Hyper-Personalization: Taking Insurance in the Benelux to the Next Level

Since the very beginning of insurance, back in Babylonia, China, and India over 4,000 years ago, we have built an industry on a single tenet: finding a way to transfer or distribute risk. Over time, it has become increasingly possible to ensure that offers are personalized and tailored to the customer’s individual profile. However, insurance policies today are still frequently based on generic and hypothetical profiles that rarely resemble the customers who actually paying the premiums.

It’s now time for insurers to fully utilize the potential of new technology, embracing hyper-personalization and the benefits that it offers for customers and insurers. To realize these benefits, insurers will need to undertake a data-driven transformation of their organization, empowered by a top-down vision that removes silos, encourages transversal collaboration, and reimagines every stage of the value chain.

Major Drivers for Hyper-Personalization

While insurance is often seen as a traditional industry, the long-established relationships between customers and insurers, or between customers, brokers, and insurers, are being swept away by drivers that are pushing us towards hyper-personalization. These drivers include new economic models developed from the availability of increasing amounts of data from new and different sources, customers raising different demands and expectations, and asset types changing in unexpected ways.

Economic Models

The majority of retail insurance policies are currently paid once a calendar period, with the details only checked in between renewals at the initiative of the policy holder. Hyper-personalization turns this model upside down by empowering the customer to transform their passive insurance policy to an active use-based policy that varies from moment to moment depending on the policy holder’s behavior and decisions. The automation of the underwriting and pricing process will need to use available data and machine learning to be effortless.

To give an example, imagine choosing a new private health insurance for your family. Instead of a fixed annual payment, the premium could vary depending on the risk profile associated with a number of factors, including if you exercise that day or spend the time sitting in front of a computer screen instead, your location, the activity performed, or the time of the day.

The data needed for some of these calculations are already available, especially in the health sector thanks to the number of wearables in the market or other connected devices. More data sources are constantly appearing, expanding the possibilities of hyper-personalization and enabling the expansion of an activity-based business model for insurance. The creation of data ecosystems will lay the foundation for sharing data across multiple verticals.

Customer-Centric Demands

Hyper-personalization empowers insurers to move from segmenting customers into large, homogeneous bands that have only a passing resemblance to the individual customers, into personal groups that are fully focused on every aspect of the customer. This has a direct impact on the customer lifecycle, customer experience, and customer lifetime value.

Firstly, hyper-personalization gives you insights into the customer’s lifecycle, helping you upsell new and different insurance products, with the ultimate aim of turning the customer into a brand advocate.

Secondly, the customer experience can be significantly enhanced thanks to the one-to-one approach enabled by hyper-personalization. However, it is worth noting that if something goes wrong, the negative impact will be greater than it would have been if the insurer had been using a one-to-many policy.

Lastly, the customer lifetime value remains important. Hyper-personalization can assist the optimization of lifetime value by opening up new insurance opportunities from a source (insurer and/or broker) that the customer has learned to trust. In the Benelux, as in many European countries, insurers also need to consider the customer lifetime value of the broker, so that all stakeholders in the total value chain remain satisfied with this transformation.

Changing Asset Types

The nature of insurable assets is shifting. Insurers are increasingly providing coverage for shared physical assets, from co-housing and shared transport options to physical robots used for surgery or manufacturing. All of this challenges current definitions of direct and indirect responsibility. The aggregation of risk types into one policy combined with the disaggregation of the asset into micro-coverage will be part of this customization.

It is not sufficient to recognize the drivers behind hyper-personalization, insurers also need to be able to look beyond the data to find the right ways to profile their customers and contextualize these insights. As many transactions in the Benelux go via brokers or agents, this will need to be a collaborative effort that benefits all parties.

Challenges on Our Journey to Hyper-Personalization

1. Internal Organizational Challenges

Traditionally, insurance companies are structured along their product lines, with clear silos, that ‘protect’ data from transversal movement through the organization and have their own processes. These silos make it difficult for insurers to handle the digital lifecycle and many types of new policies.

Implementing a hyper-personalized strategy requires a top-down decision to break down these silos and enable transversal communication. The result should be one consistent and integrated flow of information about each customer and their multiple interactions with the insurer. However, it can easily take a decade to transform from an organization full of product line silos to a true transversal organization.

2. Technology

Data gathering frequently means nothing more than long questionnaires that need to be repeated every time a policy is started, renewed, or updated. With hyper-personalization, the data gathering stage becomes more dynamic and proactive as it collects data from a larger variety of sources to enhance the customer experience. The moment of truth comes when a customer makes a change or a claim, and the insurer is able to bring together actionable data collected by different product line silos throughout the customer’s lifecycle.

3. Business Models

The traditional insurance model in the Benelux, combining insurers, brokers, and customers, is transforming into ecosystem-based insurance thanks to the increasing amount of available information that is used to empower hyper-personalization. This has led to the reimagination of the entire insurance value chain.

Some new applications include embedded insurance, where insurance is embedded in an asset at the moment of purchase or start of the rental period, or non-financial services, where additional services are bundled with the insurance policy, such as receiving adverse weather forecasts when the customer buys fire insurance in a specific area.

4. Relationships with Brokers

While it’s clear that there will be a clear shift towards ecosystem-based insurance, it is also clear that the investment required for this type of platform is beyond the scope of most brokers in Benelux as they are relatively small in comparison to brokers across Europe. Along with the aging of the independent broker community, the consolidation wave will accelerate these investments.

Insurers, on the other hand, are well placed to step up and create platforms that give brokers the tools they need to ensure better customer interactions and improve customer lifetime value. However, this will have a clear impact on their relationships with their brokers. Before collaborating, agreements will need to be made on how to monetize the data on the platform, as well as how the benefits will be shared between the brokers and insurers.

5. Changes in Insurance Policies

In addition to the changes needed to manage insurance policies, the assets covered by the policies themselves are also changing. As we have seen, this involves the types of assets as well as their ownership and the shift in responsibility for them.

Furthermore, external factors should be considered. What will be the impact of people living longer or understanding their potential health risks after doing a DNA test? Will climate change or fears of future pandemics influence today’s insurance decisions or risks?

Insurers, supported by data from sources that didn’t exist a decade or more ago, will need to find a way to incorporate and overcome these challenges.

Getting Up Close and Personal

What does the future hold for customers and their interactions with the insurance industry? While hyper-personalization will ensure lower premiums based on individualized risk profiles, customers are unlikely to accept having to answer hundreds of questions. Instead, insurers will use existing data sources along with input from wearables and other Internet of Things (IoT) devices to develop contextualized insights that they will constantly update.

Technology will play a role in this transformation, acting as an enabler, not the solution. Successful insurers will find a way to fully integrate their technology into their business to assist them in achieving these goals.

One thing is clear: while there won’t be any shortcuts to achieving this level of hyper-personalization, the benefits will outweigh the effort. Learn more about how technology can play an important role in staying relevant and seizing business opportunities in the future.