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The road to digital disruption in Motor Insurance

By Oliver Werneyer, CEO and Co-founder of Imburse 

Oliver Werneyer, CEO and Co-founder of Imburse

“Insurance is sold not bought” the saying goes, and this rings true for nearly every line of business, except for motor insurance. It’s one of the few lines of business where it is mandatory that people purchase a policy. If you want to own or drive a car, you have to be insured. Buying insurance can be a tedious process for customers and for this reason insurers need to focus on making their policy the easiest to buy not only in terms of the application process, but throughout the whole customer journey.  

Motor insurance is the largest subsector of the global P&C insurance market and transformation here is ongoing, necessary and urgent. Changes in the automotive industry and in the customer buying preferences are putting a lot of pressure on insurers to evolve. This includes launching new products, exploring new business models as well as implementing more modern operational and claim assessment capabilities. 

More recently we have also witnessed mobility preferences and car usage patterns changing, in part due to the higher implementation of remote working during the pandemic, but also due to the less “vehicle ownership-oriented” mindset of the younger generations. All of these factors add to an immense pressure and growing list of things for insurers to modernise. 

As a line of business within the insurance world, motor insurance is maybe one of the more advanced in terms of digitalisation. Yet, the transactional nature of motor insurance products, as well as changing customer preferences, continue still to fuel the burning demand for digitalisation. Customers want to have a much more seamless and convenient experience when buying a policy, managing their policy or making a claim. Motor insurance also has, in most countries, been commoditized to a significant extent where competition is rife and intense, and margins are low. 

To break this cycle and to explore more opportunities to build more profitable business, insurers are focussing on launching new products and enhancing existing offerings with a much higher degree of personalisation. This offers insured an immediate opportunity to increase revenue while fostering customer loyalty. Ultimately, anything that decreases claims costs (including fraud), reduces operation expenses and increases sales, is at the top of the agenda of any motor insurers. In the UK alone, the potential market size across non-basic premiums for motor insurance is £8.5 billion a year.

Launching new products is always exciting, but can also be an extremely intense process for insurers. It requires not only all of their expertise around the core parts of their business (i.e. underwriting, pricing, claims assessment, etc.) but also a lot of work that is typically  not part of the insurer’s core competencies. This includes aspects such as user experience design, mobile software, technology developments and payments. Any successful product launch in today’s climate requires every aspect to be best-in-class just to grab and keep the attention of potential customers. During product launching, insurers are generally compromising in areas that are not their core competencies. These areas, like payments, are critical moments of engagement with the customer that will define the value perception of the insurance product.

If we look at the payments component, this affects premium collections, claims pay-outs, as well as loyalty and reward transactions. If insurers get any of these wrong the value a customer places your product will immediately be impacted and has the potential to deteriorate immensely. Customers have their preferred transaction methods and technologies that form a major part of their decision matrix when considering which product to purchase. It’s critical to get this part absolutely right, but few insurers would consider payments a core competency and have significant coverage and skillset in this area.

There are many payment technologies and providers available and ready to use. The challenge for the insurer is not in the lack of choice of payment technologies out there, but rather in connecting all these to their own insurance technology stack. Connecting to new technologies is a slow, cumbersome and expensive process, that is largely down to insurers having to contend with legacy IT systems. These systems are often incompatible with most technologies, and offer a lack of available internal resources and a shortage of payment-specific expertise. 

Customers are increasingly more tech-savvy and expect more digitally enabled journeys with more modern payment methods. For customers that are used to paying and transferring money via digital payment methods, receiving a pay-out via paper cheque may be their worst nightmare. Even if they had a great experience with their insurance product so far, a delayed or inconvenient payment is likely to leave them with a significantly negative perception of the product. It is crucial to know your customer and ensure that their preferred payment preferences are covered at the critical moments.

Many insurers unfortunately do not have in-house payments expertise. It is a massively important, possibly even mission-critical component of an offering, but generally not considered a core competency within an insurer. Generally, insurers don’t want to invest in building a dedicated payments team. This is where partnerships between insurers and SaaS product providers are critical. These enable insurers to optimise their payments offering towards their clients without any impact on their legacy and core systems, delivering faster and requiring significantly less resources to deliver. 

Another equally important opportunity for insurers lies in enhancing policy value and customer loyalty through rewards. Implementing rewards for good driving behaviour or continued loyalty is a fantastic way for insurers to interact with their customers, keep them engaged and create tangible value for the customer. In most cases, customers attach predominantly negative experiences to their engagements with insurers, whether that is for claims or operational reasons (changing bank accounts). Therefore, offering these types of reward schemes is a great tool for insurers to make their customers see them in a positive light and foster their loyalty. 57% percent of customers who own a smart driving device/app say they would “definitely” or “probably” look for additional information about motor insurance rewards schemes. 

Insurers can experience some significant barriers when looking to offer comprehensive reward schemes. Again, it begins with legacy IT systems and internal processes not being fit-for-purpose for an ad-hoc reward offering. Insurers are used to recurring collections and claim pay-outs for specific events of a larger amount. In the case of reward payments, however, an insurer needs to pay out small and variable amounts, on an ad-hoc basis or recurring basis, in a quick and seamless manner. Pay-out processes are still largely manual, complex and infrequent. Not only do they put a lot of strain on insurance capabilities, they also make it challenging for insurers to deliver an all-around great customer experience.  

Slow pay-outs through antiquated payment methods aren’t suitable for today’s consumer. It is not feasible, however, for insurers to build their own in-house automated payment system, and maintain all the integrations to different payment technologies and providers, while ensuring all the necessary compliance certifications. Insurers need to look for payment middleware solutions that can offer all of this in one place, for collections and pay-outs. No more direct integrations to payment providers, or complete access to any payment method and a single source of reporting. This is critical because all insurers need more than one payment provider and require multiple integrations. 

Insurers want to put the customers at the middle of all they do. In order to adopt a customer-centric business model, insurers need to evolve with time and leverage new technologies and solutions to enhance their value proposition to their customers. Insurers are realising the importance of digitalisation in both their systems and offerings and are investing in these areas. A key way to deliver more, both faster and using  less resources is through leveraging the great technology solutions that SaaS providers can offer. These partnerships are the easiest and most efficient way for insurers to avail of all the technology and technical support needed to digitalise their products, without straining their own resources.  

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