Technology trials

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First published in ITIJ 105, October 2009

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Sabine VanderLinden takes a look at how travel insurers are using technology to overcome the current challenges facing the industry

This year is turning into a challenging one for the travel insurance industry. A substantial reduction in the number of holidays being taken abroad, coupled with more astute and Internet-savvy customers increasingly looking for insurance deals via the Internet means that insurers’ revenues have taken a major knock. Due to this market turmoil, customer retention and loyalty have become even more important for travel insurers who need to introduce new measures to retain their customer base. In addition to bolstering existing revenue streams, travel insurers need to generate new sources of revenues – either through product extension or new business acquisition efforts. The bottom line is that in order to survive, travel insurers need to increase their top line with customer-driven initiatives.

Threat vs opportunity

With the recession in full swing, many people are choosing to holiday at home or undertake more leisure activities at weekends instead of booking expensive holidays abroad. While this marks a substantial threat to the sale of overseas travel insurance products, it also provides an opportunity for diversification and the promotion of alternative products. An example of a domestic orientated holiday package is caravanning. This is a huge market opportunity in many countries. The UK, for example, has over half a million caravan owners and an average of two million Britons take caravan holidays each year. Caravan insurance is currently sold as a stand-alone product for touring caravans, trailer tents and motor homes or as part of a customised travel insurance package, and provides a lucrative opportunity for insurers. For frequent users, an annual policy with customised features and add-ons offers a considerable saving over single-trip cover, while for insurers it has the benefit of being renewable each year. Similarly, boat and equine insurance products represent relatively untapped markets that have the potential to grow over the coming months and years.

"overcoming the silo problem will also help to defeat the issue of duplicate customer data entries"

This year is turning into a challenging one for the travel insurance industry. A substantial reduction in the number of holidays being taken abroad, coupled with more astute and Internet-savvy customers increasingly looking for insurance deals via the Internet means that insurers’ revenues have taken a major knock. Due to this market turmoil, customer retention and loyalty have become even more important for travel insurers who need to introduce new measures to retain their customer base. In addition to bolstering existing revenue streams, travel insurers need to generate new sources of revenues – either through product extension or new business acquisition efforts. The bottom line is that in order to survive, travel insurers need to increase their top line with customer-driven initiatives.

Threat vs opportunity

With the recession in full swing, many people are choosing to holiday at home or undertake more leisure activities at weekends instead of booking expensive holidays abroad. While this marks a substantial threat to the sale of overseas travel insurance products, it also provides an opportunity for diversification and the promotion of alternative products. An example of a domestic orientated holiday package is caravanning. This is a huge market opportunity in many countries. The UK, for example, has over half a million caravan owners and an average of two million Britons take caravan holidays each year. Caravan insurance is currently sold as a stand-alone product for touring caravans, trailer tents and motor homes or as part of a customised travel insurance package, and provides a lucrative opportunity for insurers. For frequent users, an annual policy with customised features and add-ons offers a considerable saving over single-trip cover, while for insurers it has the benefit of being renewable each year. Similarly, boat and equine insurance products represent relatively untapped markets that have the potential to grow over the coming months and years.

As well as diversifying products, travel insurers must reduce costs through operational efficiency programmes. Some of these programmes will be technology driven, to enhance internal staff efficiencies and effectiveness and manage skills scarcity, while others will be outsource driven, to reduce the number of highly paid resources employed. Many insurers have, for instance, looked at process-driven technology, which is aimed at automating repetitive and mundane activities. These could include straight through processing initiatives in the underwriting, claims and servicing functions to streamline and automate operational processes and the IT environment to increase output levels with the same level of, or fewer, resources.

Product bundling

With regard to customer retention, travel insurers should increasingly consider how they can bundle appropriate products, discounts, and services to create more enticing deals and emotional links for customers, while also making it harder to change providers. Indeed, many insurance customers already have travel insurance in some shape or form combined with other insurance products they purchase, such as travel tickets, credit cards or home insurance. In such cases, the basic commoditised product is enhanced with annual travel insurance product features which, if purchased, would enable the customer to benefit from significant discounts (20 per cent to 60 per cent) and additional services such as a personalised phone number in case of an emergency. Customers interested in ‘value added’ products will be different from those interested by purely commoditised travel insurance products.

