April 1, 2015 by Marc-Andre Giguere, National Insurance Leader, EY Canada
In today’s highly networked, data-rich environment, consumers increasingly prefer – and, indeed, expect – to find offerings customized to their unique needs and usage profiles. From an on-demand movie night to a marriage courtesy of online dating, customization is changing every corner of 21st-century life and business.
But Canadian property and casualty insurers have been slow to embrace its potential. Data mining, or the ability to connect and use multiple streams of digital information to design customized offerings, can identify new hidden revenue opportunities and improve customer satisfaction.
EY’s recently released report, 2015 Canada property-casualty insurance outlook, shows companies already have large amounts of both structured and unstructured data traditionally collected in the p&c insurance business. This rich, yet largely untapped, data ranges from information about customers’ lifestyles to their online habits and experiences.
However, beyond the traditional sources of data to which insurers have access, there is now a new source. Telematics – or the transmission of data through telecommunications devices – opens the door for Canadian insurers to build even more precise and custom profiles of their customers’ activities.
In cars, for example, telematics allows insurance companies to track and evaluate their customers’ driving habits. Telematics plays a big role in allowing for usage-based pricing and is a quickly growing trend in Canada. Usage-based pricing would allow a low-risk driver to pay lower insurance premiums than someone who is a higher-risk driver, for example.
The ability to integrate new data streams into current and traditional data sources is the key to building products and premiums customized to each customer’s specific behaviours and personal risk profiles. And it is in these customized services where critical competitive difference lies.
Integration unlocks the true value of analytics
While a huge force on its own, analytics delivers more value when integrated with all facets of operations and service. Predictive analytics and modelling methods are powerful tools that can help achieve growth, profitability and sustainability objectives. However, unlocking their most valuable impact means integrating them into all facets of operations, including segmentation and market acquisition, risk-based pricing, customer lifetime value, underwriting, distribution strategy, customer experience and claims optimization.
Building an enterprise data excellence infrastructure
Synthesizing this amount of data requires a new approach, and it has an enormous impact on operations, staffing and brand.
To develop strong analytical capabilities that achieve anticipated returns, significant investments in people, hardware, software and technology are needed. Not surprisingly, the most in-demand skill set in the insurance sector is talent with target market analysis, customer data analysis and predictive modelling capabilities.
Analytics can also be leveraged to develop strategies to retain highest-value customers through custom incentives. The same strategies can be used to recognize and reward employees and brokers, as well as to pinpoint hidden revenue opportunities within the existing customer base. With the right analytic tools, insurers can identify new growth opportunities while protecting and optimizing bottom-line results.
PUTTING CUSTOMERS AT THE OPERATIONAL CORE
The 2015 p&c insurance outlook indicates that most top-tier Canadian insurers have shifted from a “wait-and-see” mindset to a more aggressive, action-oriented approach. One area is usage-based insurance (UBI). Early results show that consumers are increasingly ready to embrace UBI offerings, and insurers seeking market growth are moving swiftly to ensure they are ready to fill that demand.
A strategic imperative for insurers across all product classifications, geographies and operating models is the need to strengthen customer relationships. Insurers need to align with customers’ expectations based on their experiences with other industries.
The goal is to create a consistent customer experience by integrating both distribution and communication channels and providing enhanced transparency of information. The latter is critical, as only 56% of polled Canadian consumers report that they trust their respective property-casualty insurance company.
Results detailed in EY’s Global Consumer Insurance Survey 2014 show the industry’s trust level is lower than that of banks, online retailers, supermarkets, automotive manufacturers and pharmaceutical companies (see graphic below). These results also compare unfavourably to global and United States results, as well as to Canada’s life insurance industry.
EXPANDING ACCESS AND INTERACTION ACROSS MULTIPLE DIGITAL PLATFORMS
Ensuring that customers are informed, connected and empowered by the variety of ways in which they can shop for insurance requires a comprehensive approach. Websites, blogs and social media must assist customers in comparing insurers and their respective products and services.
These tools increasingly must be mobile and accessible on a constant basis. Technologies such as cloud computing, smartphones and business collaboration software are making the ability to receive digital information on any device – safely, securely and efficiently – a basic customer expectation.
Customers now conduct extensive research before purchasing an insurance policy, putting the competitive onus on insurers to present a clear and differentiated brand image, transparent pricing terms, accessible customer service, product offering, claims settlement information and billing options.
All of these changes, of course, need to complement improvements in core operations. That includes improving operational agility and speed, as well as making policy administration much more efficient and accessible. In addition, companies moving to multiple digital platforms and enhanced market segmentation will need to become even more disciplined with operational oversight.
IMPROVING CYBER SECURITY
As p&c firms gear up for enhanced data mining, analytics and digital customer service and communication, cyber security has become a pressing strategic issue. And in the wake of numerous recent data breaches, much more sophisticated security and privacy measures will be needed.
Insurers are exposed to growing risks of cyber theft, either from external criminals who seek to steal customers’ personal information or from internal security breaches that compromise corporate strategy and could feed corporate espionage.
Unfortunately, insurers in Canada may not have much insight into their cyber liabilities involving digital assets. There also seems to be a gap between the nature of new threats and the capabilities of companies to monitor, detect and thwart cyber hacks, security leaks and digital attacks.
The integrity of electronic data is another key concern. Insurers must think beyond simply defending themselves against leaks and attacks; they need to also consider how and where the data is stored, how to identify the cause of security incidents and assess the impact, exposure and liability of data incidents.
Increased regulatory oversight also has amplified the need for enhanced data security. Data security issues have arisen for internationally active companies in Canada as well. While data may be stored on servers physically located in one country, customers may reside in a different jurisdiction with more stringent data security rules.
Today’s customers want more personal interactions via digital channels, more tailored offerings geared to their needs, and a comprehensive, customized relationship.
Increasingly, they seek both to be known and served as individuals, as well as to have ubiquitous and immediate access to their insurers via such options as web chat, video and mobile.
Consequently, the development of a comprehensive data mining and analytics strategy, coupled with more customized options, consistent multi-channel communications and strong branding, are the baseline requirements for insurers to thrive amidst the challenging conditions that characterize the market ahead in 2015.
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