Rapid change. Lower barriers to entry through technology. Easier-than-ever cross-industry movement. New competitors with business models that push regulatory boundaries.
How does an insurance provider retain customers in this brave new world?
As today’s insurers compete with FinTech firms and in the future, possibly with technology giants such as Google who have a strong brand presence, it is clear that agility and innovation are critical to success.
The World Insurance Report 2016 Voice of the Customer survey found that globally, 23.4% of Generation Y customers (people born in the 1980s and early 1990s) were likely to purchase insurance from technology firms such as Google if they entered the insurance industry. This number went up to 47.1% for affluent Generation Y customers. Thus, while insurance firms have a strong brand in their industry, the relatively stronger brand presence of technology firms—due to their daily customer engagement—makes them a force to reckon with.
When it comes to brand presence, insurance firms have typically been at a disadvantage compared to banks and other financial institutions. It’s not surprising since their presence in customers’ lives is confined to relatively infrequent transactions, such as policy renewals/changes or premium payments and claims, which are insufficient to generate positive longer-term associations.
However, insurers appear to be slowly changing this situation by providing value-added services.
Insurers have started offering customers a range of innovative, value-added services related to their health, lifestyle, or property management.
In Life and Health insurance, value-added services help equip customers with tools to manage their health through complete care packages and mobile apps that offer access to health information, medication adherence, and timely healthcare. For example, the Humana Pharmacy mobile app enables customers to refill their prescriptions anytime, anywhere from their mobile phone while taking advantage of mail delivery. Users can scan the barcode of their pill bottle to refill prescriptions or set up automatic refills, track prescription orders and current stock, and also receive price alerts for spending above a certain pre-defined limit.
In Property & Casualty insurance, value-added services typically involve helping customers manage their insured property or aspects of their lifestyle related to the insured property. For example, the DriveSafe teen driver safety program by Esurance helps parents monitor their teen children’s driving behavior through a telematics device. Parents can opt for customized alerts for unsafe driving behavior and review trip details on their personalized Esurance DriveSafe site. 
Generally speaking, value-added services offer one or more of the following benefits:
- Customer Retention: Value-added services can help improve customer retention by enhancing customer experience through regular and meaningful engagement. As the insurance ecosystem rapidly changes to include new players in the customer interface, customer retention will require a renewed focus by insurers to compensate for diminished control of customer acquisition.
- Customer Acquisition: Value-added services provide greater acquisition scope by opening new channels to potential customers. Insurers can gain access to cross-sell prospects by providing useful mobile apps or digital tools that are not necessarily insurance related, but find high utility value among users.
- Lower Claims Costs: As many value-added services are directed toward proactive risk mitigation, they can also help lower the overall cost of claims for insurers by helping customers avoid risks in their daily lives.
- Additional Revenue Streams: Some value-added services can be monetized and therefore provide additional revenue sources. With traditional insurance models likely to become obsolete—driven by forces such as blockchain and connected technologies—exploring potential new sources of revenue may become very important for insurers.
- Competitive Differentiation: Insurers can leverage value-added services as a means for competitive differentiation. Providing innovative and useful services can help insurers stand out among their competitors and gain greater customer mindshare.
The map below outlines today’s various value-added services and their respective benefits.
While value-added services offer noteworthy benefits, a few challenges should be considered. As most value-added services involve regular tracking and storing of customer information, insurers must put secure systems in place to guarantee data security and privacy. Value-added services may also involve significant costs associated with implementation and support if not purely app-based.
Thus, insurers should plan the right portfolio of services so that costs do not outweigh the benefits of their value-added services strategy.
All things considered, we can certainly expect value-added services to gradually play a more central role in insurers’ offerings as connected and smart technologies redefine the nature of risk and pose a likely threat to traditional models.
As traditional insurance business models face risk of obsolescence, value-added services may well answer the call for a reinvention of the insurance sector.
 “Esurance Unveils New Technology To Tackle Texting And Driving Problem Among Teens.” PR Newswire, December 18, 2013. Accessed December 2016. http://www.prnewswire.com/news-releases/esurance-unveils-new-technology-to-tackle-texting-and-driving-problem-among-teens-236432291.html