How insurers should think about their brands from Lexicon Associates
How insurers should think about their brands The most undervalued asset in insurance
Table of Contents
INTRODUCTION
3
PART 1. THE INSURANCE INDUSTRY’S BRANDING PROBLEM
5
COSTS OF BRAND WEAKNESS: SLOWER GROWTH AND REDUCED PROFITABILITY
5
THE TRUST DEFICIT
8
WHY INSURANCE IS “BORING”
10
OPACITY AND COMPLEXITY
11
THE NEED FOR POSITIVE TOUCHPOINTS
12
THE CLAIMS EFFECT 15 PART 2: LEVERAGING STRONGER BRANDS: THE SIREN SONG OF EMBEDDED INSURANCE 17 A CAUTIONARY TALE FROM TEXAS 18 PART 3: MULTIPLYING POSITIVE TOUCHPOINTS: BRAND BUILDING STRATEGIES FOR INSURERS 19 IDENTIFYING HIGH ENGAGEMENT CUSTOMERS 19 FORMING A “CLUB” 20 PERSONALIZATION AND CONNECTIVITY 20 DEVELOPING INCIDENT RESPONSE SERVICES 21 BUILDING BRAND VALUE THROUGH ROADSIDE ASSISTANCE 22 PART 4. INSURANCE BRAND BEACONS 23 CYBER INSURERS LAY FOUNDATIONS FOR STRONGER BRANDS 23 HAGERTY: A POWERFUL AUTO INSURANCE BRAND WITH MULTIPLE TOUCHPOINTS 25 PURE: WELCOME TO THE CLUB 27 PART 5. THE FUTURE ROLE OF BRANDS IN INSURANCE 28 ABOUT LEXICON ASSOCIATES 29
Page 2
Introduction Building brand value in insurance has never been easy. Insurance is famously an unloved industry. Billions of dollars are spent every year, particularly by auto insurers, on advertising campaigns that focus on price and make scant reference to the product being sold. At the heart of the problem has been a lack of positive customer touchpoints – the scaffolding, so to speak, around which a company can tell an engaging brand story. Most insurers interact with most of their customers only once or twice a year, at renewal. And at a time of rapidly rising premium rates for many lines, this may not be a positive experience for the customer. But opportunities for insurers to tell a much more interesting and engaging story are growing. Generative artificial intelligence holds out
the prospect of insurers building closer, more personalized relationships with their customers, banishing the notion of the ‘faceless’ insurer for good. In the property insurance market, the internet of things is ushering in a new generation of risk prevention services. And in many markets, insurers are broadening their value proposition through incident response services and additional benefits - from health club memberships to travel discounts - that customers value. For insurers, the main return on all of these investments comes from longer lasting customer relationships and, consequently, greater lifetime customer value. This benefits the bottom line because the cost of acquiring a new policyholder typically far exceeds the cost of retaining an existing one. High customer churn is expensive.
This report has been produced with support from Agero. Leading vehicle manufacturers and insurance providers use Agero’s roadside assistance services to strengthen their businesses and create stronger, lasting connections with their customers.
Page 3
This report is divided into five sections. In Part 1, we consider the weak performance of the insurance industry in producing compelling brands and the costs – including opportunity costs – that this weakness entails. In Part 2, we look at what is sometimes presented as a solution for insurers’ branding problem, at least in certain markets – embedding insurance among the offerings of more attractive, non-insurance brands. While this could broaden insurers’ market access, it is also a potential siren song that could further erode margins (if insurers become junior partners alongside far more powerful distributors that are aggressively seeking to maximize their returns from selling insurance).
In Parts 3 and 4, we look at the steps insurers can take – and some are taking – to build brand value on their own account. We profile a number of insurers that have overcome their industry’s reputational challenges to build valuable brands that have underpinned consistently profitable growth. Finally, in Part 5, we look to the future role of brands in the insurance market. Will embedded insurance and the growing complexity of distribution chains marginalize insurers’ own brands still further? Or will insurers find new ways to tell their story to customers that may, over time, reposition the industry as a whole in a more favorable light?
Page 4
Part 1. The insurance industry’s branding problem
Costs of brand weakness: Slower growth and reduced profitability
Insurance has a brand problem. It is often regarded, with good reason, by those who work in the industry as a force for good in society. But trust – which underpins all brands – is often lacking for insurers. The value of insurance may be recognized in theory but it is not so widely appreciated in practice. This failure to build brand value has proven hugely detrimental to the insurance industry’s growth and profitability. Globally, insurance has failed to keep pace with GDP growth in the 21 st century. In the broader economy, intangible asset values have soared in recent years 1 and brands have played a major role in driving corporate valuations. But the value of insurance companies relative to more brand-dependent businesses has languished. The total value of the world’s top 100 brands in 2023, according to Kantar, a marketing data and analytics firm, was $6.9 trillion, down 20% on the prior year, but still up 47% on pre-COVID levels in 2019. Insurance companies accounted for only $71.4 billion, or 0.1%, of this total brand value. Apple, the most valuable brand in 2023 in Kantar’s estimation, was worth more than 12 times that of all the insurance companies in the top 100. Taking a wider view, the picture is not much better for insurance companies. Among the 500 most valuable brands in 2023 tracked by Brand Finance, another consultancy, insurers accounted for just 4% of total value, behind seven other sectors.
