Introduction

In today’s fiercely competitive digital marketplace, insurance products are diverse, tailored and changing.  Customers need trusted advice more than ever — and will happily pay for it.

Providers who fail to establish themselves as trusted authorities will at worst be ignored completely and at best miss out on the more profitable accounts.

Your customers are accustomed to ‘Googling’ the cheapest physical products and getting overnight delivery.  It comes as no surprise therefore that they expect at least the same level of service when buying financial products. But they also know that insurance is of no use unless it covers their risk, making products far more attractive when combined with good advice and practice, delivered by a brand they trust.

So what are you waiting for?  Follow the six steps below and reap the rewards.

Step 1: Become an authority so customers can trust you

The more trust you can earn from customers old and new, the more easily you will profit from your product range and knowledge.

If you can establish yourself online as the provider of choice, or better still, the Industry Authority, the rewards will be substantial.

Picture the scene:

The website of Company X convinces you they are the authority in a specific insurance class.  The material they provide online is not only comprehensive but also clear, positive and relevant.

Reading through the material which is so comprehensive you can’t help but find their pages throughout Google, you feel convinced they are a leader in their field (though you don’t really check, how could you?).

Their website guides you to an insurance product you would not have known about otherwise and although it’s slightly different to what you were looking for (and more expensive) you feel it is the best thing for you and given the level of trust that you are already beginning to give them, you don’t check the price elsewhere.  You figure it might not be the very lowest price on aggregator/price comparison websites but it seems reasonable enough and naturally you don’t want to risk using someone less trusted.

You are beginning to feel a sense of commitment towards Company X.  They have educated you, given you information on everything you could ever ask for and advised you.  You feel like buying your insurance with them will be a pleasurable experience and feel reassured that afterward you will have a pleasant experience too.

And so you happily click the Buy button, enter your payment details and then immediately start telling colleagues, friend and family that Company X are the best thing since sliced bread.

Receiving your policy documentation along with a helpful welcome e-mail with even more tips and help about insurance, you ask yourself why you would ever use anyone else?

And in future years, you might just let your insurance policy auto-renew rather than shopping around;  you might not even care or notice if the price goes up slightly!  The service is still good and Company X are still the company you trust.

The currency of high profit insurance trade is trust: harness the Internet as the most effective means of building a database of loyal and committed customers that you can sell to again and again and again.

Step 2: Accept that “Interruption Advertising” hardly works

The days are gone when customers would idly sit by and let their activities be interrupted by commercials.(1) Today, customers have far more choice about how they respond to it.

Such choice has eroded advertising margins on TV, Radio and print, because the Internet has changed the way customers expect to find solutions and shop.  They choose when and what for.  They search without assistance for a service that is right for them and they do this in their personal lives and in the corporate workplace.

Advertisers who have attempted to turn the Internet into TV have failed again and again.

Advertisers who have embraced the new media in the spirit in which it was born have become the heavyweights of our new digital world.

Step 3: Start getting permission & involving your customers.

It’s a statistic often quoted that we are each bombarded with more than 3000 marketing messages each and every day(2). We are all absolutely saturated with ‘interruption advertising’, which tries at every opportunity to steal moments of our ever more precious time. Most of us do everything we can to ignore it and such lengths have made this type of advertising ever more expensive and less effective.

At home or at work, given the freedom to find the content we want via Internet-based services, we are all successfully dodging or ignoring adverts all the time and as a result, we are beginning to expect that when advertising material does arrive, we were asked our permission to be shown it in advance.
When advertisers don’t ask our permission before they market to us, many of us go elsewhere. On the other hand, in return for a little gift or a titbit of useful information, the most successful online companies are allowed more than ever by their loyal customers to sell them more, or to gather more information about them.

This method has become far more effective than traditional Interruption Marketing en-masse. But most companies, not understanding the rules of the new marketplace, never get this far. In fact, Interruption Marketing applied on the Internet – a grave mistake – is even less effective than it has become via traditional media, since Internet users are well versed in avoiding advertising and do not expect to be interrupted when surfing; TV users for example don’t have the same opportunity to avoid advertisements.

Today more than ever, it is of paramount importance that marketing is performed in the right way, in the right place.

Step 4: Build, refine & milk a high quality customer database.

A database of customers we hope to sell to is only as useful as the quality of the data contained.

For instance, a database of customers who are known smokers of child-bearing age who live in cities where smoking has recently been banned are much more likely to snap up an offer for a new Wonder-Drug Quit Smoking Now campaign, than infants or persons who do not smoke.

New technology enables us to cheaply and almost automatically market the right products to the right customers. It also allows us to identify those customers and continually refine our databases.

