Changing the Landscape of Customer Experience with Advanced Analytics

That timeless principle – “Know Your Customer” – has never been more relevant than today. Customer expectations are escalating rapidly. They want transparency in products and pricing; personalization of options and choices; and control throughout their interactions.

For an insurance company, the path to success is to offer those products, choices, and interactions that are relevant to an individual at the time that they are needed. These offerings extend well beyond product needs and pricing options. Customers expect that easy, relevant experiences and interactions will be offered across multiple channels. After all, they get tailored recommendations from Amazon and Netflix – why not from their insurance company?

Carriers have significant amounts of data necessary to know the customer deeply. It’s there in the public data showing the purchase of a new house or a marriage. It’s there on Facebook and LinkedIn as customers clearly talk about their life changes and new jobs.

One of the newest trends is dynamic segmentation. Carriers are pulling in massive amounts of data from multiple sources creating finely grained segments and then using focused models to dynamically segment customers based on changing behaviors.

This goes well beyond conventional predictive analytics. The new dimension to this is the dynamic nature of segmentation. A traditional segmentation model uses demographics to segment a customer into a broad tier and leaves them there. But with cognitive computing and machine learning an institution can create finely grained segments and can rapidly change that segmentation as customer behaviors change.

To pull off this level of intervention at scale, a carrier needs technology that works simply and easily, pulling in data from a wide variety of sources – both structured and unstructured.

The technology needs to be able to handle the scale of real-time analysis of that data and run the data through predictive and dynamic models. Models need to continuously learn and more accurately predict behaviors using cognitive computing.

Doing this well allows an carrier to humanize a digital interaction and in a live channel, to augment the human so they can scale, allowing the human to focus on what they do best – build relationships with customers and exercise judgment around the relationship.

Sophisticated carriers are using advanced analytics and machine learning as a powerful tool to find unexpected opportunities to improve sales, marketing and redefine the customer experience. These powerful tools are allowing carriers to go well beyond simple number crunching and reporting and improve their ability to listen and anticipate the needs of customers.

The Great Pokemon Experiment

Nintendo's latest mobile phone (and mobile) game just keeps smashing records – it's already the biggest mobile game in the US and is looking set to become a worldwide phenomenon.

It's not relevant to insurance though is it? Well it is sort of introducing new risks with players being mugged and wandering into dangerous places including Downing Street in London apparently.

What's more interesting to me though is the mix of gamification, rewards for movement and the way it is making people meet up in novel locations.

Two opportunities sprang to mind for the industry:

  • What's most interesting to me is that if we were to measure health app's impacts by how far they get people to walk Pokemon Go could be the biggest health app of 2016, despite only launching in July. I'm curious how the Vitality and similar propositions rewarding customers for healthy behaviour will respond to the sudden uptick in activity. 
  • From an advertising point of view and ability to drive foot traffic to say, an agents office, Pokemon Go has huge potential – potential not missed on the developers as hidden code in the game already points to a hook up with McDonalds. For now though, if you have a Pokemon gym at your office location it might be a great time to do a little advertising or push that recruitment drive you've been thinking about.

As a technologist the photos springing up around the world of "Squirtle" being found in toilets (be careful where you point the camera) also goes to show how augmented reality has become mainstream as well, along with the threats AR and virtual reality could pose in at least distracted walking. I love that the digital and physical world are coming together and it's actually bringing families together too.

Whilst some will marvel at this latest craze, for those insurers with investments in the real world like agencies, offices, billboards – and for those that are agile enough – this surprise trend could serve as a great marketing route to catching all the customers, as well as all the Pokemon.

Is State Farm Pre-positioning Itself for the End of Auto Insurance (and Maybe the End of Homeowners Insurance Too)?

Once in a while an insurance company asks me for advice—and occasionally even follows the advice which I provide.

I can say, however, that State Farm has never asked me for any advice about what they should do if the need for auto insurance disappears or substantially declines. Nor has State Farm ever asked me what they should do if the demand for homeowners insurance should take a similar dive.

Some readers may be wondering why would State Farm seek advice from your humble blogger about either topic?

Well, because I have been writing and talking about the end of auto insurance for four years. My just posted Celent Report, The End of Auto Insurance: A Scenario or a Prediction?  looks at how three technologies—telematics, onboard collision avoidance systems, and driverless cars—will depress auto insurance losses and premiums over the next 15 years.

