The Power of One

Lindsay Lohan and Bryan Cranston may seem like odd choices for an insurance marketing campaign. But, respectively, the actress, known for her legal and substance abuse troubles, and the actor, best recognized as the high school chemistry teacher turned crystal meth dealer in television’s Breaking Bad series, featured prominently in Esurance’s “Sorta Me” advertising blitz that kicked off during last February’s Super Bowl.

The United States-based provider of online insurance explains how the commercials, which portray Lohan as a “soccer mom” and Cranston as a “pharmacist,” dovetail with its “CoverageMyWay” product offering.

“We’re helping make sure you only pay for what’s right for you, not someone sorta like you,” the company notes on its website. “Using smart technology, complex algorithms and more than a little secret sauce, ‘CoverageMyWay’ is intuitive technology designed to help prioritize your coverages.”

The same principle applies to Progressive Insurance’s “Rate Suckers” national marketing campaign, originally launched in 2013, with a second round of ads starting in April 2015. In touting its telematics solution, Snapshot, the company is also encouraging consumers to pursue a “more personalized rate” and eliminate subsidies to bad drivers.

“Insurance companies commonly price consumers by comparing them to drivers with whom they share basic characteristics, like age, gender, driving history or vehicle year, make and model,” the company states in its ad launch press release. “These factors fail to capture the individual driving habits that are most predictive of insurance losses.”

What the two ad blitzes have in common is the use of data analytics to individualize rate and product offering. More than that, they represent an attempt to break through stodgy profiles and pigeonholed demographic groupings that lump individuals into broad rate classification categories. In short, they offer clients what amounts to, or at least feels like, a personalized experience.

This is a sharp lesson learned from the retail and online space – what many refer to as the “Amazon effect” of hyper-personalized product and service recommendations based on distinct individual profiles.

BIRTH OF MASS PERSONALIZATION

“The web-based companies, like Amazon, represent the first era of where (mass personalization) started,” says Carl Lambert, vice president of property and casualty national business intelligence for The Co-operators Group Limited. “Many others, like banking and insurance, realized they needed to go this route. It is no longer siloed by industry; now those techniques are being discovered and used across sectors,” Lambert says.

Indeed, the trend has spilled rapidly into retail and manufacturing. A July 2015 study by Deloitte shows that 36% of surveyed consumers reporting interest in personalized products or services. In addition, 22% of polled consumers are happy to share some personal data in return for a personalized offering or service.

“Businesses have not only developed the capabilities to measure specifically what each individual consumer wants, they are now also in a position to link their processes and resources to provide it through advances in manufacturing and distribution technologies,” reports Mukul Ahuja, a senior manager with Monitor Deloitte, who focuses on the p&c insurance sector.

To date, the Canadian p&c insurance market has not witnessed any splashy marketing campaigns related to mass personalization. However, sources say that there is work going on quietly behind the scenes.

“Mass personalization presents the opportunity to converge the advances in analytics in individualized pricing with simplistic coverage selections for a unique purchasing experience,” says Chris Van Kooten, Economical Insurance’s chief underwriting officer. “Insurance providers can produce a more unique offering where people can build their own tailored insurance package,” Van Kooten reports.

“Predictive personalization is the new norm,” observes Hashmat Rohian, AVP of R&D, Innovation at Aviva Canada in the 2015 white paper, The Role of Analytics in Canada’s Insurance Markets, published by FC Business Intelligence.

“Traditionally, insurance companies would focus on location or demographics alone and market products to all prospects in that segment,” Rohian explains. “Customers expect more now. We need to factor in structured social data, prospect demographics and behaviours to create community and personality profiles,” he adds.

LEARNING CUSTOMER BEHAVIOUR

“One of the first opportunities for insurers is to learn from customer behaviour, more so than they have in the past, which has mostly related to elasticity of demand or how they react to price increases,” suggests Pierre Lepage, KPMG’s partner and business leader, P&C Insurance Actuarial. “That learning could be along the lines of how customers want to buy, what products they want and how they want to be communicated with,” Lepage points out.

