Future of general insurance
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Understanding your customer and recognising their needs is a challenge for every business. But it’s a particular challenge for general insurance firms, where a considerable amount of customer interaction happens during a claim, which is a time of stress, or else during a renewal, when pressure is on to obtain money from the customer.
This limited interaction can make it difficult to convey corporate values, build brand loyalty or generate repeat business. It also puts greater emphasis on these key touchpoints, highlighting the need for convenient, user-friendly and efficient service.
There’s also the issue of trust. General insurers have historically been seen as untrustworthy due to dual pricing strategies, which offer new customers lower premiums than existing ones – an issue now being addressed by the FCA.
Many policyholders are also concerned about the success rate for claims, with 68% believing their providers “will do whatever they can to avoid paying out in the event of a legitimate claim”1. However, statistics show motor insurance claims have a success rate of 98%, property 82% and travel 88%2. Improving customer trust will help firms build and maintain market share.
Finally, there’s often little perceived difference between insurance products, making cost the deciding factor when choosing a policy. The majority of customers opt for the cheapest quote for the minimum viable product, which explains the ongoing successes of price comparison websites. While a number of insurers partner with, or own, comparison websites, these sites do little to create enduring customer loyalty for insurers.
For firms to succeed in the general insurance sector, products must be affordable and convenient for customers to access. The ability to make products more accessible, in line with changing lifestyles and increased digital uptake, can be a significant differentiating factor that will help businesses remain competitive.
To achieve this, it’s important for insurance firms to embrace new technology and use it to meet client needs, in line with broader social and lifestyle changes.
Fundamentally, customers want general insurance products to cover the uncertainties of life. But the customer base and how they live their lives is changing, with an impact on how they want to interact with insurers. Understanding these social and technological changes are essential for delivering the right product at the right time, through the preferred channels, while improving brand loyalty and customer retention.
The recent issues with both travel and business interruption insurance linked to COVID-19 also demonstrate a further need to help customers understand the purpose of insurance, both at an individual policy level through to the role of the industry as a whole.
Key social changes that will impact both personal and commercial insurance include the following:
1 Risk aversion
Some 80% of millennials read a review before making a purchase, highlighting the importance of good customer experience and online reviews3. Greater risk aversion will lead to an increase in gross written premiums across personal line products, with a potential rise in under-represented markets, such as students.
2 Social media
Around 51% of the global population is on some form of social media, with around 8% growth over the last twelve months4. Trust in the general insurance sector is generally low, with little brand loyalty, which affects pricing, underwriting and marketing spend.
Social media is, therefore, an important channel for awareness and expressing corporate values, helping a firm to stand out on factors other than price – a key issue with increased customer reliance on aggregator tools. In the commercial insurance space, there will be an increase in demand for products to protect businesses from negative social media publicity.
3 Increased connectivity and use of technology
The number of internet-connected household devices, the so-called Internet of Things (IoT), is set to jump to 125 billion by 2030, a 12% annual increase from 27 billion in 20175.
As this trend continues, personal insurance customers will expect to access insurance quotes and policies through connected devices, such as voice-activated assistants. Commercial insurers will need to understand the types of risk prevention technology their customers are using and factor it into their pricing and risk management strategies.
4 Sharing economy
Millennials and Generation Z are more likely to make use of short-term access to goods or products, and the sharing economy is set to rise in value from $15 billion (£12) in 2014 to $335 (£260) billion in 20256. This will increase the demand for pay-as-you-go and micro-personal insurance products, such as Airbnb cover, while commercial insurers will see an increase in their gross written premium.
5 Increasing urbanisation
Around 55% of the world population is city-based, and this is predicted to increase to 68% by 20507. This will have a two-fold effect on personal insurance: urbanisation will lead to a drop in car ownership and vehicle insurance, with an increase in geographical concentration risk (and a knock-on increase on re-insurance).
6 Ageing population
In 2019, 1-in-11 of the world’s population was over 65, which is set to rise to 1 in 6 by 2050, leading to a slow growth in motor and travel insurance8. Historically, the older generation has been less likely to change insurers, which may lead to an increase in conduct issues in the long term.
New technologies, such as open insurance, IoT and AI, are driving insurers towards a service-based model. This will allow non-insurance organisations to offer white-labelled insurance products to their clients without the customer ever having to leave their website.
8 Open insurance
Making use of customer data will support more flexible pricing and help match customers to the most competitive service. This offers consumers greater assurance that they are not paying above the odds but will put further pressure on firms to retain their customer base.
Recognising social changes and the impact on customer demand will help firms adapt and increase their market share over the coming years. A move towards a shared economy and greater urbanisation will lead to a drop in demand for products, such as car insurance, with pay-as-you-go products growing in popularity. In addition to more niche products, the premiums may also be more tailored to individual need, giving customers greater assurance over fair pricing.
This may improve customer trust, and therefore retention, in the long term. Firms that can continue to meet customer needs in the long term will continue to thrive.
For more information on navigating the future of general insurance, contact Stuart Riddell.
2 Claims Acceptance Rates 17/18, ABI, 2018
3 Most millennials only purchase items with online reviews, The Independent, 2018
4 Digital 2020: July Global Snapshot, Datareportal, 2020
5 The Internet of Things: a movement, not a market, IHS Markit, 2017
8 World Population Ageing 2020 Highlights, UN, 2020
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