There’s no question insurtech has brought about many, many changes to the way the insurance industry ticks. It demonstrated radically different ways to develop, price, and distribute products, leverage new technologies, and engage with insurance customers. It also helped change the way many insurance customers expect to interact with their insurance providers and products. This has happened, in part, due to an increasing expectation and reality of transparency between insurers and their customers.
How is transparency changing the game for insurance customers
Transparency is a vital part of the way insurers must communicate with their customers moving forwards. A big reason has to do with trust. A Statistica survey found customers don't have much of it when it comes to insurance companies, with 38 percent trusting insurers just a little, 26 percent not very much, and 17 percent not at all. This is a good indication that it's time for insurers to begin bringing customers inside the insurance 'black box.'
After all, enhanced data management and analytic capabilities mean insurers know more about their customers today than they ever have - and customers know that. Thanks to tools like social media and wearables, insurers can assess risk, price and develop products, and tailor policies faster and more specifically than ever before. This is a fantastic opportunity for insurers to reestablish their products’ relevance to customers, something they desperately need to do.
Modern customers are now used to demanding flexible products and services tailored to their needs. This isn’t unique to insurance, it’s true from the way we shop for clothes, to the way we dine at restaurants, to the way we consume our media. This broad expectation of readily available, tailored experiences and products on digital platforms certainly applies when customers are searching for an insurance product - and could be a barrier to purchase if it’s not available.
Customers are also hyper aware of what they’re spending, and they are more than ready to demand the reasons behind new rate changes, premium pricing, and more. Providing this increased transparency can certainly be a win/win situation, especially when insurers can appropriately price risk in a way they couldn’t before. It enables things like shared value insurance offerings, that allow customers to get lower prices in exchange for things like safe driving and healthy living.
You can also see this emphasis on transparency every time an insurer or insurtech promises customers they will ‘only pay for what you need.’ Micro-insurance offerings, as well as platforms and apps that allow customers to purchase, change, cancel, or redeem products online, further this perception that customers should have a clear understanding of what they’re paying for and why.
How does this change product development and distribution
In order to ensure customers can understand the products available to them, as well as why those products are relevant to them in the first place, the product development process needs to be bolstered with robust data analytics. This process should incorporate consumer and market data in order to influence the way products are priced, organized, explained, and distributed in order to delight and satisfy those customers.
Increased competition from digital insurance distributors, especially in areas like home, flood, small item, and car insurance, means incumbent insurers must listen intently to their customers and respond. The days of complicated terms and conditions, or trapping customers in a policy that doesn’t fit their needs or timeline or budget, are coming to an end. In order to re-engage with new customers, and retain existing ones, insurers must clarify FAQs regarding policies and be transparent in their communications.
In some ways, they don’t really have a choice. Regulators all over the world are enforcing strict rules that demand transparency from insurers with regards to product development and distribution practices being in the consumers best interest. Though being compliant with new regulations isn’t a choice, insurers should be proactive in taking it one step further with regards to transparency between themselves and customers. The consequences of not doing so may not make themselves known with today’s regulations, but they likely will with tomorrow’s.
‘Paying for what you need’ takes on a whole new meaning
The rise of micro-insurance means that, in many cases, customers don't need to sign up for anything more than exactly what they need. Granted, micro-insurance isn’t currently available for all forms of insurance, but its existence further emphasizes the ability for insurers to provide clear guides to the way they price their products. This expectation is one insurers should now anticipate answering for customers, regardless of what kind of policy they're purchasing.
Incumbent insurers should also consider the new insurtech offerings and models customers are readily engaging with. Flexible policies ranging from renters to travel to health to car insurance allow customers to get quotes instantly on an app or website and know they’re only paying for exactly what they need. Who wants to pay full price auto insurance when your car is sitting in a garage most of the time and you can pay by mile, like what insurtech By Miles offers?
In order to offer these kinds of policies, and compete with the insurtechs offering them, insurers need to optimize their pricing process to be flexible, fast, and responsive to changes in the market, competitor pricing, and customer data. They also need to rethink the way they structure and distribute these products, ensuring they are agile enough to adjust to changing customer needs and situations.
Transparency means an entirely new insurance product
The expectation that customers should only have to pay for what they need from an insurance product isn’t a new one, but transparency gives it a whole new meaning. Insurtech, and the dynamic services and products it brings to the industry, is beginning to show consumers what lies inside the ‘black box’ of insurance. For the first time, there is a far clearer picture behind insurance product costs and terms, and it may be coming just in time.
While adjusting to new expectations and regulations is a lengthy process, this increased transparency and access to data also opens the door for a (badly needed) truly engaging relationship between insurer and customer. It also provides a chance for this relationship to become mutually beneficial in a way it has never been before.
“Through real-time data capture, narrowly designed coverages, usage-based insurance (UBI) and newly enabled transparency with the policyholders, insurance is moving into a stage of shaping and shifting consumer behaviour,” said a report authored by Washington, DC-based venture capital firm VillageCapital in partnership with insurer QBE.
Insurers can re-engage an otherwise under enthused customer base by using new data capabilities and communication channels to dig into what customers really want. If they’re not biting with traditional products, this is an opportunity to rethink them by developing new, flexible insurance products that are relevant in today’s market.
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