What is a brand? The word brand carries a variety of meanings. Many people identify it loosely with the logo of a company and use the words logo and brand interchangeably. Others recognize that marketing is designed to build brands and thus see brands as the products of such marketing efforts. When people talk about the GEICO brand or the Progressive brand in the auto insurance market, they will – most of the time – be referring to the impressions created by those brands’ avatars, the GEICO gecko and Flo. That is a reflection of the tens of billions of dollars that both companies have invested in advertising over the years, but also a tribute to the success of this advertising in creating a clear brand image for both companies. But many successful brands do not advertise and their brand strength derives mainly from the customer’s experience of the product or service being sold, and the positive word of mouth that experience generates. In this report, we will use a broad definition of brand that encompasses all the above. Under this definition a brand is the sum total of all impressions that buyers receive about a company or product. Brand equity is the extent to which all of these impressions will influence purchase decisions relative to a (hypothetical) unbranded company or product.
1. Brand Finance categorizes intangible assets into three broad groups – rights (including leases, agreements, contracts), relationships (including a trained workforce), and intellectual property (including brands, patents and copyrights).
Page 5
Brand Value by sector, top 500 brands, 2023
Tech
15%
Other
24%
Retail
13%
4% 4%
Oil and Gas
Engineering & Construction Insurance
12%
4%
Banking
7%
7% 10%
Media
Automobiles
Telecoms
Source: Brand Finance
Largely as a result of its weak brand performance, the property casualty insurance industry has seen its total market value eclipsed by the tech giants and a handful of other companies that have leveraged their intangible assets to achieve exceptional growth and profitability.
In a world of giants ... Market capitalization - selected companies (in $trn)
US P&C carriers 0.51
Berkshire Hathaway 0.86
Microsoft 3.08
Tesla 0.59
Novo Nordisk 0.41
LVMH 0.43
Google 1.82
Amazon 1.77
Nvidia 1.73
Page 6
The insurance industry has underperformed global GDP growth since 2000 – a period in which many risks have grown more acute. As a result, sizable protection gaps – usually represented as the difference between economic losses and insured losses – have emerged in many regions and for many lines of business. Estimates of the protection gap for global natural catastrophe risks are shown in chart X.
Insurance Spending as % of Global GDP, 2000 - 2022
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
Source: OECD
A Yawning Gap – Natural Catastrophe Insured and Economic Loss Estimates, 2022
% uninsured (protection gap)
Insured losses
Economic losses
Munich Re
$120 billion
$270 billion
56%
Swiss Re
$125 billion
$275 billion
55%
Aon
$132 billion
$313 billion
58%
It is not clear how much this weak growth performance has been caused by weak insurance brands – another important factor may be the high expense load borne by much insurance, which diminishes the value of the product. But particularly in personal lines and small commercial
insurance markets it is likely that weak brands have retarded the industry’s growth potential significantly. Certainly a belief that this is the case has driven the development of embedded insurance, through which insurers seek to distribute their products through stronger brands.
Page 7
The trust deficit
A paradox lies at the heart of the insurance industry. An insurance policy is a promise (or set of promises) to pay up to a certain sum in a prescribed set of circumstances. It will have no perceived value if the policyholder does not trust the insurer to keep its promises. And yet insurers enjoy lower levels of public trust than most organizations.
A high-level view of the problem is shown in the “trust barometer” surveys that public affairs company Edelman has published for the past 23 years. Reflecting public perceptions in 27 countries, the 2023 survey found that financial services companies ranked second from last in terms of how much they were trusted to “do what is right”. Only social media companies fared worse.
Trust in Industry Sectors, 2023
0 10 20 30 40 50 60 70 80
76
71 71 70 69
67 67 66 65 65 65
63 63 61
59 59
44
Source: 2023 Edelman Trust Barometer
Rapidly rising premium rates can also erode trust. The most recent survey of commercial insurance brokers conducted by the Council of Insurance Agents & Brokers (CIAB) in the third quarter of 2023 found that 70% of respondents “described hearing some level of rate fatigue from their
clients” and “nearly half said their clients felt burdened by carrier requests for information.” The survey also found that more than 40% of brokers “said their clients felt some level of mistrust towards the industry.”