“Mass personalization will be one of the key strategies for insurers to win in (a) changing market landscape by allowing them to become more price-competitive and accurate, deliver a differentiated value proposition to customers beyond price and create customer stickiness (through) incentives for customers to stay loyal,” Ahuja suggests.

Specifically, some insurers say that mass personalization strategies can yield benefits in products, pricing and an improved customer experience.

Lambert cites the example of private overland flood insurance, which The Co-operators launched in Alberta this past May. His business intelligence team did much of the research, tapping into hydrology models, elevation databases and location intelligence.

“We know we are not the only ones to offer flood insurance, but we realized early on that you can’t have the same price for whole streets or communities – you need to have a lot of personalization,” Lambert says. “In our company, we could not have done flood insurance 10 years ago.”

When it comes to personalized premiums, he observes that insurers have made steady progress in using multivariate rating (how multiple variables, such as age, car or location, interact) and optimal pricing. The latter builds different components in pricing, including profitability, closing ratios and retention.

That said, Lambert notes, “lifetime value” is becoming more of a trend in the insurance world. “Lifetime value includes what products the client will buy in the future. This involves predictive analytics and it is very personalized,” he comments. “The banks are using this; now it is coming to insurance. There is a lot of attention being paid to it.”

Lambert cites the hypothetical scenario of two university students. Both are in fourth year and want to buy a tenant’s policy for $300 of premium in return for $15,000 in coverage, “We will certainly not make money; these are not profitable risks,” he explains. “But maybe one of them is applying to medical school and will become a doctor. In five or so years, that person will likely have a car, house and more goods to insure. That is used as a the future lifetime value.”

Pricing and product development are aspects of mass personalization, but some sources argue these components do not go far enough.

“From a rating perspective, the industry is becoming more granular, rating individual risks at a unique level by using more variables so that two people with different risk profiles receive price points that reflect their individual characteristics,” Van Kooten comments.

“Such pricing segmentation is great for insurance companies and results in better pricing for the majority of consumers, but fails to unleash the true value of mass personalization to improve customer experience and engagement,” he suggests.

“If you describe personalization as micro-segmentation, or getting the right price to the right person, we are certainly getting to that in the insurance industry,” Lepage concurs. “But thinking more broadly, what we are really talking about when it comes to mass personalization is transforming the customer experience at an individual level. If that is the case, in my mind, we are just at the beginning of it,” he says.

INDIVIDUALIZING THE EXPERIENCE

Building a better individual customer experience can mean a lot of things to insurance companies – more relevant offerings, targeted communications, even non-insurance services that make peoples’ lives easier.

“The industry has been very focused on a push distribution structure where we prepackage insurance offerings and give choices among those packages with different price points,” observes Van Kooten. “We haven’t done a good job at responding to what consumers want versus what we want to make available to them to buy, how customized that offering needs to be and what kind of experience people want around their purchase,” he suggests.

In terms of relevance of offerings, some insurers point to the proliferation of “Next Best Action” or “Next Best Offer” strategies. These automatically consider the range of different options available to a certain customer, based on preferences, interests or needs, and suggest the best action.

“When you download music, for example, the iTunes store suggests music that is personalized for you based on what you have previously purchased,” Lambert points out. “In insurance, I don’t think we have done a good job of that in the past. But there is a lot of work in this area now; there is some low-scale implementation around that.”

This technique must involve business rules, such as notification of a client lifestyle change (for example, son or daughter is turning 17 and starting to drive), predictive analytics based on past interactions and transcripting of outcomes (for example, client did or did not buy) into data models, Lambert explains. “So, you had a prediction, you made an action and then you analyzed the outcome and then potentially changed the way you interacted with the client based on that outcome.”