I have also been writing and talking about the impact of the Internet of Things on the property/casualty industry for two years. Celent research subscribers can look at my reports: The Internet of Things and Property/Casualty Insurance: Can an Old Industry Learn New Tricks and Can a Fixed Cost Property/Casualty Industry Survive the Internet of Things?

So without even a word of advice from me, it looks like State Farm has pondered potential declines in auto and homeowners insurance; and decided to start some early positioning for itself and its agents if such things come to pass.

Proof Point: A new State Farm commercial called “Wrong/Right” shows a world without windstorms, traffic accidents, building fires, and emergencies. The commercial goes on to ask what about State Farm in such a world? The implied answer is that State Farm and its agents will be in the lending, wealth accumulation, and retirement income businesses. The tag line is “Here to help life go right.”

Which personal lines property/casualty insurer will jump in next?

How can Insurers provide better service to their female clients?

Despite women’s rising workforce participation and escalating income, it appears that American women still have major gaps and unmet needs when it comes to achieving comfort and confidence with money. Whether by circumstance or by choice, women are finding themselves in roles where they must be responsible for long-term financial needs and security.

Female financial services clients are a substantial and overlooked segment of the market despite controlling a significant portion of the world’s wealth. A shift in demographics of women clients, including the significant wave of next-gen millennial clients, and the exponential growth in technological innovations across society and within the financial services industry present challenges and opportunities for insurers and the financial services industry. Surveys of affluent women show that they are dissatisfied with the services they receive from an advisor or the financial services industry as a whole.

In my report, Women, Money and  Realizing  Financial  Goals, I examine women’s attitudes  and aspirations for making  financial decisions.    Given the size and diversity of female clients across the generations in terms of behavioral characteristics, financial goals, technological aptitude, and product and service needs, insurers should increase their understanding of and investment in this particular section of the market, including thoughtful client segmentation, marketing efforts, and application of technology.

According to LIMRA, the number of women who are the sole or primary earner for their family with a child under the age of 18 continues to increase. However, their amount of life insurance coverage averages only 69% of men’s. Additionally, women with high personal incomes (more than $100,000) are less likely to have individual life insurance or group life insurance than men with similar personal incomes.

As insurance professionals, we should endeavor to better understand and better respond to the financial needs of women. The relationship between insurers and their female clients has improved, but there is more progress to be made in meeting women’s financial goals and needs. What plans do you have in place to better reach women insurance buyers?

Apax Partners adds Agencyport to its growing property/casualty technology investment portfolio

Today’s announcement of Apax Partners’ acquisition of Agencyport makes sense. This deal is a further commitment by Apax to the property/casualty software sector—following shortly after Apax’s announcement of its equity investment in the soon to be independent Duck Creek.

Insurers want the internal and external users of their systems to have seamless mobile access to new business and other functionality. Agencyport has developed one of the leading solutions for agents, brokers, and policyholders find information and execute transactions with insurers’ core systems.

As is true for any technology acquisition, the soon to be combined management teams of Agencyport and Duck Creek will need to focus on communicating the benefits of their new relationship to current and prospective customers—sending a “good before, better now” message. Providing “vendor neutral” support to Agencyport customers who do not use Duck Creek solutions and Duck Creek customer who do not use AgencyPort solutions will also be crucial.

