The word ‘disrupt’ is most commonly associated with digital technologies. Yet a digital ecosystem of additional services may have the potential to do the opposite for general insurers and ‘open up’ new opportunities.
Insurers find it increasingly challenging to differentiate themselves in the eyes of their customers and are at a disadvantage to other financial services companies when it comes to engaging with customers. Often customers interact with the insurance firm at the time of purchase and renewal only. International research has shown that engagement following purchase is very low and many people rarely think about their insurance provider until their renewal statement arrives. A report by KBM Group found only four in 10 insurance customers are strongly engaged.
The problem of engagement
Those in general insurance in Australia know only too well that insurance has become increasingly commoditised. Increased price transparency through social media and comparison websites has made it easier for people to compare products on cost and switch providers.
With little face-to-face interaction occurring, customer loyalty has fallen. All this has put pressure on premiums as insurers have focused on comparative savings and discounts. KPMG’s latest General Insurance Industry Review shows underlying insurance margins are down 16% compared to previous years.
General insurers need to find a new way to boost engagement with their customers to build customer loyalty and retention without slashing premiums further.
Time for a new approach
General insurance doesn’t offer a lot of opportunity for engagement. So, it may be time to consider creating an ecosystem of services beyond insurance. Wealth management is one such service.
Wealth management by its nature requires regular customer interaction. Investors are eager to monitor the progress of their investments and wealth managers have frequent opportunities to update customers on the performance of their portfolios and advise them on how to respond to developments in the market.
By adding wealth management to their service offering, general insurers can harness this high level of engagement. At the same time, they would be increasing the number of services each customer receives from them—creating the so-called “stickiness” that makes it much less likely customers will seek to switch companies just to get a lower price—and they would be increasing their revenue streams.
Of course, the fact that wealth management promotes high levels of engagement is not new. However, changes are occurring in the wealth management space to make it more accessible for companies looking to add services, and also more relevant to the customers of those companies.
The change is the birth and rapid development of digital wealth management.
Digital changes everything
Digital wealth management is much more cost effective and so can reach many more customers who wouldn’t have previously been suitable, giving insurers the potential to leverage the myriad of relationships they have with their customers.
Wealth management has been somewhat of a luxury to date. Generally, someone with less than $50,000 would struggle to get the attention of a financial advisor in Australia without paying a service fee that’s disproportionate to the amount of capital they have to invest. The result is at large a market of under-serviced people. Research has shown that as few as 20% of the adult population in Australia receives any financial advice.
By contrast, digital wealth management can service people with relatively modest amounts of money because much of the interaction with the customer can be a digital one, saving markedly on costs. Through a brief online questionnaire, for example, the digital wealth manager can determine the customer’s attitude toward risk, and with the help of algorithms, immediately show them a portfolio aligned to that risk profile.
Whereas a traditional wealth manager would need to be available on the phone to maintain a constant relationship, the digital wealth customer can get updates on their portfolio’s performance and receive alerts on how their investment is tracking at any time. They can also receive updates on what they should do next to meet their financial goals.
Already banks are taking advantage of digital wealth management. The digital wealth management company provides the interface that allows bank customers to access wealth management services through the lenders’ internet banking. Similarly, insurance companies can offer customers easy access to the digital wealth journey through a new section on their website.
Insurers have unrivalled access to large amounts of information about their customers. They can harness their insights to personalise their customer interactions with suitable and relevant wealth services. This data-led engagement helps them to build on their relationships with their many customers.
For example, an insurer might search its customer database for all motor vehicle policyholders aged over 55 that live in the wealthy suburbs. Those people are likely to be well off, so it would be reasonable to assume they might have a self-managed super fund and they might also be thinking about retirement income streams. Therefore, a service that could be marketed to them might be a retirement income stream, for instance.
As another example, the insurer might look at all the under 30s in their customer database who own cars worth more than $25,000. The insurer might assume they are young professionals, and decide to show them a growth investment, thinking that they are probably trying to establish funds to buy a home or for other investment purposes.
In the commercial insurance space, an insurer might target owner-operator businesses who are likely to have some capital they want to invest on their behalf, or medium-sized businesses with proprietary funds that could be invested in the markets. These wealth management services could be offered through the broker channel, helping brokers add value for their customers.
Next step in innovation
According to KBM Group, insurance customers who are more engaged are more likely to purchase additional services from their existing provider, less likely to shop around or switch insurers at renewal time, more likely to allow a price increase before switching insurers, and more likely to recommend their provider to a friend or colleague.
Recently, several insurers globally have created ecosystems, offering a range of value-added services from health to property management to build a relationship with customers outside of the traditional insurance model to improve the customer experience. Some insurers in Europe have pushed into funds management to expand their revenue streams and firms in Asia have increasingly begun to embrace digital wealth management as a way to reach a bigger array of customers and boost engagement.
Insurers in Australia have shown their willingness to embrace new technologies to improve their customer experiences, deliver innovative products and services and transform their business models. Major insurance companies are increasingly partnering with fintech companies to explore new initiatives and technologies.
Customers themselves are driving the change as they seek to have more of their needs met in the one place and demand more personalised and relevant services similar to what they are now getting in other industries such as banking. Insurers have traditionally struggled in this respect as they have so few ‘touch-points’ with their customers.
As well as generating opportunities for engagement, wealth management provides insurers access to a wider range of data of their customers, which can then be harnessed to tailor their offering to customer needs and facilitate the next leg of innovation.
In this age of disruption, only one thing is sure – tomorrow’s insurer will look vastly different from today. Insurers must work to understand their customers and engage them on issues of concern to the individual. Digital wealth management has the potential to boost engagement, differentiate the insurer through value-adding, boost revenue and provide access to broader range of data with which to take innovation to the next level.