To optimise bundle creation for an individual, understanding behavioural motivations is key. Travel insurers need to be able to distinguish between customers who make decisions based on quality, for example, and those more influenced by product price. By leveraging behavioural information, travel insurers can distinguish between these two types of customer groups. Quality-driven customers will answer an interactive questionnaire in a very different way from a price-driven customer. Price-driven customers will have distinct demands, select different product features and will spend more time surfing the Internet for deals and comparing commoditised offers. With an attrition level of above 40 per cent in specific lines of the general insurance business, insurers must re-think the way they interact and deal with their customers. They must look more closely at their lifetime value and historical behaviour to drive retention across not only one line of business, but several, if possible.

The role of technology

In addition, today’s travel insurer needs to consider how they use new technologies within the business to both improve customer service and increase revenue. New technologies and new media can include Telematics for those using cars or caravans as a means to travel and control insurance costs, or mobile smart phone technology, such as the iPhone, to keep customers abreast of travel news and issues in order to maintain the communication flow. Nationwide in the US, for example, has just launched an iPhone application to assist customers interacting with them when making a claim. It is fair to say that insurers generally tend to be a few years behind other industries, such as the telecommunications industry or retail banking and, as a result, have not taken full advantage of technology developments and advances available to them due, in many cases, to legacy systems and an inflexible operating environment.

Travel insurance is clearly price sensitive and, while many organisations are wary of leveraging the price comparison sites for new business acquisition, very few have looked at leveraging specific business-focused technology. Predictive decisioning, for example, aims to provide business audiences with access to easily interpretable and operational predictions and customer driven decisions through optimised events and triggers aimed at facilitating customer conversations and interactions to either better target specific products to price sensitive individuals or utilise the Internet as a means to drive customer loyalty or increase retention. The Internet has been used widely in insurance to push communication and sell products but rarely as a means to drive customer loyalty and retention.

Companies like eSurance in the US are trying to leverage the Internet as a means to increase the number of contacts and interactions they have with their customers by providing them with information they may be interested in, not necessarily related to insurance – latest films at the cinema, for example. By continually assessing what is important to their customers beyond insurance products, travel insurers can develop enticing value generating products and service offerings that tackle not only the immediate need for insurance, but also other important features surrounding travel. The aim is to drive the right interactions through the most relevant channel, answer the right questions and promote, when relevant, the right recommendations, solutions and offers.

Indeed, what would the travel insurance world look like if a number of insurance product manufacturers, using the aggregator channel to promote and sell their products, were able to dynamically and in real time know what the market price of competitive offers were? And then, based on the cost of these products to manufacture and the required minimum margin to be achieved, could immediately apply their own pricing strategies to acquire new customers based on clear understanding of corporate goals, the market demand and the competitive landscape?
 
Broken distribution channel

Furthermore, insurers across the board struggle to view customers consistently across the different channels, due to siloed and fragmented channel architectures impacting any Internet retention strategy they may wish to implement. For example, if a customer starts an activity on the web, they are often unable to complete it through another channel, thus increasing abandonment rates. Similarly, a representative responding to a customer enquiry in the call centre may have no visibility into a process the customer began on the website. A siloed channel architecture also prevents the effective implementation of cross-enterprise strategies that can help manage growth, optimise staff utilisation and improve efficiency. In the case of the Internet channel, well executed interaction strategies can help motivate prospects to stay online or use new media whilst minimising application and process redundancies and inconsistencies.

By breaking down these silos with centralised applications that enable the sharing of customer information and interaction histories across different business lines, decision-making as regards pricing and product offers can be significantly improved. Systems that facilitate and personalise this decision-making process and guide interactions to ensure the right decisions are made can also be centralised and accessed by users in every channel. In this way, insurance activities can occur consistently and effectively across all channels. Each customer’s situation can be considered on an individual basis while policy terms and conditions remain uniform. Overcoming the silo problem will also help to defeat the issue of duplicate customer data entries in fragmented systems and applications, which can lead to poor customer service. Development and maintenance costs will also decrease as applications will no longer be duplicated across channels.

"insurers across the board struggle to view customers consistently across the different channels"

The purchase of insurance via online channels has increased dramatically over the past five years and is expected to continue growing substantially in the coming years. Yet many insurers do not offer customer-friendly websites, or customers are not even aware that their insurer offers an Internet service. By providing a web self-service environment that leverages centralised customer information, decisioning and interaction management, insurers will be able to personalise content, presentation and messaging for each customer, while ensuring consistency with other channels. The customer intelligence garnered through web usage can be fed back into decision-making processes and control points to help insurers better understand customer behaviour. This will further enhance their ability to make interactions unique for each customer, delivering relevant offers and recommendations, and generally improving the customer experience.

