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Analysts at GlobalData Financial Services provide expert commentary, insight and data on the global insurance industry that is engaging, actionable and informative

Insurability scores set for the mainstream in 2018

A trend that is on the verge of taking off in the insurance industry is the introduction of an ‘insurability score’ – effectively a credit score for insurance customers, according to GlobalData Financial Services

It helps customers understand where they stand in the eyes of the insurer, why they are viewed that way, and what they can change to make themselves more insurable.

US-based start-up Zebra announced the release of its ‘insurability score’ in October 2017.

It gives customers a score of between 400 and 950 – the higher the score, the better. It considers driving, insurance, and credit history as well as other factors, but doesn’t include vehicle type or address, as the score is about the person, not the specific policy.

The start-up from Austin, Texas, raised $63m, with $40m coming from a series B funding round, in January 2017, so has the backing to become a major player and establish the ‘insurability score.’

There is a great deal of uncertainty among consumers around insurance pricing, aside from obvious factors such as vehicle type, so consumers are likely to welcome the extra insight – especially if it can help improve their scores.

Car insurance premiums reached an all-time high in the UK in June 2017, and with consumers increasingly feeling pressure from slow economic growth, any insight into how they can reduce insurance premiums could prove popular.

While Zebra’s ‘insurability score’ is currently only available to US customers, Wrisk is a UK-based start-up looking to offer a similar service. It is due to launch in 2018 and will offer a ‘Wrisk Score’ on its app.

The score will be out of 1,000 and, like Zebra, the higher the score, the more insurable the customer.

According to Wrisk the score is devised by actuaries and data scientists, and the factors it takes into consideration appear similar to those used by Zebra. Wrist has also received relatively substantial funding, with £3m raised in its first round, and it is closing in on its £500,000 GoFundMe target as of October 2017.

With two well-backed start-ups developing insurability scores either side of the pond, this is set to be a key trend to watch out for in 2018.

Lemonade’s API launch cuts out traditional distribution channels

US peer-to-peer insurer Lemonade continues to be one step ahead of mainstream insurers in terms of both marketing and applying technology, as it claims its latest move “opens up its platform to the world, according to GlobalData Financial Services

Lemonade, widely viewed as being at the forefront of innovation in insurance, has cut out traditional distribution channels to market itself directly to consumers at the point of sale (POS).

It has created an application programming interface (API) that integrates its products into commerce websites and offers customers relevant insurance for the item they are purchasing.

The next step for customer targeting appeared to be through social media data, and identifying potential customers based on hobbies and events in their lives.

Access to customers at the point of sale is a step beyond, as it removes any guesswork on whether a customer may be interested in a certain product. It is mutually beneficial too, as the retailer will generate revenue from directing customers to Lemonade’s products.

Retailers can opt to use Lemonade’s chatbox, Maya, which will pop up on their site and guide customers through the process.

A more advanced option is also available, which Lemonade describes as a deeper level of integration within the retailer’s site. This involves the retailer bypassing the bot and having control of every step of the insurance purchase flow. Lemonade disclosed that it has been working with a few leading companies over the last few weeks that have already integrated the API.

This comes just over a year since Lemonade’s official launch in September 2016.

The peer-to-peer insurer now operates in six states – New Jersey, New York, California, Rhode Island, Texas, and Illinois – but is set to expand into a further 15, expanding its reach to 50% of the US population.

The insurer recently made headlines for offering “zero deductible policies” where customers could claim twice a year without having to pay excess or incur rate hikes afterwards.

A key development to monitor will be whether the less tech-savvy insurers, which have only just started utilizing big data and analytics for targeting, attempt to replicate this and also seek out customers at the point of sale.

Insurers beware! Amazon is posed to disrupt UK insurance

No one can dispute the success of Amazon in the UK as a digital retailer, and many insurers have held it in high esteem as a company to emulate in terms of innovation and overall service proposition. But now Amazon poses a real threat to UK insurers.

Amazon is currently recruiting insurance professionals in London to join a new team looking to disrupt the insurance market in the UK, Germany, France, Italy, and Spain. This should have UK insurers worried for a number of reasons:

Amazon has a positive reputation for putting customers’ needs at the heart of its propositions.

Amazon offers clear, transparent services such as the ability to track a package, next-day delivery, a clear returns policy, and customer reviews on products, providing clear communication to customers throughout the purchasing journey.

This level of trust and transparency is something the insurance industry has really struggled with, especially after the likes of the PPI scandal.

According to our 2017 General Insurance Survey 18% of consumers would buy their motor or home insurance from Amazon, highlighting the potential for the brand to cross-sell into insurance and take market share from established players.

  • Amazon has established itself as a key service provider for households. Its “Prime” service, promising fast delivery as well as offering a TV channel and movie service, makes for a popular subscription model. We are already seeing a number of new propositions moving away from annual renewal to a monthly subscription basis, which would fit well with Amazon’s current business model.
  • In addition, its investment in technology and innovation has brought households the Echo and Dot, voice-activated speakers that use artificial intelligence to support everyday family needs. As we move nearer to an age of smart, connected homes, Amazon is well placed to lead the way. This will also position it well for providing insurance needs, as tech in the home will soon define the insurance requirements of an individual household. This close and interactive relationship is a long way from the limited annual renewal or claim process touchpoints insurers work to.
  • While UK insurers are investing in tech and providing digital services, the majority are light years behind Amazon.
  • If insurers are not careful they may be pushed out of having a direct relationship with customers and be relegated to the role of a price-driven risk carrier at the back end (assuming Amazon doesn’t want to hold the risk too). Either way this is a sure sign disruption is on the way for the UK insurance market.

New Ogden rate means positive news for insurers

The new Ogden discount rate is proposed to be set between 0% and 1%, and will be reviewed every three years to ensure claimants receive fair compensation. The move will also allow insurers to pass on rate savings to customers, according to GlobalData Financial Services

After personal injury insurers had pushed for a review of the discount rate, the Ministry of Justice has said the new rate will be set between 0% and 1%. The revision has been welcomed by the insurance industry after the rate was controversially changed from 2.5% to -0.75% in March 2017.

The new positive rate could be set under draft legislation that is to be laid before Parliament.

However, the new rate will not apply retrospectively, and the new framework for setting the rate in the future will only apply if the draft law is enacted.

Under the new proposed framework, the Ogden discount rate will be reviewed within 90 days of the enactment of new legislation and afterwards every three years, which will ensure it does not grow outdated.

It will also be set in review of a wider range of low-risk investments instead of purely index-linked gilts, making sure the rate is set realistically with how individuals invest.

Good news for insurers 

This is good news for insurers, as it will mean rate changes are more predictable and manageable.

In their 2016 annual reports, insurers highlighted that profitability was affected because they had to revise their finances and increase reserves to acknowledge that future claims costs would rise.

Consumer win

The change is also a win for consumers. Personal injury claimants will have peace of mind that the amount of compensation they will receive is accurate.

Lower claims costs for insurers mean savings will also be passed on to consumers through lower premiums.

But the industry is still waiting on the implementation of the Civil Liability Bill, which was announced in June 2017 during the Queen’s Speech.

Fraudulent whiplash claims are continuing to drive up claims costs for motor insurers. Although a changed discount rate will allow insurers to deliver savings, the personal injury market will not see true reform until the Civil Liability Bill is also in force.