More frequent, more relevant customer communication is another critical feature of mass personalization, sources say. “Today, insurers’ touchpoints with desirable ‘safer’ customers are limited to sales and renewal, and the value of customer experience perceived by those customers over price can be limited,” Ahuja says. “Creating models to interact with and create unique customer experience throughout the policy lifecycle will be key to bridge this perception gap,” he adds.

In a 2014 global consumer insurance survey, consulting firm EY found “low levels of satisfaction” with insurance communications in North America, which “were consistently subpar across products and key channels.

The implication is clear: insurers, brokers and agents are falling short in meeting demand for high-quality and relevant communications.”

For those insurers that pursue targeted, personalized communications regularly with clients, the potential payoffs are huge, EY reports.

“The opportunities associated with communications are strategic and essential to boosting customer-centricity,” the study notes. “Communications must be measured not by their ability to provide basic information, but rather in terms of their ability to strengthen relationships. The ultimate payoff will come through reduced turnover and improved up-sell and cross-sell performance (and potentially large cost savings).”

Yet another aspect of personalized experience for insurance companies is provision of non-insurance “concierge” services, whether in collaboration with a third party or on their own.

“The proliferation of connected devices only adds to the push for personalization,” Erik Sandquist, a managing director in Accenture’s insurance practice, notes in a blog. “Connected devices can enable insurers to understand their customers’ preferences, habits and contexts – what their daily lives look like, and by extension, the types of insurance and related services and products that fit their lives.”

In fact, personalization may even be able to transform insurance from a reluctant, “have to buy it” product to part of a lifestyle convenience decision, Sandquist writes. “Tailored, relevant marketing communications can also help change the perception that insurance is a commodity product, and reposition it as part of a hub of services that assists people with their day-to-day lives,” he adds.

A 2015 Accenture Digital Innovation Survey found 61% of U.S. insurers have added, or are considering adding, non-insurance products to their customer offerings, including loyalty rewards (66%), home services (63%), lifestyle-based services (56%) and services related to motoring needs (53%).

If insurers fail to deliver the right experience for customers, consumers can take matters into their own hands. That is exactly what has happened in other countries, as Lepage points out. Peer-oriented insurance groups, such as Bought By Many and Guevara in the United Kingdom, and Friendsurance in Germany, represent different approaches to traditional insurance.

“These are customers banding together through communities that depend on one another, not formed by someone else,” Lepage points out. “They are designed to gain leverage, obtain rebates or address coverage issues they have in common. You can see with social media, there are players that can take advantage of this opportunity,” he adds.

TECHNOLOGY AS DRIVER

Behind a more personalized customer experience is technology, long the Achilles heel of the legacy-based insurance industry.

Sources contend one of the necessary preconditions for mass personalization is a singular view of the customer – and a flexible data warehousing strategy.

“Advanced data warehousing and business intelligence are important prerequisites that many insurance companies are still grappling with,” Ahuja maintains. “Insurance companies need to have a single view of the customer, consolidating all the information that the insurance company has about him or her,” he recommends.

Insurers also require sophisticated data analytics that drive business insights into customer behaviour, giving them the ability to make targeted offerings in real-time.

“Analytical models require large volumes of data to be predictive of behaviour,” Van Kooten says. “For mass personalization to be effective, you require data beyond traditional insurance attributes, such as the person’s preferences for frequency and type of interaction, how they want to make payments and hours they spend at work versus at home,” he goes on to say.

“Data analytics plays a huge role in extracting business insights from the huge amounts of data that companies have,” Ahuja contends. “Predictive analytics is key in understanding what the past history of a customer means in terms of future insurability,” he adds.

“Much of the actuarial tables and rating factors that have been central to insurance will need to change to reflect the amount of information that is now available,” Ahuja comments.

While technology can be daunting, Lambert notes that existing and open source tools are available to insurers. “The technology exists today to do a great many things,” he says. “There is a lot of software that is, in fact, free, for individual users. Tableau and MicroStrategy are two examples, as well as the Titan Toolkit for text analytics.”

