Subscription based insurance could be the model of the future. There is unmistakable proof that customers embrace monthly subscription models. Look no further than the phenomenal success of Amazon or Netflix. Traditionally though, insurers have approached the digital age by putting a mobile layer on top of the traditional insurance products and process, without offering real innovation. There is evidence of that change is in the air.
AvivaPlus led the way
The subscription concept is not new to the insurance market. Last December, the article Aviva to launch monthly ‘subscription’ insurance service confirmed “Aviva is the first major insurer to offer this kind of payment model”. At launch the new product, Aviva Plus, offered home or motor insurance with three tiers of cover.
The renewal price guarantee is a key feature of AvivaPlus. According to research carried out on behalf of Aviva, 82% of customers view price disparity as one of the most unfair practices in the insurance industry. The AvivPlus guarantee ensures existing customers are offered the same or an even better price than an equivalent new customer at their next renewal in order to overcome this disparity.
HSBC follow with Select and Cover
Fast forward twelve months to our report on the HSBC launch in our news article Insurance by Subscription. For a monthly fee, customers can subscribe to a minimum of three policies from seven types of cover with the new “Select and Cover” product. Available covers include mobile phone, gadget, home emergency, life, excess protection, motor breakdown, and travel. Policy holders can add and remove one option a year if their needs or circumstances change, as long as they maintain a minimum of three. HSBC offer additional flexibility on the policy anniversary, when all options can be changed.
HSBC had tested the market appetite for this type of product with a YouGov survey ahead of launch. This research identified convenience and flexibility as the two main drivers for insurance customers. It also identified a strong preference for subscription type services instead of fixed contracts.
Aviva and HSBC have both reacted with positive solutions to defined customer preferences for flexibility and defined monthly payments with their insurance products. However, for this model to become more common-place, traditional insurers will need a significant shift in strategy and policy. There are three main challenges ahead:
- Organisational issues. As long ago as 2016, in our blog How can you be more customer centric, we identified the need to move away from a structure based on the line of business or distribution channel. This need to re-organise still remains a challenge for many in the insurance market. Long-standing silos between lines of business, IT functions, and market channels remain prevalent in the industry. This results in competing priorities between functional teams which hinder innovative product development.
- The right skills: To completely transform a business model needs a leadership team with energy, vision and courage. Couple that with a need to deliver innovative insurance solutions. This means that the business must also have the appropriate digital skills and capabilities. Earlier this year the CBI sounded the alarm with research that concluded that Two-thirds of firms can’t fill digital roles. The insurance market needs those digital skills.
- Technology issues: Despite improvements, many traditional insurance distributors are hampered by out-dated technology. Many Insurers rely on disparate systems designed for specialist jobs. These solutions are not effectively integrated and simply cannot respond effectively to the expectations of the modern age.
The way forward
There are plenty of ways to overcome the challenges outlined above. Starting with hiring the right people and implementing training programs to attract and retain key skills. The right leaders will demonstrate a commitment to innovation and instil the culture of ‘customer first’ thinking that will provide a critical competitive advantage, inspire loyalty and ensure customers feel valued. Once the right infrastructure is in place, getting the right technology is easy.