Sifting through paper records in the past made selling to a sub-section of customers often too expensive to contemplate. Now it not only makes economic sense but it is crucial, since bulk advertising has lost it’s effectiveness almost entirely and many competitors are already beginning to feel their way towards the rules of the new marketplace.

Not using the Internet and emerging technologies to compete in an arena where Permission Marketing, High-Grade Customer Databases and Trust are the cornerstones, means marketing will be inordinately less effective.

The Internet did not invent direct marketing but it may fulfil its dream of accountability and Return on Investment.

Step 5: Make your website stand out, emphasise what makes you different.

In addition to becoming an authority, it’s also important to differentiate oneself in other ways.  Differences cause debate, people take sides and if things go well you might be at the centre of the discussion going on all over the web.  If your product is more comprehensive and you think that’s best, say so, publicly!  If it’s less comprehensive and you think that makes it more cost effective or simpler, say so, publicly!

You should of course try to bolster and reinforce your name via consolidated marketing campaigns but most importantly, clarify to all what differentiates you from the competition and why you should become every customer’s rock in a sea of alternative providers.

You should make it your ongoing task to identify these differences and drum them so firmly into the mind of each and every new and existing customer that they no longer care whether there are any other providers. By showing your value to them as often as possible, they cannot forget it and they are far more likely to cancel (churn).

Step 6: Reporting & analytics are crucial, use them well.

Without effective reporting all our efforts will be blind and ineffectual.

A fantastic database of loyal customers is hard to build if you don’t know where great customers come from, or which subsets of customers like your products best.  A great website with thousands of pages of content is no good if your reporting isn’t telling you which pages are most popular, or highest converting, or not telling you that none of those pages have links to your New Quote process, so everyone that visits them never becomes a paying customer.

Fortunately, modern analytics and reporting tools give us the opportunity to monitor every aspect of your presence online, the users who visit, the customers you have, their habits and behaviour. Make relevant metrics show you what areas of your business are performing and which are not.  Don’t obsess over things like number of visitors unless you know which visitors can be turned into customers.

Make sure you use and understand analytics and target the right performance indicators or you will be running blind and your business will perish.

Conclusion

I’ve enjoyed writing this article and hope it will be of some use to you.  Please leave a comment in the box below and let me know what you thought.

Did you find this article useful?  Did it transform your business overnight, or tear it to shreds? Let me know!

Do you have any ideas for improvements or any tips of your own?

References

1. In the article ”Practical Advice from the Union of Concerned Scientists” by Michael Brower, PhD and Warren Leon, PhD: “The average American is exposed to about 3000 advertising messages a day and globally corporations spend over $620 billion each year to make their products seem desirable and to get us to buy them.” Union of Concerned Scientists Website http://www.ucsusa.org/publications/guide.ch1.html
2. “Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.” http://www.techcrunch.com/2009/03/22/why-advertising-is-failing-on-the-internet/

1. What is Combined Ratio?
2. What is Combined Ratio used for?
3. Example of how to calculate Combined Ratio…
4. How the experts make Combined Ratio work tor them
5. Common mistakes and how to avoid them

What is Combined Ratio?

Combined Ratio is a measure of performance used by underwriters/insurance companies.

What is Combined Ratio used for?

Combined Ratio is perhaps the most useful way to determine the profitability of an underwriting operation.

Example of how to calculate Combined Ratio…

To calculate Combined Ratio simply add the Loss Ratio to the Expense Ratio.

Combined Ratio = Loss Ratio + Expense Ratio

How the experts make Combined Ratio work for them

A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Ensuring easy access to accurate Combined Ratio figures is critical for underwriters; without it or some meaningful equivalent we cannot ever be certain of company position, and therefore cannot expand or make float investments.

Common mistakes and how to avoid them

Combined Ratio is dead simple to calculate providing you have access to accurate Loss Ratio and Expense Ratio figures. To ensure you get this right, first read our respective articles on Loss Ratios and Expense Ratios.

Feedback

As ever. we absolutely thrive on your questions and feedback. Leave us a comment below!

Someone recently asked me what it takes to put together a hit insurance operation in today’s marketplace, so we put together the following recipe…

Take the following ingredients and mix well:

• 500 cups of Market Reach (Online is best, Offline will no longer suffice alone)
• Make sure you have plenty Agility (insurance is a changing beast, you need to be able to adjust your products and fast)
• A dash of Cost (and not one jot more – less if you can get away with it)
• 100 kg of MI Data and Reporting (or as much as you can get)
• 1 ton of Customer Service (you must offer competitive levels of customer service and measure it every day!)
• A dash of Compliance (salt to the taste of your regulators)
• Bind it all together with good quality Software (this must be ripe and ready, don’t use anything that’s not up to the job)

If you can’t find everything above in abundance, I suggest you try broth instead, insurance is probably not your thing.

