How insurance professionals can use active risk management programs effectively

Insurance companies spend more than $6 billion each year in advertising to win new customers.

But in this new "switching economy," competition is making it more difficult for insurers to retain the right risks: their most valuable customers. Approximately 50 percent of customers that shop for insurance end up switching carriers.

Active risk management can help. Simply defined, it's the ability of an insurer, agent or broker to proactively monitor its entire book of business. It helps gain a comprehensive understanding of the business so the company can focus on its most valuable customers and engage in relevant, perfectly timed communications.

Active risk management allows insurance professionals to move quickly and intelligently when important customer life events occur that impact underwriting and attrition risk, from marriage to home improvements. Fast access to event notifications can help insurance professionals reach out to customers to determine the most appropriate coverage and service offerings.

Achieve goals faster

Active risk management starts with deciding on a strategy. Do you want to retain more customers? Reduce losses? Sell more policies in each household? Determining the right strategy will determine the right data needed to have the right conversation with policyholders as they experience change.

If your goal is to increase lifetime value and deepen customer relationships, you might look for events such as: Who's getting married? Who's having children? Who's bought a new car?
If your goal is to improve retention, you might look for: Who is planning to move soon? Who is reviewing their current coverage?
If your objective is to improve profitability, you might monitor: Who has renovated their home? Who has new individuals in their home? Who's received a moving violation?

Coverage needs in households are constantly changing over time. Active risk management programs use data and technology to carefully watch for these events across an insurer's entire book of business. For example, LexisNexis Active Insights automatically monitors and alerts insurers of events that indicate a critical change in a policyholder's life, which may drastically affect their insurance needs. When the technology flags a key event, insurers, agents or brokers can engage policyholders at the perfect time.

Typically, active risk management programs leverage data from thousands of sources, spanning databases, public records, and proprietary insights and assets to understand key events in the lives of policyholders. They employ advanced linking technologies to pull the right pieces of information together from the disparate data sources, then apply advanced analytics using supercomputing systems to deliver the insights.

These technologies catalog events as they occur, and relay the insights to the carrier. What was previously a manual data "pull" can become an automatic data "push." When the insights arrive, they are quickly matched to policies in a monitored book of business. Each company can set its own parameters of which data elements to monitor, and how often to receive reports. One company may prefer immediate alerts, while another may opt for regular summary reports.

Related: 7 homeowners trends for 2017

Addressing privacy concerns

Does this kind of life change event monitoring compromise customers' privacy? In the age of social media, more people are comfortable sharing more information with companies, stores and websites with whom they do business because they expect that shared information will be used to better serve them.

In a 2014 survey, Gartner research found that 22 percent of consumers would consider sharing health information such as exercise data, and 26 percent could even imagine sharing more information on their family and lifestyle needs, so that insurers could offer them better policies.

Ultimately, the carrier, agent and broker know the customer. An active risk management program provides the insight these insurance professionals need so that they can reach out, but it's up to them to consider how to act on the information based on their knowledge of the individual customer's preference and sensitivities.

More precise information for a better ROI

Most current methods to discover life changes are outdated and inefficient. For example, a common approach is to look for, and act on, leading indicators. But insurers have to know what these indicators actually indicate, if they are truly actionable and whether they will get a reasonable return on investment (ROI).

A couple listing a home for sale is a good example. An insurance professional can monitor for that event and contact the customers to provide advice on insurance needs while the home is on the market. This event may lead the customers to update or switch their auto, home and commercial policies.

Similarly, when is the best time to reach out to a policyholder who's getting married? It might seem that the ideal time is when the customer gets engaged rather than waiting until after the marriage when the couple is reviewing their coverage. While that might be acting first, it isn't precise because an engagement indicator introduces variability. Insurers may end up contacting many engaged couples who often wait months or years before making insurance decisions.

This kind of imprecision hurts ROI and risks souring the customer relationship because of the repeated points of contact and pressure. Active risk management programs notify insurers when the couple is most likely to act on insurance.

Engage policyholders

Customers experiencing changes may research multiple carriers to compare competitive rates and opinions before calling the current insurer, agent or broker. With advance notice of the potential move insurance professionals could actively advise the customer throughout the entire process. This outreach may preempt or even prevent the customer from seeking alternative coverage providers, in addition to increasing the chances that they will remain loyal.

For carriers that have set management of loss ratio as their number one goal, knowing when a new youthful driver is now residing in the house is a noteworthy event. It's important to find these drivers because of their high probability of having an accident and the impact that has on an insurer's loss ratio. They want to find these drivers quickly so that they generate the revenue needed to cover expected loss experience. After all, the policyholder may not call the insurer when the new driver gets a license.

With insight into their policyholders' changing risks, insurance professionals can engage policyholders in a highly relevant and timely way to ensure that the coverage and services offered address their customers' specific needs at the point of change.

Engaging at the right time with much needed advice exceeds customer expectations and builds loyalty. It's what policyholders really want and expect from insurance professionals. Those who engage first with customers hold the competitive advantage.

Victor Bayus is vice president, Product Management Insurance for LexisNexis Risk Solutions, based in Alpharetta, Ga. He can be reached at [email protected].

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