Sleeping With the Enemy Might Be The Only Way to Save Personal Lines Insurance – Industry Insurance

The last decade has brought tumultuous changes to the insurance industry and especially to the way insurance is sold. We now find ourselves in a world where insurers have become some of the top spending advertisers in the country with Progressive coming at #22 and Uncle Warren’s Geico at #5. Each of those insurers individually spent more on advertising than perennial television spender, Budweiser, who finishes the list at #25. All of this ad spending is working and last year Geico passed Allstate to become the second biggest auto insurer in the country.This deluge of advertising has been largely focused on price, and it is no secret that it has convinced the average consumer that personal lines insurance is a commodity where the only thing that matters is finding the lowest price. Many analysts such as McKinsey and Nomura Equity Research have declared that insurance is now a commodity. Those of us who work in the industry understand that this is simply not true. Personal lines insurance is not by any means a commodity that ought to be bought on price alone. Personally, we love Chubb’s tagline “Who insures you doesn’t matter. Until it does.”It’s not just who insures you, but also what your insurance contract says, how high your limits are, how well it is protecting you, and especially whether that contract properly matches your own personal circumstances and need for protection. Several great articles, like this one from Bill Wilson at Insurance Thought Leadership, have appeared in the industry press by coverage experts much more experienced than us, explaining in length and with illustrative examples of how cheap insurance might just as well be no insurance when a large loss happens. As Bill points out “consumers are being duped into believing that personal lines insurance is a commodity, with the only significant difference being price. Nothing could be further from the truth.” We’re not aiming to replicate those explanations here rather we want to offer a crazy idea that just might help us save personal lines from becoming further commoditized.The articles mentioned above have the right information, but they are targeting the wrong audience. What is sorely needed is a concentrated industry marketing campaign to explain to the general public how insurance is not at all a commodity. We completely agree with Bill and other experts who have shown why insurance isn’t a commodity, but we believe that we have to go further than just getting insurance agents (many of whom are already trying to get their customers interested in looking beyond price) to explain it to their customers. We need a concentrated public facing marketing campaign.Uncle Warren has made it very clear in his shareholder letters that he will spend whatever is necessary in marketing for Geico to continue growing – giving the Gecko an essentially unlimited wallet. The adorable Australian reptile spends the great majority of his time talking about cheaper rates, every once in a while about customer service, but pretty much never about having proper coverage that meets your need.Price-focused insurers Geico and Progressive together spend around $1.6 Billion a year on advertising. Quite simply, none of the more traditional service and coverage focused insurers can compete with that much spending on their own.As you can see above, the vast spending is working. In just over a decade, Geico has moved up to the 2nd highest market share from being only the 6th in 2001. If this continues, it would be no surprise to see Geico surpass the top share within the next decade. Similarly, Progressive, another price focused carrier, has almost doubled its market share, while the traditional customer service focused companies that we mentioned, with the exception of Liberty Mutual, who acquired Safeco during this time, have all seen their market shares shrink. In 2001 Geico and Progressive together accounted for 9.5% market share. By 2013 they have managed to just about double it to 18.7%.Here’s where our crazy idea comes in: We propose that a group of traditional, customer service and coverage focused insurance carriers start an alliance and dedicate a significant part of their marketing budget into explaining to the people that insurance is really about much more than price alone, showing explicit stories from real people and statistics about the real cost of low-price insurance.Imagine the three biggest mutual insurance carriers SF, Liberty Mutual and Nationwide, coming together and starting a marketing alliance to educate the public. Let’s tentatively call it the National Mutual Insurers Alliance. Together, the three biggest mutuals spend around $1.55 Billion a year on marketing, very close to Geico and Progressive’s total spend. Obviously the three companies can’t dedicate their entire marketing budget to this project, but if they dedicated some 20% of their budget, a total of around $310 Million per year, they could make a real difference in explaining this important issue to the consumer. Then, they could involve other smaller regional mutuals to participate as minority partners in the effort.Here’s an idea of what the commercials might look like (although we’re sure the actual marketers at the carriers can do much better):The opening sequence shows a middle aged couple. The legend underneath says “Mr. and Mrs. Jones. Not a dramatization.”Mrs. Jones: “We had been insured by our local Liberty agent since college. We really had nothing against him, he was a great guy and always treated us well. But times were tough in 2008, Gary had lost his job, and we were on a limited budget. Like everyone else, we had seen hundreds of commercials about cheap insurance, and right after getting rid of cable, we called them for a quote. We were very happy when they saved us $400 a year.”Her voice crackles as she goes on:Mrs. Jones: “We really had no idea that the policy was so different. We never even speed. We never thought we’d ever have a big accident.”The video fades to a real picture of a car that suffered a rear-end accident. Mrs. Jones’ SUV rear-ended a small coupe. The bumpers are gone but otherwise there’s not that much damage.Mr. Jones: “At first, we thought everything was fine. The woman driving the other car was a little sore, but she said she would be fine. She was taken to the hospital by ambulance as a precaution, but she was released the same day. We had insurance and thought we had full coverage. We found out a few days later when her lawyer contacted us that we only had state minimum liability coverage, and her medical bills were adding up.”Mrs. Jones: “The accident ended up in court, and the jury awarded her $150,000. Minimum liability in our state was only $25,000, so that’s all our new insurance company paid for. We lost our house and have liens on our income until the rest of the $125,000 has been paid. This has destroyed our lives. We just had no idea. We thought we were getting the same coverage we had before.”At the end, it fades to a black screen showing “Mutual Insurers Alliance” and a memorable slogan, along with the logos of Nationwide, SF, and Liberty Mutual as the primary sponsors, and any other smaller mutuals as minority sponsors.Another commercial could show insurance experts talking in layman’s terms about the cost of claims and how people’s assets are at risk if they don’t have proper coverage tailored to their needs. Outside of the property and casualty industry, these kinds of campaigns already exist. Many are managed by non-profits; we can all think of examples in the medical industry, such as Susan G. Komen for the Cure or the American Heart Association. Closer to our industry, there is Life Happens which was created by national insurance producer organizations to raise awareness around life insurance, and they sponsor Life Insurance Awareness Month every year.We’re not saying that this is the only solution, but we are saying that it is the right thing to do for the consumers and that somebody has to do it. We believe the big mutuals are in the best position to do so, but it could be any other combination of coverage and service focused insurers who are willing to put their decades of competing with each other aside to save personal lines from becoming a commodity.

