Four Consumer Trends That Will Demand New Insurance Business Models
Remember back when the customer was king or queen? The idea that the customer was always right and hence, deserved great service was crucial to the idea of building a great company and fostering brand loyalty. Today, however, customers will only remain loyal as long as they think they are receiving the best product, experience and services. As insurance executives, we need to consider our own customer experiences across other businesses and how they shape our expectations when we put on our insurance hats. Because that is what our customers are doing!
When it comes to knowing customers, one size does not fit all. Generational differences exist and we must track and understand these trends and differences. In insurance this is especially true because generational behaviors are having a tremendous impact upon insurer business models. Do customers still want face-to-face encounters? Do they want multi-channel experiences? These answers can be very different when we look at Boomer and Gen X cohorts vs. Millennial and Gen Z populations. What does this mean to insurer business models? Who should we be courting? What new solutions will we need to meet these varied needs and expectations?
In anticipation of Majesco’s upcoming Consumer Survey report, we are considering four consumer trends that will push insurers to adopt Digital Insurance 2.0 business models. These four trends are:
- The Blurred Lines Between Personal Use and Business Use
- The Use of Smart Speakers (and Virtual Assistants)
- New data sources for pricing
- Purchasing through Product Aggregators
The Blurred Lines Between Personal Use and Business Use
Last week in the Majesco blog, The New Risks, we mentioned an emerging risk for insurers — “hot shot” trucking. This involves any pickup truck owner who has the capability to tow a heavy trailer. They may now make point to point deliveries without a commercial license using trucks that are simply insured for personal use.
This is just one case where personal lines and commercial lines are becoming increasingly fuzzy. Insurance customers of all types are taking on gig economy work that utilizes personal assets for business use. At the same time, many of them are renting out personal property that can be converted into a business asset through online websites and mobile apps.
Look anywhere, and you’ll begin to see these blurry lines. Grocery delivery is on the rise with online apps such as Instacart. Independent drivers may make 16- 20 deliveries each day using their personal vehicle. Gig work from home is also on the rise. Every insurance risk that can be thought of in a traditional business is now being brought into the home. Sometimes this work involves expensive equipment, additional space, large inventory or hundreds of shipments made in and out of the home. These are risks that deserve separate insurance products, but they may also be ripe for new kinds of coverage that reflect the work/life mix.
What does this mean for insurers that traditionally only cover personal lines or commercial lines? Should they expand into new products and services? Are they digitally prepared with an ecosystem that will handle the types of information and data that would facilitate these new relationships? Or, are they going to simply watch as startups and greenfields move into this space and potentially take business from them? One thing is certain. Many of the capabilities that insurers will require to cover a personal/business product will need real-time data and policy management flexibility. A legacy system may not be flexible enough to adapt. Business models and systems will need to change.
The Use of Smart Speakers (and Virtual Assistants)
The smart speaker may rock the insurance industry in ways that it doesn’t want to roll. It may be the one consumer trend that takes nearly all insurers off guard. In April 2018, Forbes reported that smart speaker penetration exploded 50% in three months.[i] In January 2019, RBC reported that U.S. penetration of Alexa-enabled devices reached 31%. Adobe’s report, State of the Voice Assistants, provided a number of powerful insights into smart device use, including the fact that more than 1/3 of smart speaker users are using them to compare prices.[ii]
Smart speakers are the next step toward full-fledged digital assistance, where anything we ask will be researched by machine-taught bots with enough artificial intelligence to make some choices for us. Smart speakers represent a new channel opportunity, but only for insurers that can stake their claim on the channel by ramping up their ability to interact.
Another striking surprise, and one that could catch commercial insurers off guard is that consumers have rapidly figured out that Amazon Echo can be fully utilized within the business environment. Alexa can control your meetings, projectors and lights. She can perform daily tasks like reading e-mail. CapitalOne is already using Alexa to monitor IT data systems.[iii] Commercial insurers may find that Alexa’s ability to answer questions will push commercial customers closer to tech-savvy insurance and services. We have previously discussed how smart speakers may be used in preventive services. There is really no limit to how valuable these links and channels can be. Insurers need to be prototyping and developing strategies for common questions that can be answered via Virtual assistant — then doing the research and preparation it takes to build a business model that fits.
In spite of the hurdles, this consumer trend will create incredible opportunities if business models are shifted.
New Data Sources for Pricing
Sometimes an old trend becomes new again, and this is the case for consumer price shopping. The idea of cost-conscious customers seems almost too blasé to dive into. But remaining competitive on service and price is going to require major digital changes and a radically-new economic lesson in how we view customer relationships and customer data.
The reason this is listed as a crucial consumer trend is because younger consumers especially are proving to prioritize price over loyalty. A survey by AXA Strategic Ventures found that only 16% of Millennials think insurance is even necessary.[iv] When customers view insurance as only a legal requirement, or unnecessary, they will always be more interested in price than coverage and service. Though we won’t share the actual statistics until Majesco’s Consumer Survey Report is released, we found some fascinating data on the relationship between insurance pricing models and customers’ willingness to supply data.
Insurers are entering an era where they are going to have to use technology to engender real trust because they are going to want permission to open “private” doors of data that haven’t been used before. They will need to build business models that educate consumers on why opening themselves to monitoring will allow us to price appropriately.
In our upcoming Consumer Survey Report, we surveyed insurance customers about their interest in choosing from 8 different insurance pricing models based on new, “non-traditional” sources of data. Each model differed in how price would be calculated, but all options shared the idea that pricing would be driven by customer behaviors or characteristics. The results, though we won’t share them here, were quite striking. Most striking was that a moderately high percentage of policyholders across generational boundaries, seem very amenable to these different pricing scenarios. This proves that privacy and barriers to acceptance ARE able to be overcome, but only if insurers can choose business models that will foster accuracy in pricing due to real-time analytics.
Purchasing Through Product Aggregators
Purchasing through product aggregators and comparison sites is related to pricing, but it is its own consumer trend issue. Aggregators, in every industry, save comparison time.
For insurance, aggregator and comparison sites are growing in use. As we’ll discuss in the Consumer Survey Report, aggregators fit so many consumer needs. In Majesco’s recent Strategic Priorities 2019 report, we found that 28% of insurers have already partnered with aggregator sites and 24% have partnered with comparison sites. Clearly, some insurers are ready.
There are “healthy” reasons that insurers may want to build accommodating business models for aggregator and comparison sites. First, insurance companies that partner with comparison sites are forced to assess and remodel their quoting, underwriting and purchasing processes. They simplify their language. They simplify their offerings. These lessons are valuable to the whole organization.
Second, insurers can expand their reach to new customers and markets. This expands the brand and brings in additional customers who may be converted into multi-line customers at a later date. Insurers truly have every reason to engage with these distribution options, not the least of which is the model preparation that will assist them as they move into other channels and markets.
Next week, we’ll move beyond basic consumer trends and straight into Majesco’s Consumer Survey Report data. You won’t want to miss what we’ve uncovered — many surprising statistics that you’ll want to see as you contemplate your Digital Insurance 2.0 model.
By: Denise Garth