The insurance market has a well-established history of engaging in a ‘follow the leader’ approach to innovation. An early adopter gets in on the ground of a landmark new product or solution and ends up towing its peers along.
Yesterday, Insurance Business UK broke news of LexisNexis Risk Solution’s market-wide claims database aimed at empowering the UK general insurance market by presenting providers with a holistic understanding of their customers’ claims – Precision Claims. On hand to discuss the new solution, Jeffrey Skelton (pictured) MD Europe for LexisNexis Risk Solutions, highlighted that the idea behind Precision Claims is a straightforward one.
“The concept is very simple,” he said. “People who’ve had prior losses, whether they be in motor or home, have a higher likelihood of having losses in the future. And that has been an accepted correlation in other parts of the global insurance market. I myself spent the best part of 20 years in the insurance market of the US and, when I first moved to the UK, I was learning about the underwriting process here.
“And when I asked about claims and prior claims losses, I was told we do have a database, and it’s called NCD, where consumers get a discount if they haven’t had any prior claims. And that’s good but then I asked, ‘how do the insurance companies underwrite and rate using prior cross-market claims experience?’ And the answer was, ‘well, they don’t’. And I thought ‘aha, here’s an opportunity’.”
In the US, it has been standard operating procedure to examine the prior losses of an individual for close to 40 years. That started with a monoline approach to both home and motor, he said, with the two databases built out separately over time. What soon became clear was how much insurance companies wanted to understand the fuller picture of the risks they were underwriting.
“So we started making cross-market claims experience data available to insurance companies,” Skelton said. “What they found was that if you have a high claims propensity in your motor, you also have higher loss costs on your home insurance. People who file lots of motor claims, also tend to file higher-cost homeowners’ claims and there’s a very clean correlation between the two.”
There were numerous benefits to US insurance companies doing this, including better segmentation, risk prediction and pricing. And early discussions across the UK market revealed a strong appetite for a similar solution, he said, but the question on everyone’s lips was how it could be done. So, about two years ago, Skelton stood up at a customer advisory event and pledged to make the investment necessary to make this happen.
“We put in on our roadmap,” he said. “But said that instead of building multiple databases, we’re going to build one so that you’ll have an opportunity to very easily see the full 360-degree-view of the risk. Whether you’re underwriting home or motor doesn’t matter, it’s all about the claims propensity and prior claims experience of the consumer. That’s how the whole thing got off the ground.”
Insurance companies quickly gravitated to the idea, he said, because they immediately understood the value of the database. What Precision Claims means for the UK market, however, goes beyond just better segmentation, pricing and risk assessment. The real innovation of this new solution is that it moves the decision-making process behind calculating an insurance discount from a binary determination to a non-binary determination.
In the past, he said, you’d either not had a claim in which case you did get a discount, or you had claimed in which case you didn’t. This is less rudimentary, in that it takes the full risk profile of an individual into account and considers the finer details around the claim itself. Allowing an insurance company to take a deeper look into your prior claims experience, allows insurers to better segment consumers with prior claims and to offer them better rates than possible when relying on a binary decision as to whether a discount is applicable.
The implications of this solution for the commercial insurance market, and particularly SMEs, are also critical to note, Skelton said. Post-COVID, many people moved into industries reliant on driving such as the delivery business. Now, brokers and insurers alike are in a position to gain further insight into clients’ personal exposures but also their commercial experiences. LexisNexis Risk Solutions will layer commercial losses into the database over time, he said, which may drive a very different consultative conversation between brokers and consumers going forward.
“This [innovation] is very timely for the UK market,” he said. “Dual pricing has changed the marketplace in that insurance companies have got to get better at pricing. They’ve got to get better at pricing for profitability on new business, they can’t rely on the renewal process to capture lifetime value. And in order to get better at pricing, you’ve got to have more data.
“You’ve got to find a way to find those consumers that you believe are going to be a better risk and give them that better price that previously you were trying to give to everybody. If you can justify that price, the math works. So our timing is really quite good because we started this journey for the right reasons just over two years and dual pricing has created an environment where this tool is going to be extremely helpful.”
As to the next steps for the solution, Skelton highlighted that Precision Claims is in the process of gaining market share adoption and will be delivering updates on the insurers that have already signed up in the coming months. Getting their data into the database is the first step, he said, and after that, the focus is on delivering results back into the market. What has been encouraging so far, he said, is the incredible reception of the market to the database – and the championing of what it promises to deliver.
“In one instance, an insurance company has said this is so important that they will be a spokesman for this, they will call up and talk to any insurance company that doesn’t want to participate,” he said. “[…] And that’s how this happens, you’ll see enthusiastic early adopters and supporters talking it up with their other insurer executive friends and putting pressure on them to get on to the database, so it can reach the critical mass needed to be the most effective for everybody.
“At that point, even the outliers will have to come along because it will only make sense for their business to participate. You can’t sit on the sidelines forever. No insurance company in the market has such a large market share that they’re not missing out on a lot of business… Even when you’re big, you’re still small in the grand scheme of things. I think they’ll all quickly follow suite once those early adopter stories start coming into the marketplace. So next year is when all the really fun stuff starts to happen.”
