“OCTO Insight Radar Observatory”
The insurance market has always been driven by technology, regulation, economic context and consumer market behaviour which is on the verge of a strong transformation in the way services and products are sold and consumed. Today’s market coexists with an ongoing war, the consequences of a global pandemic and as a result, growing inflation. Therefore, insurers are facing new challenges that require the flexibility to adapt and overcome the crisis riding this wind of change as a new opportunity.
According to Swiss Re this high-inflation environment has been expensive for P&C insurers. In fact, they estimated that inflation alone has led to an increase in claims of 5- 7.5% in 2022. According to independent market analysis, for the first time since 2017, the combined ratio, which measures the efficiency of a company, has passed 100% for the entire property and casualty industry.
In this context of instability, the rising attention on sustainability promoted by projects like the EU’s environment action programme to 2030 demands companies to commit to the cause. The EU directive aims to encourage about €1 trillion into green investments over the next 10 years, address inconsistency in climate-related information from financial market participants and give sustainable product providers a competitive boost. The ESG (environmental, social and governance) framework will therefore become a competitive differentiator since investors have become more aware of its importance.
According to OCTO Insight Radar observatory, Insurance carriers should examine all facets of their business and operations. They need to change traditional operating models and approaches into proven ways to increase revenue growth, engage and retain customers, and maximize bottom-line profitability.
Customer Selection and Retention
Due to inflation people are shopping around more and some of them are unbundling their policies to find better deals elsewhere.
As a matter of fact, insurers in many countries, are struggling with customer retention and need to implement new products of interest to avert this issue. The aim is to reduce churn and hold on to customers as much as possible. This is also due to the costs needed to acquire a new customer that include both the customer attraction and the risk assessment to reduce potential losses.
The use of Smartphone has become an integral part of the customer journey, with an increasing number of insurers using some form of app to better communicate with policyholders.
Given this popularity and the lower adoption barrier, there is also a growing use of smartphones in the UBI (usage-based insurance) market. In fact, out of all the active global UBI policies today, 44% are estimated to be based on a smartphone proposition, which is expected to increase to 51% by 2030. So, the smartphone-based policies will go from 15 million to 126 in the next 7 years. 
Selecting the right customers is crucial because it helps mitigate the risk in the customer portfolio, optimize the costs of customer relations both for their acquisition and retention. To overcome this challenge insurers should make use of “Try Before You Buy” products to acquire qualified leads through predictive risk scoring in app. Through this approach they can know their prospects beforehand, leveraging gamification to facilitate the customer acquisition, continuous selection and build stronger engagement enabling greater customer loyalty.
Reducing risk is at the core of the Insurance business as it minimises the portfolio Loss Ratio, increases the revenues per Policyholder and improves overall profitability.
From a traditional process based on a “reactive approach” with static parameters and clusters, more flexibility in the pricing model is requested by the market to consider different use cases around personal mobility, for example drive less, drive safe, drive green.
The challenge for Insurers is to get the right data to quantify and score driving behaviours that impact claim frequency and severity, as well as apply fair tariffs. In addition, the provision of intuitive feedback about risky behaviours and rewarding good drivers encourages the improvements towards safer driving practices. In a crowded insurance market, the key for product differentiation is to have a high level of configurability to profile, through “flexibility by design”, the solutions requested by the market.
In this time of high inflation, Insurers have been reporting cost increases across the overall claim process: from increased settlement times due to disruption in the supply chain and higher costs for spare parts and labour to repair accident damage.
In the context of increased customer expectations, this is an issue as the policyholder considers the claim a “moment of truth” and one of the most important touchpoints in the policy lifecycle.
Customer experience, efficiency and effectiveness represent the three main pillars for claims performance.
Connected claims, enabling crash detection, validation and prompt a assistance, help to dramatically reduce the cost and time to settlement, enable an improved customer experience, as well as help mitigate the risk of fraud by closing the damage assessment and repair faster.
Comply with Regulations and Mandates
Within the regulations scope falls multiple perspectives of the Insurance business with different models applied by geography.
As example, one of the most popular topics is data privacy, even more today with a growing adoption of user profiled mobile apps. However, people seem to be less sensitive to sharing data if rewarded; more and more profiled services are available in the wider world of apps that are well received by the market.
In UK, the FCA (Financial Conduct Authority) has uncovered that many insurers were increasing prices for renewing customers year-on-year. Therefore, they intervened to protect consumers (introducing GIPP – General Insurance Pricing Practices) and added new rules to give them easier methods of cancelling the automatic renewal of their policy, and to require insurance firms to demonstrate the fair value of their products (CFR: On FCA New Rules on Insurance Pricing Practices – OCTO Telematics).
In US, complexities have been a longstanding challenge due to state-by-state nuances in rate setting and regulations on the use of data for insurance purposes. Larger carriers have had to navigate carefully, while smaller carriers are facing barriers for entering new states.
Shifting the approach to needs-based individual pricing is somewhat more challenging but technology, data and advanced analytics combined can help insurers navigate to a new world where customization and profiling help consumers to get the product relevant for their needs Something that can increase touchpoints due to digital interactions will define a new customer journey, profitable for both insurers and policyholders, safeguarding the privacy constraints with the flexibility requested by different countries.
To futureproof Insurers’ businesses, it is critically important to align the legacy system with the right technology partner that understands the regulatory framework of the market in which they currently operate or wish to target.
All in all, the huge complexity arising from the market dynamics shows more than one opportunity for Insurers to grow, exploiting the “negative effects” as an opportunity to differentiate.
Telematics and processes based on digitalization let Insurers know more about their consumer market allowing a level of customization of their offering that perfectly fits to consumers’ needs and values.
Last but not least, it is time for companies to commit to ESG (environmental, social and governance), a set of indicators used by investors to screen potential investments and make it a competitive differentiator.
The telematics adoption drives the insurance operations in the ESG framework thanks to the improvement of different mobility KPIs as less deaths on the roads, incentive to reduce the risky behaviour versus eco-friendly driving style that are in line with the environmental goals of the society.
 PTOLEMUS Consulting Group (Connected Auto Insurance Global Study 2021)
PTOLEMUS Consulting Group (Connected Auto Insurance Global Study 2021)
Gartner (The Future of Insurance: Vision for 2027)
McKinsey & Company
JD Power (Insurance Intelligence Q3 2022)
GSMA (The Mobile Economy 2022)
Deloitte Insights (2023 Insurance Outlook)