Archives for August 2012

Changing the rules in online insurance

Changing the rules in online insurance

My colleagues Craig Beattie and Catherine Stagg-Macey published an interesting report back in April about the change in behaviour of online shoppers when looking for car insurance policy online in the UK. The title of the report is The Customer, Google, and UK Car Insurance: Lessons from Evolving Customer Search Behavior. In summary this study tells us that with the growing use of internet and aggregator websites when searching for the best car insurance products, online shoppers have become more educated and understand now better what a motor insurance product is all about. This self-education has allowed them to change their behaviour to now look for tailored insurance products that not only better fit their needs but also makes them less price-focused.

Celent has published various reports on the online insurance topic. We have also advised insurance companies on this strategic subject. What we learn out of the UK history is that aggregators take control of the customer relationship as long as they are focused on price and almost solely on price. Aggregators can therefore be dangerous for online insurers for two reasons. Firstly aggregators force insurers to squeeze their margins down in order to be in the top ranking and secondly many insurers tend to accept the price focus imposed by aggregators and sometimes neglect the service-to-consumer aspect which in the long run makes them stick to the same insurance provider.

Even though we think that the past ten-year evolution of the UK online insurance market represents a useful benchmark for continental European insurers, we think there are differences that will always characterize specific markets. In France for instance, online insurance is less developed than in the UK right now. A handful of insurers are competing in this market but not more than 2% of new motor insurance sales are completed online. On the other hands we see a growing use of internet by consumers in order to gather information before purchasing an insurance policy (in the vast majority via traditional channels such as agents, brokers and banks). What is interesting though is how the aggregator market is getting crowded in this country. Indeed, there are about thirty websites in France that compare motor insurance quotes online! In this jungle, it will be interesting to see how consumers will find their way. Maybe it would be interesting for insurance companies to launch a specific website comparing aggregators… using some criterias like independence, trust, website usability, etc.

This being said, we can already predict than less than ten aggregators will survive in the mid to long-run in France. In the meantime and unlike in the UK market there is an interesting strategic initiative, which I think deserves a comment on this blog. In order to counter the growing importance of price aggregators in the French online insurance market, Axa has tried to differentiate by anticipating what Celent has discovered to be happening to customers behaviour over time in its UK report mentioned above. Indeed, Axa has launched a website comparing services of insurers instead of price of motor insurance. The website is called (for our English-speaking readers it means “who has the best service”) and in substance it is a website comparing the level of services provided by insurers for different types of cases. For instance if you are a young driver and would like to know who has the best service to replace your vehicle in case of accident you can get a ranking of insuers using this website. I find the strategic move from Axa interesting and I am curious to see how it can change the usual online insurance pattern. In the meantime, I think this website should be a first step allowing the French insurer to better understand customers and anticipate the critical moment when they’ll become educated enough to start to be looking for more tailored insurance products. Customer behaviour and preference data gathered now will help Axa tailor the products that will be best placed to meet customer requirements in the future and I think is an interesting tool to achieve this goal.

Creative Disruption in Action: Changing the insurance outlook for young drivers

Creative Disruption in Action:  Changing the insurance outlook for young drivers

With less than a month to go until our Creative Disruption Symposium in New York on 13th September 2012, the Celent team are working hard on pulling together some great content. The agenda and speakers have been confirmed, and hopefully we’ve got the technology lined up to add in a bit of audience participation for fun.

On Monday, I spent a great day with one of the new breed of telematics insurers in the UK that base their model on ‘Pay How You Drive’, called ingenie. We’ll be featuring them at our symposium in a video. What amazed me about this start-up was the passion and energy not just around delivering the insurance product through new technology but also the desire to change the driving behaviour of young 17-25 year old drivers. This passion extends to bringing new disciplines into the risk pricing equation, such as behavioural science to understand young drivers’ attitude to risk and also top-end driving science through a partnership that they have developed with the Formula 1 Williams team. Based upon their discoveries, they have added ~300 algorithms into the risk selection and pricing equation.

They also use the same information to feedback driving performance to young drivers in a way that they want to receive it, via a combination of a mobile app and push notifications. There’s no point in pushing the data out to a traditional browser based portal as that’s no longer how 17-25 year olds want to interact with technology. The goal of this model is to influence behaviour in order to reduce the total claims cost, build a long-term affinity with the young driver, and in doing so deliver a stable return.

For years, the traditional UK auto insurance industry has dismissed young drivers as virtually uninsurable, backed up a claims experience that’s hard to argue against. And it’s no surprise that this is the response when you consider that the traditional model has delivered an above 100% COR for entire UK auto insurance market over many years. In 2011 alone, which was considered to be an improvement on prior years, the industry made an operating loss of £600m ($960m).

Through changing the model to focus on adapting driving behaviours and in doing so reducing the frequency and cost of claims, telematics is enabling new entrants to target this underserved market using a viable alternative capable of outperforming the industry incumbents. As a result, it’s no surprise that many of the insurers that we speak to in the UK are seriously looking at how (or even if) they should respond.

To us, this is a great example of Creative Disruption in Action and one that we will be covering in more detail at the Symposium. There’s still time to register!

Finally, whether you are able to attend our Symposium or not, why not help us prepare by taking five minutes to complete our survey on Creative Disruption within Insurance. Click here to participate. Thank you.