The Rise of Online Social Insurance – Embrace the Change

By Yves Colomb and Charles Wolstein, U.S. based consultants with Towers Watson

Online insurance communities are expected to emerge due to new technology and promise to revolutionise the way insurers do business, making it prudent for insurance leaders to evaluate the impact of online social insurance.

Fifteen years ago, it would have been far-fetched to predict the fall of certain iconic multinationals that consistently broke new ground in their industries. And yet, because they did not keep up with the technological pace, that is exactly what has happened, with some going bankrupt and others being bought at fire-sale prices or simply fading into oblivion. These are compelling reminders that new technologies have transformed business models and reshaped entire industries.

Relevance to insurers

Technology has already significantly changed the insurance industry. Most, if not all, insurance companies are now present and sell their products directly online, and insurance price comparison websites have upset many mature insurance markets and put pressure on profitability. Telematics motor insurance, or usage-based insurance (UBI) as it is known in North America, promises a revolution in individual risk behaviour and insurance purchasing patterns.

But these changes – however disruptive – are still part of an initial phase of the industry’s transformation which started in the early 1990s and has brought immense variety, transparency and choice to many aspects of people’s lives, and empowered them to make more informed decisions. Price comparison websites merely apply Expedia’s business model to another industry, providing consumers with top-down, one-way information flow. Telematics motor insurance, although a dramatic departure from traditional insurance models, is essentially a product of the individual empowerment age: Policyholders trade information on their vehicle usage for the promise of lower premiums and a fairer, more accurate assessment of their risk.

If the empowerment of individuals represents this initial phase of the insurance industry’s evolution, the next stage will see insurers’ top-down, vertical relationships between entities and individuals supplemented with horizontal and bottom-up activity (including peer networks, both social and technological). In other industries, this second phase of ‘social recombining’ has already led to the emergence of multiple layers of online social groups.

People, businesses and organisations sharing similar economic interests have banded together to purchase insurance coverage (or provide it to their peers) for as long as insurance has existed. But current technology encourages new associations to form. It is now relatively easy for individuals sharing similar interests to identify one another and associate online. Indeed, technology enables these previously unconnected people or organisations to identify their peers in ways that were never possible before. For instance, Groupon helped households save money during the last recession by offering group discounts. Importantly, participants were not connected in any way before joining the platform and would probably never have identified their shared interest without the help of technology.

In the near future, people or organisations seeking insurance could meet online and decide to form potentially large, grassroots online social insurance groups (OSIG). These groups could, for example, comprise all the good risks of a specific insurance product or people seeking to insure similar risks. Or it could be a large group from, say, the worst 10% of drivers banding together to obtain better coverage or lower premiums. Individuals would gain more clout and increased bargaining power by becoming part of a group of homogenous (and ultimately more desirable) risk profiles.

Finding favourable conditions

Challenging macroeconomic conditions can increase the perceived value of bargaining power. Sustained economic hardship would accelerate the transition to alternative insurance, as the demand for UBI in the United States after the 2009 global downturn illustrated. The insurance cycle can also push groups of insureds to seek alternative solutions. A strong hardening of insurance rates would provide a compelling incentive for favourable risk profiles to segment themselves away from other insureds. This is routinely observed with corporate captive formation and usage.

Risk profiles historically treated as either marginal targets by traditional insurers or niches by specialists (due to their inherent risk or their low volume), or ignored by both, also have incentives to form social insurance groups to build scale and increase their bargaining power. This is similar to the affinity-group strategy that senior drivers in the UK have used to make coverage more affordable over the last decade. An OSIG could also benefit would-be drivers pushed out of the market by prohibitive premiums and may even help reduce the number of uninsured drivers.

Preparing for online social insurance
Insurers have always worked with interest groups but have not always succeeded at regularly signing or sustaining profitable deals with them. In preparing their online social insurance strategies, insurers may need to:

♦ Counter the inherent volatility of online groups. Technology fosters the emergence of OSIGs, but also makes membership volatile, even though maintaining cohesion is essential to preserve its benefits. Online ‘games’, effective communication and frequent introduction of new features can help prevent member attrition.
♦ Anticipate where OSIGs will flourish, and position themselves to be the insurer of choice. For some groups, the insurer might try to be the moderator (although brokers will compete hard to own this space).
♦ Review their sales capability so that they have the right number of well-trained, properly focused people pursuing opportunities. Most insurers have some very good people in this area, but often their expertise is thinly spread.
♦ Recognise that sales may depend on meeting wider needs than just price. If OSIGs emerge, they are likely to have a common interest and may well prefer a provider that has some link with that shared interest. For example, a supporting wiki website aimed at motorcycle enthusiasts in the UK has proved to be an effective tool.
♦ Balance underwriting and sales. Sales are important, but should not dominate the process, because deals done primarily to grow top-line results often generate sustained underwriting losses.
♦ Recognise the potential impact on margins. If customers organise into groups, they will be better positioned to drive hard bargains and reduce profit margins. Efficiency, a firm control over expenses and a clear, realistic understanding of the economics of such arrangements will be especially important.

