self-driving cars will affect their bottom line.

On the one hand, “insurers like Cincinnati Financial and Mercury General have already noted in SEC filings that driverless cars have the potential to threaten their business models,” Muoio reports.

On the other, 84% don’t see a “significant impact” happening until the next decade, according to Greg Gardner at the Detroit Free Press.

Other analysts, however, believe the insurance industry is moving too slowly in response to autonomous vehicles.

“The disruption of autonomous vehicles to the automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think,” KPMG actuarial and insurance risk practice leader Jerry Albright tells Gardner. “To remain relevant in the future, insurers must evaluate their exposure and make necessary adjustments to their business models, corporate strategy and operations.”

KPMG CIO advisory group managing director Alex Bell agrees. “The share of the personal auto insurance sector will likely continue to shrink as the potential liability of the software developer and manufacturer increases,” Bell tells Gardner. “At the same time, losses covered by product liability policies are likely to increase, given that the sophisticated technology that underpins autonomous vehicles will also need to be insured.”

See also: The Unsettling Issue for Self-Driving Cars  

Major areas of concern in recent years will likely include product liability, infrastructure insurance and cybersecurity.

Meanwhile, the number of privately owned vehicles — and individually insured drivers — on the road will likely continue to drop, placing further pressure on auto insurance premiums.

What should P&C insurers to do prepare? Cusano and Costonis recommend the following steps:

  • Understand and use big data and analytics. As Eugensson at Volvo notes, autonomous vehicles will generate astounding quantities of data — data that can be used to pinpoint fault. It can also be used to process claims more quickly and efficiently, if insurers are prepared to use it. Building robust data analysis systems now prepares P&C insurers to add value by analyzing this data.
  • Develop actuarial frameworks and models for self-driving vehicles. As Tesla’s insurance experiment and NHTSA data indicates, questions of risk and cost for autonomous cars will differ in key ways. P&C insurers that invest the effort into developing and using more sophisticated actuarial tools are best-prepared to answer these questions effectively.
  • Seek partnerships. The GM/Lyft and Volvo/Uber ventures demonstrate how partnerships will change the automotive landscape in the coming years. Insurers that identify and pursue partnership opportunities can improve their position in this changing landscape by doing so.
  • Rethink auto insurance. Currently, P&C insurers’ auto work involves insuring large numbers of very small risks. As our relationship to vehicles changes, however, insurers will need to change their approach, as well — for instance, by moving to a commercial approach that trades many small risks for a few large ones.

Autonomous vehicles are poised to become one of the most profound technological changes in an era of constant change. Fortunately, the technology to manage this change is already available for insurers that are willing to embrace a digital future.

How to Adapt to Driverless Cars

There is little doubt that the widespread adoption of autonomous vehicles will have a huge impact on the automobile insurance industry. Research and computer modeling conducted by Accenture in collaboration with the Stevens Institute of Technology indicates that as many as 23 million fully autonomous vehicles will be traveling U.S. highways by 2035 (out of about 250 million total cars and trucks registered in the U.S.)

This rapid growth of autonomous vehicles will involve a major shift, not only in our driving habits and patterns, but in the ownership of vehicles. We believe that most fully autonomous vehicles will not be owned by individuals, but by auto manufacturers such as General Motors, by technology companies such as Google and Apple, and by other service providers such as ride-sharing services. Unlike individual car owners – whose vehicles typically sit idle most of the time — fleet owners can send autonomous vehicles out on multiple trips on a 24-hour basis, amortizing the cost of ownership.

Automakers have already begun to experiment with fleet-based ownership of autonomous vehicles, with GM announcing an autonomous vehicle partnership with Lyft, Uber announcing a similar partnership with Volvo, and many others exploring similar avenues.

Since insuring privately owned vehicles is what the auto insurance industry has been all about, insurers have every reason to be concerned about their future growth and profitability.  With fewer individual owners, there will be lower overall premiums. And since as many as 94% of accidents are attributed to human error, the number and severity of accidents and insurance claims will drop, also leading to lower premiums as insurers learn to price in accordance with real risk.

Our forecast shows that the drop in individual premiums – due both to decreased private ownership vehicles and to safer vehicles — will begin in 2026, as large numbers of autonomous vehicles begin to appear, and could be as much as a $25 billion loss for insurers by 2035.  This is significant for a roughly $200 billion market.

In addition to autonomous vehicles reducing the need for individual auto insurance, other trends, such as urbanization, ride-sharing, and a general lack of interest in car ownership among young drivers, are also cutting demand and putting pressure on premiums.  And, while our research was focused on private passenger vehicles, it is worth noting that large commercial fleets such as UPS, FedEx, and other trucking businesses will likely move to autonomous vehicles at a rapid pace.

However, auto insurers have one factor weighing in their favor: The shift to fully autonomous vehicles will be gradual. It will likely be years before fully autonomous vehicles appear on U.S. highways in significant numbers, and they are likely to coexist with traditional “driven” vehicles and a host of semi-autonomous variants for decades.

See also: Who Is Leading in Driverless Cars?  

The Stages of Autonomous Vehicle Adoption

If we look at autonomous vehicle adoption as a spectrum – with zero representing a universe consisting exclusively of traditional vehicles and five representing a world of fully autonomous vehicles – we are somewhere between zero and one right now.  Automakers are currently moving aggressively to Stage 1, which is the adaptation of some autonomous features.

At Stage 2, at least two features (such as braking and cruise control) will be automated, and at Stage 3 the car will be partially autonomous, although a driver will still be needed for monitoring.

