Risk management is the bread and butter of the insurance industry. For too many, however, the strategies that govern their attempt to manage the risks in their book of business are stuck in the past.
Analyzing current risk exposure across the traditional rubrics of claims, peril, hazard, loss distribution and exclusions remains an important part of the risk mitigation picture for insurance brokers and agents.
But to truly minimize operational risk and best prevent customer churn, insurance agents should seriously consider adopting active risk management. It is a fast-growing (and profitable) strategy that every insurance agent/broker should take into account.
What Is "Active Risk Management"?
Active risk management essentially involves adopting systems and practices designed to help insurance businesses be proactive about mitigating potential and actual risks before they occur.
Simply defined, it's the ability of an insurer, agent or broker to proactively monitor its entire book of business. It helps gain a comprehensive understanding of the business so the company can focus on its most valuable customers and engage in relevant, perfectly timed communications.
The essential difference between active risk management and its traditional variant is between a 'push' and a 'pull'.
Rather than being driven by requests for information and reports, active risk management systems proactively provide actionable clues, 'pushing' information to agents in the forms of alerts and notifications that they can act on.
Thus, active risk management is a necessary complement to the technical stack that many insurance professionals already manage.
Retaining existing customers and targeting them with insight-driven cross-selling and upselling offers is increasingly regarded as the key strategy for insurance professionals to avoid a revolving door of customers. Besides the obvious benefit of keeping existing accounts within the business, this also helps to avoid the significantly greater expenditure involved in new customer acquisition relative to retention, cutting costs and streamlining sales resources in the process.
Maximizing the efficiency of customer retention is therefore a vital front-line risk defense tactic for insurance professionals.
The Right Time for Active Risk Management
For the industry, the advent of this emerging field of software is particularly timely.
According to a research insight from Bain & Company published last year, customer churn remains a significant obstacle for the insurance industry, particularly in the information age of prolific distribution channels, where empowered consumers can find alternative providers at the click of a button.
According to the report, customer attrition across lines or entire books of business is felt most acutely by insurance agencies dealing only with the most price-sensitive consumers who typically only buy one policy line. Often, these are smaller operations, and active risk management is of particular importance to this size of insurance business.
Where Customer Excellence and Data Meet
Active risk management isn't simply a new buzzword for the old practice of ensuring customer retention through delivering a stellar customer experience, though.
True active risk management practices sit at the juncture between an insurance business's customer-facing departments and the emerging discipline of cloud-based data analytics, the potential of which is only beginning to be felt across the insurance industry.
The best known active risk management programs are capable of leveraging the synergistic power of a myriad sources of information. These allow professionals to obtain a comprehensive view of the breadth of their book of business and initiate strategic customer outreach to those who are most at risk of leaving.
In addition to providing deep business insights, most active risk management software packages allow granular customization of reports and data source inputs. The only way they can do this is by deploying a flexible solution that is seamlessly integrated and that can fine-tune the type of cues and triggers that comprise the system.
Let’s look at an example of this in auto insurance. It is possible to know the average depreciation schedule and ownership term of a certain vehicle (from external motor industry data sources). This information can help agents send targeted messages offering a new auto insurance policy at more attractive terms, precisely at the time when customers are most likely to buy a new car or renew their auto insurance.
To one individual customer, receiving a discounted policy offer just when they were thinking of choosing another insurance agency for their new vehicle could seem simply like a fortuitous coincidence. For the insurance agency, when this simple strategy is replicated across hundreds of accounts, it could begin to make a sizable difference to both retention rates and overall profitability.
Timely customer engagement is the cornerstone of a strategy that actively mitigates the major business risk of customer churn.
A data-driven system that can actively flag cues and lead to richer and deeper customer engagement will likely lead to substantial business gains -- and less business risk over time.
With Novidea’s seamless, end-to-end platform, for example, all the data is contained in one location, so with a single source of the truth and real-time advanced analytics, you can receive the actionable insights needed to achieve this level of proactive and timely engagement.
For almost every insurance professional, that is a risk-free proposition.