One last look back at Google Compare

It’s old news by now that Google is shutting down Compare, its financial services and insurance comparison site. It wasn’t open long – less than a year. When Compare was first announced, the industry reacted with warnings that this was a major disrupter in insurance distribution. With the massive audience that Google has, the industry expected that Google was going to swoop down and capture the online insurance market – which by the way is pretty big – typically 75% of prospects research online and 20-25% of all new auto policies are purchased on line according to those who track this type of metric.   So what happened? Well, the fundamental idea of capturing the online market is a sound idea. And Google was pretty smart at avoiding all the hard technical costs of building out the aggregator engine by partnering with those who had already done the hard work – like, Coverhound and Bolt.   But the business model of an online aggregator is hard. There are three models – online agents – who earn full commissions. That wasn’t really Google’s deal. They weren’t interested in any of the after service or ongoing relationships. A traffic generator – sending a potential lead to another site and being paid for the eyeballs. Well, that’s not very lucrative either – and frankly, Google can make money through their own advertising and search capabilities. Spending the money to build an online quoting front end only adds cost to something they already do quite well, thank you.   So why would Google have invested the money in an online quoting front end? To take advantage of a lead model. With a lead model, the aggregator collects data, processes a request for quote and sends a highly qualified lead to be fulfilled. The price per lead is significantly higher than the price for traffic. But there’s a fundamental challenge with this model. For the lead to be valuable to a carrier, the lead has to actually purchase insurance. And because a lead is sold to multiple carriers, the acquisition costs rise for a carrier.   Let’s say a lead is sold for $5 to ten carriers. The aggregator makes $50 for that lead. But only one carrier actually writes the lead. If ten leads are sold, and each carrier writes one, the aggregator makes $500 but the carrier has spent $50 for that lead. Play out a competitive situation where the leads aren’t equally distributed, and you can see that the acquisition costs can rapidly rise. If I only get one lead out of twenty, I’ve spent $100 for that lead. If I only get one lead out of $30 I’ve now spent $150 for that lead – which now is pretty close to what I’d probably be paying an independent agent. And what if the customer NEVER buys – and simply goes in looking for prices so they have a comparison to an off line model? The numbers rise rapidly. Remember those numbers above – 75% shop on line and 25% purchase on line. That means that only one in three leads actually results in a sale. Assuming leads are distributed evenly, an aggregator will distribute 165 leads before I close one. That brings this $5 lead fee up to $82.50 –, which is pretty expensive. The way to make those economics work is to increase the conversion rate so that more of the leads a carrier purchases actually ends up buying a policy.   So while carriers are very interested in participating in the online marketplace, they really want to work with those aggregators who are successful at converting traffic to leads that will convert to policyholders. The online agent model is attractive as the carrier doesn’t pay until the policy is written. The traffic model is similar to online advertising, so that works as well. But the success of a lead model is a combination of the price of the lead and the likelihood of closing that lead – which is dependent on the number of carriers the lead is sold to and the propensity to buy.   So here’s where Google lost an opportunity with Compare. They thought they could convert relatively low paying traffic into high paying leads simply by putting a quoting front end on and didn’t think through what they could have done to improve the conversion rates. With their analytical power, Google could have created a truly disruptive experience by providing consumers with a powerful recommendation engine. Google is a master at finding out information about individuals from social media and other publicly available data. They could have created an algorithm that used the information about the lead to tailor and target recommendations.   Personal auto isn’t that hard. If we were talking about commercial, it’s a much harder set of algorithms. But honestly, it’s not that hard to create something that tells a customer that given their location, the value of their home, the type of vehicle and their driving record, 64% of people like you choose this limit/deductible/additional coverage etc. And getting a personalized recommendation drives conversion. When people trust that the advice is good, they’re willing to buy. We’ve seen many examples of how inserting advice and recommendations into the quoting process drives conversion.   When I personally go to get an online quote – it’s part of my job – I enter information that shows I own a home in California and I drive a luxury car. So why oh why do the aggregator sites today recommend minimum limits coverage to me? My car is worth more than that. Today, trusting the advice from an aggregator site is dicey. And that is why policyholders continue to rely on the advice of an agent. Does this mean the role of aggregators is dead? No.   But Google missed a major opportunity to truly disrupt by providing a powerful recommendation engine that could use their ability to easily find information about individuals and combine it with their powerful analytical abilities. They ended up creating just the same thing we had back in the 90’s. Kudos to them for killing it quickly – but they missed an opportunity to use their capabilities to make the model work.  

Free advice for auto manufacturers: how to sell the experience of driving an autonomous car

I rarely, actually never, give advice to automobile manufacturers because I am an insurance technology analyst, and not an automotive analyst. But as more and more and more auto manufacturers make announcements about their plans to get autonomous cars on the road, ready or not—the dire implications for automobile insurance cannot be ignored. So on occasion I do find myself thinking about what autonomous cars will mean for manufacturers. In particular, since the marketing of cars emphasizes the driving experience so heavily, what will the automakers do when all they can offer is a riding experience? I mean a rolling home office, or family room, or man cave, or walk-in closet only has so much appeal.  And yes I know that all these cars will be totally connected, but still how many touchscreens will entertain a car buyer/driver during the morning commute? So I do have an answer: virtual reality! Not just any virtual reality, but a virtual reality that makes the passenger in an autonomous car believe that he or she is actually driving that car—with appropriate physical artifacts (steering wheel, pedals, brakes, dashboard, etc.); and a choice of scenic and challenging routes.  If Disney can create rides that make people feel like they are accelerating, de-accelerating, steering, and cruising, why not GM and Toyota? As mentioned, this advice is free. But if any manufacturer reading this post is so inclined, please send a large check to Celent (not to me, alas). Thanks.

