A strange thing happened
to the US auto insurance industry last year: two carriers - Geico and
Progressive – gained market share while the rest of the industry lost it. Which
has got to be frustrating for the rest of the industry because carriers haven't
been standing still. Indeed, they've been making major investments in areas
such as:New Core Systems. Carriers have spent billions on 'digital transformation', using automation to accelerate the speed and reduce the cost of serving insurance customers.
New Channels and Markets. Opening direct digital distribution channels and expanding into new segments and geographies to widen their sales reach.
Increased Marketing Spend. Fighting for greater share by ramping up advertising and online lead generation spending.
Yet frequently, these
efforts have delivered nothing but unexpected losses. As a result, many
carriers have put their market and channel expansion plans on hold or at least
slowed them down. After all, it makes no sense to win more money losing
business. Which perhaps explains why two companies won more than half of all
new business last year.
What is going on?
Carriers are
struggling to master the changing customer mix. Responding to the emerging millennial cohort and
other hard to serve segments (high risk, low income) the industry has made
it far easier for customers to shop and transact for insurance online. Unfortunately,
customers are using this flexibility to engage in quote manipulation and submit
claims for pre-existing damage in far greater volumes than more traditional
customers and channels do.
Carriers have automated
away many useful informal controls. At the same time customers have become more aggressive, carriers
have been busily automating and bypassing much of the human interaction in
their process - interactions and associated delays that historically served to
somewhat deter petty fraud. This is because the dishonest like anonymity and
immediate results. Lying to a screen to get an instant result is much less
stressful than lying to an agent.
Using third party data
to replace personal interaction and controls hasn't worked. In an earlier piece we pointed out that
solely using purchased or other data to weed out fraud doesn't and indeed can't
work because false positives are often more common than the fraud condition the
data is seeking to identify. The result, is that false positives
overwhelm the number of true data discrepancies, driving perfectly good customers
away.
The result is that many carriers appear to be stuck, uncertain how to profitably serve what before long will be the largest part of the market. They've made investments in new capabilities that don't appear to work with the new, tech savvy Millennial customer as their Baby Boomer customer base erodes. Some analysts have even argued that they should give up competing with Geico and Progressive. We disagree.
Because we've learned
how to screen out the extra fraud that comes with selling to these new customer
segments, dramatically lowering direct to consumer channel loss ratios. It
turns out you can make money selling online to tough customers but
only if you use advanced technologies and techniques to marshal all available
information in real time at the point of sale.
Carriers must stay the course...but
build in robust fraud prevention.
Carriers shouldn’t give
up but they need to focus more resources on effective real time analytic and
intervention tools that identifies, intervenes and eliminates fraud at the
point of sale. That's what our idFusion platform does.
We're VeracityID and we
give carriers the tools they need to reduce fraud, better select risk and
profitably compete for every type of customer and channel they choose.