Page 8
It seems plausible that there is causal relationship between “rate fatigue” and mistrust, and the CIAB indeed records one broker attributing mistrust “to the fact that clients still saw increases in their premium even if they had no losses, leading to frustration with the system.” But the connection would bear further investigation. More granular data relating to social media perceptions of insurance companies in the UK was published by PwC in 2022 2 ( see chart below ). The research was based on references on Twitter (now X) to 15 UK insurers that were deemed sufficiently plentiful to ensure a thorough analysis and fair comparison. (More than 330,000 tweets
mentioned these insurers in 2021). The balance of commentary was strongly negative, generating “net sentiment” of -19.2%. Just under a quarter of the comments were related to service or operational issues, and these were significantly more negative than the average (net sentiment of -59.7%). Other commentary, classed by PwC as “reputational,” was “driven by online press coverage and marketing efforts.” This category was also negative, although less so (-4%), meaning that even the insurers’ own marketing and brand building efforts were unable to generate a positive response.
UK Insurance Industry, Net Sentiment
-4.00%
-19.20%
-59.70%
Total Reputational
Operational
Source: PwC UK Insurance Sentiment Index, 2022 The poor reputation of insurance is acknowledged in the marketing of some major insurers. Progressive, the largest auto insurer in the US, which spent $1.73 billion on advertising in 2022, argued in a video that “behind our ads you’ll discover we’re more than an insurance company.”
2. https://www.pwc.co.uk/insurance/assets/pdf/insurance-sentiment-index-2022.pdf
Page 9
Why insurance is “boring”
In 1943, Abraham Maslow, an American psychologist, published a paper entitled “A Theory of Human Motivation” that proposed a hierarchy of human needs. These so-called higher needs, he argued, could only be satisfied if more fundamental needs have been addressed. The research methodology behind Maslow’s hierarchy – commonly represented as a pyramid –
has been challenged, but it is still a useful tool when considering the role played by brands of different types. Most of the brands that speak strongly to us are situated toward the top of the pyramid. But insurance is, for the most part, situated in the second layer of the pyramid, addressing our need for safety. 3
Maslow’s hierarchy of needs
Self-actualization
Esteem needs
Love and belonging
Safety needs
Physiological needs
Maslow offers a suggestion as to why insurance brands do not hold our attention for long. “When a need is fairly well satisfied,” he wrote, “the next prepotent (‘higher’) need emerges, in turn to dominate the conscious life and to serve as the center of organization of behavior.” This fits well with the common description of insurance as a low engagement purchase. “The
healthy, normal, fortunate adult in our culture is largely satisfied in his safety needs,” Maslow argued. “[I]n a very real sense, he no longer has any safety needs as active motivators.” These words were written nearly a century ago, but they still hold true today. Insurers are thus in the unfortunate position of addressing safety needs that are not, to most people, pressing concerns.
3. Indeed, Maslow in his paper identified insurance explicitly as a means to satisfy these needs: “[W]e can perceive the expressions of safety needs in … the common preference for a job with tenure and protection, the desire for a savings account, and for insurance of various kinds (medical, dental, unemployment, disability, old age).”
Page 10
Opacity and complexity
Probability, the branch of mathematics on which insurance is based, is relatively young and widely misunderstood. Unfortunately, insurers generally make little effort to explain their calculations to their customers. Insurance buyers who do not work in insurance will normally have no idea what a loss ratio or a combined ratio is. What most people can grasp, however, is that their financial interests are usually diametrically opposed to those of their insurers. In other words, the larger the share of premiums that is paid out in claims, the better the deal will be for the policyholder and the worse for the insurer. This fuels suspicion that insurers will always look for ways to refuse or limit claims payments.
Key features of the insurance market that may also have a major impact on the price of insurance are also largely unknown to most policyholders. Two of the most important of these are the financial demands of distributors and of reinsurers. Distribution and administrative costs typically consume close to 30% of insurance premiums, leaving only around 60 cents in the premium dollar to pay claims if the insurer budgets for an underwriting profit of 10%. And the cost of reinsurance, particularly for property catastrophe risks impacted by climate change, has soared in recent years, forcing the primary market to raise premium rates steeply.
Page 11
The need for positive touchpoints
There are many dimensions to the insurance industry’s brand weakness, which we will explore in this report, but the underlying problem
but it is not possible to test drive an auto insurance policy. The industry’s challenge can be clearly seen in figures that the UK’s Financial Conduct Authority, which regulates the country’s financial markets, began to collect from the industry in 2021. (No comparable data is available in the US insurance market). The figures shown below are for 2022 and they illustrate the industry’s branding challenge starkly. In 2022, just over a tenth of UK auto insurance policies were claimed against, and more than 5% of these claims elicited complaints by policyholders. (The latter can reasonably be expected to have been brand negative experiences). For homeowners’ insurers, the figures are even worse: only 5.47% of policies were subject to claims and nearly 9% of these claims elicited complaints.
