Insurance providers are facing challenges coming from all angles. From regulatory bodies tightening the can and can’t dos, to shifting consumer expectations. Emerging as a response to these challenges are trends within the industry. Which we think are important for insurers to identify, understand and use as an opportunity to improve.
We’ll look at how each challenge is shaping trending innovation and strategies. Whilst providing you with insights into how these may affect customer loyalty for the long term. Allowing you to formulate your own strategies and keep your customers happy and you in the running with competitors.
- Lemonade & InsurTech
- Allstate Rewards Programme
- Toffee Insurance
- Inclusivity Solutions
- Smile - The Netflix of insurance?
8) Fiercer Competition Across the Insurance Industry
1)Tougher Regulations Shaping Value Propositions
Insurance providers along with other financial service providers are facing stricter regulations in 2023. This of course will have a significant impact. Due in part to increased governance complexities. Which can often lead to higher compliance costs, making it more difficult for insurance companies to operate and offer competitive products.
"FCA has published final rules and guidance on the new Consumer Duty in what it describes as a “paradigm shift” in its expectations of firms. The challenge for firms to meet implementation deadlines of 31 July 2023 for new and existing products and 31 July 2024 for closed products and services remains considerable"
That’s because regulatory challenges can be felt across the board. From data gathering, to greater scrutiny on cyber security and consumer protection. Yet, as economic headwinds grow stronger, insurance products and services must meet or exceed changing consumer expectations.
Otherwise, their reputations may fall short against savvy competitors. Even worse perhaps, regulatory bodies may take litigation action against carriers who fail to reach compliance.
Those unprepared in the insurance industry will no doubt reel from the impact of stricter consumer protection in 2023. As such, many carriers will be in the midst of implementing changes to their internal operations.
With regulatory bodies guiding their efforts to eradicate deceptive insurance practices. This ensures full products and services disclosures, responsible risk profiles, claims handling and dispute resolutions remain fair, clear and concise throughout. But we predict a trend towards delivering extra value will emerge alongside practices that aim to protect consumers.
Carriers will need to adopt alternative value propositions that go beyond the guiding hand of regulation. Such as offering customers rewards for their loyalty and lifestyle changes.
2) Macroeconomic Trends & Evolving Risks
Insurance providers also face evolving risks beyond their control. Emerging risks caused by climate change, rising inflation and current geo political issues, nevertheless need addressing within the industry.
The extreme effects of climate change have never been more devastating. In the US, wildfires and hurricanes inflicted damages worth a total of $42 billion. Even in temperate, milder climates such as the UK’s, there’s been a marked increase in severe weather. For example, Storm Eunice caused between £200-£350 million in damages.
Insurance providers are taking steps to prepare for a changed climate. Most should be turning to new catastrophe projection models. Thereby reducing risk exposure in the future. On the other hand, those who neglect to accurately project climate risks are on a collision course with substantial market failure.
3) Consumers More Conscious of ESG Factors
The top 30 insurers firms have collectively increased their ESG rankings by 20 points since 2020. That trend is set to rise, not only from a perspective of meeting compliance with regulatory bodies. Consideration of future challenges certainly plays a part in dictating internal governance and policy.
Over half the insurance providers surveyed said they hold ambitions to improve their ESG scores. A driving factor of which is consumer demand for better environmental, social and governance practice from insurers.
A 2020 study by Bain & Company yielded interesting results from certain demographics. Millennials over any other age group would purchase products from insurers with high-scoring ESG rankings or switch to them.
Most interesting perhaps, according to Bain & Company, consumers ranked corporate governance and social efforts more important than environmental issues. Despite an overwhelming number of insurers focussed on environment issues over social challenges and internal governance.
Evidence of this is certainly backed up by regulatory changes in the UK. The FCA’s Consumer Duty calls for more transparency and social responsibility during a difficult period of high inflation. As firms step up to deliver on this, customer-centric trends will emerge in the market. Insurers will increasingly deliver personalised experiences, aligning with the personal values of their consumers.
4) Improvements in Tech Leading to More Collaborations
You’ve probably heard time and again of the importance tech will play in the industry. Refined data gathering enables the creation of better personalised experiences. Omni channel support paves the way for a seamless, convenient service throughout the customer journey.
Robust cybersecurity is essential for protecting sensitive data banks. We all know better technology all round, improves efficiency and team cohesion.
But another emerging trend as a result of technical innovations are partnerships between InsurTech and traditional insurance providers. InsurTech products and services reach wider audiences via distribution channels established by insurance companies.
InsurTechs offer their advanced technical prowess so traditional insurers meet consumer expectations for better experiences. For example, AI-powered chatbots accommodate vast amounts of customer inquiries, streamlining internal processes. Furthermore, blockchain-based platforms as a solution for smart claims processing are currently on the rise.
Lemonade & InsurTech
An InsurTech called Lemonade partnered with Allianz to expand their reach. They provide renters and homeowners insurance. Allianz invested $100 million in Lemonade’s public offering and also became a reinsurer for their policies.
The partnership allows Lemonade to draw upon Allianz’s expertise and scale. In return, Allianz gained valuable insights into refining a tech-driven, customer-centric approach. One that’s focused on using AI and machine learning as a solution for meeting the evolving consumer needs and expectations.
5) Firms Gearing up Towards Retention
Many insurance companies are gearing up towards retention. Stricter regulations, changing consumer expectations, and innovative new players in the market, are forcing the hand of traditional insurance companies.
The average cost of customer acquisition in the insurance industry is $900. With inflation on the rise, that number is anything but set in stone.