The online social age is already a major part of our daily life, but the insurance industry is not a front-runner in this evolution, and it could be several years before it enters phase two. Even if the next phase is not imminent and differs from other industries’ experience, insurers would be prudent to consider the emergence of online social insurance and how their companies would react.

Drawing lessons on transformational market forces from front-runner industries requires keeping an open mind to all possible futures, even if seemingly far-fetched. Some formerly great companies probably wish they had done more of that.

STAKEHOLDERS' WORKSHOP ON MICRO-INSURANCE

In its continuing efforts at deepening the Nigerian Insurance market, the National Insurance Commission (NAICOM), in partnership with Access to Insurance Initiative (aii), GIZ of Germany and Making Finance Work for Africa (MFW4A) will hold a one-day stakeholders' workshop on micro-insurance on Wednesday, October 24, 2012.

The venue for the workshop is Reiz Continental Hotel, Plot 779, Cadastral Zone, Central Area, Abuja at 9:00am prompt.

Stakeholders expected at the workshop include Cooperative Societies; Micro-finance Banks; Insurance Companies; Insurance Brokerage Firms and Trade Associations. Also invited to be part of the workshop are other Regulatory Agencies (CBN, PENCOM, NDIC, SEC & FSS2020), Government Agencies (SMEDAN, FMBN, NHIS, PHCN & NACRDB) and International Agencies (IMF, WORLD BANK< UNDP< BFID AND UNDF).

It would be recalled that by the middle of last year, NAICOM commissioned the GIZ/MFW4A to conduct a nation-wide diagnostic study on the potentials of micro-insurance in Nigeria. This study was successfully conducted this year and the reports have been submitted to the Commission. It is important to note that in the process of carrying out the study, the research team held discussions with the Commission, Cooperatives Societies, Trade Associations, Micro-finance Banks, Insurance Companies, Brokerage firms, as well as representatives of other regulatory and government agencies.
The primary aim of this workshop therefore, is to assess the findings and recommendations of the country-wide diagnostic research on micro-insurance and to provide a platform for further in-depth discussions. In addition, this workshop also aims at creating an avenue for dialogue amongst the various stakeholders.

culled from www.naicom.gov.ng

INSURANCE INSIGHT: TELEMATICS

Telematics provides the ability to move away from traditional segment-orientated models towards one based on individual driver behaviour, allowing a far more accurate calculation of risk. This two page article assesses the business challenges, strategic solutions and benefits of Telematics usage.

Given the dramatic changes of recent years, those in the general insurance industry are well aware that ‘change is the only constant’.

The internet has provided the basis for the disintermediation of the personal lines market and the ‘rise of the aggregators’. Consumers now seek advice from their social networks rather than brokers and, as channels have proliferated, they now expect communications that suit their lifestyle and needs.

This new reality means insurers need to change their business and marketing strategies to emphasise retention and the development of lifetime values as essential components in building a profitable, sustainable business.

And no longer can customers be viewed just as ‘policy-holders’. They need to be treated as individuals and family members with a range of needs that may well go far beyond a simple policy.

Telematics provides the basis for a paradigm shift for motor insurance. Not only does it offer the ability to move away from traditional segment-orientated models towards one based on individual driver behaviour, but by developing a comprehensive picture of how, where and when a vehicle is driven, a far more accurate calculation of risk can be achieved.

With this insight, insurers can tailor products at an individual level, leading to a better customer experience, improved satisfaction and significantly enhanced retention rates.

Business Challenges

Telematics is not new, but changes in technology and market conditions mean it is now moving rapidly from specialist to mainstream markets.

Infrastructure costs have decreased dramatically. Young male drivers face increasingly exorbitant premiums. The loss of the exemption from the EU Gender Directive is fuelling interest from both politicians and pressure groups alike. And at the same time, motor insurers have struggled to make profits as the costs of claims has soared, in part due to the rise of the ‘whiplash’ compensation culture and the payment of referral fees.

