How the Subscription Business Model Has Impacted the Insurance Industry
The rise of the subscription business model is changing consumer expectations, and traditional insurance providers would be wise to pay attention. Demand is shifting to simplified shopping experiences, customizable products, and more control through customer portals. It won’t be long before limited communication and long up-front policy descriptions are left behind.
Until recently, communication between insurers and their customers only took place at a few points:
- quote generation
- policy signing
- recurring payments
- catastrophe requiring a claim
None of this communication is particularly enjoyable, leaving consumers with the perception of shopping for and utilizing insurance as unpleasant but necessary.
Elevated customer expectation
Consumer expectation has changed when it comes to long-term business relationships. In particular, Software as a Service (SaaS) businesses and the Internet of Things (IoT) have built and/or enabled attractive subscription features such as:
1. Elegant user interfaces (UI)
Many insurance companies today allow consumers to request a simple quote online, but few do it as elegantly as common apps. Slumber, an app that helps people sleep by providing access to stories and meditations, provides an aesthetically-pleasant UI that doesn’t sacrifice functionality and personalization features. Without a comparable visual experience, insurers may fail to impress.
2. Clear explanation of product
While subscription providers often have long contracts filled with legalese similar to that of insurance policies, this is almost never the first thing a customer sees while making a purchasing decision.
Instead, they are presented with simplified explanations and options, usually with price tiers and bulleted lists of what is included. Artificially intelligent (AI) chatbots are often available to assist in the shopping process to answer questions. Especially complex requests requiring a business representative’s attention can be automatically forwarded to the appropriate person.
By contrast, consumer experience while shopping for insurance is historically less clear-cut. Some providers have begun adopting technologies to fix that.
According to one 2019 Novarica report, one in four insurers has experience with mobile, predictive analytics, big data tech, telematics, drones, and AI/machine learning.
3. Easily customized packaging, on demand
Once consumers have selected a tier or package, many businesses enable the personalization of a product through one-time purchase add-ons, hybrid pricing that allows for usage-based charges, or other adjustments to meet the customer’s needs. Intuitive customer portals, whether on mobile apps or desktop browsers, put the power in their hands 24/7 to make changes as needed or desired.
Insurance policies are rarely this flexible: if a policyholder experiences a life change, such as a new car, home, or health condition, they typically have to start the insurance shopping process all over again. This includes seeking quotes, reading long policies, comparing options, and entering a relationship with monthly payments and little communication unless something significant happens.
4. Usage-based pricing and subscription pausing.
In addition to usage-based pricing, subscriptions and their customizations can often be paused so a customer isn’t charged for something they aren’t using.
VOOM insurance is taking a stab at disrupting a corner of the insurance industry with usage-based pricing and “pausing” in mind. Offering “on-demand insurance for anything you can ride, fly, or sail,” VOOM uses telematics and the IoT to offer per-trip coverage. It is currently targeting the e-scooter insurance market.
This kind of per-usage coverage is poised to revolutionize insurance practices. Customers increasingly seek to only pay for what they need, when they need it. Imagine a car owner pausing their insurance on the car in the garage while on vacation—this could be the norm in the near future.
5. Streamlined experience at all stages of the relationship
SaaS businesses have expertly merged cloud technology and recurring billing. As consumers come to expect a seamless transition from signup to activation, and usage to billing—all across devices—insurers would be wise to look for comparable opportunities for improvement in their own processes. Geico, Nationwide, and Liberty Mutual have already created mobile apps capable of generating quotes, managing policies, filing claims, and more.
6. Shared success through growth
Subscription business models enable businesses to grow steadily thanks to recurring revenue. Insurance providers have always enjoyed the benefits of steady cash inflow, but haven’t always been as motivated as SaaS and other subscription businesses to improve product and service for growth.
Now that consumers are accustomed to improved experience over time, it’s become an expected reward for months or years of successful payments.
Fail to demonstrate how your insurance offerings measure up to the changing times, and you could get left behind.
7. Products informed by IoT technology
Many subscription business models also leverage IoT devices to gather valuable customer information. This data can be used to improve products, identify pain points, suggest related products, and more. In telematics, for example, IoT sensors in vehicles track mileage and time on the road for billing purposes, but also driver behavior for increasing safety.
