The five key trends defining financial services as we head into 2018
I have written extensively in recent weeks and months about the Fintech revolution in financial services and how it has brought the customer...
Imagine if you could cut your insurance bill in half – why would you refuse such an offer? That’s the question a student in Herefordshire recently found herself asking when her insurance company offered to reduce her bill by £640 a year if she agreed to use a telematic device.
Telematic systems monitor everything about the driving habits of the customer. When, where, how far, how fast, and acceleration is all recorded. It’s very much like the ‘black box’ recorder we know about from aircrafts, but applied to a regular car.
Insurance companies love the idea. They are in the business of pricing risk and need to apply a large number of variables such as the value of the car, age of the driver, location the car will be housed etc when pricing a policy. However, it remains a fact that many of the variables are uncertain. Insurance companies know that teenagers have more accidents than older drivers, but clearly an 18 year old driving for a few hours each month has a different risk profile to a driver of the same age driving for 2-3 hours a day. Using present systems their policy would be priced the same.
Having a detailed picture of where a vehicle is used, when and how it is being driven allows the insurance company to more effectively price the risk. For a careful young driver this can mean a significant discount on regular policy prices. At first glance, this looks great for both the insurance company and customer, however there can be some drawbacks.
Some customers may need to drive at unsocial hours – perhaps when working a night shift – and it is likely that telematic systems will discriminate against them and make their policies more expensive than before. In addition, there is the question of all this customer data. The insurance company now knows where you are, when, and for how long. Some customers may find that this level of scrutiny is unacceptable. Naturally, security around all this data will be an issue. Any insurance company suffering a data breach when they know all the travel habits of their customers could possibly face a traumatic loss of customer trust.
At present, though, customers still have the option for traditional or telematic insurance. I believe a tipping point will come when customers not prepared to give up their personal information will be penalised, or possibly even refused a policy. Imagine how serious this could be if you want health insurance or if an employer insists on telematic monitoring of employees as a condition of employment.
Our latest white paper Insure Against Loss examines in detail the opportunities in the insurance sector. In this paper we will explore how delivering an exceptional customer experience can increase customer engagement levels and reduce customer churn.
We are not there yet, but there is going to be an unusual journey to the future with insurance. More information leads to better policy pricing, but how much information will customers agree to hand over? Let me know what you think hereor connect with me on LinkedIn.