Insurance firms face strategy pressure over consumer choice
The battle to win more customers for increased revenue and profitability has put more pressure on companies as managements and tinkering with strategies to deliver value and remain in business. Firms are faced with the challenge to enhance quality of service, product development and distribution channels in ways that are also cost effective.
Analysts say though it is worldwide challenge because shrinking income amid economic crises across countries, it requires that firms think outside the box to be able to make profit and enhance shareholder value.
Godson Ukah, managing partner, Premium Debate said the competition in the market is intense because there is struggle to share the few and available customers particularly in the corporate sector. This is the time to device new products and come up with innovations that make the larger population embrace insurance products, Ukah stated.
Analysts from PwC in a recent report on insurance sector observed that customer behavior is a complex subject that affects the insurance industry in fundamental ways, from product development, marketing and distribution to inforce management, financial reporting, and risk management.
In 2014, LIMRA and PwC completed an extensive research study on customer behavior and a key finding of this study was that the life insurance industry lags the property and casualty insurance industry (and both lag other industries) in using advanced analytical techniques to better understand customers.
However, the gap is beginning to narrow as more and more insurance companies are realizing the benefits of using advanced analytics for designing products, segmenting markets, developing distribution strategies, and managing inforce business, setting assumptions for financial reporting, and developing metrics for risk management.
According to the report, a growing number of insurance companies have developed a new area of expertise (or center of excellence – COE) to serve the increasing need for data analysis, predictive analytics, and behavioral simulations.
The mission of this new COE is to work with actuarial, distribution, marketing, underwriting and inforce management areas to address such questions as:
• How do we improve the sales productivity and profitability of our agency force?
•How can we more quickly and accurately identify emerging experiences?
•How should our capital allocation strategy respond to different economic or regulatory changes?
To understand customer behavior requires a change in insurers’ mindset. First, it is important to view the customer not just as a male age 40 nonsmoker, but as part of a household. Viewing the customer as part of a household switches the focus to- the composition of that household and how it changes over time; the life events, such as having children, that take place in the household; the household’s income, spending, and savings habits; the type of assets the household owns and the liabilities it owes; and the choices the household makes, both rational and behavioral.
Another issue the report raised is that, simulating customer behavior under multiple scenarios can help insurers develop a more holistic understanding of the choices policyholders make. They will discover that certain customer behaviors that seem “irrational” may actually reflect their relatively limited view of customers’ personal circumstances. For example, classifying a customer’s actions as “irrational” because he surrenders a variable annuity contract that was deeply “in-the-money” may be inaccurate. The customer may have needed the cash surrender value to make mortgage payments or cover a large, unexpected medical expense.
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