Denise Garth is the senior vice president of strategic marketing and industry relations for Innovation Group. 

The historical assumptions that serve as the foundation of insurance and business models have been shaken these past few years. Issues exposed by the recession highlight reasons for a 25-year downward trend in underwriting profitability. Factor in challenges posed by today's market, such as changes in the economy, consumer demographics and expectations, and added distribution channels, and insurers must walk a new path of innovation to reverse the trends of the past.

Product Innovations

Increasingly insurance products are being designed in collaboration with customers. The resulting innovations are easy-to-use, personalized products and features across a variety of platforms. With a constant cry for personalized solutions, these product innovations must be grounded in robust product configurators and customer self-service that allow individualization and choice among products.

As a result, the following innovations have emerging implications for personal lines:

• Features that include disappearing deductibles, loss forgiveness, “green/eco-friendly” deductibles, and preventive measures designed to avoid an incident
• Discounts based on “liking” an insurer via social media
• New coverage options that support the increased demand for specialized insurance products for unique assets like collectible cars and antiques
• Insurance products designed, priced, and underwritten based upon behaviors, such as how, when, where, and how much a customer drives
• New products for underserved market segments such as teenage drivers that will change rates quarterly based on driving behavior and evaluation against a peer group
• Customized, bundled products and pricing to gain customer loyalty and “wallet share”

Keeping Up

In order to keep up with product innovation demands, insurers must develop more agile solutions. Quicker customer analysis using external and internal data, for example, allows insurers to proactively recommend new products, thus enhancing the customer experience and relationship. Policy pricing can move from being demographically-based to being risk-based by using data sources to garner new insights into consumer demographics, behaviors, and attitudes.

While innovation is key, speed to market is integral. Customers don't want to wait. Product development and configuration must happen within days or hours rather than weeks or months. Tiered and mass-packaged products are losing their luster as insurers move toward customized products and rating models that are a tier of one, rather than rate schedules for the masses.

Added Distribution Channels

Once innovation occurs, distribution follows. Statistics show that auto insurance is increasingly bought online or via direct methods. A survey conducted by AIS Media showed that 59 percent of respondents who were interested in an insurance offer received through postal mail preferred visiting the insurer's website for additional information. Yet insurers are not being asked to choose one or the other; they are being told to incorporate every possible distribution channel into their offerings. 

Nielsen estimates the world spends more than 110 billion minutes on social networks and blog sites. In fact, Gen X and Y increasingly use “gaming” and social media sites to educate, validate, and make buying decisions on nearly everything, including insurance. According to Nielsen, three of the world's most popular online brands are social media-related—Facebook, YouTube, and Wikipedia. Will successful insurers also need to be on each of them? The possibilities are vast.

Innovations happen off-line, as well. MetLife and GM recently rolled out a program that provides GM auto buyers with a policy that covers damage to the car for one year free. Instead of waiting for an insured to seek insurance, basic coverage now comes with the car. This new customer acquisition approach by way of a new channel is likely less costly than traditional methods and gives the insurer a year to prove value. After that, inertia takes over.

Managing Change

Managing all of these innovations and distribution channels undoubtedly will require robust policy, product development, and configuration capabilities that can support mass and customized products. Real-time and Internet-based quoting and rating capabilities are a must. Meanwhile, these solutions should be flexible enough to design and configure new offerings quickly and savvy enough to support each customer uniquely.

Part of the puzzle is integrating a policy management system that provides agents, customers, and service staff real-time access to the same information a customer sees. Channel management and harmonization is needed to allow access to customer data without channel conflict. Additionally, the system must provide purchasing and product support on a wide array of devices, including PCs, iPads and mobile devices.

Innovation and business must co-exist. The key to success is incorporating rapid, innovative product development and new distribution channels along with sustainable, robust policy management solutions that can serve well into the future. Finding the right balance will allow the insurance models of the past to give way to a new path forward.

Denise Garth is the senior vice president of strategic marketing and industry relations for Innovation Group.  She can be reached for further comment via email at [email protected].