We consider Stage 4 as vehicles having full autonomy, with a “human option” for the driver/passenger to take over at any time. And Stage 5 would be full autonomy, with no human option – meaning no steering wheel, brakes, or accelerator pedals.

We believe the transition through the stages will be gradual, and insurers will have some time to adjust and react.  But our forecast says that by about 2050, there will be many more autonomous and semi-autonomous vehicles on the road than traditional vehicles.

Finding New Sources of Revenue

While the pace of adoption of autonomous vehicles is not easy to predict, it is clear that individual auto premiums will decline in a significant and likely escalating manner. This means that auto insurers need to create new revenue streams that offset the decline in individual premiums. Fortunately, new opportunities for insurers are emerging as well.

With help from the Stevens team, we have identified three areas with significant potential for insurers in the period from 2020 to 2050:

  1. Cyber security. As cars become more automated and incorporate more and more hardware and software, insuring against cyber theft, ransomware, hacking, and the misuse of information related to automobiles can generate as much as $12 billion in annual premiums.  This can be even more critical to entire fleets, for example, if Amazon deploys fleets of autonomous vehicles to deliver packages.
  2. Product liability. Auto-related sensors and chips are expensive, but the real risk for manufacturers is the potential for failure through software bugs, memory overflow, and algorithm defects, and the resulting massive liability.  Insuring against this is a $2.5 billion annual opportunity.
  3. Infrastructure insurance. Cloud server systems, signals, and other safeguards that will be put in place to protect riders and drivers offer an annual revenue potential of $500 million in premiums for property and casualty insurers who underwrite the value of the hardware and software in play. The need to secure and insure the public infrastructure is likely to be vast and much larger than $500 million, but governments often “self-insure” these risks so the opportunity for commercial insurance is likely to be lower.

In the aggregate, these areas can generate $81 billion through 2026 ($15 billion per year from 2020 to 2026, with some fluctuations) and can more than offset the losses in premiums expected through 2050.

Planning for the Driverless Future

In a future dominated by autonomous vehicles, auto insurers will face some stark strategic choices. They can continue to conduct business as usual, fighting for pieces of a shrinking pie – or they can change their thinking and their business models and adapt to new realities.

The speed of the conversion to a driverless environment is impossible to predict exactly, but carriers should start creating the actuarial models that determine risk and pricing for different stages of autonomous vehicles.  At the same time, they should be developing new product offerings in areas including cyber insurance and product liability for software and sensors.

We see four key steps that insurers can take now:

First, they can build expertise in big data and analytics.  Playing effectively in the AV market means being able to control data generated by AVs and by the communications and software systems that support them.  Market participants who can collect, organize and analyze this data will have inherent advantages over those with less developed capabilities.

Second, they can develop the needed actuarial framework and models.  We have already seen partially autonomous safety features such as automatic emergency braking systems change the safety profile of newer vehicles.  Insurers should be using sophisticated actuarial and modeling techniques to be ready as vehicles add more and more autonomous features.

Third, they should explore the partner ecosystem.  Insurers will need to collaborate effectively with automakers, providers of communication and software systems, governments at multiple levels, and many other organizations.  Insurers not doing so already should be actively identifying and mapping out ecosystem partners.

Finally, they should think about new business models.  Currently, insurers whose revenues derive primarily from personal automobile policies have an expertise in insuring thousands of small risks.  Such insurers may have to transform themselves into large commercial insurers writing policies on a small number of very large risks.  Insurers remaining in the personal lines market will have to re-think areas including product development, policy administration, and distribution.

See also: Driverless Vehicles: Brace for Impact  

It is also worth noting that decreasing premiums industry-wide may lead to an increase in mergers and acquisitions. There are many smaller insurance carriers that could end up being bought as larger carriers seek to maintain revenue.

In short, change is inevitable for auto insurers, but the change can be positive.  Insurers that vigorously pursue the short- and medium-term opportunities presented by cyber insurance, product liability insurance, and infrastructure insurance – while making careful strategic decisions about their partner ecosystems, operating models, and value propositions – are most likely to thrive in a driverless environment.

This article originally appeared at  Harvard Business Review.

How Can Insurers Leverage the Cloud?

Insurers often fail to embrace the cloud for three reasons—and all three are fallacies.

Accenture recently worked with a multinational insurer on its cloud implementation and helped it achieve an 80% reduction in costs of a particular environment of an application suite. However, many insurers have been reluctant to tap into the power of the cloud. In this Insurance Insight of the Week video, I’ll look at some of their most common hesitations—and how to overcome them.

Three steps to help insurers capture opportunities unlocked by the cloud

The cloud offers flexibility, agility and scale—key capabilities in a marketplace where traditional industry barriers have disappeared and customer expectations can change on a dime. In today’s digital economy, it’s a crucial technology that insurers can use to become more competitive.

See also: Future of Digital Transformation  

Learn more:

Why the Cloud Makes It All Happen

New technologies like blockchain, artificial intelligence (AI) and the IoT offer insurers a better way to engage customers. One crucial enabler? The cloud.

It would be an understatement to say that insurers have many more tools at their disposal today: new technologies, advanced analytics, access to broader data sources, for example. But these new tools aren’t possible without one crucial technology: the cloud. In this Insurance Insight of the Week, we’ll look at how the cloud makes digital happen.

The cloud makes digital happen

New technologies like blockchain and connected devices can help insurers improve customer service, speed to market and the bottom line. Insurers that tap into the cloud—and the capabilities it can enable—can take advantage of these technologies to become more competitive.

See also: Blockchain: Basis for Tomorrow  

Learn more: