I really enjoy reading the bestselling espionage novels by Alex Gerlis so his experience renewing his insurance caught my eye recently.

'He and his wife bought an electric car last year, they shopped around for insurance before opting for a policy from John Lewis. It wasn’t the cheapest on offer but they trusted the brand and felt it was “the right kind of company to go with to insure an electric car”.

The policy was due for renewal in August but in July they received a letter saying that John Lewis would not be offering cover and that he would need to go elsewhere.

Gerlis – a former BBC journalist- telephoned and was told that John Lewis was no longer insuring electric cars. He says the person on the phone said they could not understand why he was making a fuss about the policy change.'

Zoe Wood in The Guardian September 30th, 2023

Oh dear- not the best response to satisfy a customer. Product and company-centric rather than customer-centric.

The Institute of Customer Service benchmarks UK customer satisfaction by sector every six months with Insurance showing one of the higher declines and ranking lower than banks and building societies.

You can download the full report here.

This is almost certainly caused in part by rising premiums and lengthening claims settlement times. Driven by price comparison websites, lack of pricing loyalty to existing customers, and fierce competition by price rather than service customers often do not understand the complexities of insuring cars, homes, and other lines of business. They will hardly sympathise with an insurer's adverse combined ratio and its need to raise prices and withdraw capacity in a hard market. They are more likely to read about Direct Line Group having to pay back £30 million to customers for previous overcharging and wonder if the same practices have impacted their insurer.

This week we have seen stories of battery-electric vehicle (BEV) drivers being unable to renew policies on one hand and facing even steeper premium increases than petrol and diesel vehicles.

'Driving an electric car should be a win-win, saving money and the planet. So David* was shocked when the insurance on his Tesla Model Y came up for renewal, and Aviva refused to cover him again, while several other brands turned him away.

When David did secure a new deal, the annual cost rocketed from £1,200 to more than £5,000.'

Reported in The Guardian 30th September 2023

Shouldn't David be able to expect underwriters to have actuarial and other data to price risk better and not have to apply these decisions so abruptly? Insurance was an early industry to leverage data to underwrite trade and commerce across the uncertainties of global mercantilism. BUT:_

'The insurance industry is notoriously behind the tech curve, which translates into bad data practices that hamper operations and customer experiences. Inaccurate, outdated, or siloed data negatively impacts risk assessment, underwriting, and claims processing. Fragmented
systems lead to poor data entry and errors, which in turn delay processes and increase costs. The industry must prioritise data integration, quality assurance, and cybersecurity measures to enhance decision-making and streamline operations. Embracing advanced analytics, AI and data overlay can revolutionise the industry’s poor data practices.'

Tom Chamberlain VP VCustomer and Consulting at hyperexponential - See 'Revolutionising Pricing Using AI and Data Overlay' in further reading below

Is it bad data practices at John Lewis @ Covea that lead to this below?

'John Lewis Financial Services has temporarily stopped offering insurance to drivers of electric vehicles – a decision made by its underwriter Covéa. 

In a statement sent to Insurance Times today (2 October 2023), the department store’s lending arm said it had halted offering new policies as well as renewals for EVs.

It said the move came as Covéa raised fears over the cost of repairing the vehicles.

Back in April 2021, Covéa entered into a five-year motor insurance partnership with the department store – the deal sees car insurance marketed by John Lewis, with policy administration, underwriting, pricing and claims service provided by Covéa.

A John Lewis Financial Services spokesperson said: “Our underwriter has temporarily paused offering new policies and renewals on fully electric vehicles whilst they analyse the risks and costs entailed.'

The Insurance Times October 2nd 2023

As Rory Yates, CSO at EIS was fascinated by the John Lewis announcement saying; 

"JL seems like doing the right thing protecting its overall book. But once again the adaptive insurer might have acted differently. They have an EV customer, but their household might have a combustion vehicle as well, so throwing them out the door as a "policy risk" might not be a good idea. Why can't they simply put that customer in an EV insurance product, separately priced, that offers a broader set of variables putting them more in control of the price they can offer? Or consider other ways of offsetting  and adapting the products, valuing the customer not focussing just on the policy needs."

It is not just the UK and insurers seeing complaints rising substantially. Trouble has been brewing for some time. After rising steadily for two decades, the American Customer Satisfaction Index (acsi), a barometer of contentment, began declining in 2018. Although it has edged up from its pandemic nadir, it has shed all of its gains since 2006.

“In a well-functioning market, it should be profitable to satisfy your customers,” argues Claes Fornell, architect of the acsi. What, then, has gone wrong?

Besides dropped calls, the most common irritation in customer-service interactions is being stuck with a chatbot, according to research from Genesys, a maker of contact-centre software. The chase for efficiency and cost-saving 

Tony Bates, the boss of Genesys, also notes that many customer-service operations have become hamstrung by clunky old systems and messy data. That may help explain why younger upstarts, unencumbered by legacy technology, are often able to provide much slicker service, raising expectations for everybody else.

This appears to me to be a critical tipping point in which insurers should not just look at efficiency, cost reduction, and turning backs on loyal customers. And certainly not a time to hide behind clunky systems and messy data.

Rory Yates again on the Customer Experience/Efficiency Paradox.

🥊 Insurance, like most industries, often sees a clash between the desire to be more efficient and the desire to provide a great experience for customers and employees. But there doesn't have to be a tradeoff.

🧠 Rethinking how data is updated, for instance, can create great efficiencies for the insurer while providing a much better experience. Why make customers and employees update three policies with a single insurer when one update could flow into all three?