How to grow your book of business

Most carriers in North America work with independent agents. Although the majority of premium for personal lines is written direct, that is largely concentrated in a few large carriers. Carriers who use independent agents know that high production from agents is correlated with strong relationships. However, beyond encouraging a strong personal relationship with an underwriter, what else can a carrier do to systematically build a stronger connection with an agent and grow their book? Celent surveyed a group of agents to understand those areas most likely to make a carrier the agents’ top choice. The report addressed the following key research questions:
  1. When it comes to placing business with carriers, what criteria are most important to an agent?
  2. How are top carriers performing on those criteria?
  3. Where should carriers prioritize their investments in order to drive growth?
Key Findings
  • It is easy to think that price is the most important factor when it comes to where an agency chooses to place business. Competitive products and price certainly are important; however, even more important than products and price is the responsiveness of the underwriter. A fast underwriting decision is also quite important with over 60% of agents stating this is a must-have.
  • Money matters to agents although the specific components are not essential to all agents. The most important component is commissions. Interestingly enough, 40% stated that the commission rate does not necessarily have to be competitive. Only 30% said incentive compensation programs were must-haves – and 40% said they were nice to have or didn’t matter at all
  • Beyond that, agents also look for support in other areas. A strong brand is important, as it is easier to sell a company where the prospect already has an emotional connection. Marketing, training, and consulting support is seen as important by more than half the agents and especially younger agents who may benefit more from these types of services than older established agents may.
  • Mobile tools and social media support are generally not seen as important items to most agents – but there is a significant generational difference here. 25% of younger agents see mobile as a must-have compared to 4% of those over 60. Generational differences will become more important to carriers as baby boomer agents increase their rate of retirement and are replaced by GenX and Millennial agents.
  • Agents want carriers to invest in those tools that are most important in helping them perform their job of writing business and providing customer service to the policyholder. Most important to agents is continuing to build out both the integration with the Agency Management System and expanding the functionality of the Portal. Least important to agents are features such as mobile apps, online certificates of insurance, online commission statements, and access to marketing materials.
Looking ahead, the industry is likely to continue to experience increasing channel complexity and increasing regulation, which means there are opportunities both to improve the agent experience and to reduce costs along the way.  Carriers who are looking to drive growth by improving the agent experience should start by looking at their technology offerings and make sure they are delivering the functionality that is most important to their agents. This report presents the results of an online survey conducted during May 2015 of independent insurance agents. It contains 13 figures and 1 table. You can find it here: Driving Growth by Optimizing the Agent Experience

Strategic issues in insurance distribution management

Carriers use a variety of techniques for growing the book and most consider distribution management as a key component of their growth strategy. They are expanding channels, adding distributors, moving into new territories, and working to optimize their existing channel to improve customer acquisition and retention. Some carriers are investing in improving the servicing of distribution channels. Others are focused on managing the compliance aspects of distribution management — assuring the distributors have the right licenses, and that state appointments are made in a timely manner. Many carriers are concentrating on using compensation tools and techniques to more effectively stimulate production. To understand what top carriers are doing in this area, I conducted a survey of carriers around this topic. The goal of the survey was to understand how the carriers are organized to manage the distribution channel, what types of techniques they use, how effective those techniques are, and what challenges they face. Check it out here.
  • In most organizations, a formal Distribution Management organization has primary responsibility for channel management. Managing relationships and compliance are seen as the biggest issues they face.
  • A wide variety of compensation techniques are used by carriers and most say they get value from those programs – although carriers report that it is more important to calculate compensation accurately than to assure compensation is effective at driving desired business. Some techniques such as incentive comp and contests may only be available to top tier or qualifying agents – but receive mixed reviews on their effectiveness. Only 25% of those offering incentive compensation programs see them as effective. “Having an incentive compensation program isn’t highly effective, but not having one would be even worse.”
  • Most carriers rely on a variety of different systems to manage compensation – including Excel and find efficient calculation and distribution of compensation to be quite challenging. For many, the ability to administer a compensation program easily is the key driver as to whether the program will be offered. While they may wish to utilize a particular technique, their technologies create barriers.
  • Compliance is another challenging area with many carriers in the early phase of considering additional automation.  Fewer than half of carriers have automated any of the major processes – validating licenses, processing an appointment or providing self-service to distributors. Those that have automated the processes generally report them as delivering value.
Managing the distribution channel requires discipline in a number of areas – from managing the day-to-day relationship, assuring the distributor is in compliance with the licenses and appointments, and strategically managing compensation. However, carriers face significant challenges in performing these tasks efficiently. Carriers looking to improve distribution effectiveness use technology as a strategic differentiator.