A hole in the bucket

The final area where technology has an important role to play is in claims leakage. At present, claims leakages represent approximately 10 per cent of an insurer’s claims costs. At the same time, 22 per cent[1] of insurance customers churn due to poor customer claims servicing. Centralised customer data, decisioning, and dynamic interaction management can also help detect and rectify claims leakages, while also ensuring the best settlement option is offered based on a clear understanding of the insured individual’s profile. It is estimated that insurers implementing such claims leakage management systems experience a 30 to 40 per cent improvement in detection, whilst significantly impacting their customer satisfaction and churn reduction[2] – it is, at the end, just a matter of decision.

Customer centric insurers are deploying solutions that deliver a unique and appropriate view of their customers, while ensuring centralised and seamless process consistency across channels. As the old adage goes, ‘the customer is king,’ and this is likely to increasingly shape the travel insurer’s view of their customers this year. The credit crunch has undoubtedly created a watershed moment for the travel insurance industry with the long-term future of many companies uncertain. Leanness and efficiency are key to keeping income levels buoyant during a time when costs are soaring and revenues are coming under significant pressure. Arguably, one of the most powerful tools available to travel insurers is technology, which allows companies to not only make competitive quotations in a timely manner but, also, to store, analyse and effectively act on customer information.



[1] World Insurance Report, Capgemini, 2007

[2] Chordiant, March 2009

As well as diversifying products, travel insurers must reduce costs through operational efficiency programmes. Some of these programmes will be technology driven, to enhance internal staff efficiencies and effectiveness and manage skills scarcity, while others will be outsource driven, to reduce the number of highly paid resources employed. Many insurers have, for instance, looked at process-driven technology, which is aimed at automating repetitive and mundane activities. These could include straight through processing initiatives in the underwriting, claims and servicing functions to streamline and automate operational processes and the IT environment to increase output levels with the same level of, or fewer, resources.

Product bundling

With regard to customer retention, travel insurers should increasingly consider how they can bundle appropriate products, discounts, and services to create more enticing deals and emotional links for customers, while also making it harder to change providers. Indeed, many insurance customers already have travel insurance in some shape or form combined with other insurance products they purchase, such as travel tickets, credit cards or home insurance. In such cases, the basic commoditised product is enhanced with annual travel insurance product features which, if purchased, would enable the customer to benefit from significant discounts (20 per cent to 60 per cent) and additional services such as a personalised phone number in case of an emergency. Customers interested in ‘value added’ products will be different from those interested by purely commoditised travel insurance products.

To optimise bundle creation for an individual, understanding behavioural motivations is key. Travel insurers need to be able to distinguish between customers who make decisions based on quality, for example, and those more influenced by product price. By leveraging behavioural information, travel insurers can distinguish between these two types of customer groups. Quality-driven customers will answer an interactive questionnaire in a very different way from a price-driven customer. Price-driven customers will have distinct demands, select different product features and will spend more time surfing the Internet for deals and comparing commoditised offers. With an attrition level of above 40 per cent in specific lines of the general insurance business, insurers must re-think the way they interact and deal with their customers. They must look more closely at their lifetime value and historical behaviour to drive retention across not only one line of business, but several, if possible.

The role of technology

In addition, today’s travel insurer needs to consider how they use new technologies within the business to both improve customer service and increase revenue. New technologies and new media can include Telematics for those using cars or caravans as a means to travel and control insurance costs, or mobile smart phone technology, such as the iPhone, to keep customers abreast of travel news and issues in order to maintain the communication flow. Nationwide in the US, for example, has just launched an iPhone application to assist customers interacting with them when making a claim. It is fair to say that insurers generally tend to be a few years behind other industries, such as the telecommunications industry or retail banking and, as a result, have not taken full advantage of technology developments and advances available to them due, in many cases, to legacy systems and an inflexible operating environment.

Travel insurance is clearly price sensitive and, while many organisations are wary of leveraging the price comparison sites for new business acquisition, very few have looked at leveraging specific business-focused technology. Predictive decisioning, for example, aims to provide business audiences with access to easily interpretable and operational predictions and customer driven decisions through optimised events and triggers aimed at facilitating customer conversations and interactions to either better target specific products to price sensitive individuals or utilise the Internet as a means to drive customer loyalty or increase retention. The Internet has been used widely in insurance to push communication and sell products but rarely as a means to drive customer loyalty and retention.