🤔 The challenges to resolving the efficiency/experience paradox used to be technological but now boils down to having the right mindset.

Challenge yourself and read the full article here published in 'Insurance Thought Leadership. 

A beacon in the dark? Elon Musk has disrupted many industries- ones that most entrepreneurs stayed shy of like aerospace and auto manufacturing. Insurance carriers feature as one of a number of industries becoming more innefficient. Looks like CEOs should read 'The Musk Disruption Doctrine' by Gregory Larkin.

In recent years many companies have been busily deploying automation software in their contact centres in an attempt to do away with human interactions. The results have sometimes been disappointing both for customers and for companies, says Darci Darnell of Bain, a consultancy. 

Could Chatgpt-like “generative” artificial intelligence (ai) make things less awful? These tools offer more humanlike interactions than earlier generations of customer-service bots. Once trained on past call transcripts and other company data, they also make fewer mistakes than the off-the-shelf version of Chatgpt, says Ms Darnell. 

Many insurers are experimenting with GenerativeAI and Large Language Models (LLM). One early use case could be to tackle this experience/efficiency paradox. Not to substitute for expensive and skilled claims handlers, underwriters, counter-fraud investigators, engineers and inspectors. Rather, augment them with real-time insights.

'A working paper from earlier this year, by Erik Brynjolfsson of Stanford University and co-authors, studied the effect of equipping contact-centre agents with an ai-based conversation assistant that offered real-time suggestions for responses. The agents remained in control of the conversation, and were able to accept or ignore the ai’s suggestions as they saw fit. The authors found that the tool increased worker productivity by 14%, measured by the number of chats agents were able to successfully resolve per hour. It also disproportionately improved the productivity of less experienced agents, meaning a more consistent service for customers.'

The Economist Sep 28th 2023

The evidence hints at the potential of GenAI and LLMs to augment staff leading to both better experiences for customers and also better jobs for the insurer's staff. Solving the experience/efficiency paradox.

  • For underwriters
  • For claims handlers
  • For loss adjusters
  • For specialists across the supply chain.

The supply chain should not be forgotten. Many of the challenges leading John Lewis to withdraw BEV cover stemmed from the shock of higher-than-expected repair costs, lead-times, and replacement parts. The actual underwriting and claims management was from Covea of course but the fact remains that the brand associated with that insurance was John Lewis and not Covea.

A lesson there for those companies with world-class brand reputations that embed insurance in their sales and outsource the underwriting and claims to an insurer without strict SLAs and management control. eFNOL visibility is as important for them to maintain brand reputation as it is for the insurer.

'Analysts say claims costs are 25% higher for electric cars, and that they also take about 14% longer to repair than a diesel or petrol equivalent. The cost and availability of parts is a factor, explains Paul Baxter, the chief executive of the new brand the Green Insurer. There is also concern around the batteries, and that damage, especially to the underside, can be expensive to fix.

“There’s also an issue around technology and skills in the repair networks,” Baxter says. Indeed, the Institute of the Motor Industry has predicted a shortage of about 16,000 electric vehicle-qualified mechanics come 2032. “They’ve not got to the stage they are with traditional cars in terms of expertise. If you dent a door, that’s straightforward, but if something has damaged the battery, in particular, they haven’t caught up with that.'

The data available from the supply chains evolving to service and repair BEVs must be combined with Underwriting and Claims Management. Data available from the auto OEMs is of course key and one reason why Tesla seeks to use all its data from the billions of miles driven globally by Tesla drivers in product design, repair networks, and its own insurance offering.

The evolution of electric vehicles and autonomous driving does challenge insurers but they need to find the answers. Create the ecosystems of all involved in manufacturing, servicing, repairing, leasing, ride-sharing, and delivering Mobility as a Service. 

And, of course, the parallel technology ecosystems to leverage the data in real-time and apply AI, RPA, Machine Learning, and LLMs to solve the experience/efficiency paradox. Too many legacy and cumbersome core systems rely on out-of-date batch processing that adversely impacts decisioning software.

Just a word of warning.

There are great potential benefits and pitfalls offered by GenerativeAI and LLMs. Equally, other AI tools are slowly helping augment humans. But you 'cannot run before you can walk'. 

Too many MGAs, brokers, and carriers are still hamstrung by data silos, and potential insights hidden in Excel, unstructured data, and multiple data stacks   

Like all transformation goals and projects; this is not for the faint-hearted. You need partners who can guide you through the waves and troughs of elation and despair. Learn from mistakes (and the ones they learned from) during the experimental stage and experiment in secure and private environments.

Hard work, sweat, and tears but aren't they the hallmarks of all transformation? 

"We see [the use case] for generative AI around personal space and personal productivity. We think we can bring it into automated end-to-end processes....To make it a reality, it’s really hard work. Generative AI is fragile, hallucinatory, and automation needs reliability and predictability.

AI tools are very much stuck in that personal-productivity, advisory pattern of engagement. But their true value will be unlocked when we can plug them into our systems and get them to actually do work for us, without having to go through us as intermediaries."

Ed Challis, UiPath's Senior Director of Engineering in Diginomica Oct 2nd 2023 

Finally, whilst GenerativeAI offers such transformational potential, the benefits of other tools like extractive AI must not be ignored as explained in the further reading below. 

Further Reading

Revolutionising Pricing Using AI and Data Overlay

Where to use Extractive AI vs. Generative AI for enterprise 

UK car and home insurance complaints accelerate; is transformation working?

The data dividend: Fueling generative AI

The Experience/Efficiency Paradox

AI's value will come when we know it can do work for us

The Musk Disruption Doctrine