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CASE STUDY | Insurance
Creating a pay as you drive insurance product for the industry
Insurers have long sought ever more precise ways to evaluate client risk, in order to offer better targeted products and prices. GSM/GPS technology allows insurers to identify and measure new risk factors such as kilometres driven, driving location and type of road, time of day and driving style. Furthermore, the new technologies allow insurers to provide additional value added services such as improved vehicle recovery and post accident customer support, and provide extra input to the companies’ anti-fraud efforts.
Value Partners has been at the forefront of the drive to revolutionize automotive insurance with the introduction of new technology. In particular, a couple of years ago we assisted a major European Insurance leader and an Italian niche player develop their own pay per use automotive insurance schemes. With our help the clients selected the technologies most suited to their objectives and adopted them on different targets, developing a specific product offering for each customer segment. Some of the activities performed by Value Partners included determining pricing, mapping key processes and evaluating new distribution channels
Thanks to these projects our two clients have created a leading edge image; the products have set industry standards and allow insurers to tap new client segments, such as low usage vehicles. These projects were made possible thanks also to the fact that we had worked with black box manufacturers and telecom operators, i.e. the technology providers. Click here to read one of our infomobility projects.
Making automotive insurance profitable again
Automotive insurance has frequently been a source of major losses for European insurers. For example, for many years following deregulation Italian insurers suffered large losses from automotive third party liability. Several insurers asked us to help them turn around their profitability in this particular area.
Our teams started by helping our clients improve their pricing, particularly in loss making areas/segment, such as young drivers, small cars. We looked into their pricing and worked on improving their product offering. In particular, we helped our clients review their client segmentation to focus their commercial strategy solely on the most profitable customer segments. We also dealt with fraudulent claims and the company’s ability to detect them and thus avoid losses.
In performing these projects we used a wide range of statistical tools (available in SAS) such as K-means (for one dimensioned clustering), CHAID (for decision trees) and generalized linear models (for risk model estimation).
Following our support in these areas, our clients saw large improvements in their profitability in the two years following the project. In addition, while portfolio pruning and stricter customer selection resulted in a reduction of the number of customers in the short term, our clients were generally able to regain their previous dimension without sacrificing profitability.
Advanced segmentation to improve agents’ profitability
Our client, a large regional player, was interested in helping its agents improve their internal organization, and consequently their performance, for themselves and for their insurance partner.
To do so, the company called us to help them. We started off by looking into the agency segmentation that was already in place. It was very simple, based on product mix and agency size. Crucially, the indicators the company used were not effective in differentiating the agencies’ performance. We therefore helped the insurer develop a more highly articulated segmentation using sophisticated statistical techniques. The analysis began with simple univariate analyses of the relationship between agency characteristics (e.g. agency size, product mix, personnel) and measures of agency performance and proceeded with the estimation of multivariate agency clusters using self organization maps. This allowed the client to better understand the drivers of agency performance and thus develop a series of effective actions by agency type. It also demonstrated the scarce relevance of indications typically used by insurers and the greater importance of other factors (such as premiums per sales agent).
The project gave the client the elements for developing agency organizational models for its agencies and improving growth prospects and profitability
Introduction of new market Property & Casualty bankinsurance
P&C bankinsurance is substantially underdeveloped in the Italian market for a number of reasons: perceived difficulty of selling non life products through bank branches, banks’ fear of damaging the relationship with their customers, as well as the potential impact on service levels in their branches. Nevertheless, market analysis performed by Value Partners has demonstrated a strong willingness on the part of P&C insurance customers to use the banking channel, in comparison with other non agent channels (e.g. telephone, internet).
A leading European bankinsurer was interested in exploiting this gap in the market, levering their experience gained in other European markets. Value Partners assisted the client in adapting its product range and bundles to the Italian market, taking into account differences in regulation and customer behaviour.
We helped the customer in a wide range of activities which included benchmarking competitors’ offerings and defining product packages to be sold through bank branches, product characteristics and pricing, processes and program management.
The client is now operational across the partner banks’ branches and sold over 50.000 policies in its first year of operation with positive economic results.
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Pochi giganti, molti nani
The effect of deregulation on the insurance sector in Italy. A comment by Salvo Vitale, director of Value Partners.
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The insurance sector in China. An interview with Leo Wang, partner at Value Partners Hong Kong.
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