Companies like eSurance in the US are trying to leverage the Internet as a means to increase the number of contacts and interactions they have with their customers by providing them with information they may be interested in, not necessarily related to insurance – latest films at the cinema, for example. By continually assessing what is important to their customers beyond insurance products, travel insurers can develop enticing value generating products and service offerings that tackle not only the immediate need for insurance, but also other important features surrounding travel. The aim is to drive the right interactions through the most relevant channel, answer the right questions and promote, when relevant, the right recommendations, solutions and offers.

Indeed, what would the travel insurance world look like if a number of insurance product manufacturers, using the aggregator channel to promote and sell their products, were able to dynamically and in real time know what the market price of competitive offers were? And then, based on the cost of these products to manufacture and the required minimum margin to be achieved, could immediately apply their own pricing strategies to acquire new customers based on clear understanding of corporate goals, the market demand and the competitive landscape?
 
caravanBroken distribution channel

Furthermore, insurers across the board struggle to view customers consistently across the different channels, due to siloed and fragmented channel architectures impacting any Internet retention strategy they may wish to implement. For example, if a customer starts an activity on the web, they are often unable to complete it through another channel, thus increasing abandonment rates. Similarly, a representative responding to a customer enquiry in the call centre may have no visibility into a process the customer began on the website. A siloed channel architecture also prevents the effective implementation of cross-enterprise strategies that can help manage growth, optimise staff utilisation and improve efficiency. In the case of the Internet channel, well executed interaction strategies can help motivate prospects to stay online or use new media whilst minimising application and process redundancies and inconsistencies.

By breaking down these silos with centralised applications that enable the sharing of customer information and interaction histories across different business lines, decision-making as regards pricing and product offers can be significantly improved. Systems that facilitate and personalise this decision-making process and guide interactions to ensure the right decisions are made can also be centralised and accessed by users in every channel. In this way, insurance activities can occur consistently and effectively across all channels. Each customer’s situation can be considered on an individual basis while policy terms and conditions remain uniform. Overcoming the silo problem will also help to defeat the issue of duplicate customer data entries in fragmented systems and applications, which can lead to poor customer service. Development and maintenance costs will also decrease as applications will no longer be duplicated across channels.

The purchase of insurance via online channels has increased dramatically over the past five years and is expected to continue growing substantially in the coming years. Yet many insurers do not offer customer-friendly websites, or customers are not even aware that their insurer offers an Internet service. By providing a web self-service environment that leverages centralised customer information, decisioning and interaction management, insurers will be able to personalise content, presentation and messaging for each customer, while ensuring consistency with other channels. The customer intelligence garnered through web usage can be fed back into decision-making processes and control points to help insurers better understand customer behaviour. This will further enhance their ability to make interactions unique for each customer, delivering relevant offers and recommendations, and generally improving the customer experience.

A hole in the bucket

The final area where technology has an important role to play is in claims leakage. At present, claims leakages represent approximately 10 per cent of an insurer’s claims costs. At the same time, 22 per cent[1] of insurance customers churn due to poor customer claims servicing. Centralised customer data, decisioning, and dynamic interaction management can also help detect and rectify claims leakages, while also ensuring the best settlement option is offered based on a clear understanding of the insured individual’s profile. It is estimated that insurers implementing such claims leakage management systems experience a 30 to 40 per cent improvement in detection, whilst significantly impacting their customer satisfaction and churn reduction[2] – it is, at the end, just a matter of decision.

"At present, claims leakages represent approximately 10 per cent of an insurer's claims costs"

Customer centric insurers are deploying solutions that deliver a unique and appropriate view of their customers, while ensuring centralised and seamless process consistency across channels. As the old adage goes, ‘the customer is king,’ and this is likely to increasingly shape the travel insurer’s view of their customers this year. The credit crunch has undoubtedly created a watershed moment for the travel insurance industry with the long-term future of many companies uncertain. Leanness and efficiency are key to keeping income levels buoyant during a time when costs are soaring and revenues are coming under significant pressure. Arguably, one of the most powerful tools available to travel insurers is technology, which allows companies to not only make competitive quotations in a timely manner but, also, to store, analyse and effectively act on customer information.



[1] World Insurance Report, Capgemini, 2007

[2] Chordiant, March 2009