is clear. Insurers interact relatively rarely with their customers and, when they do, the experience is not always positive. Brands rely on positive touchpoints – the more the better – to grow. Insurers generally offer very few. Of course, savvy marketers know how to create positive touchpoints, through advertising and social media outreach, that are independent of the experience of the goods or services that they are selling. But in most cases the product itself will be central to the brand experience, and the goal of marketing is to encourage the consumer to try out the product. Test driving a car can seal the deal,
Claims are Infrequent and the customer experience is not always positive
Claims Frequency
Claims acceptance rate
Average claims payout
Claim complaints as a% of claims
Product Category
Home - (buildings and contents combined)(All)
5.47%
76.32%
£3,733.28
8.72%
Auto (All)
10.62% 99.06%
£3,283.14
5.37% 3.54% 4.34%
Travel - single trip (Stand-alone) Travel - annual worldwide (All) Extended warranty - electrical goods (Stand-alone)
7.16%
73.14% £1,150.61
10.88% 81.56%
£1,827.55
13.75% 99.19%
£150.32
4.90%
Dental insurance (All)
6.63%
94.72%
£121.79
1.76%
Gadget (including mobile phone) (Stand-alone) Gadget (including mobile phone) (Add-on)
10.59% 92.28%
£343.59
7.75%
12.84% 97.68%
£401.64
5.35%
Pet - covered for life (All)
46.68% 95.34%
£551.62
0.95%
Source: UK Financial Conduct Authority, General Insurance Value Measures Data, 2022
The star performer by these admittedly dismal standards was pet insurance, where claims frequency was almost 50% and the proportion of claims that generated complaints was less than 1%.
Page 12
For most personal lines insurers and most insurance buyers, this leaves just one other customer touchpoint: policy renewal, which occurs only once or twice a year. Renewal may sometimes be an opportunity for an insurer (or more often a broker) to engage in a helpful discussion with the policyholder about the coverage required in the year ahead. But more often – and particularly in the case of auto insurance – it is a purely financial transaction and, recently, quite a painful one for most policyholders.
At a time of steeply rising premium rates, it is not surprising that resentment of insurers may increase. Rates rises have been well above the broader rate of inflation for many lines of business and they can appear to present a “heads I win, tails you lose” proposition for insurers. If the policyholder had made a claim during the prior policy period, this will be presented as the reason the premium has gone up. But if no claim has been made, the cost of coverage will still typically rise.
Car and Home Insurance Rates Have Soared Well Above Broader Inflation Measures Car and Home Insurance Rates Have Soared Well Above Broader Inflation Measures
30.0
Private Passenger Auto
25.0
Homeowners
20.0
15.0
10.0
5.0
0.0
-5.0
Source: U.S. Bureau of Labor Statistics
Page 13
It is worth comparing this experience with that encountered by the buyers of other products and services. Customer touchpoints in other markets are typically far more frequent and far more positive. The chart below contains estimates of the tenor and frequency of touchpoints for products other than insurance. The chart is indicative, but the
position of the other services relative to insurance is clear. Banks are not particularly popular, but they normally play a larger role in their customers’ lives than insurers do, with more frequent touchpoints. And other consumer products and services typically benefit from touchpoints that are both more frequent (often hourly in the case of smartphones) and more positive.
Tenor and Frequency of Customer Touchpoints
Smart phone
High net positive
Car
Medium net positive
Gym membership
Slight net positive
Tenor of touchpoints
Mixed(positive/ negative
Insurance
Banking
Annually
Monthly
Weekly
Daily
Hourly
Frequency of touchpoints
Page 14
The claims effect
Claims are sometimes represented as “moments of truth” for insurers and their policyholders – points at which the true value of the insurance product is revealed. But as we have seen, they are relatively rare touchpoints. And even when they do occur, the truth that is revealed may not be brand- enhancing for the insurer. Homeowners affected by the Marshall Fire, which destroyed more than a thousand homes in Boulder County, Colorado in the last hours of 2021, offered a decidedly mixed verdict on the performance of insurers following the conflagration. A year after the event, a survey of the affected homeowners was conducted by the nonprofit
United Policyholders in partnership with the Colorado Division of Insurance 4 . It revealed that more than 80% of respondents (275 individuals) had found that their insurance payouts were insufficient to cover the cost of rebuilding or replacing their homes to the standard required by applicable building codes. And when asked whether their claims experience would incline them to recommend their insurer “to a friend, relative or coworker,” a narrow plurality (41.3%) said it would, but a large minority (36.3%) said it would not.
Sufficient Insurance to Cover Rebuilding Costs?
23
Yes
No
275
43
Unsure
0
50
100
150
200
250
300
4. The survey results can be found here: https://uphelp.org/wp-content/uploads/2023/07/2021-Marshall-Fire-One-Year-Survey-Data_FINAL-SUMMARY- DATA.pdf
Page 15
Taking a broader view of the market, it looks as if the experience of a claim may on average be a net positive for the brand image of the insurers handling the claims – but only modestly so. Since 2017, Clearsurance has been polling insurance buyers of home and auto insurance on their attitudes toward their insurers, collecting more than 125,000 carrier reviews, including net promoter scores. The company has been able to calculate the effect of claims experiences on NPS because its questionnaire also asks whether insurance buyers have had a claim and, if so, how they would rate the claims service they received (poor, fair, good, great or excellent). Overall, buyers with claims gave their insurers a five point NPS boost relative to buyers who had not experienced claims.
