The Customer-Oriented Business Imperative Emerges

While some P&C carriers have been gradually moving toward a more customer-centric operating model­—and away from a channel, product, function, and process-oriented mindset—the focus and pace is broadening and accelerating as a number of external factors come together to make the customer-oriented paradigm an absolute industry imperative.

One of the most critical factors is the emergence of the “new consumer,” or Millennials. They are always connected, well-informed, and active 24/7, and they hold high service expectations that have been instilled by retailers and financial service providers. This has triggered the pursuit of a new and very different customer-centric business organization across all facets of P&C insurance.

In order to meet consumer expectations and improve the value and effectiveness of customer interactions, an enterprise-wide, single view of the customer is required. Carriers need to increase engagement and satisfaction to deepen their relationships, and they must boost their understanding of customer needs in order to create and deliver tailored solutions and services.

The need is growing for a multi-channel approach to connect with new consumers who expect to communicate with vendors across multiple channels and who represent high-value prospects for insurers and multi-channel models. Consumers should be allowed more choice, flexibility, and personalization in their insurer interactions—all of which engender loyalty. Integrated-channel models enable insurers to take advantage of each channel’s unique attributes and create more efficient customer interactions.

Additionally, telematics has come of age, enabling carriers to offer vehicle owners customized auto insurance programs with premiums based on personal driving habits. Telematics devices and programs increasingly will become platforms for interactive safety and travel-related communications, adding additional value and further strengthening insurer/customer relationships.

Taken together, these dynamics require that P&C carriers continue to innovate and adapt their business practices and processes to take advantage of new realities. Executed properly, this will impact virtually every facet of the insurance enterprise—including product development, sales and marketing, claims handling, and customer service—and will certainly require the adoption of modern, better-integrated, and more agile technology solutions.

Telematics and Usage-Based Insurance: Ultimate Customer-Centricity

Telematics is the integration of mobile telecommunications and informatics, a broad academic field encompassing human-computer interaction, information science, information technology, algorithms, and social science. It came of age in 2011 and will continue to evolve and mature in 2012 and beyond.

The potential of telematics has been long understood by carriers: improved risk selection, better pricing, greater underwriting accuracy, crash-recording data for claims management optimization, and the potential to improve driver safety.

But now many of the obstacles to adoption are being overcome, including the rising cost of auto insurance; the high unit cost of devices, installation, and services; the willingness of carriers to offer significant premium discounts; privacy concerns surrounding the devices and data collected; and the availability of easy-to-use technology for consumers. The process of transferring data from devices to carriers has become automatic via the use of 3G networks.

Additional factors encouraging carriers and consumers to adopt telematics include the ability to gather crucial accident data that may be otherwise inaccessible, the potential for recovering stolen autos, and the ability to monitor teenage driving behavior.

Smartphone and automobile makers increasingly are providing the equipment to support these programs. Factory-installed hardware in newer vehicles relieves insurers of these costs. GPS tracking devices also address such objections and encourage widespread adoption.

Further, the devices are increasingly becoming platforms for interactive safety and travel-related communications. In fact—and perhaps surprisingly, given the state of the economy—according to Sanjay Ravi, head of automotive at software giant Microsoft, the “connected car” became the third-fastest-growing “device” globally in 2011, following smartphones and tablets. Indeed, Toyota and Intel recently announced a partnership to get into the “infotainment” game together in a venture focused on connecting mobile devices with the car to access both information and entertainment, including a user interaction methodology that will include touch, gestures, and voice. Car company executives are even promoting in-car Internet as a contribution to auto safety.

Safe-driver and multi-vehicle, multi-policy discounts, which started appearing in the late 1960s, represented the first wave of discounting for auto insurance. More recent pricing innovations include accident forgiveness and no-cost reductions in collision deductibles that increase with the length of an accident-free driving record. During the recent recession, consumers increased their deductible amounts, particularly for collision coverage, to cut premium costs. This has, in part, forced insurance companies to consider new and different pricing and packaging in order to preserve premium revenue.

Telematics has enabled one of the more recent auto insurance innovations in what has come to be known as usage-based insurance (UBI), or pay-as-you-drive (PAYD) insurance. This new format has begun to gather significant traction since first being introduced in the United States by Progressive Insurance in 2008. Even data-privacy concerns, once an obstacle to adoption, have eased and have been overcome by the lure of lower premiums.

A January 2012 report from Aite Group entitled U.S. Auto Insurance and the New Consumer, based on a survey of 1,024 U.S. consumers, found that 36 percent of drivers already purchase “new” insurance products (one that includes some type of condition or restriction in exchange for a premium discount), and 95 percent of all other drivers would consider purchasing at least one of these products in order to save money.

Themes in 2012 and Beyond

The most successful carriers and vendors will be those who embrace this customer-centric imperative to inform design, development, and operational execution across the entire insurance enterprise, including customer acquisition, engagement, and satisfaction.

Auto insurance competition will further intensify, driven by the demands of growth, profitability, and customer retention. The winners will be those who best leverage technology to exceed customer expectations by offering superior service, the best communication channels, and the most individualized products.

Successful auto insurance carriers will leverage telematics and mobile technologies as platforms for usage-based insurance plus interactive safety and travel-related communications, adding additional value and further deepening insurer/customer relationships.  

Stephen Applebaum is a senior P&C insurance industry analyst with Aite Group, a research and advisory firm focused on business, technology, and regulatory issues. He has been a CLM member since 2011, and can be reached at sapplebaum@aitegroup.com.