Why Telematics Is a Major Disruptor in Insurance? – Industry Insurance

The vehicle telematics system and User-Based Insurance (UBI) are key trends in the auto insurance industry and expect a disruptive change in the near future.Digital technology is transforming the insurance marketplace enormously and the insurers are investing significant attention to meet the customer expectations by adopting vehicle telematics system. The customer vehicle integrated with the telematics system helps to calculate insurance premiums which is dependent on the distance covered by the vehicle, the speed the driver maintains while driving, and also the overall driving habits of customers as this information can be read and stored by the telematics app and made accessible to not only the insurers but also all stakeholders.Vehicle telematics is recalibrating the auto insurance industry expectations and opening new ways to reach out to the clients. The rise of vehicle telematics not only changing the policyholders’ demands, but also disrupting the way it should be supplied. Many insurers are offering more personalized insurance policies to each and every individual.Telematics as a major disruptorThe digitization process that telematics has brought in recently has made the total insurance industry to stand up and take notice and eventually catch-up with this change. Recent research studies have revealed that vehicle telematics is playing a prominent role to disrupt the auto insurance industry for positive business outcomes. In this way, Big Data is playing a vital role in helping insurers to solve various challenges such as data mining, handling, warehouse data, building data path for user applications and among many others by adopting extensive and varied data structure, which are made easily accessible to vehicle telematics system with the influence of cloud computing. The access control of the vehicle, real-time updates of traffic congestion and weather forecasts and many other vehicle telematics options are remotely accessed with the help of cloud computing, for both customers and insurers. The big data and cloud computing technologies are the mainstream of vehicle telematics system and hence are attracting new customers towards insurance policies by providing convenience and comfort in service.Over the years, the auto insurance companies have successfully reduced the gap between insurers and customers. The vehicle telematics-enabled usage-based insurance is gaining momentum to meet the customer satisfaction with a flexible pricing model over the traditional pricing model and as a result policyholders can pay the insurance rates based on their driving behavior. It is an ultimate transformation that is giving customers complete control over their insurance premiums. To help policyholders for their driving risks, User-Based Insurance (UBI) model encourages individuals to drive safe and lower the risk of accidents happening through live feedback even as they can save money by improving their driving skills.In the US, Insurance companies are implementing different approaches in User-Based Insurance model and the simplest, auto insurance policies are trending in the auto insurance market, such as Pay As You Drive (PAYD) is one among them. Rather than paying a fixed annual premium charge, PAYD ensures premiums are calculated based on the number of miles/kilometers driven by the policyholder with the help of vehicle telematics system.United States is considering the UBI model as their grid. The spate of recent successes has confirmed immense response of policyholders towards this new approach. Even in many European countries, insurers moved to the next level of Pay-How-You-Drive (PHYD) right after the huge success of Pay-As-You-Drive (PAYD) model.The Pay How You Drive (PHYD) monitors the driver behavior and driving style, the premium charges are reduced accordingly with improvements in driver behavior.The UBI has a great potential gateway to digitally enhance customers, as a result, PHYD has created a remarkable platform for auto insurance policies, but a number of insurers have started looking beyond the Pay How You Drive (PHYD)model for better user experience, as a development Manage How You Drive (MHYD) considered as the next move of UBI. Manage How You Drive (MHYD) offers a discount to safe drivers and also intimates the policyholders about driving performance through monthly feedback depending on their driving score.Vehicle telematics benefits:• Experienced drivers often pay unreasonably high premium charges which can be reduced easily.
• Encourages policyholders to drive safely and reduce the risk of accidents.
• If the policyholder drives very often then he/she will get fewer premium charges.
• Continuous monitoring of the driver helps to improve the driving behavior.
• It’s very easy to track vehicle health and fuel consumption of the vehicle.The vehicle telematics system and User-Based Insurance system is imparting a major disruptive change in the auto insurance industry with innovative insurance policy models for customer convenience. However, insurers are implementing different strategies to improve the marketing and sales process of UBI model to maintain the balance in insurance policies, perhaps the priority is also given to the risk management and price calculation from the customers’ stand point. The disruptive vehicle telematics system can trigger the process of auto insurance policies and can be sustained without any major change in the insurance company structure, business model, and strategy. The vehicle telematics system is known for its conservative posture and disruption is never really easy for such systems, especially in the auto insurance industry. But the year 2016 can be a year of continuing transformation of vehicle telematics system, in which the insurance companies who remain as innovators will be those who are willing to engage in significant rethinking.