Insurers want to know customers better

By Hubert Roy | February 19 2013 09:25PM

An IBM survey of CEOs finds that insurers want to know more about customers’ habits and to better interpret and use the information they already have.In 2012, IBM conducted a survey of 1700 CEOs around the world, representing different industries. One hundred and forty-seven of these CEOs work in life or general insurance, including 10 in Canada. The Insurance and Investment Journal spoke with James Hogg, senior partner, leader of insurance practice for Canada at IBM Canada, who interviewed CEOs from around the globe.

Two major findings about insurers emerge from IBM’s study. First, they want to harness their massive customer dataset to know their clients’ better. Second, they want to review their methods, to improve their ways of interacting with clients.
In the last decade, Canadian insurers focused on upgrading their systems, for both IT and claims and policy management. Some insurers are still engaged in this process: Mr. Hogg mentions SSQ Financial Group, The Co-operators Group, Intact Financial Corp., Economical Insurance and Manulife Financial. Yet this cycle is winding down, he says.

Insurers want to know more about consumers, as their systems reach the end of their useful life. “Many CEOs talked about the importance of their relations with their consumers. They are interested in getting more information about them. They also are looking to find different ways to contact them,” he explains.

He gave the example of AllState Insurance, which bought out Esurance in 2011. “AllState invested heavily in technology in the last 10 years. They are more open to that. They thus changed their business model. However, they did not become a virtual company. Instead, they opted to acquire one, to extend their market reach. This interest in technology is a trend that should become more evident over time,” Mr. Hogg says.

These changes will not make agents obsolete, Mr. Hogg stresses. “Insurers will not stop doing business with agents, but we are seeing that insurers are taking an interest in social media and new communication modes. They want to enhance their product design based on the new landscape,” he continues.

“By analyzing data on their customers (data mining), insurers should be using technology more and more. They can then start looking for new types of partnerships, as AllState did,” Mr. Hogg explains.

Leading players’ strategy

IBM also analyzed the practices of the strongest players that participated in the survey. Performance was determined based on the return on equity, and IBM zeroed in on the top third.

Three key elements emerged, Mr. Hogg says. “These companies had a strong capacity to access data. They would break it down to identify the most important elements. Lastly, we noticed that they took action following their analyses,” he says.
Mr. Hogg mentions a CEO who boiled the selling of insurance down to the selling of risk. “He found that insurance was increasingly becoming a commodity product. By actively seeking data, it remains a product. This is why we think that marketing departments will be increasingly involved in developing insurance products, with actuaries and dedicated product designers,” he explains.

Regarding priorities, 78% of the CEOS said that it was important for them to improve their company’s customer relations. In addition, 72% of CEOs claimed they want to invest in their team’s talent in the coming years; 71% want to improve their customer response and 69% aspire to improve their understanding of customers’ needs.

How can they understand customers better? One way is to interact with insured on the Web, Mr. Hogg says. “Over 55% of the CEOs told us they wanted to use this track. Interest in social media is not pronounced for now. But we expect that insurers will double their use of social media in the next 3 to 5 years. They understand that social media can let them access new niches. Still, they have not reached this point yet,” he says.

Progressive leads the way

For insurers, the main challenge is to be able to analyze available data to find ways to interact with customers. “Progressive in the U.S. is probably the insurer that does the best job of analyzing its data. They have excellent branding and do great at advertising,” Mr. Hogg continues.

What is their secret to success? “Fundamentally, Progressive was an insurer that was interested in high risk individuals. They developed expertise at writing risks for this class of customers. If Progressive offered customers a premium, everyone knew that they would make money on it. If they thought that they would not make money, they would price the product very high to prompt the client to turn to a competitor, thinking that the customer would cause the rival to lose money. Product price underpins this approach,” Mr. Hogg explains.

The Progressive example shows that insurers must learn how to harness the data they gather. Their growth depends on it, he emphasizes.