Smartwatch adoption: don’t end up as a laggard

Timex-DataLink_04LLet me present you my first smart watch: Timex Datalink. My mom gave me this as a present when I was 23, back in 1995 (Oh my, I just gave out my age!). For those that haven’t seen one of these, it was the first watch capable of downloading information from a computer. Co-developed by Timex and Microsoft it was capable of data transferring from outlook calendar and tasks, No email, no voice unfortunately. It didn’t look very different than any other digital watches from that time (did I mention they were water resistant?), but they were unique because they could synchronise wirelessly through light (using the monitor screen) with the computer and data was transferred from the computer to the watch quickly and easily. It seemed revolutionary those days. Nevertheless, it was a complete failure (do you see them somewhere today?) While the concept was fine, they were too ahead in time so the functionality was very limited, and there was no integration with mobile devices and apps (they didn’t exist!). So when everyone started talking about smart watches (again) I remembered my old Timex Datalink. I don’t use watches anymore (smart watch or not), but back then I did. So this triggered my curiosity as what are the chances for smart watches to succeed. I decided to run a small poll between my friends and asked:
  1. Would you use a smart watch?
  2. Why?
  3. Under what circumstances would you consider using one?
This is what I discovered:
  • Some people (10%) don’t know what a smart watch is.
  • 10% said no, my smartphone provides me all I need plus if smart watches connect through Bluetooth they make batteries die fast. They would only consider using a smart watch if it is free (as part of a smartphone purchase for example) and technology improves (and battery life becomes a non-issue).
  • 40% said they don’t use watches today so why start using it now? They recognize that it needs to have a compelling advantage over the other devices we use today (mobile, tablet, laptop, etc.). If it is about health monitoring there are a plenty of devices in the format of wristbands that they would use instead. Video streaming would be another good reason to adopt it.
  • 10% answered that a watch is something related to fashion (and in some cases luxury) so unless an established well recognized fashion/luxury watch maker brand enters into the segment and makes them attractive, there is no way they would use it. Clearly this segment of consumers wouldn’t buy it from Apple, even if they come in gold and with diamonds, but they would buy it from Rolex for example. The good news for them is that Rolex is launching one.
  • 10% said they would use it out of curiosity (this reminds me myself back then with the Timex Datalink smart watch). If smart watches provide much more functionality and convenience than they did before, there is a chance that this segment may continue to use them after the “trial” period.
  • 20% said definitely they would use a smart watch. Even more, they believe that it will become an accessory required for many daily tasks and interaction with business as in health for example. If you get a discount in health insurance (or life insurance) associated to a healthy lifestyle, a smart watch seems an ideal device to combine the monitoring capacity with other daily activities as talking and mailing. For those that today carry a watch it will be a seamless experience compared to when we moved from landlines to mobiles. Insurers moving into the use of wearables, including smartphones, to monitor lifestyle and provide benefits associated to it, will encourage adoption by people in this segment.
Some conclusions around this small and targeted survey are that smart watches don’t escape to the same logic of any other product market introduction. There are clearly some early adopters (30%) but with risk of some dropping out if the product does not convince (those that would use it out of curiosity). Pragmatists, that would only use it if provides a clear advantage (40%). Some of these will fall into laggards (or not adopt it) if they don’t see a real benefit. Conservatives, more reluctant to change as they perceive watches to have a different meaning (and use) than smart watches. Finally, laggards that will see how everything evolvers before jumping in (20%). Bell curve We need to see what happens with wearables in general, as there may be other devices and interfaces better than a watch? In my opinion there is still a long way to go before having all the ducks in a row, but no doubt that if linked to real benefits such as savings and convenience the chances of smart watches to succeed increases. Insurers, if not doing it yet, should be considering smart watches and wearables in general as part of its products and its customer experience. Don’t wait to see who the winner is in the wearables segment of the IoT, or you may end on team laggard.