Optimizing the Customer Experience in Insurance

Insurance has been an industry slow to adopt digital innovations, in part because it is so highly regulated. Now, however, there is finally pervasive interest among customers to modernize their communications with their insurers.

Startups Offer New Value in Customer Experience

While consumers have come to expect quick, personal access to all the services they pay for, Gartner reports that "only 12 percent of insurance business and IT leaders consider their organizations to be digitally progressive, while the majority believe that their organizations are digital beginners or intermediate, at best." Because legacy insurance companies have not adapted readily to the emerging digital environment, insurance technology ("Insurtech") startups have successfully cut in on the $4.55 trillion global insurance industry. In 2015, over $800 million in risk capital was invested in startups in the Insurtech space, which is a tenfold increase over 2010. Industry experts like Pascal Bouvier point out that the profit opportunity in insurance technology "is immense" because "the industry has barely been touched as of yet by disruption."

Insurtech Finds a Niche

According to Gartner, the number of global technology companies in the insurance industry has more than doubled in the past three years, with companies focusing primarily on digital customer engagement, mobile insurance management and analytics. The first quarter of 2016 saw a record-breaking number of early-phase insurance tech deals, and two such startups (Lemonade and Next Insurance) held top positions in size for U.S. tech seed rounds.Several new Insurtechs have proposed options for extra premium funds, which have traditionally been retained by insurance companies as profit. Lemonade, an app-based company offering rent and homeowners insurance, asks new customers to select their favorite charity. At the end of the year, any money left in the premium pool is paid out to the chosen charities. German peer-to-peer insurer Friendsurance takes a different route to the same end, refunding unused premium money to customers at the end of the year.The rationale for these practices is grounded in hard financial calculations: customers who are passionate about their charitable cause will be less likely to engage in insurance fraud, thus saving the company money. Fraud is a significant problem for the industry, with one study revealing that one in three UK insurance customers have made a fraudulent insurance claim.

Managing Insurance on the Go

Finance Fox — a "pocket insurance manager" — provides a free app allowing customers to compare policies from multiple insurance companies in one space. Finance Fox is financed by insurance companies because the app alleviates some customer service functions. In this role, Finance Fox assumes some responsibility on the customer's behalf, ensuring that claims get paid.Claim Di has a similar fee structure for auto insurance, and also allows drivers to file a claim from the road using their smartphone. These companies are carving out increasingly large niches in the world insurance trade. Claim Di, a Thai company, was a headliner at the 2016 Digital Insurance Agenda conference in Barcelona. This conference itself is a harbinger of things to come. It calls itself a "global community ... connecting insurance executives to fintech leaders" and is "dedicated to accelerating the crucial innovation of the insurance industry."Mobile messaging for insurance companies has allowed for streamlined claims processing by instant photo exchange. These photos can protect the customer in case an adjuster can't be sent to the scene of the accident. Furthermore, bill reminders can easily be sent to mobile devices, and text-to-pay options make it so easy to pay premiums that companies are spending less on bill collection. While texting and instant quotes are growing in popularity, surveys are guiding the industry towards new products and improved customer service, allowing the customer to be part of a network, rather than cut off from industry decisions.

Health Insurance Recognizes Digital Opportunities

There are opportunities for disruption in every category of insurance, but health insurance technology is leading the way. CBInsights reports that health-related companies account for 56 percent of all Insurtech. These innovative opportunities have taken root in the nation's tech centers: 40 percent of insurance technology deals were transacted in California, according to CBInsights data, while 23 percent took place in New York or Massachusetts. Insurtech startup Maxwell Health asks, "Why shouldn't choosing your benefits feel like using your Netflix account?" They strive to provide employers and employees with a "beautiful, engaging consumer experience," all digitally.

Insurance Incumbents are Reacting

In an industry where legacy companies have failed to transform at pace with customer demands, partnering with or learning from the more agile Insurtech startups can help accelerate digital innovation. Legacy companies will need to listen closely to their target consumers as Insurtechs push the industry to progress. Gartner research finds that about two-thirds of the 25 largest insurance companies in the world have already begun investing in Insurtech startups, often via their venture capital arms. Furthermore, 80 percent of life and property & casualty (P&C) insurers worldwide are expected to acquire or partner with Insurtechs over the next two years.

Creating Mobile Change from Within

While some incumbents are partnering with startups to gain access to their user base and improve their mobile accessibility, many others are choosing to create their own mobile apps. Geico's mobile app, which received a 90 out of 100 score in a Forrester benchmark report, allows customers to pay a bill, report and track a claim, get roadside assistance and more. Five other establishment auto insurers surveyed by Forrester also received passing scores, with an average of 68 out of 100. Mobile sales performance and policy information were particularly strong performance areas, while claims assistance remained weak.

Wearables and the Internet of Things

Because the insurance industry is heavily reliant on predictions of physical incidents, it's not surprising that insurers are turning to the growing "Internet of Things" as a source of innovation. FitSense launched to help Health & Life Insurers process and make sense of wearable data to better understand their customers’ health and needs. The FitSense platform also provides a user-friendly app for consumers to track their own wellness progress and goals through their device data. Startup DoMotz provides a platform allowing insurers to monitor and provide support for internet-connected devices.Traditional insurance companies are responding in turn by partnering with rising startups or innovating their own offerings.eMarketer statistics show that insurance executives worldwide expect to increase their IoT spending from $77 billion in 2015 to over $102 billion in 2018.One impactful approach legacy insurers are taking is to use smart devices to track and analyze driving habits. The more specific the information the insurance agency receives, the more precisely they can target their rates. In terms of risk to the company, it’s highly beneficial to understand clients' driving habits. While some customers may express privacy concerns, the ability to save on insurance premiums provides a high value exchange for their participation.Similarly, wearables are used by health insurers to incentivize healthy habits, reducing the risk and cost to serve consumers. Health and life insurance incumbent John Hancock provides rewards to their customers for using wearables like Apple Watch and Fitbit, and encourages them to reduce their premiums by demonstrating healthy habits through their devices. This strategy also encourages year-round digital customer engagement.

Driving Innovation in Analytics

Big data and analytics systems reduce costs to both insurance companies and clients through more accurate risk and claim assessment. Lumity emphasizes how its platform helps companies use data and analytics to optimize employer contributions. It also uses incentives to lower costs and maintain or increase value from health insurance plans.Many incumbents have also started programs to implement big data and analytics to speed processing, improve customer experience or to issue proactive treatments to lower cost coverage. Chris Ciccarello, senior director of pricing and customer analytics at Farmers Insurance Group, has spoken about how Farmers uses predictive analytics. Rather than being limited to historical data in determining product and marketing strategy, insurers like Farmers are able to directly predict future customer preference. In his discussion of the benefits of predictive tools, Ciccarello says that these tools enable a fine level of targeting and personalization that's at the core of their marketing strategy: "Personalization is a huge initiative for us. [We need to be] better at understanding our customers and what they've liked in the past in order to target them with a message that works for them."The key for the long-term success of legacy insurance companies will be to find the best balance between partnering with high-value Insurtechs and innovating their own platforms and processes. As insurers refine their digital strategy, consumers will benefit from improved transparency and accessibility of insurance information.