Throw it all in a saucepan and bring to the boil (or just fry it?). If you have trouble getting it to set, you could try the quick-mix version.

(Note: Please excuse the shameless plug, but how can I avoid it this time? Insurance without software these days just isn’t funny.)

Time and again I encounter insurance firms that fail to capitalise on claims loss ratio data.  They:

1. Do not have the tools to view reliable Loss Ratios automatically or quickly across all of their accounts.
2. Are not taking the time to put those tools in place.
3. Are not able to automatically tweak rates and fees at policy renewal based on Loss Ratios, without manual intervention.
4. Don’t analyse Loss Ratios for individual policy sections or risk areas.
5. Don’t educate junior staff to ensure they understand the importance of loss ratios and how to manage and compare them.

Not having instant access to loss ratios at a specific level (e.g. per risk area per policy per policy-year) and a general level (e.g. for a new scheme as it grows by the hour) is damaging to businesses since they often cannot spot the poorly performing areas or new behaviour patterns of their best sub-brokers until it is too late.

In this article I will investigate Loss Ratios (or CLRs: “Claims Loss Ratios”), in the following ways:

1. What are Loss Ratios?
2. Why are Loss Ratios so important?
3. Calculating Loss Ratios
4. How the experts make CLRs work tor them
5. Common mistakes and how to avoid them

I hope this article will serve as a refresfer for the more savvy readers out there and a way to share techniques, but also as a learning tool for anyone just starting out. Leave your comments and let me know what you think!

What are Loss Ratios?

Loss Ratios are a means for insurers, underwriting agents and brokers alike to assess the profitability of their businesses, an insurance policy or even a relationship with a partner company. A Loss Ratio is a single number that can be used to identify performance: the lower the number, the better the performance.

Why are Loss Ratios so important?

Without a quick and simple way of comparing the profitability of different accounts, no insurance operation has much hope of success. Critically we must determine the ratio between income and outgoings, which in insurance terms means Premiums vs Claims.

Calculating Loss Ratios

Loss Ratio is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums.^[1]

So for example, if for one of your insurance products you pay out £70 in claims for every £100 you collect in premiums, then the loss ratio for your product is 70%.

Remember: the total losses+adjustment expenses and total earned premiums can be tied down to a specific area, you can generate a Loss Ratio for just about anything.  To make advanced Loss Ratios work however, you will need to make that process quick and easy by having access to accurate data at all times, the tools to help manage that data and something to automate the calculations.

How the experts make CLRs work tor them

The key to making loss ratios work for you lies in having the agility to react to them in very specific ways and according to rules outlined by your best underwriters, without having to involve your most senior staff on every single case.

For instance, it might be prudent on a scheme with buildings cover to up significantly the rate charged for all types of cover if there has ever been a fire claim but instead only to tweak a specific rate if the claim were for roofing damage.

Or perhaps you might up the commission offered to sub-brokers whose Loss Ratio continues not to exceed 50% on all accounts, and adjust that commission proportionate to the average Loss Ratio.

The number of ways in which insurance firms can, should and do react to Loss Ratios at a general and a specific level are extremely numerous, since at the heart of good insurance business is the mitigation of risk at all times.

Common mistakes and how to avoid them

a. Don’t calculate loss ratios manually

You can’t calculate loss ratios for specific areas of cover or policy sections manually without significant human resource, which will not only make mistakes, but in costs will quickly outweight the value of loss ratio analysis in the first place.

b. Don’t imagine that specific Loss Ratios don’t matter

If you work in insurance, Loss Ratios are everything. If you don’t react to them as well as possible, not only will they continue to rise(!) but someone else responding swiftly will dominate the market.

c. Don’t leave junior staff in the dark about loss ratios

All of your staff should understand what makes one account a great performer for you and another one poor, and how and why rates, fees or commissions are tweaked. Often the junior staff are your front line troops, and will be the first to spot trends and suggest new ways to mitigate risk.

Conclusion

This has been a very brief look at Loss Ratios and how they are often neglected and misused (for no good reason), despite being perhaps the single most important statistic facing any single area within an insurance organisation.

Would you like your insurance software to calculate claims loss ratios for you automatically?

Take a look at the latest and greatest insurance software.

References

1. Harvey Rubin, Dictionary of Insurance Terms, 4th Ed. Baron’s Educational Series, 2000