Willingness to Recommend Your Insurer
225
Yes
No
198
122
Unsure
0
50
100
150
200
250
Page 16
Part 2: Leveraging stronger brands: the siren song of embedded insurance
If insurance brands are irredeemably weak, there may be an obvious fix – sell insurance through stronger brands. “Not only does the customer benefit, but also the insurance company,” argues Vass, a large digital consulting company. “New touchpoints with their customers emerge, new data can be collected for personalized pricing, the perception of value for customers is positive, and this is only the beginning to future services.” Boston Consulting Group has estimated that embedded insurance could be a $58 billion market in Europe by 2035, accounting for a quarter of all
new insurance sold. 5 Auto insurance sold through OEMs and user-car platforms is perceived as the largest single opportunity. But for insurers, the picture may not be quite so rosy. Embedded insurance does have the potential to stimulate demand for insurance and enhance the customer experience, but it is not clear that insurers will be the main beneficiaries. Brokers, with whom insurers have partnered for decades, are usually out of the picture and in their place are far larger and more powerful partners.
Moreover, while embedded insurance strategies may be very successful for certain products, they have significant limitations and drawbacks:
They are generally confined to insurance products that complement the sponsor’s products or services. The consumer is invited to ‘protect’ 6 the main purchase they are making, be it a watch, a smartphone, or a vacation. They are generally only suited to simple insurance products that can be purchased online with a few clicks (or, ideally, with a single click). They may prove expensive to distribute. A popular travel and accommodation booking platform can attract visitors on a scale unimaginable to an insurance company, but may charge insurers handsomely (in excess of 50% of premiums) for the opportunity to access this customer base. 7 This can result in a downward spiral in which the insurer reduces the value of the product (in terms of claims service and payments) to cover the costs of distribution.
1 2 3
5. Boston Consulting Group, What happens when every company is an insurer?, January 2024. 6. The words ‘insure’ and ‘insurance’ are often avoided as they have been found to discourage purchases. 7. https://www.battleface.com/en-gb/embedded-insurance-is-broken-here-is-how-to-fix-it/
Page 17
If there’s one brand that insurers might reasonably wish to be associated with, it is Tesla’s. Tesla owners love the brand with an almost cult-like intensity, awarding it a stratospheric net promoter score of 97. 8 Tesla’s insurance business has grown rapidly since its launch in 2020. In 2022, Tesla Insurance Services underwrote $242.9 million, up from $111.7 million in 2021. Reinsurers were able to participate in this business because Tesla Insurance Services is a managing general agent (MGA), writing business through fronting companies backed by numerous reinsurers. In 2022, Tesla also wrote $12.7 million for the account of its own insurance company. A cautionary tale from Texas
It seems, however, unlikely that Tesla’s policyholders would award it anything close to a 97 rating as an insurer. In November 2023, Reuters published an extensive investigation of the claims experience of Tesla policyholders, finding that “understaffing left some customers waiting weeks or months for compensation as they continued making payments on crashed cars.” 9 Service issues had generated scores of complaints on social media, Reuters reported. Insurance is sometimes described as a simple business that is hard to execute. Claims service can prove the Achilles heel of less experienced practitioners.
8. https://customergauge.com/benchmarks/blog/tesla-nps-score 9. “Tesla launched its own car insurance. These drivers say it’s a lemon.” Reuters Special Report, November 21, 2023
Page 18
Part 3: Multiplying positive touchpoints: Brand building strategies for insurers
Identifying high engagement customers
Insurance is rarely a high engagement purchase. Policyholders are advised to “read this policy carefully” when they receive their insurance documents, but in both the personal lines and small business markets, vanishingly few people will actually do this. But there are some markets and market niches where insurers may find more engaged customers. One is architects & engineers’ (A&E) professional liability insurance. Jim Schwartz, who heads the US A&E business of Beazley, a leading London-based insurer, notes that insurance is usually the third biggest item of expenditure for architects and engineers, after payroll and premises. Professional liability premiums for a small firm can be up to 5% of their revenues. This form of insurance is also closely bound up with an asset that is extremely precious to all professionals: reputation. “It’s not just money at stake when you have a claim,” says Schwartz. For an architect being sued by a client, it can matter a great deal which insurer is in their corner and how sensitive that insurer is to the architect’s reputational concerns. With this in mind, Beazley offers extensive advice to help reduce the risk of its clients being sued in the first place, multiplying touchpoints with its clients. One in every four policies will have a claim in a year. But Beazley often interacts with clients on a monthly basis with risk management advice, conducted through webinars, newsletters, and a legal contract review service that is highly valued by small firms.
Page 19
Forming a “club”
A club-like ethos pervaded many of the early insurance ventures. Shipping owners would congregate at Edward Lloyd’s coffee house in the City of London near the docks to exchange news and gossip, and – over time – share risks. In the 1890s, dry goods merchants in New York came together to create the first reciprocal exchanges – a type of mutual insurance organization – under similar circumstances. Personalization and connectivity
Club members today are often flattered by the notion that they are obtaining benefits unavailable to non-members. An aura of exclusivity is important. “We’re not for everyone, but we might be perfect for you,” says PURE, a reciprocal exchange that serves the high value homeowners’ market (see profile on page 28, “Join the club”).
