LexisNexis Risk Solutions UK boss says use of policy history information is ‘really rudimentary’

The use of policy history information by insurers today is “really rudimentary”, however it should be used to increase the sophistication of both ratings and underwriting, says Jeffrey Skelton, managing director for insurance, UK and Ireland at global data and analytics firm LexisNexis Risk Solutions.

He explains: “Right now, insurance companies are using [policy information] data to verify any discounts they want to provide for proof of current coverage. The real power lies in the richness of the data. How long have you had insurance? What type of coverage have you had? Have you had lapses in the past? There’s all that information about your policy, changes over time and that information is a really powerful analytics data set.”

Skelton adds that US insurers have been using policy history data for more than a decade to “increase the level of sophistication for rating and underwriting, as well as for compliance purposes [and] policy management”, although this type of extensive data usage still hasn’t filtered through fully to the UK yet.

A further benefit of tapping into policy history information, continues Skelton, is that it can improve the claims process, especially as claims themselves are becoming increasingly more complex.

“It really extends through the whole lifecycle of the business. Even the claims,” he says. “There’s all sorts of benefits to just having a comprehensive understanding of the policy that’s in force for the parties involved in a claim.”

In terms of broader claims trends, Skelton notes that this ability to use data to speed up the claims decision-making process and resulting pay outs is enabled by technology, such as apps or websites that allow policyholders to take pictures on their smartphone of road traffic accidents, for example, to start the claims process. Also, motor claims themselves are “getting more complex and more expensive because of all the features that the cars have”.

But, Skelton adds that the number of suppliers and providers within the claims value chain can “invite opportunities for fraud”.

He says: “There’s a lot of suppliers in the claims space in terms of who’s actually doing the work, outsourcing of FNOL, outsourcing of garaging and the shops and all the rest of it, and the management of the data across all those platforms and systems and getting everybody working properly invites opportunities for fraud.”

Dual pricing opportunities

For Skelton, the dual pricing discussion – where the same product or service is sold at different prices for different market demographics, for example awarding new customers more competitive rates than existing customers – provides ample opportunities for insurers to both improve their customer service as a differentiator, rather than rely solely on pricing, as well as tackle more efficient segmentation of pricing, perhaps linked to usage.

As the fairness and transparency of dual pricing is debated by the FCA and industry alike, Skelton explains that levelling the pricing playing field will enable insurers to concentrate on upping their customer service skills in order to attract and retain customers.

“It can’t always be about price,” he says. “The aggregators obviously created a marketplace for price-driven purchases and that’s resulted in the dual pricing dilemma.

“The carriers can’t continue to give away the product, so something is going to have to change and it seems like telling the insurance companies just to lose money is probably not the right answer, not if you want insurance companies around. So, they’re going to have to get better at pricing. And once you get better at the pricing, the pricing isn’t going to go up for different segments, so now you’re going to be competing on customer experience, because people want to feel like they’re getting something in exchange; you’ve got to make it easy for them and less painful to go through that process.”

As well as a focus on the customer experience, Skelton adds “there’s [a] great opportunity for the industry to actually use this dialogue as an opportunity to improve not only customer service but pricing segmentation in the market, introduce new products, more attention on products that revolve around getting better rates if you’re a safe driver.

“I think there’s a great opportunity for the entire market to become even more sophisticated about pricing as it relates to dual pricing, both on renewal as well as in new business.”

In addition, Skelton believes that improving the customer experience can also bolster policyholders’ general understanding of insurance as a product and the industry’s broader reputation.

He says: “It’s hard to be a consumer product when your customers don’t understand what you’re selling and they don’t like you. It’s a very hard place to be. The industry hasn’t cracked the code yet on being a truly consumer driven product.

“Consumers need to understand what they’re buying and you as an insurance broker, you have an obligation to help the consumer understand what they need, and throwing the cheapest price at them is not the way to be a counsellor to the consumer.”

Industry complacency

Skelton further outlines one of the greatest risks to the insurance sector: complacency.

He explains: “Within the insurance industry, it’s easy to be complacent because [insurers are] risk adverse to begin with; change does not come naturally for it.

“It’s heavily regulated, so in many ways you’re not able to move as fast as you may want to because you have to be conscious of the regulatory framework. The regulatory framework also is a leveller, so it prevents anybody from really going outside the box because you have to play within a defined set of rules. [The insurance industry is] also an incestuous group where people move around from company to company, so the influx of new, fresh ideas is not necessarily as prevalent.

“There’s a lot of different dynamics in this industry that don’t exist in other industries, where disruptors can overturn the apple cart very quickly; it’s a little bit easier to be complacent.”

With this in mind, Skelton believes insurers should take a firmer stance when it comes to covering homes built on known flood plains.

“You’re encouraging bad behaviour when you’re insuring properties that are in flood zones or are in zones that you know are going to flood and yet you continue to pay the claims versus saying no, you shouldn’t live in places that will have floods. The cost to deal with them is exorbitant,” he adds.