I recently shopped for a new auto policy for a close family member. As many people do, I checked with several insurers, both through call centers and online, finally narrowing my choices to two national companies. I made sure to disclose fully all the information concerning violations and accidents. One company eventually came out on top, offering the best price for the needed coverage. I decided to move forward and purchase the policy. However, when I entered the payment information, the quote increased dramatically — enough that the “winner” receiving my business changed.
That scenario is a good example of one insurer purchasing underwriting reports that ultimately went in the trash. The other competitor developed an accurate (and final) quote early in the quoting process. Even though the quote appeared to be higher and the insurer initially lost my business, they won in the end. How did they do it?
Generational changes and customer expectations
My personal experience illustrates the effect of changing behaviors and expectations of customers in the modern insurance marketplace.
In the past, customers typically purchased personal insurance policies through a local agent who was viewed as a trusted advisor to the family. The agent was often personally acquainted with the customer and known in the community through various social circles. The purchase process involved getting to know the family and their goals and needs and recommending a set of products to meet those requirements. The agent spent considerable time collecting the information to rate the risks properly — collecting detailed information about the drivers, vehicles, home, contents, and other assets.
Fast-forward to today. Insurance has become a commodity. Consumers are coming to the table with a basic, but not necessarily sophisticated, knowledge of their needs. And they’re looking for a simple transaction to purchase policies to meet those needs — much like any other product they buy. The purchase of most insurance products, regardless of channel, involves the use of some third-party data to complete the application and make the process more efficient for customer and insurer alike.
Consumers have also become more comfortable with web-based purchasing. Initially through online stock trading and then through companies such as Amazon and Apple, purchases on the web have become fast, affordable, simple, and transparent. Insurance has failed to keep up with that trend. As in the example noted above, the buying process has become relatively quick but still lacks simplicity and transparency. (Why did my quote go up at the very end, even though I fully disclosed my history?) And for the insurer, the process isn’t any less expensive. One of the insurers ultimately purchased all its underwriting reports at the end of the transaction only to have them go to waste when the customer rejected the final, ready-to-bind quote. My opinion of that carrier diminished, since they attracted me with a lower quote but changed it at the last minute.
And of course, consumers want everything fast. That’s partly due to generational changes and partly to expectations created by the industry.
The Millennials and Gen Z — those born after 1977 — have grown up with technology and in many cases have come of age in the time of high-speed Internet connections. Many of them can’t recall the early days of the Internet, hearing the dings, buzzes, and static of a modem connecting to a host. “Digital natives” come with a general expectation of speed, simplicity, and accuracy. “Digital immigrants” are also developing the same expectations as technology progresses.1 We’re just beginning to approach the years when Gen Z is entering the insurance marketplace. As the generations shift, the number of consumers with those expectations will continue to increase.
The industry is also changing consumer expectations. As discussed earlier, insurance policy purchasing used to mean setting an appointment and spending a significant amount of time discussing needs and options. On the claims side, waiting to see your adjuster was common. Today, most insurers have 24/7 ability to issue policies, and claim cycle times are measured in hours, not days or weeks. Along with the expectation of speed, the expectation of simplicity and transparency persists. Regardless of channel, insurers must obtain needed information quickly and accurately and with minimal imposition on the consumer.
Next steps for insurers and service providers
Insurers need to achieve various capabilities to have a competitive advantage in the marketplace, such as:
- simplifying consumer interaction and dramatically reducing acquisition time to a minute or less
- understanding the nuances of the current “household” paradigm and how best to define it
- finding alternative ways to use information and underwriting reports — and knowing when to implement them in the acquisition life cycle
Service providers too will need to attain some key milestones to come out ahead in the industry, such as:
- developing tools that can apply population-specific advanced analytics at point of sale and assessing the information the consumer provides before transmission to the insurer
- inventing new ways to format and deliver underwriting reports early in the quoting process without dramatically increasing an insurer’s expense
1. Prensky, Marc (October 2001). “Digital Natives, Digital Immigrants.” On the Horizon 9 (5): 1–6.
Streamlined Customer Acquisition Flow
Recent analysis has shown there are ways to improve and reduce the cost of the customer acquisition process, for both the consumer and the insurer. Verisk studies have shown that nearly 80 percent of all personal auto applications can be completed accurately and deliver a bindable quote using available data sources that require minimal consumer input in a fraction of the time it currently takes. Early analysis of the homeowners market shows similar promise.
Further, through independently validating information from the application and applying indicators and predictive modeling earlier in the application process, the insurer can significantly decrease the likelihood of the quote changing later.
Additionally, extensive analysis of millions of applications over the last several years demonstrates that those applications are of higher quality and yield better loss results than the manually completed applications of the past. The loss ratio differential between low-risk and high-risk applications averages more than 55 percent.
The result is lower cost of acquisition and improved financial results for the insurer and a better customer experience for the applicant.
Consumer demands are changing, driven by age demographic shifts and higher expectations. Insurers have to “win” the customer earlier in the underwriting process to achieve optimal success. With the data available today, insurers can provide a complete, accurate, and validated quote with minimal consumer input. That results in higher insurer win rates, an improved customer experience, and better financial outcomes for all.