Insurance companies have an enormous tranche of customer data that rivals the likes of Facebook and Google, yet many of them struggle to leverage that information to create a great customer experience. Legacy systems are inherently limited and provenably inflexible, a serious problem for insurers who must remain adaptable in the face of a constantly evolving consumer market.
But it’s more than just a problem of engagement. Customer experience has a direct, measurable impact on the bottom line, making it essential to an insurer’s success.. According to data generated by PwC, great insurance customer experience can lead to a price premium of 16%, an opportunity that’s simply too good to overlook.
To modernize legacy systems and connect more deeply with customers, insurers are implementing data-fluid, human-centric systems to build the experiences policyholders increasingly expect.
The most pressing challenges facing today’s insurers
The emergence of highly sophisticated consumer technologies has raised customer expectations to extraordinarily high levels, which many incumbent insurers, hindered by outdated legacy systems, have been unable to fulfill.
Even though 64% of insurance customers want their insurer to understand them well, 60% of insurance executives admit their company doesn’t have an adequate CX strategy, according to “Elevating the insurance customer experience” from IBM.
Some of the customer experience challenges facing today’s insurers include:
Low customer engagement
Customers are used to the fast, highly personalized digital experiences they get from brands like Netflix, Amazon, and other tech giants, which capitalize on data-sharing capabilities to deliver highly relevant experiences. While some of those expectations were heightened during the COVID-19 pandemic, those behavioral shifts are likely here to stay.
Today’s policyholders, especially those from younger generations, increasingly expect the same level of customer service from each of their preferred brands, including their insurers. The inability of many incumbents to respond to this market trend has left space for more innovative insurtechs to move in and take market share.
More technologically savvy and better able to adapt on command, insurtechs and digital insurers are best positioned to take advantage of niche market opportunities and respond to highly specific customer needs, putting significant pressure on incumbents to find new ways to personalize and innovate.
Unsurprisingly, insurtechs are experiencing upward growth. Insurtech investment more than doubled between 2019 and 2021, from $7.2 billion to $14.6 billion, according to “Creating value, finding focus: Global Insurance Report 2022” from McKinsey & Co.
So far, many incumbents have been unable to respond, causing customer engagement to suffer as new market entrants build their customer base, hurting the lifetime value of those critical customer relationships.
Disconnected insurance experiences
Speed and convenience are among the top priorities for today’s insurance customers. They want immediate access to all policy information and tasks in a single, highly intuitive, digital environment, where they can update personal data, make a claim, pay their bills, and undertake other routine functions.
Insurance core systems are often rigidly siloed, however, and customers have to contact separate departments to complete functions regarding different policies. Worse still, without the information-sharing capabilities inherent to a better integrated system, insurers struggle to create a single view of all customer data, creating costly inefficiencies.
From the customer standpoint, this is time-consuming and frustrating, and it makes many policyholders ripe for siphoning by more digitally advanced insurtechs.
Limitations of legacy systems
Each of these challenges leads back to the fundamental problem: Insurance core systems were designed for yesterday’s product-centric market and fail to put customers at the center of the equation.
Insurers can’t create new forms of distribution and partnerships
Ecosystems are fast emerging as one of the preferred distribution models for the future-forward insurer, with our “2020 Insurer Compass Report” conducted by Insurtech Insights showing that 66% of insurance companies are already partnering with noninsurers. In addition to connecting insurers to new customers in new channels, ecosystems also present lucrative data-sharing opportunities that enable the development of more relevant offerings and a deepening of the customer experience.
However, legacy limitations make it difficult for insurers to integrate partners into their systems and take full advantage of those opportunities. It’s even harder to switch partners out after they’ve been integrated. As buyer behavior shifts and customers adopt new purchasing tools, unadaptable insurers are simply stuck where they are.
The customer experience is generic and unpersonalized
Without highly accurate, real-time data about their customers, insurers struggle to tailor the customer experience to each individual policyholder. Agents and brokers are unable to gain quick, easy access to information about the personal lives and preferences of their customers, making it difficult to identify relevant cross- and up-sell opportunities.
On a broader scale, it also means insurers don’t have the capacity to innovate. They can’t create relevant product bundles that address myriad customer needs, and they don’t have the insights to develop new products that meet the unique, ever-changing requirements of their customer base. Coupled with the high maintenance costs associated with supporting outdated legacy systems, the ability of insurance companies to stay ahead of a changing market is severely constrained.
