By Bits study reveals insurance companies prioritise profit
A new body of research conducted by By Bits has re vealed that three quarters of insurance companies priorities profit while just 11% have changed strategy to facilitate new driver needs.
The , conducted by Insight Avenue, launched today and its findings show that although 75% of insurance companies recognise the need to increase customer satisfaction levels, only a small percentage are working towards this goal as a priority over profit margins.
Profit is still the top priority for the vast majority of firms, despite a rising awareness of customer centricity goals. But ‘motor insurance companies need to start putting customers at the heart of their future strategies or they face extinction’, the report states.
Callum Rimmer, By Bits found er, explained, “Customers are becoming increasingly dissatisfied with their experiences - especially since the start of the pandemic - and unhappy about what they perceive to be unfair pricing and poor customer service. They will inevitably vote with their feet and turn to insurers that are meeting their changing needs.”
The By Bits research found that, despite 97% of insurers stating that drivers have been demanding fairer, usage-based pricing during the pandemic, only a fifth (20%) have made any changes to their motor insurance pricing models in the last 12 months. Almost half (47%) admit that they have made no significant changes to their product portfolios in the last two years.
However, policy pricing is not the only area where customer needs are not being addressed. Data shows that communication services across the board are not satisfactory and that 81% of insurers only communicate with customers on an annual basis at the time of policy renewal.
A recent report by shows that the COVID-19 pandemic has irrevocably shifted the driving habits of entire populations. Indeed, analytics of MOT data from the Department of Transport in 2020, reveals that UK drivers have reduced their weekly mileage by 550m miles through the working from home mandates.
This shift means that the amount of people driving themselves to work by car has fallen to 11.4m a decrease from 14.8m in pre-COVID times. Pay-as-you-go-services are already enjoying a sharp adoption from customers who recognise the cost effectiveness of such policies.
Rimmer added, “There is no doubt that the motor insurance industry needs to put the customer at the heart of digital transformation - and the time to do so is now. Failure to keep pace with the market changes will inevitably see the innovation-driven brands that are emerging steal market share, consumer trust and loyalty.”
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.