Carriers want to grow their top line. And in today’s digital revolution, that’s becoming easier and faster to accomplish. Direct marketing and aggregator referrals are opening carrier doors into new customer segments, new geographies and new product markets – fast. But is it too fast? What kinds of customers are they getting? Are their financial results keeping up with growth? Changing tech is changing people’s behavior which changes the rules for carriers in unpredictable ways.
Take for example how many carriers opened direct online channels and increased their aggregator lead buys only to find that the online market has far more fraud and misrepresentation than traditional channels, so much so that most entrants quickly exited. This is in part because in moving to a fully automated channel, the lost value that a decent agent provides. Agents are ‘organic’ AI that’s involved in the transaction. They can’t explain what they’re doing but some of it is just common sense when things don’t look right, some of it is social because customers share more and lie less to a live person than they do to a screen.
Traditionally in agency channels, there were human ‘eyes’ on each risk. Customers were interviewed, their suitability for a carrier program is evaluated, and probing questions discourage misrepresentation and worse. The business is costly to originate – but is usually ‘sticky’ and offers stable financial results. But in digital channels, third party & customer data replace that personal interaction while data analytics often replaces judgement. Digital business turns over faster, too, meaning carriers can no longer afford poor financial performance in new business. Carriers must find a path to make money from the first day.
This transformative business model is quickly moving into agency channels now, too. In the same way that it improves operational performance in online business, it reduces transaction costs, increases underwriting consistency and speeds the application-to-issue process for agents, too. Yet carriers marketing on the basis of speed are doubling down on the urgency of immediate profitability – because agency business is turning over faster now, too.
While opening that digital doorway facilitates faster growth across the board, it also opens a window for opportunists and miscreants to commit a wide assortment of underwriting and claims frauds if proper controls are not implemented during the application process. Worse yet, ‘word gets around’ – and fraud can quickly snowball as these weaknesses become broadly understood. And this can be the difference between success and failure for digital transformation initiatives.
The good news is it isn’t a long reach for carriers to leverage that powerful new digital infrastructure and re-imagine and re-capture the benefits of human engagement in a new and digital way. It requires carriers to focus less on interpreting data to make risk decisions, and more on monitoring how customers behave and whether/how they respond when carriers ask about what they’re doing.
For carriers, they need to ‘see’ what customers are doing in their digital infrastructure:
Are they ‘wargaming’ applications to find weaknesses or to get undeserved rate breaks?
Have they cheated on apps or claims before?
Do they have a history of suspicious behavior or unusual claims?
Are they preparing to submit a fraudulent claim?
Are they associated with known or suspected bad actors?
Do they pay their bills?
Armed with that information, carriers can engage in a digital ‘conversation’ with customers. They can ask them about what they see – during apps, endorsements, claims and other customer interactions – and ask them to explain justify what they’re doing. And when they do this, carriers will discover that something interesting happens. Instead of attracting bad actors, they are signaling that their intentions are ‘seen’ digitally. The bad actor typically responds by abandoning the application process in search of easier prey, while the good risk ‘gets it’ – that you’re protecting everyone by insisting on integrity – and will respond positively to such inquiries. And as most people are honest from the start, they won’t even notice you were watching. In the end, carriers will have the pick of the crop of customers in any channel, in any geography, with any product.
And all they had to do was watch, act and resolve – digitally. Piece of cake.
The customer is changing and that’s driving digital transformation agenda at carriers. The industry has made a big bet that automated transacting and more accessible ‘data’ will deliver the same results at a lower cost than agents have traditionally done.
But things aren’t working out as planned. It is hard to find carries selling direct online that are profitable because there is just so much more fraud and policy churning. It seems that the shift from agent has many hidden costs. Perhaps because a competent agent helped identify problems, find things that didn’t ‘look right’ and served as a social deterrent to dishonesty – it’s easy to lie to a screen a person? Not so much.
Regardless of how agents do it (and I doubt they can articulate their role) to successfully make the digital transformation carriers need to consider several unaddressed problems:
1. Faster and cheaper transacting also makes it much easier for customers to shop. The result is policy churning. It used to be that carriers would take fraud and other ‘mistake’ losses in their first year and earn their profits in the out year business. That’s not going to fly in a world where customers can easily price compare.
2. The faith that the right ‘data’ will allow carriers to screen out the dishonest is unjustified. The number of people committing any given ‘cheat’ is usually far smaller than the error rates in the databases used to identify them. The result: many if not most fraud ‘hits; from data turn out to be false positives.
3. Carriers need to take a behavioral approach to customer selection. It’s really simple, carriers want the honest, conscientious customers. You can only discover who has those attributes by interacting with them. The data by itself can’t tell you. So you use the data and other tools to identify potential issues, then you use those issues to interact with the customer and watch what they do. Those up to no good will generally abandon, those who’ve made a mistake or are the victim of a false positive will appreciate the help so that they can get back on the road to coverage.
4. Carriers need to ask customers to help them identify honesty and conscientiousness. One of our carrier customers is requiring all customers use our idMobile AI enhanced image capture app to take structured images of the vehicles seeking coverage. By doing so they cause most customers who intend to cheat or who are simply disorganized or uncooperative to go elsewhere. The ones that willingly go through the process are the honest, conscientious ones. The profitable ones.