All these are combining to position telematics as a powerful solution to many complex challenges in motor insurance.

It offers the potential to set premiums that reflect genuine risk, calculated using real data and founded on a solid, evidential basis, at an individual level.

And with that insight comes the ability to develop new products that can capitalise on potentially lucrative market segments as well as the tools to build and use customer profiles that can radically change the way that insurers acquire, retain and develop customers.

Strategic Solutions

In itself, telematics starts as a data stream, derived from the vehicle and from the GPS network as location co-ordinates. To make sense, this data has to be placed into a geographic context.

The application of ‘location Intelligence’ does this and allows an insurer to visualise and understand driver behaviour. Identifying the type and class of road, the speed limit and the vehicle’s proximity to accident blackspots are just some of the factors that can be used to assess driver behaviour. Similarly, proximity to high crime zones may also factor in determining risk and premium.

To take full advantage of telematics, insurers need to apply high quality location data together with the right systems and processes to efficiently manage, use and analyse large amounts of data. Choosing the right platform to assemble, interpret and analyse the data is key to developing an effective operation.

From a strategic viewpoint, telematics offers a great deal of promise. Not only can it feed information on where and how a vehicle is being driven, it can also provide immediate notification of accident or theft. And by providing a wealth of data for both conditions, it provides a powerful tool to combat fraud.

But perhaps the real potential of telematics is its ability to build ‘clubcard-like’ levels of customer insight. By combining telematics with other datasets, insurers can build comprehensive lifestyle and behavioural profiles that open the door to customer ‘value-add’ via the sale of ancillary and location-based services.

Business Benefits

Motor insurers still struggle to understand and connect positively with their customers; in many cases engagement being limited to on-boarding and renewals processes, despatch of policy documents and, for some, claims processing. As a result of this and other market forces, loyalty is low and consumers tend to be driven by price, although brand and trust still play important roles.

Although new products, such as multi-car policies, have recently been brought to market, consumers still see insurance as traditional and conservative in nature.

Telematics offers the opportunity to build detailed customer profiles, develop and bring new products to market, provide added value services and build greater lifetime customer value.

Already a compelling proposition for a number of niche groups, telematics is close to the tipping point where mainstream insurers will need to build and offer a telematics proposition, or risk being left behind.

Those who lead the way may well be able to significantly grow market share while setting premiums that accurately reflect the real risk and result in a profitable and sustainable business.

Life Premiums See Hike of 58%

Life premiums for the whole of life insurance have seen a rise of 58% overnight for women over 40, according to comparison site payingtoomuch.com.

 

Some women aged 40 have seen rises from £48.30 to £76.40. The equivalent increase for a male in the same age band is 40 per cent.

 This increase comes from PruProtect, the largest provider of underwritten whole of life insurance in the UK.

Michael Ward, managing director of payingtoomuch.com said: "Virtually all customers under age 50 are likely to have a premium increase, the younger the more the increase."

 The rise in premium rates is a direct result of the EU Gender Directive due for implementation by 21 December 2012 which demands that insurance premiums cannot be calculated differently based on the sex of the applicant, broadly speaking women have paid less than men because they are likely to live longer.

Ward added: "Existing customers aged over 55 might be able to make a saving by re-quoting on the new gender neutral terms. Having analysed what PruProtect have done, we wonder if this is what the whole market might do before 21 December so those who want to beat such an enormous hike with other providers must act now."

The importance of technology to the insurance sector

The rate of technological change in recent years, and particularly with respect to ICT, has been remarkable. Never before has so much information been available to so many people around the world. In this thinkpiece, the Universities and Science Minister, David Willetts MP, discusses the many links between insurance and information technology in the UK. In his view, the UK’s comparative advantage is intrinsically linked to industries like financial services building increasingly strong ties with research and development centres and universities which are at the frontiers of developing new technology.

Below is the summary of latest findings:

• There are many links between the insurance industry and investment in technology and research and development in the UK. This thinkpiece investigates some of them. 
• Science and technology is for example, enhancing the ability of insurance to underwrite diverse risks like climate change, drug trafficking and piracy by providing new and more accurate data streams from which to judge the relative likelihood and impact of various hazards occurring. 
• Computational modelling is also changing the way in which insurance brokers operate, with the potential to deliver a “modern version of the classic broker function”. 
• The UK’s current and future comparative advantage lies in the skill to programme computers to maximise their capabilities, and to employ those capabilities to great effect in business.
• For this to occur, government, industry and the scientific community must work together to ensure that technological developments are fully utilised across the industry and for the benefit of society.

