The insurance industry is about to be transformed, as the introduction and commercialisation of the Internet of Things (IoT) is turning insurers into real-time risk consultants. Dramatically changing the way risk is calculated, assets are monitored and customer premiums are charged accordingly. While we are all used to sharing some level of data with our insurance company these new services require far more data sharing, including real time information. This implies the creation of a deeper relationship and greater trust between insurer and consumer. This may prove problematic.
Insurers have by-and-large not successfully incorporated even well-established technologies and practices into their customer service systems and processes, resulting in disappointing assessments of their customers’ experience. A recent UK study revealed that nearly a third of insurance customers did not have a positive experience.
This should be a concern for two reasons. Firstly, it shows insurers do not have experience of successfully reacting to new technological advancements, and of implementing the change management programmes necessary to adapt their business practices. Customers have pointed to a lack of engagement and a failure to even personalise content for communications.
Secondly this lack of clarity, transparency, and efficiency in their current customer experience processes has resulted in a lack of consumer trust in the insurance industry. This will need to be quickly rebuilt if insurers are going to foster the intimate, data sharing relationship they will need with customers if they are to maximise the business opportunity that IoT represents.
Insurance premiums can drive adoption of consumer IoT technology
Research shows that 56% of smartphone users in ‘Mature markets’ (including the UK) would be interested in controlling one or more connected devices via their smartphone (2016 Acquisition and Retention Study, Nokia). For insurers, there is wide acceptance by consumers of the value of IoT for devices used in the areas of Utilities, Home, and Health.
This can be compared to research from PwC which found that 63% of UK consumers would be willing to have a sensor attached to their car or home, if it meant a reduction in premiums. There is a higher potential adoption rate for devices linked to customers’ insurance policies, than for connected devices simply for personal use. Insurance is not only a viable use case but a potential catalyst for IoT adoption.
These attitudes are now being realised through new applications in the market. The first example of this has been in-car telematics, with ‘safer’ drivers rewarded with lower premiums. The discount on premiums for a customer who agrees to be tracked can be up to 25%. This has proven to be an attractive incentive for consumers, with the British Insurance Brokers’ Association (BIBA) reporting that the number of live telematics based motor insurance policies increased by 40% in 2016.
The technology is now spreading into other areas of insurance. This year both RSA and Aviva have partnered up with HomeServe to trial LeakBot, a device that will spot water leaks. This simple device could have saved some of the £650 million water damage bill the UK insurance industry faced in 2016, according to BIBA. In the healthcare space, US insurers are trialling usage-based insurance that uses IoT devices to track customers’ activities, and offer discounts for healthy and safe behaviour.
Insurers will need to adapt to facilitate closer customer relationships
These examples are proving consumer acceptance of IoT technologies, yet there is still a question of whether they will be happy to share the personal information it collects with their insurance provider. Could the poor customer experience being provided by insurers be the weak link in the information chain, and prevent the insurance industry from realising the business opportunity IoT represents?
Research by KAE found that customer experience within the insurance industry is considered poor by their consumers, with rail networks being the only sector ranking lower. There is also very little differentiation between the insurance brands, meaning no provider has been able to establish a best practice approach. In a highly commoditised industry with one of the highest churn rates, it is surprising no insurer has been able to make customer experience a significant differentiator against the market.
Fig 1: KAE Customer Experience Study 2017
According to the Association of British Insurers (ABI) “For an industry full of people passionate about making a difference for customers, it is extremely disappointing that the sector has so badly failed to secure their trust.” Insurers have been slow to meet the challenges of the new digital world, restricted partly by legacy systems, and the costs of updating and upgrading, as well as partly by a lack of understanding of what is required. Alongside pushing forward in developing and selling products, insurers now need to also look back to establish a solid foundation of consumer trust by first researching customer needs and expectations. Only then can insurance providers build innovative propositions and capabilities, whether they are product or service based, which target these core consumer needs.
If services including IoT data are to be successful, insurers will need to ensure a clear, transparent, but most importantly co-ordinated service journey for their customers. Insurers can use the possibilities of IoT enabled services as a catalyst to both radically revitalise their product portfolio, but also proactively redesign their customer experience to provide their consumers with the confidence to adopt them.
For more information on the KAE Blog or the Customer Experience Study 2017, please reach out to the team at firstname.lastname@example.org