Cedric Stephens | Tech investments not paying off for insurance buyers
Technology has the potential to make Africans "wealthier, healthier and better educated by greatly lowering the costs of development", according to The Economist magazine.
If one accepts this argument, it can also be applied to island nations like Jamaica, to industries and individual firms like insurance companies. It has the potential to make firms more efficient and increase profit.
In the case of insurers, consumers should benefit from lower premiums, experience shorter waiting times for the settlement of claims and see other improvements. So why hasn't this happened? Insurers have, after all, invested heavily in technology over the years.
New entrants to the local banking industry provide examples of how of technology can be used to benefit consumers, lower costs, increase employee productivity and create competitive advantage.
Premises are smaller than those of older counterparts. There are fewer employees. Customer waiting times and lines are shorter. Transactions can be conducted in minutes. Public hospital-type service delivery associated with the 'brick and mortar' banks across Jamaica is out in the new banks. Even security guards in these outfits are customer-friendly.
Why have insurers been unable to use technology to achieve similar outcomes like the new banks?
Some will say that insurers have online platforms. However, what is the use of getting quotations for motor insurance online when one must visit company offices to conclude the transaction, pay the premium and collect the certificate of insurance?
Additionally, are the quoted premiums discounted to reflect the efficiencies produced by the technology or, is it a case of the same old high premiums on new platform? Online transactions are only one part of the insurance value chain. What happens when there is a 'moment of truth' when, for example, the policyholder has a claim?
Global management consultants McKinsey & Company, in The Moment of Truth in Customer Service, wrote 11 years ago that: "What's regularly missing, in our experience, is the spark between the customer and frontline staff members - the spark that helps transform wary or sceptical people into strong and committed brand followers. That spark and the emotionally driven behaviour that creates it explain how great customer service companies earn trust and loyalty during 'moments of truth': those few interactions (for instance, a lost credit card, a cancelled flight, a damaged piece of clothing, or investment advice) when customers invest a high amount of emotional energy in the outcome. Superb handling of these moments requires an instinctive frontline response that puts the customer's emotional needs ahead of the company's and the employee's agendas."
A relative had a single-car collision. It occurred while he was struggling with an assailant who tried to rob him. The claims associate told him that he would have to wait eight weeks for the claim to be investigated and a report issued before repairs on his vehicle would be authorised. In the meantime, he would have to incur extra costs for transportation which were not covered by his policy.
Counter-fraud technology is available that automatically flags suspicious claims. Long, costly investigations for genuine claims, which often alienate honest customers, can be avoided. Emotionally-driven behaviour by frontline employees can therefore be directed to earning the customer's trust and loyalty at that particular 'moment of truth'.
Negative experiences like those of my relative and other insurance consumers poison insurer- customer relationships. Here are three examples from different sources.
First, in my column "Personal injury and consumer vulnerability of October 29, I wrote about a claimant who nearly lost his house due to his inability to meet mortgage payments after an accident. He had waited 10 years before getting an offer of settlement from the third-party insurers.
A member of the legal profession from a rural parish wrote me to suggest that the insurer had deliberately exploited the injured person's ignorance of the law and the huge backlog in the court system by offering settlement after the statutory period for making claims had expired.
Even if this opinion was incorrect, the delay in settlement has not enhanced the insurer's brand and reputation. Six months before I this, wrote the piece: "When little things pile up, insurance image takes a hit".
Second, three years earlier, one participant in a focus group session said that insurers were: "very time consuming whenever they are to compensate for damages. They have too much process to follow before they compensate persons for damages."
Third, another participant from St James made the following comments: "The only insurance I have (a) problem with is car insurance. If you (are) in one accident, your premium and the other person's premium will go up even if you are not at fault. Also, it takes forever, like they want you to forget about it". This is happening at a time where cable viewers across the island are being exposed to accident forgiveness and safe driving bonus cheques every six months.
An Inter-American Development Bank-Access to Insurance sponsored survey dated August 2014 found that "a high industry expense ratio of 46 per cent across both the life and non-life segments", which the authors said "is a cause for concern". Why hasn't technology been deployed to reduce this ratio?
In the United States and the United Kingdom, expense ratios typically range between 28 per cent and 35 per cent. Insurers in Jamaica appear unable or unwilling to use technology to improve efficiency. Consumers are paying for this by higher premiums and poor service.
- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: firstname.lastname@example.org