Are You Prepared for the Changing Insurance Market?

By John Beal and Xiaohui Lu | December 2, 2011

In today’s personal property/casualty insurance market, agents and brokers face increasing uncertainty. Staying the course is no longer an option to drive profitable growth. You must be informed of the latest market changes; understand your performance relative to the market; and optimize your business processes throughout the insurance policy lifecycle.

Stay Informed

Today’s market is complicated by a volatile economy, growing state deficits, increasing industry consolidation, a ballooning advertising war and extreme weather conditions. A recent LexisNexis study of the personal auto insurance market revealed that:

  • More than 50 percent of shopping activities occurred within the 45 days leading up to policy renewal, requiring agents to effectively manage customer retention between renewal notification and policy expiration.
  • Approximately 63 percent of shoppers obtained quotes from a single carrier and 70 percent completed their shopping within one day, making it critical to be top of mind when prospective customers begin shopping.
  • The pool of auto insurance policyholders, as a percentage of the overall population, is shrinking at an accelerated pace.

We believe you must monitor market changes, understand customers reactions, and respond quickly and effectively before competitors do.

Understand Your Performance

To improve performance, you must know whether you are underperforming or outperforming the market. Agents and brokers who acquire benchmarking data will succeed on multiple fronts. You can:

  • Analyze your position against market conditions to improve marketing campaign messaging and target prospective customers more effectively.
  • Measure quoting activities relative to the industry to identify segments that are underperforming, and design marketing strategies that will help close the gap.
  • Benchmark growth against the industry, rewarding agents who contribute to the success of the organization, rather than those who happen to be at the right place at the right time.
  • Avoid overreacting to sudden changes in performance caused by uncontrollable market forces.
  • Avoid underreacting to steady but detectable market changes more analytical competitors will profit from.

Benchmarking could be conducted across customer segments or over time. By profiling the prices of quotes across multiple customer segments, agents can identify less competitive segments and recruit underwriters with better prices for these segments. Agents could also contrast the growth trends of its business against those of the industry to identify whether they have captured growth points of the market. Pioneering agents focus on understanding, influencing and capitalizing on changes. They continually monitor where the industry is going at segment-level and analyze how decisions will affect future trends. The timeliness of data is critical.

Optimize the Insurance Policy Lifecycle

Successful agents will be the ones that adapt the fastest to market changes.

You might consider personal drive or a corporate culture for high growth.

Also examine technical capabilities to turn market insights into actionable strategies. These might include:

  • Proactive data procurement. By obtaining relevant data at the earlier stages of policy lifecycle, agents can maximize the usefulness of the information. For example, agents that retain customer quoting experiences can use that data to optimize product offers.
  • Persistent data linking. Persistent linking technology can help create complete, in-depth profiles of current consumers from existing policies, subsequent interactions, and third-party data sources. For example, by linking a customer’s quote with a previous policy, you can create a more relevant interaction with the customer by offering a multi-product or “welcome back” discount.
  • Advanced data analytics. Most advanced analytic techniques are multivariate in nature. Rich insights frequently arise from multi-dimensional interrogation of data. It is important to observe the metric with “all else being equal.” For example, an agent’s low conversion rate might be due to its underwriters’ poor competitive positions.

Also consider business processes that are optimized for quick responses to market changes. You need:

  • A fact-based decision-making process;
  • An execution workflow that is efficient and accurate; and
  • A monitoring process that continually collects market data and alerts users to potential changes.

Optimization is a continual and iterative process throughout the insurance policy lifecycle. For example, in direct marketing, optimization can help you determine the best time to contact customers, identify prospects that are most likely to convert, and pinpoint customer segments which give the biggest return for retention dollars.

To get started, you need to: 1) Assess your business culture and capabilities before optimizing operations. Identify gaps and seek external help where needed. 2) Seek out the tools and data that your carrier partners, underwriters and third party vendors offer. Be sure to equip decision-makers with user-friendly tools to encourage uptake. Consider what you need and manage the underwriter and vendor relationships accordingly. 3) Embed optimization in the daily workflow and include it in annual or semiannual business reviews.

Lu is director of vertical marketing for personal auto insurance, LexisNexis Risk Solutions. Beal is vice president, modeling services insurance, LexisNexis Risk Solutions.

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