“Consumers expect an experience delivered in a fashion as seamless and elegant as an Apple product, that understands them as well as Google, and is delivered as efficiently and cost-effectively as Amazon, all in a curated Netflix-style queue.” “
This alluring vision was articulated by Haden Kirkpatrick, vice president of innovation at State Farm, in a speech delivered at the Future of Insurance USA conference in 2023. It feels far removed from the current experience of most insurance buyers. Generative AI holds out the promise of a radically different customer experience: talking to a computer may become far more like talking to a “real person.” But even more value may derive from tapping the large volumes of underwriting data now available – particularly from cars and connected homes – to make personalized insurance products a reality. In 2021, a report produced by the Geneva Association 10 , an insurance industry think tank, described “the hyperconnection between people, machines and organizations” as “a prevalent megatrend that we see at almost all levels of society and around the world.” A 2020 study by the UK insurer Aviva found that the average U.K. home had over 10 internet-enabled devices, an increase of 26% in three years.
Sensors can be used to improve safety and avert accidents in two ways. Risks can be reduced or averted without any human intervention, as autonomous driving systems (ADAS) do in cars. Alternatively, sensors can trigger human intervention, such as a water leakage alert that activates an emergency repair service. “The industry is approaching a point of inflection,” wrote Jad Ariss, managing director of the Geneva Association, in the foreword to the report. “[The] availability of data should give greater insights and opportunities to influence behaviors and risk. This ability to offer actionable advice and develop risk prevention services will open new markets for insurers.” It should also offer attractive new brand-building opportunities. Risk management services are free from the conflicts of interest that bedevil indemnity-based insurance coverage. In fact, they help align the interests of both insurers and their policyholders more closely–providing firmer foundations for strong brands.
10. “From Risk Transfer to Risk Prevention How the Internet of Things is reshaping business models in insurance”, Geneva Association, May 2021
Page 20
Developing incident response services
Risk management services reduce risk preemptively. Incident response services can reduce the cost of risk retroactively. Both can build brand equity for the service provider, while multiplying positive touchpoints with customers. In certain situations, incident response services are by far the most important dimension of an insurance product. Kidnap & ransom insurers are not valued for their ability to pay ransoms; they are valued for the negotiation skills that come with the coverage and improve the chances of kidnap victims being released unharmed. “We won’t make a drama out of a crisis,” was a tagline used for many years by Commercial Union, a forerunner to today’s Aviva. It reflects the reassurance that insurers can provide when they are well- equipped with tried and tested incident response services.
Advertising accounts for a large part of the high costs of customer acquisition
This is particularly relevant today, when customer satisfaction with auto insurers is at a low ebb, impacted by steep price rises as insurers have sought to recoup soaring claims costs. “Auto insurance customers are starting to shop for auto insurance like they shop for gas,” noted J.D. Power in its 2023 Insurance Shopping Study. Retention rates hit a six year low of 87% in 2023, down from 90% in 2018. Given these attractions, insurers might be expected to go out of their way to promote their roadside assistance services to motorists. But, consistent with the broader insurance market picture laid out in this report, these brand-enhancing services are rarely promoted vigorously by insurance companies. The power of such positive touchpoints to lift a brand is underappreciated.
Page 21
Building brand value through roadside assistance
More than half of the drivers on America’s roads will typically require roadside assistance in the course of a year. Research undertaken by Agero has revealed that, if the roadside assistance is provided through the driver’s insurer, it can increase customer satisfaction, with the insurer’s net promoter score rising by six points on average.
This translates into a 35% increase in the driver’s likelihood of renewing with that insurer, significantly raising the lifetime value (LTV) of the insurer’s customer relationships. [Assuming industry average premiums,] this increased LTV would translate into an additional $276 per customer.
For auto insurers, the high cost of acquiring new customers makes this a particularly attractive benefit to offer. It costs between seven and nine times more for an auto insurer to win a new customer than to retain an existing one. Lowering customer churn therefore makes strong economic sense.
Page 22
Part 4. Insurance brand beacons
In 2017, cyber insurance was cheap and came with very few strings attached. Loss ratios had been low for several years, luring numerous insurers into the market. Businesses could easily obtain coverage without the most basic security precautions, such as two-factor authentication, timely backups, and endpoint detection and response software. Those who sought to impose even basic security standards were circumvented by the brokers in favor of less fussy insurers. Cyber insurers lay foundations for stronger brands
Shock to the System: US Cyber Loss Ratios, 2017 - 2020
80%
73%
70%
67%
60%
59%
50%
47%
45%
42%
40%
37%
35% 34%
35%
30%
32%
29%
20%
10%
0%
Standalone
Total
Packaged
Source: Aon, Fitch Ratings
Then came the fall of 2019. Ransomware demands, which had generally stayed below $20,000 for several years, suddenly began to climb steeply. Ransom demands for more than $1 million were no longer rare. Loss ratios for standalone cyber policies in 2019 were up by 13 percentage points over 2018, and they jumped 26 percentage points farther in 2020. And the attacks were heavily concentrated on the soft targets with poor cyber hygiene.
