The traditional Insurance business model is cracking and is forcing the re-invention of insurance. Headlines such as “Why the insurance market is ripe for disruption” and “Digital disruption in Insurance” hint of a new breed of Insurers. The Aviva Chief Executive Mark Wilson summed the situation up in a quote on the Raconteur website “The dysfunctional market is a problem for the whole industry that requires an industry-wide solution.”

Fundamentally, these trends all point Insurers to one question, how to win back margin? Seemingly one answer to this problem is to diversify and to re-invent what ‘insurance’ means to customers. For some insurers, this involves offering additional services alongside the insurance product. For others, it is a fundamental shift in the business model towards preventing risk alongside insuring against it. One thing seems certain, the insurance business model will evolve.

The Service Model

In a recent interview with the on-line magazine Insurance Business, Senthil Ravindran, executive VP and global head of xLabs at Virtusa, said “When it comes to insurance, data, and investments in customer loyalty technology for the ‘no strings attached’ generation of customers will be crucial…”

So how do Insurer’s drive customer loyalty? Potentially by providing customers with additional services in addition to the core insurance product. Insurers can then differentiate themselves by enhancing the customer experience. It also creates an opportunity for regular customer communication, valuable in a traditionally low-touch business. Generally, a customer will only contact their provider if they want to renew (or cancel) their policy, or when they need to make a claim. Mario Greco, chief executive of Zurich, told the Financial Times that the main aim of offering services is to improve customer loyalty in an industry where it can be thin on the ground. “The whole industry has a fundamental strategic weakness for customers,” he says. “Customers may have 10 to 15 insurance policies, but rarely more than two or three with [the same] company. Customer loyalty is low and this is the biggest opportunity for growth.” There are already some interesting examples:

  • Travel insurer Cover More offer all policyholders access to globally available, 24/7, in-house emergency medical and travel assistance team. The team includes doctors, nurses, psychologists, case managers and support professionals.
  • The Generali Group has established Generali Concierge Services as a 100% subsidiary of their Europ Assistance Group. Their stated primary mission is to “turn customer relations into greater satisfaction to gain the loyalty of customers and employees.”
  • Churchill have added Car Maintenance Services, provided by RoadServe, as an added benefit to their car insurance product. This gives customers access to RoadServe’s qualified experts who act as a middleman for the MOT, Service and mechanical repairs. Customers also get reduced rates at more than 15,000 garages nationwide.

The Prevention Model

Technology has made it easier for insurance companies to monitor what their customers are doing. This can be helpful when it comes to pricing the policies but Insurers have now recognised the same information allows them to advise customers how to prevent incidents that might lead to a claim. James Shuck, an analyst at Citi was quoted in the Financial Times saying “Instead of writing a cheque when bad things happen, it stops bad things happening in the first place.” The shift to prevention ahead of cure marks a fundamental change in the insurance business model.

So, by using new sources of data, insurers are able to alert customers of potential loss before it occurs. Traditionally, Insurers would not have considered this action. But given the new insurance landscape, the reality is that insurers need to reduce their losses. Risk mitigation helps insurers lower their claims costs while simultaneously enhancing customers’ engagement. Insurers increasingly realise the commercial benefits of the old adage, “prevention is better than cure.”

There are already many innovative examples of this focus on prevention:

  • Generali has put boxes in some of its customers’ cars that light up when the driver is driving badly.
  • RSA and Aviva are among those installing leak detection kits in their customers’ homes so that drips can be spotted before they turn into floods.
  • Vitality gives its customers advice on the best way to eat and exercise. It also measures their activity via connected devices such as Fitbits. Customers who sign up to the plan can receive discounts of up to 60 per cent on their life insurance.

The Insurer of the Future

To survive, the insurance business model of the future must be driven by the needs of the new generation of customers. Evidence shows that customers want solutions, not products. They want a personalised cocktail of cover with a modular design that allows them to adapt their insurance to their changing lifestyle. Both a service and prevention led strategy is moving in the right direction, but how will they be developed? Technology will continue to play a big part, but organisational change is still a primary requirement. In a world of true solution led insurance, products are no longer siloed. Customers will expect elements of multiple insurance covers together combined with useful ancillary services. There is still a long way to go.