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Informed risk-taking is what insurance underwriting is all about. It is also how consumers and business owners navigate every financial decision every day – including whether to stick with their insurance carrier. Insurers often mistake in-force retention for “customer loyalty,” when the reality may simply be that, despite actively shopping everyday for better value, a customer still chooses that insurer as best meeting his or her needs. You cannot stop customers from shopping; you can only benefit from the fact that they want to learn more about where their money goes.

Behavioral economics have shown repeatedly that customers shop, give their time and personal data, and then cease shopping for a period while covered under a policy period. People value the potential loss of something higher than they evaluate the potential cost to acquire it, and risk transfer is the way they move their wealth forward with less fear. However, this process also applies to cash. So the cost of insurance is top of mind to customers, and they are now intensively seeking to lower their insurance expenses, mostly via direct channel distribution over the Internet and via telephonic access to agents.

Information drives decision making (data and analytics combined with underwriting judgment) in a process where accurate risk assessment, coupled with knowledge of expenses, lets an insurer add a profit factor to get to a market price.  If the insurer’s cost structure and risk-taking appetite meet successfully with customers’ needs, then it should grow profitably. If not, then it either grows at a loss, or only writes those risks in niches where it find itself competitive (either by choice or by happenstance).  The need to drive down costs is the primary reason to adopt Internet and mobile computing applications for distribution – you can follow the consumer’s own expense minded shopping behavior as they are now accessing multiple on-line resources and then either buying on-line or contacting an agent (often with a mobile device).

Insurance customers see thousands of their dollars disappear to protect them from financial ruin – a “lesser of two evils” trade-off. No wonder they want to avoid spending more time and money than necessary. The traditional intermediated marketplace for insurance keeps customers from caring which “big box” carrier provides their coverage – whether for auto, home, business, or life – as long as the institution can pay any claims. In survey after survey, few customers even know who actually insures them. They only know that they are insured because they pay premiums.

Given customers’ agnosticism about who underwrites their risk, and given the state of communications and transaction technology, insurers need to be prepared for changes in how insurance is distributed. We can expect the emergence of intermediaries who can shop for a customer on an hourly, daily, weekly, monthly basis for the cost of the customer opting in for a free service (data and receiving cost saving promotions is the only fee).  That intermediary will then auction the right to provide coverage into a competitive landscape of carriers looking for customers versus customers accepting off-the-shelf products.  With an active market and modern bill pay options, the new term of duration may be significantly less than a six month auto policy and now underwriters can more accurately price usage based insurance (UBI) in real time.

Carriers have not proven themselves yet worthy of real loyalty – where their value to a consumer is not for sale for 15 percent less in premium.  Perhaps they never will be able to do that if this is truly a commoditized transaction simply waiting for progress to catch up.  But if carriers aggressively push the best risk assessment techniques to their current customers and prospects, then they can win genuine customer loyalty by demonstrating that they are attuned to their customer’s individuated risk.