Coming to an agent near you: direct online auto insurance losses

It is common knowledge that auto insurance distributed via the direct, online channel is much less profitable than agent business. But why is that? And is it likely to persist?

Carriers that distribute through agents have historically earned their profits through "seasoning", first year business is unprofitable but profitability improves as carriers run off bad customers and renew  the rest. This contrasts with the direct channel where customers tend to shop their insurance frequently because carriers have made shopping online so easy. And since it's easy to shop, direct customers find it easy to use multiple online quotes to figure out just which combination of less than honest data can generate the lowest premium for them.

So good news for agent-centric carriers right? Not really. We know that more and more agent customers are using online quote sites to shop for their insurance. Once they find the policy they want, they buy it from an agent. But this means that they are both learning how easy it is to shop at every renewal and how easy it is to manipulate their rate.

If you want to see where all of this is going, look at the United Kingdom: there, virtually all shopping happens on line either using carrier quote systems or more often, aggregator sites with both frequent shopping and rate manipulation being common. But most customers still buy their policies from agents. The result is a terrible, unprofitable auto insurance market with average loss ratios much higher than in the US..

And this "British disease" is now becoming a problem for US carrier. With older baby boomer customers being replaced by their younger, much more internet savvy offspring, the level of rate manipulation and churning will inevitably rise. Indeed in our work with carriers we've found that direct channels have 20 to 30 points of preventable fraud baked in at the point of sale.

Therefore even Agent-centric carriers must aggressively fight point of sale insurance fraud. If they don't, they'll discover that more and more of their business is 'first year' business.

We're Veracityid (www.veracityid.com) and we'd love to show you how we're saving carriers up to twenty points of loss ratio by eliminating fraud before it's baked into a policy.

Six auto insurance trends driven by the pandemic.

It's been a century since the United States has experienced a pandemic on the scale of the current COVID19 outbreak, resulting in radical short term changes to the economy and people's lifestyles But the crisis is also driving six trends in the auto insurance industry whose impact will continue long after the virus is gone.

Social distancing is accelerating direct channel sales growth. Stuck at home, more customers are transacting their insurance business directly and finding it easy. This is accelerating the already established trend towards direct sales as the baby boomers are replaced by digitally adept customers from the Millennial and Generation Z cohorts.

Cooped up customers are spending more time shopping for insurance. With many families hurting financially and having time on their hands, customers are spending more time and effort shopping for the best rate. They are using aggregators, carrier quotation websites and traditional agents to solicit record numbers of quotations.

Customers are using the knowledge they gained from shopping to manipulate rates more. Modern quotation systems make it easy for customers to run multiple rate scenarios, omitting drivers, switching addresses or transferring commercial vehicles to personal policies. Today's extreme financial pressures and the relative anonymity of direct channels are making these types of frauds more common.

Pressure from direct channel manipulation is pushing agents to cut more corners. To stay relevent, agents need to demonstrate that they can get their customers  'better rates' whether justified or not. This is shrinking the difference in  new business first year loss ratios between the historically unprofitable direct and more profitable agent models. We see both getting worse.

Insurance card scams are proliferating. More customers are  signing up for insurance using a pay plan simply to get the insurance card and and then failing to pay the premium installments. Unless, of course, they have a claim.

Pre-existing damage claims are set to grow. Many consumers are saving money by cancelling their comprehensive and collision coverage. But the casualty events will still happen. This is resulting in even higher levels of 'single vehicle' claims without police reports being filed in the early weeks of new policies.

None of these challenges are new to the industry but the pandemic's extreme isolation and financial distress are making them worse. And the intensifying shift to (largely unprofitable) direct channels means that dealing with these challenges will be more difficult and failing to do so will be more expensive.

idFusion solves these problems. The idFusion Fraud Identification, Intervention and Management platform is designed to identify and resolve these types of frauds in real time at the point of sale regardless of channel. In future posts we will describe each of these fraud challenges and our solutions for them in more detail. Learn more at www.veracityid.com

How to fight fraud and please sales at the same time

One of the biggest issues in insurance fraud prevention is managing error rates. The goal is to detect as many of the frauds hiding in the quote/application stream as possible. But this must be balanced against the risk that false positives will drive away good customers.

The devil is in the Type 1 (false positive) and Type 2 (false negative) error details. Fraud fighters can increase the 'tightness' of their business rules to minimize the chance of missing a fraudster only at the cost of increasing the number of good customers who are mistakenly turned away. It's a tough trade-off but we have developed a solution in our idFusion fraud management platform that allows carriers to substantially reduce false negative errors without losing good customers.

idResolve - our highly flexible, real time, in transaction intervention solution - allows carriers to instantly reach out to customers/agents and resolve false positives, putting good customers back on the path to coverage while causing the dishonest to abandon. Because of this, carriers can tighten their rules to minimize the undetectable false negatives and then using idResolve, sort through and recover the resulting large number of false positives. By doing so we can maximize fraud reduction at the lowest possible cost to customer conversion.

Why is this? When a customer who is attempting fraud is challenged by idResolve they almost always abandon their session, seeking a less observant carrier. On the other hand, when a customer simply makes a mistake they don't abandon. Instead, they welcome help to correct the error. Indeed while we haven't fully tested it, we believe that the best customers actually will be more satisfied with carriers that help them get their details right at the point of sale.

So a major advantage of idFusion over simple "one and done" data panels or black box fraud scoring systems is the ability to radically reduce the error rate by constructive, real time interaction with customers.