Insurers are investing in data scientists

A few weeks ago I described a few results of a survey we have launched during the last quarter of last year around the role and importance of data in insurance. My blog post can be found here. Since then we have published a report summarizing the findings of this survey that our members can find here.

An interesting trend we identified based on this survey was the need for insurers to hire more data scientists with advanced degrees and strong background in data and computer science. Indeed we think technology is not enough nowadays and insurers need to also invest in people with deep skills in this domain. I recently came across the following article from INN: Sentry Insurance Gifts $4 Million to Grow Data Science. It seems to validate our findings and I expect to see more of these kinds of initiatives going forward.

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One last look back at Google Compare

It’s old news by now that Google is shutting down Compare, its financial services and insurance comparison site. It wasn’t open long – less than a year. When Compare was first announced, the industry reacted with warnings that this was a major disrupter in insurance distribution. With the massive audience that Google has, the industry expected that Google was going to swoop down and capture the online insurance market – which by the way is pretty big – typically 20-25% of all new auto policies are purchased on line according to those who track this type of metric.

 

So what happened? Well, the fundamental idea of capturing the online market is a sound idea. And Google was pretty smart at avoiding all the hard technical costs of building out the aggregator engine by partnering with those who had already done the hard work – like Compare.com, Coverhound and Bolt.

 

But the business model of an online aggregator is hard. There are three models – online agents – who earn full commissions. That wasn’t really Google’s deal. They weren’t interested in any of the after service or ongoing relationships. A traffic generator – sending a potential lead to another site and being paid for the eyeballs. Well, that’s not very lucrative either – and frankly, Google can make money through their own advertising and search capabilities. Spending the money to build an online quoting front end only adds cost to something they already do quite well, thank you.

 

So why would Google have invested the money in an online quoting front end? To take advantage a lead model.   With a lead model, the aggregator collects data, processes a request for quote and sends a highly qualified lead to be fulfilled. The price per lead is significantly higher than the price for traffic.  But there’s a fundamental challenge with this model. For the lead to be valuable to a carrier, the lead has to actually purchase insurance. And because a lead is sold to multiple carriers, the acquisition costs rise for a carrier.

 

Let’s say a lead is sold for $5 to ten carriers. The aggregator makes $50 for that lead. But only one carrier actually writes the lead.   If ten leads are sold, and each carrier writes one, the aggregator makes $500 but the carrier has spent $50 for that lead. Play out a competitive situation where the leads aren’t equally distributed, and you can see that the acquisition costs can rapidly rise. If I only get one lead out of twenty, I’ve spent $100 for that lead. If I only get one lead out of $30 I’ve now spent $150 for that lead – which now is pretty close to what I’d probably be paying an independent agent.  And what if the customer NEVER buys – and simply goes in looking for prices so they have a comparison to an off line model? The numbers rise rapidly.

 

So while carriers are very interested in participating in the online marketplace, they really want to work with those aggregators who are successful at converting traffic to leads that will convert to policyholders. The online agent model is attractive as the carrier doesn’t pay until the policy is written. The traffic model is similar to online advertising, so that works as well. But the success of a lead model is a combination of the price of the lead and the likelihood of closing that lead – which is dependent on the number of carriers the lead is sold to and the propensity to buy.

 

So here’s where Google lost an opportunity with Compare. They thought they could convert relatively low paying traffic into high paying leads simply by putting a quoting front end on and didn’t think through what they could have done to improve the conversion rates.

 

With their analytical power, Google could have created a truly disruptive experience by providing consumers with a powerful recommendation engine. Google is a master at finding out information about individuals from social media and other publicly available data. They could have created an algorithm that used the information about the lead to tailor and target recommendations.

 

Personal auto isn’t that hard. If we were talking about commercial, it’s a much harder set of algorithms. But honestly, it’s not that hard to create something that tells a customer that given their location, the value of their home, the type of vehicle and their driving record, 64% of people like you choose this limit/deductible/additional coverage etc. And getting a personalized recommendation drives conversion. When people trust that the advice is good, they’re willing to buy. We’ve seen many examples of how inserting advice and recommendations into the quoting process drives conversion.

