Okay, this is about insurance, but bear with me. It leads down to three lovely wee design challenges at the end.
At The Unit, we’ve got a new Non-Exec Director: Ian Hood, Head of Digital at Fidelity. He recently sat down with the majority of the team to channel some of his experience of working in transformation for the insurance sector, and help us understand a little of how the industry works.
Just so we’re all on the same page — here’s a super simple Insurance 101: an insurance company (your insurer may be a brand, who doesn’t insure you, but essentially provides an interface to an insurance company) charges a premium i.e. a certain amount of money, annually or monthly, which guarantees that the company will pay you (a lot) more if a certain set of circumstances come to pass. It collects all of these premiums into a pot, and holds them. When any customer makes a claim, and they meet the aforementioned set of circumstances, the company pays what it is obliged to out of that pot. What’s left over in the pot at the end of the year is used to pay the salaries, rent, electricity, chocolate, bills… etc. What’s left over after that is profit.
Insurance works on the principle that every year most people will be okay, and won’t claim. Those who do can therefore get back more from the pot than they put in.
One particular challenge the industry is facing, which I think is worth expanding on, is along these lines (I’ve summarised):
Comparison engines are driving margins down to a razor’s edge, and forcing insurers to cut packages down to appear at the top of the comparison tables.
At a first glance that sounds pretty good for the consumer, right? The big money-grabbing insurers have to cut the fat from their packages and give us only what we need. A good, lean and personal policy. But that’s not what happens. In order to appear at the top of that comparison list, insurers have to cut out meat too. And they can’t charge you more for a unique service, because if you can’t compare like-for-like, then the feature doesn’t appear on the charts.
The ultimate result is that insurers offer a cheap, very limited policy on the comparison engine and hope to up-sell more expensive, but also more comprehensive cover after you click through to their website. If you don’t go for the up-sell then you purchase a policy which potentially isn’t worth anything at all.
The insurer can’t offer a useful policy at the comparison price point, because if they charge less than a certain amount then they’re not going to cover their risk, and if they charge enough then they don’t appear to be competitive. Initially the way around this was bait-and-switch. Make a loss in years one and two, and by year three the customer is complacent and won’t check for cheaper deals, so you push the price up to the point you’re making a profit and then you’re in business. Traditionally people switched very infrequently, and getting a new quote was an involved and slow process. Now however, price comparison websites are prompting people to switch every year: a few emails, a quick link to a pre-filled application form and the insurers have lost their customer - and their potential profit.
As a numbers example: most insurers pay out more than 95% of the premiums they charge on non-black-box car insurance. Many pay out more than 100%. That leaves nothing for keeping their lights on, and nothing for profit. That’s not sustainable.
From the consumers’ point of view, the ultimate outcome is that many people are under-insured. Under-insurance for home insurance in the UK is estimated to vary from 50% up to 80% of policies. If something goes wrong they’re simply not covered.
From the insurer’s point of view, they’re not making money, they’re selling policies that don’t pay out, resulting in angry customers; they don’t have time to build relationships with the customers and they don’t have the ability to design or sell innovative and unique (i.e. non-comparable) policies.
From a designer’s point of view, if you want to go beyond iterating and moving pinpoints into adding value and creating unique, industry-challenging experiences, you have to play in the world the insurer currently inhabits. Break the rules without breaking the game.
Okay, so with that background information , here are three design challenges; two that could be viewed as tactical and one as strategic.
- How do we help customers correctly estimate the value and type of insurance they need?
- How do we help customers compare offers which are different, to allow a race for experience, and arrest the race to the bottom?
- Given how the world has changed since the pretty much un-evolved insurance model was founded in 1666, what should insurance actually be in the world of today, how would customers engage with it and how can insurers offer that?
I guess one of those questions might be a little bigger than the others… but little and large, they’re all important. Those are three questions we’re starting to address here at The Unit, along with some of our fantastic clients.
In the mean time… What should insurance do today? I’m thinking proactivity is the future.