By Manan Sagar, Chief Technology Officer for Insurance at Fujitsu UK&I
It’s no secret that buying car insurance can be a frustrating experience. Probably one of the most common complaints is the lack of accuracy around pricing and the increased charge for customers’ ongoing loyalty to a vendor.
Therefore, it’s been a welcome relief for customers as the price of premiums continues to drop within the UK car insurance industry; decreasing by 1% in the third quarter. This has been pushed down by uncertainty from the personal injury discount rate change in July 2019 and the market watchdog’s interim report on general insurance pricing practices.
However, this is less exciting for insurance companies. It’s a worrying sign for the way the industry currently works, and this warning should be taken as an indicator that it’s time to change lanes in the way we approach pricing practices in UK insurance.
Out with the old, in with the accurate
The hinderance to customer satisfaction for insurance companies has been the result of generic circumstantial ‘repair and replace’ pricing systems. Insurance premiums in this archaic model are based on historical data which makes projections about potential outcomes based on trends. This often causes specific groups of people – such as young adults – to be penalised as underwriters and actuaries use past data sets to look for loss patterns and make projections about future outcomes.
As a result, this has created a conception that insurance providers have unfair and inaccurate prices, and unfortunately digital transformation in such a model is limited to enabling “easier” purchase and claims processes.
But now technology is giving insurance companies the opportunity to alter this model. Traditionally prices are formulated through a calculation of stakeholders: the client + the broker + the insurer. But now the addition of technology providers has increased insurers’ capabilities to process, analyse and use data to provide more tailored premiums and accurate results. In other words, technology is enabling insurers to become a force for good, and rather than just reimbursing for damages and losses, to predict and prevent these from happening. In the grand scheme of things, this would benefit not only the industry, but society as a whole.
For example, rather than filling out generic questionnaires to conclude a pre-determined price, technology will be able to look at current and real-time data to consider the customer’s behaviour before establishing a price point. This means insurance companies will have capabilities to offer more bespoke policies that better reflect their customers, their lifestyle and their needs. In some cases this precision will reduce insurance costs on an on-going basis – the benefit being an increase in customer satisfaction and retention.
This is all possible thanks to technology that already exists. Powerful analytics tools and the Internet of Things (IOT) has opened the door for insurers to provide “smart policies”, and make dynamic projections about future outcomes, calculating pricing models based on this new approach. For car insurance, this means that data can provide insights not just into when and where, but also how the customer drives – ultimately promoting safety on roads. Some car manufacturers like Tesla have already spotted the opportunity and have, earlier this year, announced that they will be offering insurance to their car owners in the US at a 30% reduction.
The insurance industry has its brakes on
Increases in customer satisfaction and customer retention are no doubt the goals of every insurance company, and achieving this through digitisation seems like a promising offer.
However, it’s not that simple.
Insurance is an age-old industry that is deeply rooted in the traditional business model it currently operates in. Most of these companies are also big, which makes a change of this nature more of an upheaval than an agile step-change.
This has made actions within the digital transformation process, such as implementing automation to harness the power of “data”, extremely slow for some organisations. But insurance companies need to think how they can start adapting to the new customer demands, and how they can revolutionise their own industry and stay relevant.
To get in gear, insurance companies need to challenge their traditional mindset and see technology as a supplement to their services. Ultimately, to thrive in today’s market, insurers will have to shift their focus on prevention, and “smart policies”. Soon enough, policyholders – whether the public or businesses – will no longer accept the old way of doing things.
The UK car insurance industry is at a cross roads. And how well insurance companies use technology will determine whether they go down the route of futureproofed customer experience, or a dead-end.