Emerging trends in insurance customer experience
Ambitious insurers understand these challenges and have taken steps to address them, transforming insurance in the process. Some of the emerging trends shaping today’s insurance industry include:
Creating life-long customer loyalty
There is a significant opportunity to become more meaningful players in people’s lives, as evidenced by the growing protection gap. The difference between actual and insured losses reached $1.4 trillion in 2020 and could hit $1.86 trillion by 2025, according to PwC’s “Insurance reimagined: Spotlight on trust, convergence and transformation” (data sourced from PwC Market Research Center, Swiss Re Institute, and International Monetary Fund).
Ambitious insurers are learning that if you respond to customers’ needs, remove risk from their lives, develop relevant products, and provide user-friendly digital experiences, you tend to build stronger, longer-lasting customer relationships. Put simply, when insurers adapt a coretech approach and put the customer at the heart of what they do, they win big.
Transition to the experience economy
The transition to experience economic principles is a reflection of the growing importance of customer centricity. Defined by Forbes as a system in which “experience is the repository of value — the property that commoditized products and services exploit to create competitive advantage,” insurtechs brought the experience economy to insurance, and now ambitious insurers are replicating it.
Data-sharing makes it possible to accelerate every aspect of the insurance lifecycle and enable customers to complete routine tasks faster and more conveniently. For example, sharing data across platforms and channels makes it possible to automatically pre-fill forms and applications for expedited processing times, a major boon to customer satisfaction.
This is especially important now, as slow, cumbersome claims processes have already impacted satisfaction scores. J.D. Power’s “2022 U.S. Property Claims Satisfaction Study” found that satisfaction with homeowners’ insurance property claims fell to a five-year low of 871 out of 1,000. This drop was due in large part to the 17.8-day average it took for claimants to get damaged property repaired.
An increased focus on risk removal
Traditionally, the insurer’s role in society was straightforward: Mitigate risk by offsetting the financial cost of starting a business, driving a car, or making a large purchase. By spreading costs across a large number of policyholders, insurers empowered people and businesses to pursue potentially profitable opportunities.
That role works to an extent, but it falls short when insurance customers have risks beyond the financial. In cases where property damage is irreversible, for example, like when a family home goes up in flames or precious heirlooms are lost to water damage, insurers simply haven’t had much to say. Sometimes, customers care much more about preventing damage from ever happening in the first place.
With new digital capabilities at their disposal, ambitious insurers are increasingly giving policyholders access to a more robust set of services to help them reduce their risk exposure and minimize the need to file a claim at all. For example, State Farm partnered with Wildfire Defense Systems to help policyholders fire-proof their homes and remove flammable debris from their vicinity.
The increased emphasis on risk removal has made insurance companies a more valuable partner in the lives of customers, reducing both policyholders’ risk and their own risk.
Use of advanced digital technology
These data-sharing techniques are emblematic of ecosystem orchestration, which lean on advanced digital technology to generate more and better customer data. Ambitious insurers leverage that data to inform product bundles, service offerings, and product development.
For example, some homeowners’ insurance providers encourage policyholders to install sensors in their homes to detect flooding. Linked directly to the home’s water valves, those sensors automatically shut valves down to limit the flooding and minimize damage. It’s a win-win for everyone; customers’ homes and personal items are safe, and insurers have fewer and less expensive claims payouts.
The use of advanced predictive analytics can also help insurers understand the specific risk profile of each of their customers and set premiums accordingly. Moreover, the risk information they gather about individual policyholders opens additional opportunities to offer products or services that are tailored to their specific risk profiles.
Liberation of human capital to drive innovation
Data-fluid systems like these touch every part of the organization, meaning human centricity also liberates human capital, freeing internal teams to focus their creative resources on innovation.
Therefore, human centricity is about more than just providing great experiences to customers, as important as that is. It’s also about creating optimal working experiences for employees, empowering them to deliver better work. As insurance companies continue to face a talent crisis, human centricity makes them more attractive places to work, helping them draw in the most talented hands and minds.
Cloud-native coretech for the ambitious insurer
Achieving any of this requires a new approach to insurance core systems and pushing your insurance company into the future of insurance. At EIS, our cloud-native coretech platform is the first first choice for ambitious insurers focused on future-proofing their business and building the customer-centric insurance platforms of tomorrow.
We help you break free from your antiquated legacy systems to grow market share and enter new markets, develop innovative products and build engaging experiences while lowering acquisition costs, boosting retention, and delivering greater revenue and profits for the long term.
As customers change and expect more from their insurers, It’s time for you to change with them. Download our eBook, “The Ambitious Insurer’s Guide to Human Centricity,” to learn more.
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