Insurtech platforms provide more customer data, opening up opportunities for the insurance community, both new entrants and established players, to take a fresh look at customers, their needs and expectations and the risks that they represent. This article explores some of the changes that this data – and the insights derived from it – could drive in the market, majoring on approaches to risk assessment and pricing.
Assessing and pricing risk
Insurers have traditionally priced risk for all but their largest corporate customers by allocating customers (be they individuals or businesses) to a risk group or category. But as a result ‘low risk’ customers are disadvantaged by paying for ‘high risk’ customers in the same group.
Insurtech provides more detailed and more delineated data on a customer’s risk, including behavioural data. For example, telematics devices in vehicles provide large amounts of data on the driver and their driving behaviour. This data can be used to price a customer’s risk more accurately. Insurers can also ‘reward’ customers whose behaviours have the effect of reducing their risk – for example by driving more responsibly or installing better fire protections – by reducing premiums and/or offering more cover. As a result customers feel more valued, are more loyal, and are more receptive to other product offers.
Customers (particularly those that feel disadvantaged) may in future chose to ‘post’ their risk and behavioural data on an online platform and invite insurers to ‘bid’ for their business.
Insurers have traditionally developed pricing from actuarial assessment of historic claims experience, adjusted for the current year’s costs and for expected developments in claims exposure – but what if historic claims experience proves to be an unreliable indicator of current and future claims exposure, or if there are major changes in the risk profile or customer behaviour? Through Insurtech, historical data (much of it organised around products) can now be overlaid with real time data on customer behaviour and its implications for risk and pricing.
How are MGAS using this new data and what are the implications?
Pricing and portfolio adjustments
Insurtechs are testing their pricing models daily and researching the price sensitivity of the market. They can also manage their exposure across the portfolio from this known price sensitivity. They may for example choose to ‘rebalance’ their portfolio, adjusting pricing to drive increased sales in attractive segments and to reduce exposures in unattractive segments.
Data on niche markets
MGAs commonly focus on niche customer groups, products or geographies and have a closer and more insightful understanding of customers in these niches – their expectations, risks and buying behaviours. They also have more detailed and more immediate data specific to that niche. As a result MGAs can analyse and quantify the risks represented by these customers quickly and accurately, spotting trends and adjusting pricing where risk profiles change.
Fast adaptation to changing markets
MGAs can be quick on their feet to develop into new product areas, lines of business, customer groups, geographies – and developing risk areas. They also give insurers and reinsurers the opportunity to test new products/new markets through a ‘controlled risk’ approach, before potentially bringing the business in-house.
Insurtechs tend to be more focused on the customer journey, enabling them to make the insurance proposition more conveniently available and easy to understand, specifically through muiltichannel mobile access. As a result insurance purchase and use could become a more rewarding experience for customers.
Brand positioning and customer loyalty
In an online environment (including mobile devices) customers and insurers are in more regular contact, through websites and social media channels. In some cases the regularity of contact has changed from once or twice a year (probably around renewal) to several times a week!! On these platforms, insurers can provide advice to customers on how they can reduce their risks, and consequently their insurance costs. More regular contact and engagement also enables insurers to present their brand and reinforce their brand values, building brand loyalty and providing opportunities to cross sell other products and services – the ‘Amazon model’ of ‘people who bought that also bought this’.
As insurers enjoy stronger customer engagement and more insight into customer expectations and buying preferences, we see key differentiators moving more to the customer engagement and convenience level of insurance offers, and being less about product features and price. This could result in a sea change in the way insurance products are marketed.