David Turner, chief executive of Webhelp, looks at the opportunities offered by new EU rules
The introduction of new legislation from Europe, together with the increasing opportunities for data analytics in customer experience could see the insurance industry as we know it change forever.
The primary catalyst for change? A new and previously unheralded EU regulation, the second Payment Services Directive or PSD2, which is due to come into effect in January 2018.
PSD2 is predominantly aimed at opening up the retail banking sector, however I believe it will also have a significant knock on effect in the insurance industry.
The legislation allows for financial information and transaction data, previously the exclusive domain of banks, to be made available to third parties, in a move which will create a huge opportunity for fintech firms and challenger banks. Similarly in the insurance sector, knowledge of this sort could allow tech savvy companies to offer cheaper insurance products by cutting out the middleman, or broker.
Even with Brexit, PSD2 will still be enacted in the UK as it has not only been an objective for successive governments, but also formed the basis for the key recommendations made by the Competitions and Market Authority (CMA) in its August 2016 retail banking market report.
Compete on price, “wow” through service
In a field so driven by price, what can the insurance companies do to retain their customers if they become faced with a raft of cheaper competitors? Is price cutting the only way to compete in the insurance sector? The answer to that is a resounding No.
A 2015 McKinsey report into US car insurance shows the providers with the best customer experience saw an increase of two to four times more growth in new business over a five year period. The data also showed that satisfied customers were 80% more likely to renew their policies and this was partly responsible for 30% higher profitability among companies with the best customer experience.
And there are examples from the UK too. Direct Line has consistently performed in the top five of UK insurance companies despite not appearing on price comparison websites. Instead they focus on customer experience and this is clearly working for them.
Analytics driven personalisation
The growth of data analytics in customer experience is what will allow insurance companies to compete on a basis that is not reliant on price. Data analytics help insurance companies to tailor products and communicate better with customers depending on factors such as age, location and what device they use. Personalisation is hugely effective in creating customer loyalty in other industries, especially retail. This phenomenon could be about to revolutionise the insurance world. Those companies brave enough to embrace it will be the ones who succeed.