As more customers continue to look elsewhere for alternatives, many insurance providers are relying on retention strategies. After all, the cost of retention is five times less than acquisition.
As a result, the industry is beginning to see a trend of insurance providers offering loyalty programmes. These allow companies to offer powerful incentives for customers to stay loyal. Using a combination of discounts, cashback rewards, and hyper-relevant perks.
Allstate Rewards Programme
One such example is the Allstate Rewards programme. The programme allows customers to earn points for safe driving, referring friends and family, or participating in other activities. Customers redeem points in return for merchandise discounts, gift cards and insurance premiums.
Allstate encourages customers to stay by offering these rewards and incentives. In addition to this, they encourage customers to engage beyond the purchase cycle. Firmly positioning them as the front-of-mind choice, bearing in mind they continue to offer value.
This of course helps Allstate build loyalty with their customers. Positive customer experiences ultimately lead to higher retention rates and increased customer lifetime value.
Other retention strategies currently on the rise by enterprising competitors include:
- Better customer service
- Personalised products and services
- Fostering a strong brand identity that resonates with competitors (e.g., orientating marketing efforts around social friendly causes)
These strategies will continue to enjoy a rising trend in the market. As long as insurance providers use them properly to create a positive relationship with customers. And since retention pays huge dividends over the long term, we can’t see insurance companies changing tact now.
6) A rise in Micro Insurance
Lots of customers still are resorting to cancelling essential services. In the UK, 1.3 million car insurance policies are cancelled annually.
This number is set to increase with higher interest rates and inflation hitting vehicle insurance more acutely than other sub-sectors.
As a result, there’s a sharp rise in more flexible and accessible products and services on the market. A trend that’s set to continue during the current economic headwinds.
Micro insurance is typically sold by micro finance institutions. Some examples include:
Toffee Insurance: based in India, customers can get access to a range of micro insurance products (travel, health and device protection). Premiums start at as low as 50 Indian Rupees (equivalent to 70 US cents) a month.
Inclusivity Solutions: a South African provider with micro insurance products for low-income customers in Africa and Asia. Products include coverage for health, life insurance, and funeral insurance. They also provide weather index insurance for low-income farmers.
MicroEnsure: Based in the UK, a micro insurance company that offers products to low-income customers in Asia and Africa. Their micro insurance products cover health, property and casualty p&c, as well as insurance for mobile phones and small businesses.
Simplicity is one of the hallmarks of micro insurance. The products are designed to be easily understood. Significantly increasing availability for people in regions with low levels of literacy and numeracy. Their generous flexibility in premiums also make them ideal for low-income families in first world countries.
Promoting financial inclusion will continue to be a priority in the current economic climate.
7) Traditional Insurance Providers Leaning Towards Innovate Models
It’s clear to see why so many traditional insurance providers are leaning towards innovative models.
How else can they mediate new evolving risks? Satisfy consumer expectations, and keep up with the technical overhaul of legacy systems and mass digitalisation? Not to mention the new regulations stamping down on poor acquisition strategies, having caused a shift towards retention within the industry.
Smile - The Netflix of Insurance?
Traditional insurance companies like Smile have certainly adapted to keep up with tech-savvy InsureTech companies and accessible micro insurance providers. They’ve also changed their entire philosophy on what an insurance company can offer.
With an emphasis on seamless, personalised experience, the company has, according to CEO Pierangelo Campopiano, been dubbed the “Netflix of insurance”.
Smile uses a loyalty rewards scheme to fulfil their objective of focusing on customer needs instead of a technical product. The app-based rewards programme gives drivers points for safe driving, online shopping protections, and special offerings from their ecosystem partners. All of which are hardly innovative in the industry. But where Smile really demonstrates innovation is with their business model.
Customers gain these rewards before they are ready to buy full coverage from Smile. This freemium model, supplemented by gamification and community building, gives potential customers a free taste of the experience. Instantly building emotional relationships in an effort for customers to perceive value they want.
“Rather than our value proposition,” says Campopiano, “we prefer to manage our value perception.”
8) Fiercer Competition Across the Insurance Industry
Insurance providers who fail to implement innovative strategies risk trailing behind competitors and failing to devise a compelling point of difference.
The global insurance market is crowded but it’s also evolving. Companies need to find their own unique spin on delivering essential products, whilst meeting industry challenges head on.
Like we’ve already seen, the current trend towards digital transformation has led many insurance companies to leverage innovative tools. In addition to data analytics in order to stand out with unique value propositions.
That’s why there’s a dramatic increase in the emergence of usage-based insurance (UBI). That seeks to reward customers and assess their risk management through actions and behaviour, instead of age and gender. Or the growing popularity of digital insurance platforms, all in answer to consumer demands for convenient, streamlined purchases and policy management.
With time, building compelling points of difference will become more difficult. But insurers should make sure that they:
Adhere to regulations and go beyond what regulators want by giving customers what they expect
Tailor products and services as well as additional services and experiences around emerging, evolving risks
Lean more into corporate governance and social issues for increased transparency
Continue to develop technology and data analytics to successfully deliver hyper-personalised and convenient services
Add more value to the customer journey, shift to retention focussed strategies. Broadening product coverage for low-income customers and/or being courageous enough to adopt truly innovative models like Smile
Overall, technological and innovative models will continue to dominate as rising trends within the insurance industry. As risks continue to evolve, the marketplace will become even more crowded and consumer expectations will keep rising.
Insurance providers must look out for the trends driving the direction of the industry to understand where they’re heading. Then and only then, do they have a running chance of devising a competitive advantage.