Insurance provider Progressive has already developed insurance policies around this idea with Snapshot, which rewards safe driving with lower premiums. Progressive can also use the accumulated information from their thousands of drivers to better inform their risk assessment process with actual, real-use data that is more reliable than surveys and observations.
Encouraging safe driving with savings not only benefits customers, but insurers who reduce the chance of claims being filed, as well as communities as a whole with safer drivers on the road. This plays out in other insurance scenarios as well, which we’ll explore shortly.
This guide will walk you through the wide range of features required to automate your recurring billing, subscription management, and payment processes.
Benefits to insurance providers and beyond
Though customer expectation is high, finding ways to align insurance processes to subscription business models can have many benefits for insurance providers.
Access to customer information
With the promise of better informed products thanks to IoT, it’s comforting to know that 67% of customers opt for reduced premiums with use of a sensor in their car or home. What’s more, 50% are willing to share personal and lifestyle information to get customized insurance quotes.
Today’s consumers want convenience, fast, and they’re willing to get personal for it.
This has huge implications for insurers.
They can use that accumulated data to get more accurate risk assessments, which inform communications with policyholders and efforts to reduce claims.
This real-use data is better than that which surveys and observations can provide, and is unique to and can be stored safely with insurers. It creates many opportunities, for example:
- Customer planning home renovations? A home insurer can recommend highly rated and trusted contractors sourced from information gained from other customers who have renovated.
- Want customers to exercise more? Humana’s Go365 program rewards exercise tracked through smart devices like watches and phones with gift cards and other prizes. This gamification is a growing trend in insurance.
- Alerted that a covered home or car just went on the market, or a policyholder is searching for a new doctor? Knowing these details as they develop enables an insurance provider to reach out and ask if policy updates are needed.
The consensual, ongoing information-sharing relationship with customers keeps an insurance provider informed of major life changes that could affect policies. On a broad scale, it also reduces the risk of claims, saving insurers money and making communities safer overall.
Reducing costs and risk with automation
Efficient subscription businesses automate everything they can, from activation to notifications and billing. Automating saves on time and resources, and reduces the risk for human error.
Insurers can benefit from this technology, reducing the cost of quote generation, payment collection, and even the claims journey by reducing the need to send claims officers to assess damage. BetterView, for example, is a SaaS provider for insurers using drones and AI technology to assess damage, mitigate risk, and better inform decisions.
Customized pricing through flexibility
With accurate customer data and automation tools, an insurance provider can be not only more efficient, but more flexible. Offering usage-based insurance, or giving customers control to pause or activate on a month-to-month basis, may seem risky for cash flow.
However, it does mean that the customers who need insurance the most (whether due to risk or usage) can be identified and billed accordingly. The alternative is continuing to cover a stealthy high-risk and/or high-usage customer at what resembles a discounted price in practice.
Similarly, rewarding customers who fit high-risk profiles (drivers under age 25, for example), but are the exception to the rule (safe driving), works toward creating high customer satisfaction and retention. What’s more, you retain the most valuable customers to the bottom line: those least likely to file a claim.
With increased efficiency comes higher customer acquisition, satisfaction, retention, and lifetime value. Combined with lower risk of filed claims, it’s easy to understand why insurance providers are looking to the subscription business model for solutions.
Considerations for application
The road to these innovative solutions isn’t easy, especially for the most complex insurance models. Offering usage-based coverage of e-scooters may be simple compared to insuring multiple commercial fleets tracked via telematics. Life insurance providers certainly have a lot to consider before diving in.
Capturing and storing critical customer and financial data, as well as some of their most personal data, also requires a high level of cybersecurity. However, transparency about what benefits come from sharing this information can warm customers up, and gaining that information opens the door for improvements to the way insurance products are delivered in the market. It saves customers money while reducing an insurance company’s risk—by encouraging customers to reduce their own risk. This benefits a population overall as people drive safer, take better care of their health, take steps to best protect their homes, and more to reduce risk.
With policyholders and providers working together continuously to reduce risk rather than occasionally interact after catastrophe strikes, the world might just become a safer place.
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