 

When I personally go to get an online quote – it’s part of my job – I enter information that shows I own a home in California and I drive a luxury car. So why oh why do the aggregator sites today recommend minimum limits coverage to me?   My car is worth more than that. Today, trusting the advice from an aggregator site is dicey. And that is why policyholders continue to rely on the advice of an agent.

 

Does this mean the role of aggregators is dead? No.

 

But Google missed a major opportunity to truly disrupt by providing a powerful recommendation that actually used their ability to easily find information about individuals and combine it with their powerful analytical abilities. They ended up creating just the same thing we had back in the 90’s. Kudos to them for killing it quickly – but they missed an opportunity to use their capabilities to make the model work.

 

 

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The secret to profitable organic growth? Deliver a customer experience that your competitors can’t match

Maintaining growth and relevance is more challenging than ever for carriers. It is a hyper-competitive market with new entrants, a poor investment market, and rapidly changing customer expectations.

 

• Customers are demanding a different relationship model from their insurers. They are increasingly demanding transparency and simplicity with simpler contracts, clearer pricing disclosures and tailored recommendations with extraordinary service.
• They are more and more self-directed and using non-traditional third party advice. Clients are more financially literate and are increasingly relying on aggregation and comparison tools. They look more for concepts than for entities – diminishing the value of advertising.
• They are demanding collaboration and participation in product choices, claims, and risk management. They expect proactive communications that demonstrate knowledge of the customer. They expect customer service to be fast, excellent, and available through any channel they choose.

 

Whether you define your customer as a policyholder or an agent, (it’s a matter of religion in this industry), expectations are being driven by innovations by non-insurance players. Uber provides instant information availability without long waits on the phone, which gives control and transparency to the customer. Amazon recognizes their customers and provides product and service recommendations that come to the customers without any additional work. Apple provides variations on their products that allow customers to choose among the different value propositions and the flexibility to change those purchases with minimal hassle.

 

But limited customer interactions in insurance have pushed incremental innovation to focus on products rather than customer experience.

 

As ardent incrementalists, most players in the insurance industry look at the customer experience from the inside out by thinking about all the points where WE touch a customer. However, being good at the discipline of focusing on customer experience requires taking a broader view of customers’ lives and the context in which they are interacting with the brand. Those who excel at customer service are masters at looking from the outside in, understanding what is going on in a customer’s life when THEY touch us and then delivering unexpected signature moments across a broader expanse of experiences.

 

Certainly efforts have been made to drive effectiveness for insurance processes, nevertheless, there are still many areas where improvements are possible. The way forward requires a comprehensive digital view that goes well beyond process automation. By recognizing that customer experience is about more than designing a clean and friendly user interface (UI), insurers can move beyond the superficial and achieve real results.

 

The technology is there to support this. But what keeps us from moving forward? Surprisingly, few carriers have anyone who owns the entire customer experience. Customer experience is usually owned by organizational silos. When no one owns the experience, it becomes a low priority. If there are limited metrics, or metrics which don’t focus on the quality of service from a customer viewpoint, then there are too many competing priorities to drive investments here.

 

Digital makes possible a level of engagement that was never possible before. But beware – the democratization of digital technology is eroding competitive barriers. And to meet customer expectations in an increasingly digital world, carriers will be required to make both cultural and physical shifts to incorporate new systems and processes while harnessing data and using real time analytics.

 

Like it or not, customer and distribution partner behaviors and expectations are changing the business model. It is not just about reducing expenses and writing more business. Carriers have to look at new distribution models, new product types well beyond pure indemnification products, and revolutionizing the customer experience.

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Don’t Listen to Everything if You Want to Hear Something!