Kindly visit http://www.cii.co.uk/media/3691513/future_risk_report_no_4.pdf  for detailed report.

MORE WOMEN THAN MEN WILL CARRY ON WORKING PAST THE STATE RETIREMENT AGE age

More women than men will carry on working past the state retirement age, according to a new report by insurers LV=.

The number of over-50s expecting to work past the state retirement age has risen to 6.5m, an increase of 43% on the 4.5m people planning to do so in 2010.

This group says they expect to work an extra 6.2 years on average.

However, more women say they will work past the State retirement than their male counterparts.

4.1m women over 50 expecting to work past the state retirement age, compared to 2.4 million men.

But men who expect to work past retirement will do so for over a year longer than their female counterparts.

Both male and female workers say that they will continue to work because of affordability, with some mentioning enjoyment of work as the next reason.

Ray Chinn, LV= head of pensions, said: "With the Government increasing the state pension age we would hope that those approaching retirement wouldn't feel they need to work beyond it.

"Unfortunately, this is not the case as many find that they have insufficient funds in their pension pots.

"Although there are many people who feel too young to retire and want to work for as long as they can, our research shows the majority say they will be forced to do so to survive financially."

London has the highest number of over-50s who say they will carry on working, and many predict they will work 7.4 years past the state retirement age.

Chinn continued: "Regardless of how close people are to retirement, it is essential that saving remains a priority. The earlier in life you can start saving the better, but it's never too late to make a significant difference to your pension pot.

"There are many different options available to people at or near retirement, from which type of pension they have their money invested in, to whether they take a lifetime annuity, enhanced annuity, or put their money into drawdown.

"If someone qualifies for an enhanced annuity they can see their income in retirement rise by up to 30% for instance.

"People should seek professional advice to make sure they are getting the most out of the money they have saved for retirement."

Research Shows that the More You Sit, the Less You'll Live

The dangers of “over-sitting”–spending hours a day in your office chair or comfy chair/sofa at home–are being born out by a growing list of research studies, all of which paint a bleak picture.

This month another study published in the October issue of The British Journal of Sports Medicine adds to the macabre chorus. Researchers used data from the Australian Diabetes, Obesity and Lifestyle Study, a large, continuing survey of the health habits of roughly 12,000 Australian adults. The survey asked participants questions about overall health, existing illness, exercise, smoking, and diet, as well as how many hours per day in the previous week they had spent sitting in front of the television. (The issue here is not simply watching TV, of course, but sitting while watching.)

According to the survey data, in 2008, the year that the researchers chose as their benchmark, Australian adults collectively viewed 9.8 billion hours of television. Using actuarial tables and adjusting for smoking, waist circumference, diet, exercise and other variables, the research isolated how much time all of the TV watching was chipping off study participants’ lifespans.

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The result: every hour of television watched after the age of 25 reduces the viewer’s life expectancy by 21.8 minutes. Viewed more comprehensively, the study suggests that an adult who spends an average of six hours a day watching TV over the course of a lifetime can expect to live 4.8 years fewer than a person who doesn’t routinely plant themselves in front of the telly.

The especially troubling finding of this and similar studies is that the result doesn’t seem to be improved by regular exercise. If you sit for hours a day, and exercise an hour a day, you are still at risk.

Authors of another recent study in the journal Diabetologia, which reviewed data from 18 studies involving 794,577 people, conclude that the average adult spends 50 to 70 percent of their time sitting. This study covered not only leisure time watching TV, but also time spent sitting at work.

The researchers then cross-referenced sitting time with a variety of health problems, and found that those who sat the most had a 112 percent increase in their relative risk of developing diabetes; a 147 percent increase in their risk for cardiovascular disease; and a 49 percent greater risk of dying prematurely. Each of these results hold true even if the sitters regularly exercised. [Source: New York Times, October 17, 2012]

None of these results should be interpreted to mean that exercise isn’t important — it’s extremely important for overall health. But, exercise alone is not enough to counter-balance the damage done by sitting for the majority of our waking hours.

How much sitting is too much? According to the authors of the Australian study, sitting four or more hours a day puts you in the “risky” category. That’s hard news for most of us who spend much more than that at office jobs, to say nothing of leisure time.