Since the beginning of 2020, cyber insurance rates in the US have more than doubled. The overall quality of insurers’ portfolios has also improved enormously due to the extensive risk management precautions that insurers have encouraged – and often required – customers to take. In the process, insurers have built stronger customer relationships based on frequent interactions.
Page 23
Earning customer loyalty while you are raising prices steeply is challenging and not all cyber insurers have managed it. But as the market has stabilized – premium rates only rose by an average of 1.6% in the third quarter of 2023 11 – cyber insurers have retained a level of customer engagement that other insurers envy. This tight web of interactions with customers enables cyber insurers to harbor brand ambitions that would be unimaginable to insurers in other lines of business. Cyber MGA Cowbell entered the UK market in December. “In terms of our long- term strategy in the UK,” said Simon Hughes, newly appointed UK general manager, “I want people to think of us like Uber, like Google – to become a verb.” 12 Cyber insurers such as Cowbell go to great lengths to build strong and mutually beneficial relationships with clients. For example, an app developed by CFC, one of the largest MGAs (which also now writes business through its own Lloyd’s syndicate), provides real-time personalized cyber threat alerts. And cyber insurers generally are in frequent contact with their insureds to help
them maintain appropriate defenses. Another large MGA, Coalition, touts what it calls its “active insurance” approach to helping its clients protect their data. Cyber risks also generate frequent claims compared to other lines of insurance. Attacks are relentless and, even with stringent precautions in place, some of them get through – usually due to human error. When they do, insurers can build strong and trusted brands by responding swiftly and providing a supportive incident response service. The result is that it is generally far more likely that small business insureds will know who their cyber insurer is (and not confuse their insurer with their broker) than for other lines of business. Cyber is still a small market, generating an estimated $12 billion in premium in 2022, and eye-watering price rises since 2019 may not have helped its popularity. But no other line has such growth potential. If the cyber market grows at the pace that many expect, it is very unlikely that the brands of the insurers leading the charge will be as low profile as most insurance brands are today.
11. CIAB Commercial Property/Casualty Market Index Q3/2023 12. ‘Cowbell UK looking to generate “new-new” business and grow market: Hughes.’ The Insurer, December 28, 2023
Page 24
In the third quarter of 2023, Hagerty, the largest insurer of collectible cars in the US, paid its policyholders 41 cents in claims for every dollar in premium it earned. In 2022, the loss ratio was a little higher at 45% (due to claims from Hurricane Ian and modest adverse reserve development), but still a world apart from the 79.8% recorded by the auto insurance market as a whole in that year. 13 Yet clearly Hagerty’s policyholders did not hold the company’s parsimony against it. Year after year, Hagerty has achieved net promoter score (NPS) figures that other auto insurers envy. In 2022, its NPS was 83 (see chart below). Hagerty: a powerful auto insurance brand with multiple touchpoints
Top Auto Insurers by Net Promoter Score
Hagerty, 2022** (83)
80
79
73
0 10 20 30 40 50 60 70
69
61
Industry average* (44)
55
50
49
47
45
44
**Self-Reported *According to CX software company, NICE.
Source: https://clearsurance.com/blog/nps-insurance-companies. Figures based on more than 125,000 insurance carrier reviews conducted since 2017.
Nor has Hagerty’s underwriting profitability come at the expense of growth. The company recorded a compound annual growth rate (CAGR) of 13.4% between 2010 and 2022, while the country’s top 100 auto insurers grew at a mere 4.3% CAGR over the same period. In 2022, Hagerty underwrote $777 million in premium, making it the second largest MGA not owned by an insurance company in the US. Customer retention has held steady at around 90% over the past decade: in 2022, it was 88%.
13. US private auto insurers report historically bad underwriting results in 2022, S&P Global Market Intelligence, May 8, 2023
Page 25
Unlike many insurers, Hagerty is not shy about using the word “brand” and attributing much of its success to the strength of its brand, assiduously cultivated over time. “Hagerty’s trusted brand status positions us to monetize our members’ passion for cars,” the company noted in an investor presentation last year. 14 The Hagerty brand encourages policyholders to see themselves first and foremost as members of a club – or what Hagerty calls a “membership, marketplace and media ecosystem for car lovers.” This generates “exceptional brand loyalty with multiple points of monetization.” 15 The Hagerty brand begins with an engaged audience – or, rather, one that is open to engagement. The company calculates that “auto enthusiasts” spend, on average, more than $10,000 a year on their passion. Hagerty offers more than an insurance policy and access to specialist restoration services: it also aims to provide psychological benefits such as “connection and community,” fun, and status. By contrast, the normal auto insurance buyer, characterized by
Hagerty as “the daily driver,” has an exclusive focus on mobility.
