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Innovative ways insurers use analytics to create loyal policyholders

Financial Services Writer

One of the most impactful insurance industry trends during the last five years has been the increased use of analytics and data across insurance operations, along with the use of more complex analysis than ever before. Insurers have started using analytics to engage policyholders, more accurately gauge risk trends to price policies in a better-informed manner and provide individualized quotes.

Creating policyholder loyalty

Policyholder-loyalty-pricing_Blog.jpgInsurance providers have been using weather data in their operations for some time. Many have used climate data in their homeowner policy pricing models to better account for weather-related risk. But, the insurance marketplace is stagnant. According to a Bain & Company study, there was only a 1 percent growth in auto and a 4 percent growth in homeowners insurance in 2014. Chief marketing officers (CMOs) at insurance companies are now using weather data beyond pricing to drive policyholder retention strategies.

Insurance providers are challenged to find meaningful touch points with their policyholders. Many send typical communications about policy renewals, bills or even a birthday greeting. Even though these communications may seem innocuous, they can impact insurers’ bottom line.

A major insurance company, for example, conducted a study of its policyholder engagement strategies. It showed that sending five or more communications to policyholders each year increased retention 5 percent. What if your policyholder communications could be differentiating and valuable beyond birthdays and bills?

This communications strategy is where weather can move from operational application to creating engagement. It can be the basis for a valued customer outreach. For example, The Weather Company and a large insurer studied their alerting program. It showed that 97 percent of policyholders who received a weather alert found it valuable. Alerting policyholders to approaching weather perils benefits both policyholders and insurers. Recipients avoid the inconvenience of a claim while insurers reduce losses. The same study by The Weather Company showed that 52 percent of policyholders took action on an alert, and only 6 percent of those policyholders had to file a claim (see the video, How weather can increase insurance policyholder loyalty and reduce claims). 

Weather alerts provide an unexpected outreach. Because the benefits are so tangible, it creates a special “wow” moment with customers. In a commodity- and price-driven marketplace, weather alerts can differentiate insurers and create loyalty. 

Using highly sophisticated insurance analytics

Insurers have used analytical methods for decades, but as the insurance industry trends toward increasingly exacting premium pricing, insurers have started using regression analysis and other advanced statistical methods to drill down to individual pricing.

According to an InformationWeek report, insurance companies have aggressively adopted new analytical technologies to build more complex pricing models. Insurers are using traditional data, including a policyholder’s own record and risk factors based on region and type of vehicle and unstructured data from social media platforms, to provide individual scoring based on a composite score of several risk factors.

Under legacy models that provided scores on a group basis, policyholders with the same scores could have vastly different risks, so this trend benefits both the insurers and the insured. Insurers can better price for risk, while policyholders who truly have less risk can purchase less-expensive policies.

Applying telematics for automotive insurers

In the automotive insurance industry, companies are also turning to telematics, in-vehicle communication devices that gather driving habit information, to see if drivers are following safe practices. Telematics can tell if drivers are traveling at the speed limit and braking easily, or if they are using unsafe methods such as speeding, quick starts and hard braking. This Internet of Things technology can also gather data on average trip length and other indicators of individual risk, resulting in enhanced accuracy in risk pricing and improved ability to evaluate claims.

According to the National Association of Insurance Commissioners, the use of telematics is giving rise to user-based insurance policies. Linking insurance premiums more closely to individual or fleet performance allows insurers to more accurately price their products. This accuracy increases affordability for low-risk drivers, and gives consumers the ability to control their premium costs by reducing miles driven and adopting safer driving habits. When policyholders log fewer miles and practice safer driving than they have in the past, accidents, congestion and vehicle emissions can be reduced, which benefits the community as a whole.

Looking ahead at new opportunities

With the help of data analytics, insurance companies can more accurately predict risk, offer more tailored policies to customers and engage current policyholders that forge new paths to continue their growth and success. 

Transform insurance with the power of weather data

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