Should insurers buy data direct from their customers?
By Scott Logie, Managing Director at REaD Group Insight
I recently attended an excellent conference hosted by The Insurance Network on the hot topic of customer engagement in the insurance sector. One of the interesting discussions at the roundtable focussed on purchasing data directly from the individual customer. The range of views in the room were intriguing, from “it would never happen” through to “I’d sell my data and for not very much”.
Before we explore this discussion in more detail, let’s just wind back a bit. What was universally agreed at the event was that developing an engaging relationship in the insurance sector is a tough task, and maybe one of the hardest sectors to make work. Insurance companies suffer from a lack of opportunities to build a relationship in terms of transactions, and the moments of truth are very low.
Much focus is put onto the claims process and making it as easy and seamless as possible, which is great, but only really affects between 5 and 10 per cent of customers – and probably the ones that the insurance companies don’t really want to keep. For the other 90-95% of the customer base, moments of engagement are few and far between.
At the same time, the acquisition market has become so competitive that existing customers will almost always consider looking at an aggregator to see what other deals are available.
The consequence is that customer data has become pretty valuable. Knowing the renewal dates for existing customers is really vital data for insurers. Knowing who they live with, their income, their likelihood to buy online, how many cars they have, and their hobbies can all help decide who to invest in and also which products to develop and promote. As a result, there is a large amount of money spent with third party data providers to ensure that external data is added to the limited internal data to enhance knowledge of the individual customers.
This brings us on to purchasing data directly from the consumer. It’s an area that has been looked at by different organisations in the past. Some small initiatives have been very successful, for example, incentivised gathering of opted in email addresses with prize draws and gathering renewal dates online with the offer of reduced premiums for multiple cars in a household. However, as far as I know, there has never been a concerted effort to create an ongoing data collection program, paid for with either hard cash or discounts to the consumer in the insurance sector. In many ways, loyalty cards in retail did exactly this. It wasn’t quite so explicit but clearly traded discounts for consumer information, which was used to build a picture of the customer and sell better to them. So why not do the same in insurance?
I guess the first challenge is around cost; how much discount could actually be offered on a car or home policy in exchange for some up to date information? £5? £10? Across a number of customers, this could become very expensive very quickly. Research has shown that we, as individuals, value our own data much higher than it could actually be sold for. However, as I was made aware at the event, some people would be happy to trade their data for much lower sums, as little as £1 or 50p even. Maybe some testing needs to be done to see what the value point is for different groups of customers.
Another point of discussion is around the validation of data sourced directly from the consumer. One benefit of buying data from a third party is that you can be assured that there has been a validation process through the comparison of multiple data sources with any spurious results ignored. How would a company gathering data directly know if a person supplying data actually provided the correct renewal date or that they did actually drive a Lamborghini?
So perhaps after all there is a reason why third party data suppliers exist. The collation, cleaning, validation and presentation of data isn’t straightforward and requires a robust, technical process. However, as the millennial generation become the consumer power base, they will definitely understand the need to trade data for services. As such, the time is right to be looking for the best model to ensure that individual companies get the data they value, available and permissioned on as many customers as possible. Some of that will be through third parties but more should also be getting gathered directly.
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