Hagerty’s insurance customers are able to enroll in Hagerty’s Drivers’ Club, which currently has almost 1 million members. This multiplies
customer touchpoints to an enormous degree. A major drive to expand membership began in 2019, at which time the company estimated that Drivers Club members could have up to 150 different touchpoints with Hagerty in the course of a year. 16 These included daily updates on the car market, newsletters, the club’s bimonthly magazine, and events. Hagerty is targeting club membership of more than five million by 2025. With a target addressable market in the US of what Hagerty estimates to be 67 million auto enthusiasts and current market penetration of 4.1%, it is clear that the Hagerty brand has room to grow.
14. Hagerty Inc._IP_2023-11-29_English.pdf 15. Ibid 16. https://www.insurancebusinessmag.com/us/news/auto-motor/hagerty-goes-all-in-on-membership-model-for-car-fanatics-160609.aspx
Page 26
Most insurers have a structural trust problem. As discussed in Part 1 of this report, their interests are diametrically opposed to those of their policyholders – and their policyholders know it. If my insurer is a stock company, the more the insurer pays me in claims, the worse its shareholders will do. And vice versa. The earliest insurers – including the shipowners who gathered at Edward Lloyd’s coffee house in the City of London in the 1680s – avoided this problem by organizing themselves as mutuals. In 2019, a study comparing US mutuals with stock insurers found that, over the previous five years, the mutuals had indeed paid out more of their earned premiums in claims than the stock companies. They also paid five times as much money to policyholders in dividends, “reinforcing the fact that mutual policyholders are also the company’s owners.” 17 Mutualism therefore offers potentially strong foundations for insurance brands. Not all of them take advantage of it, but one company, PURE Insurance, has built an extremely strong brand with high net worth homeowners on this premise. PURE (its name is an abbreviation for Privilege Underwriters Reciprocal Exchange) was established in 2006 as a reciprocal exchange, a type of mutual with origins dating back to the 1890s. Reciprocal exchanges comprise two parts: an unincorporated association of policyholders, PURE: Welcome to the club
known as subscribers, and an Attorney in Fact, which manages the exchange for a fee. “The technical term for our model is a reciprocal exchange [but] that’s not where you want to be begin [the brand story]” says Katie Krum, chief marketing officer at PURE 18 . She prefers to invoke the spirit of Ben Franklin, a pioneer and advocate for mutual insurance in the United States. According to a PURE blog, Franklin’s notion “centered on the idea of community: that neighbors—people who share similar values with one another—could pool their risks and take care of each other.” Exploiting the brand benefits of its structure, PURE has stressed from the outset its membership model. “We like to say that we insure the most responsible families of the finest built homes,” says Krum. The idea of a club (PURE’s tagline is “Join the club”) is appealing for its connotations of exclusivity – not everyone is admitted – as well as its sense of community. The strength of PURE’s brand is reflected in a renewal rate of 94% in 2022 and a net promoter score of 59. It was also reflected in the $3.1 billion that Tokio Marine agreed in 2019 to pay to acquire the Attorney in Fact that manages the exchange – a price to earnings multiple of 33 times the company’s expected post tax profits in 2020.
17. The Mutual Factor: How Performance, Structure, and Focus Set Mutual Insurance Companies Apart, 2019, a report produced by the National Association of Mutual Insurance Companies and Aon. 18. “Marketing is a team sport with Katie Krum, SVP and CMO at PURE Insurance”. Marketing Today podcast with Alan Hart, June 2023
Page 27
Part 5. The future role of brands in insurance
“Prevention is better than cure” is a maxim that resonates well beyond healthcare. In insurance, it is supported by at least three arguments:
The financial loss will very rarely be fully covered by insurance. The policyholder will usually need to bear a deductible, or self insured retention, and if the loss is severe, it may exceed the limit of liability under the policy. It will also normally result in higher insurance premiums going forward. Making an insurance claim is, at best, an administrative hassle and at worse a massively time- consuming exercise for an individual and – still more in the event of a complex commercial claim – for a firm. The circumstances that generate an insurance claim – particularly a third party liability claim – may generate serious reputational costs that are not covered by insurance.
1
2 3
For all of these reasons, insurance propositions that include well-designed risk management services are likely to support stronger brands than products that rely exclusively on the insurer cutting a check in the event of a loss. And when a loss occurs, the insurer can often incur more gratitude for well-designed incident response services that reduce stress and reputational risk. Above all, from a branding perspective, these services will multiply positive touchpoints to ensure that insurers are no longer “out of sight, out of mind.”
Page 28
About Lexicon Associates Lexicon Associates is a research and consulting firm serving the insurance and wealth management industries. Our research focuses on trends affecting talent, technology and capital allocation within these markets. www.lexiconassociates.com
Page 29
© 2024 Lexicon Associates, LLC This research publication is copyrighted with all rights reserved. Lexicon Associates does not make any warranties, express or implied, in this publication. In no event shall Lexicon Associates be liable for damages of any kind arising out of the use of this publication or the information contained within it.
Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30Made with FlippingBook - Online magazine maker