As data and analytics start to transform the insurance market, we’re seeing some of the long established arrangements and principles held up to scrutiny. Do policies have to be for a year? Do you need to ask me all these questions? Why are my premiums paying for a neighbour’s claim? These are valid questions that are worth debating, for there are many perspectives and time frames for understanding how insurance works, and why it does it.
Yet one question has not received enough of the attention that it deserves. On the face of it, it looks a bit abstract, a bit too philosophical for a business sector. Yet it lies at the heart of this digital transformation. Unless it is addressed, trust in the market will be left to chance. It is: what is an insurer there for?
It’s a question that matters to a digitising market. When something akin to a paradigm shift is going on, it is important to have some notion of what you’re heading towards looks like. A firm may communicate in terms of ‘we’re not like that’, but it’s just as important to talk in terms of ‘this is what we are’ as well. A new journey is just as much about where you’re heading, as it is about what you’ve leaving behind.
Start-ups are good at this
And many ‘insurtech’ start-ups are good at this type of thinking. Their websites often have a catchy phrase encapsulating what is different about the experience they offer. And the customer is at the heart of it. Well, so it seems, for while they invariably talk about what the customer ‘really wants’, the subtext is often more nuanced.
What customers of many typical start-ups might not realise is that they are being offered a product that represents a vision of what an ‘insured life’ should be. This ‘insured life’ is one that is less about risk and more about behaviour change. It is more about service and less about what it might say on the tin: insurance. It is experience over product.
There is of course something rather nice and grand about using behavioural and bio-metric data for social engineering. Personal nudging on a grand scale. Yet the hard commercial realities that start-ups are under can just as easily turn this into a paternalistic form of commercial surveillance and control architecture, especially when the founders head towards their exit.
A defence of incumbent’s ‘old insurance’? Not at all. They may have a hundred years or more of knowing what customers are like, but that understanding now seems to be morphing into bewildering perceptions of what customers are ‘really like’. Take fraud as an example. Over the last five or so years, perceptions of customers as fraudsters have changed from being a vague type of an unknown size, to being 50% of all customers.
And that means that between you and I, insurers think that on average, one of us will be a fraudster. Not a bright future then for household policies in joint names.
So data and analytics are equipping insurers, both new and old, with all sorts of capabilities. Is this being matched though with enough reflective insight?
Hold on, you might say. Is this really the case, or have I picked two lines of thought and made a mountain out of them? I acknowledge that this post is not based upon any detailed analysis, but instead upon ten or so years of watching what is said and what is done.
What is said and what is done
And there lies the question this post is aimed at. What is said and what is done. I believe there is more than an acceptable amount of disingenuousness around insurance at the moment. Lots of talk about customers, but by insurers, both new and old, who really mean what customers should have, rather than what customers really want.
Is data and analytics, and all the outputs they feed into corporate mindsets, opening up a vacuum at the heart of insurance? A vacuum of scepticism, of honest questioning? Do insurers think they see customers, when presented with a mass of statistical congruences? If lots of clever data and analytics tells the UK’s biggest insurer that one in two of us is fraudulent, then what does it tell them about their 30,000 employees? Are we being honest with ourselves? Are insurers being honest with themselves?
I think we’re not being honest enough. It is of course fine to put your best side forward, both as an individual and a company, but you need to do so while also being honest about who you are in the round. Insurers can’t let data and analytics get in the way of, blur the need for, that honesty.
So why do we need to recapture a more honest narrative about what insurers are there for? Is this an unreal expectation? I think it’s a realistic expectation because if consumers don’t trust insurers, then the market starts going backwards, despite all the talk about insurtech driving it forwards. And if market’s don’t work as they should, then regulators get nervous. It’s their role to ensure that insurance markets work well.
The risk is that if that honesty narrative isn’t strong enough, it will be put to the test and found wanting. Take that assertion that ‘50% of claimants are fraudulent’. It might go down well at an insurance claims conference, but is that really much of a test of its veracity? Try putting it to the Treasury Committee. How many insurance claims executives would accuse 50% of claimants in a parliamentarian’s constituency of being fraudulent?
Perhaps the regulator has sensed something of this too. They’ve recently been talking more about a firm’s purpose, in regulatory messages about duty of care, distribution and culture. In other words, something pretty similar to that question we started off with - what is an insurer there for? What’s your firm’s purpose? Are the FCA trying to nudge firms into filling that vacuum with something that will resonate out into that firm’s culture?
And before I’m inundated with replies about profit, it’s worth looking at some of the literature about purpose, for profit is hardly mentioned. And then look at some examples. The Australian insurer IAG has as its purpose “to make your world a safer place”. They then explain it in more detail:
We make the world safer by sharing people's risks, helping them to take up life's opportunities confident that the safety net is there. And when disaster or misfortune strike, we are there to fix the broken and replace the lost, helping them to get back on their feet and reducing the financial and emotional strain that so often follows.
Meanwhile, the UK insurer Aviva has this as their purpose: “We are here to help our customers look to the future with confidence, through every twist and turn of their lives.”
As you can see, there’s nothing about revenue, profit or market share there. It’s all about the customer. And they are why insurers like these exist. Of course, they’re private sector firms wanting to make a decent profit, but they know that that would be impossible without the customers they exist to serve.
The reason is the customer
What the purpose statement does is remind the firm and its people that they are there for a reason, and that reason is the customer. Without customers, the business would fail. Yet it is of course one thing to know why your firm exists, and another thing to do something about it. It’s fine to emphasise the importance of serving customers (insurers do it often), but you must then unpick that message to show different functions, like fraud investigation, what it means for their part of the business. A purpose without that sort of extrapolation will deliver little of value to the business.
A good purpose, well executed, will require employees and managers to get inside the customer’s head, to understand what they value and the expectations they have of you. It should influence what your firm prioritises, how your people make decisions and the innovations give priority. In the words of the regulator, it should inform ‘why you do what you do’.
There is of course the danger of more fine words followed by business as usual. That would be a risky move. As outlined in an earlier post, the regulator is equipping itself to monitor how the ‘talk’ is being ‘walked’.
Now, some of you will recall that over the last few months I’ve been writing a number of blog posts about the fundamental issues relating to insurers’ use of data and analytics. This is one of them, for I believe that data and analytics have been hugely influential in the emergence of this question about honesty and purpose. This great, innovative expansion of digital opportunities seems to have opened up a question about what really is at the heart of insurance. Insurers need to address that question, before others end up telling them what the answer needs to be.