In a 2011 report titled Using Social Data in Claims and Underwriting: Creating a Social Risk Profile, Celent looked at how insurers could leverage social networks to do a better job in claims and underwriting. Since then, we have been looking at vendors who can complement insurers internal data with external data sources including social media data and this in the frame of different applications that go beyond underwriting and claims. We notably have profiled and will continue to profile vendors active in the predictive analytics space and for which data sources are as important if not more important than pure features and functions they offer as part of their system.
Using social media data in insurance has become more important over the past few years and what can be called now Social Media Intelligence goes beyond a simple technology that taps in all sorts of social network data sources. Indeed for many people social media intelligence or what people also call social media listening purely consists in screening social networks to get data that can complement internal data to make a better business decision. Actually this definition is too succinct and does not include all key phases a proper social media intelligence strategy should include:

So we define social media intelligence as the strategy consisting in:

1. Defining strategic objectives that are dependent not only on internal but external data,
2. Defining a referential or a group of topics, relevant social media platforms as well as a geographic and language scope to be considered for the analysis,
3. Filtering and analyzing social media data regularly (real time, daily, monthly but it is generally a continuous process)
4. Implementing an action plan leveraging findings derived from the data analysis to achieve the strategic objectives initially defined.

We think insurers can learn from project and use cases other industries have gone for in the Social Media Intelligence space and we are interested to better understand how these examples can generate fruitful ideas for insurers. Stay tuned as Celent will be covering this topic in more details in the near future.

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Blockchain in Insurance…ARGH…Who Needs It, Anyway?

Interesting feedback from Celent’s What If… Conference in London last week. We were fortunate to have both @leanne_kemp and @pascalbouvier present on blockchain in insurance. Surprisingly, the extensive treatment of the subject received mixed reviews. Some attendees were pleased and stated that discussing blockchain was valuable and that these conversations, in insurance, are rare and are just beginning to take place. Others felt that the time could have been better used reviewing a subject which has more relevance to insurance. It was mentioned that the technology was for payments, banking, and securities trading.

The comments reminded me of the early 2000s, when online retailing began to impact business. I recall insurance industry veterans’ comments about the opportunities for the internet. Summarizing generally, it was something like: “Well, it is a great way to sell plane tickets and books, but it won’t catch on in insurance. Insurance is different.” We see how that has worked out.

In 2014, our Celent colleague, @Zil_Bareisis, positioned blockchain this way in his report, The Disruptive Potential of Bitcoin: Why Everyone in Financial Services Should Care: “Just like HTTP became a protocol for information exchange, Bitcoin, Ripple, and other decentralized ledger-based solutions might be seen as the protocols for value exchange, promising exciting possibilities, some of which are difficult to imagine at this stage.”

However, evidently there are insurers that are not only paying attention, but are investing significantly. Allianz announced work with six startup companies in their accelerator in Nice, France (http://ift.tt/1LTFZ2o). Also, just this week, AXA made public their USD$55million investment in a blockchain technology company (http://ift.tt/1TmeSVq ).

So, is this the “new internet”? Without a doubt, there are huge challenges to blockchain in insurance. The technology still requires maturation around scalability and latency. Additionally, regulatory aspects are yet to be determined. However, it is clear that, right now, some insurers are placing some hefty bets and others can’t even find the casino.

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Rethinking The Role of the Intercap

The trend-naming fashion of capital letters in the middle of words continues. I believe those “InterCaps”—also known as “BumpyCaps” and “CamelCaps”—are mostly a marketing trick intended to make terms sound important. I find them annoying.

The hot example of late is FinTech. Plus its close cousins, BankTech, InsurTech, and RegTech. They’re popping up everywhere, including within the hallowed halls of Celent. We are all guilty of putting a new veneer on something that has been around for ages.

What does that capital T in Tech imply, and why do the terms get such rapt attention? Is applying technology to the business of financial services new, and more worthy of our attention today than it was years ago? Is how we manage new technology fundamentally changed? I don’t think so.

Maybe the point is to let us collectively off the hook for pursuing technology change so casually (was that it?) for the last 50 years. I can imagine the bank or insurance CIO, late in his/her career, saying, “Hey, if we had FinTech 30 years ago, this place might look a damn sight different by now!” Right, that’s what we were missing: Technology startups! Youngsters in hoodies!