Lambert offers an example of what could be done today on a highly personalized level when it comes to driving. Assume an insurer had customer consent and understood that this person drove the same or similar route to work every morning at approximately the same time. Through transportation ministry live databases, the insurer could track traffic patterns and inform the client of any accidents or delays, even suggesting an alternate route.

“That is feasible right now; we have the technology to do that, but we are not doing it,” Lambert says.

ROADBLOCKS TO PERSONALIZATION

That brings up an interesting question about the challenges of mass personalization. A top concern for Lambert is security of data and consent.

“There is confidential data and it is very sensitive,” he says. “We cannot do something that the client is not aware of and has not agreed to. Even if we do it for them, we have to be clear and it has to involve consent. There are so many companies that have had problems with data breaches.”

Another, perhaps related, concern is trust and the willingness of consumers to share personal information with insurers. EY reports that only 56% of polled Canadian consumers trust their p&c insurance company, a level lower than that of banks, online retailers, supermarkets or auto manufacturers.

“We know we can improve our offerings and overall social benefit, but we can’t ignore that the industry doesn’t hold a high level of consumer trust,” Van Kooten notes. “We need to chip away at that to earn the respect of the people we serve as well as our regulators by consistently putting our customers first. If the industry can be more transparent as to why additional information is being sought, we’ll be capable of creating a mass personalization effect,” he says.

Another very real hurdle to mass personalization is the insurance regulatory environment. In many provincial auto insurance systems, a rigid rate and file system does not allow for the flexibility needed in micro-segmentation and product or price customization.

“If there is something that we would like to do and clients would like to see it, there is a strong chance we cannot do it, especially in the auto insurance market,” Lambert says. “The regulators have a right to say no, and we have to comply with the regulations. But if you think about 10 years ago, regulators were not as open about telematics – now they are,” he reports.

Then there are the recurring challenges with existing legacy systems and their inability to keep pace with the real-time demands of mass personalization.

“The current issues that a lot of insurance companies are trying to tackle, especially in Canada, is one of the underlying IT infrastructure,” observes Ahuja. “Many of them are still trying to modernize their IT systems, which is a prerequisite to becoming more agile and do ‘mass personalization’ in a fast and cost-efficient way,” he notes.

Issues such as legacy systems and regulations are not unsolvable problems, Lambert argues. He says he thinks that the bigger obstacle is cultural change.

“The risk is that the culture of some companies is based on the old ways of doing things,” he suggests. “The new way is not the same. For example, when you talk about predictive analytics, the model cannot exist for more than three months. So we need a mindset change. Some companies have made this change; many have not.”

Several sources say that this change has to come for insurers for one simple reason – consumers are driving it.

“Personalization as a trend has evolved significantly driven by customers who want to be treated as individuals and not just as a profile,” says Rohian. “They expect us to have a holistic view of them and look at both internal and external data to get to know the next best action for them,” he reports.

Some perceive that insurers are slowly moving in this direction. “I think the culture in insurance companies has started to change over the last five years, where they previously viewed clients going through their filters to contact them and they determined whether the customer deserves what is being offered – that was the old view,” Lepage says.

“Now, companies look at making products tailored to clients, not treat them all as categories and really develop a culture that is client-focused and customer-centric,” he adds.

While the era of mass personalization may be prevalent in other industries, many insurers still see it in the early stages for the p&c industry.

“In the medium-term, I think that mass personalization will be a reasonable reality in the industry. Insurers will respond to the fact that people see themselves as individuals and not groups of people,” suggests Van Kooten.

“It’s the convergence of price, product and purchasing process that will create an experience, very much like people have with other industries where they can buy what they want, when they want, and how they want, and be able to manage the price point they are seeking,” he concludes.

In other words, “sorta me” will no longer be good enough for the modern insurance consumer in the age of mass personalization.