The truth behind technology and the financial services industry requires no such defense. Changing the world through application of technology didn’t depend on the arrival of startling new tools, or dorm room genius, as helpful as those might be in today’s world. It required a risk/reward shift. As an industry, we didn’t change because we didn’t have to. Our existence was not threatened by new consumer behaviors. Our livelihoods were not at risk from upstart competitors. We took a hard look at the costs and benefits of new technology, and behaved accordingly. Which meant…changing…slowly.

But something is certainly different today. I believe that existential threats are emerging for our industry. We are now at risk. I’m firmly convinced that relationships between consumers and their financial providers are changing, with the industry’s participation or without it. There is a new dynamism, and it is clear that the entire ecosystem is feeling the impact.

Instead of looking at FinTech and all the other Techs with an annoyed editor’s eye, maybe I should embrace the way intercaps communicate something important. They’re a stylistic irritation. But they’re also a visual cue that helps us rethink technology. And that is sorely needed in these times of powerful disruption.

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Well sir, we’re not Amazon: online support lessons for insurers

I just got off the phone from a 40 minute phone call with an insurer that provides benefits to my family. I won’t name the company, as that is not the point of this blog post, but I thought I would share my experience. I am certainly hopeful that this could not happen at any of the companies for which our readers work.

The same insurer handles my Group life and Dental coverages. It is a well-known company. I had previously registered for their website, so I logged on to print my new dental card, so I could get all seven of us to the dentist. When I logged on, it only showed my Life coverage, but not dental. Nothing on the site let me add it, so I resorted to the next best thing.

I called.

The wait was about what I expect – about 10 minutes – before they actually connected me to a person. After providing my entire life history (or at least it felt that way), to validate I am who I am, the customer service rep banged away at her keyboard for a solid 5 minutes before declaring that she could not send me id cards – that my account did not allow it. Getting beyond the fact that this is simply silly, she transferred me to web support.

Back in the queue for another 10 minute wait, I finally spoke to a helpful gentleman who could set me up to access my dental account.

Except he couldn’t.

First, he explained that I had to have a second web account to view Dental. Apparently the siloed nature of their organization spilled over to their customers (Strike one). Then after being on hold for another 5 minutes, he came back to let me know that he could not set me up because my employer did not allow us to have an online account. Even when assured that my colleague DID have allow web accounts, he stuck with his guns. I tried, repeatedly, to convince him that my company would not have made that decision (Strike two).

I finally gave up, ended the call and emailed our internal benefits coordinator. She responded that all I had to do was register for the site again, using a second email address. Naturally, this worked, contrary to what the insurer repeatedly told me (Strike three).

Now, why did I title the blog as I did?

Because my experiences with my insurer are not unique. I recently had trouble returning an online order from a major big box home improvement store. They wanted everything short of my first born to allow me to return a defective product. I had to jump through many hoops and take the product back to their local store. To make it worse, they wouldn’t be able to replace it. I’d have to order it again, and, by the way, the price went up $120.

During that call, I commented that their service was complicated and poor and paled in comparison to Amazon.

To which he replied: “Well sir, we’re not Amazon.”

No, no you’re not. And I haven’t ordered anything else from them either, but Amazon gets my business regularly.

The moral of the story? Oh there are so many:

– Don’t show your organizational weaknesses to the customer. You may be siloed, but that shouldn’t make it difficult for the customer.
– Make sure your support people actually know what they’re doing. The solution set should not include “making something up so the customer will go away.”
– Customers expect your service to equal those of other providers. Admitting that you’re not Amazon just reinforces this notion.

I could go on and on, but it is a lesson the insurance industry needs to learn. We lag behind virtually every other industry in online support.

Now I don’t want to leave on a negative note, because there are insurers in our industry that excel at online support. My auto insurer is wonderful.

What’s a bit ironic is that once I got setup on the two almost identical websites for this insurer, the web experience is wonderful.

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