By Jenée Tibshraeny
New Zealand's newest general insurer is looking to partner with companies with comprehensive customer insights to share.
Ando Insurance aims to shake up the insurance industry by better using data about [prospective] customers’ lifestyles and spending habits to determine their risk profiles.
This could potentially lead to it being the first insurer in New Zealand to use information its customers haven’t directly given it, to price premiums.
Having opened for business last week, selling commercial insurance, Ando plans to take on the major insurers dominating the consumer market later in the year.
Ando is underwritten by South African insurance giant, The Hollard Insurance Company.
It’s 33% owned by Hollard, 2.5% by Masu Systems and 64.5% by Ando Investments New Zealand, which is made up of Ando’s senior management team (all former Lumley employees) – John Lyon (largest shareholder), Dean Edwards, Brett Cowley and Mike Gardner.
Using data to understand how risky a customer is
Lyon, Ando’s founder and chief executive, resigned from his position as the Lumley CEO as it was acquired by IAG in 2014.
He says he saw a number of emerging market trends that called for a revamp in the way the insurance industry operated.
He notes insurance companies have some catching up do in terms of using technology to collect and make sense of data about their customers.
While insurance companies typically have a lot of information on things like accident frequencies, they don’t know how their customers are thinking or behaving.
“When you compare that with the data a big retail organisation has about customers – it’s much richer and gives a lot more insight into how a person thinks, how they buy and indeed what their risk profile is,” he says.
Lyon points to Coles and Woolworths in Australia, which like Countdown and Warehouse Money in New Zealand, have started distributing insurance.
Every time supermarket customers swipe their loyalty cards, the company gets an insight into how they spend their money.
“If they come into the store and buy fresh fruit and vegetables and health foods, that says something about their risk profile, compared to somebody who buys everything that’s on special and pre-cooked foods and frozen pizza and so forth,” he says.
“That sort of information… can be very useful from an insurance profiling point of view, so you can get a better deal to the consumer, and get it to the right consumer.”
Using data to price premiums
Lyon says premium pricing can be determined using data from the likes of social media, government agencies and big brand companies.
“It’s theoretically possible to be able to compile a whole bunch of information that gives insight into a person’s risk profile. Effectively that’s what insurance is all about – understanding risk and then pricing for it accordingly.”
Referring to the use of telematics for example, he says, “If you’ve got a device in a car that’s actually measuring the acceleration rates, the time of day the car’s being driven, where it’s being driven, what suburbs, all of those sorts of things – you’re actually getting real risk information.”
Lyon says two people may fall into the same demographic, but have totally different driving habits. Pricing premiums based on real information can therefore be fairer, than pricing premiums based on information customers provide.
Yet Lyon acknowledges there are privacy risks around hacking and the data being used inappropriately.
He agrees an insurer that uses big data to price premiums has an obligation to be transparent about it.
See this story for more on how big data is used to price insurance in the US, and what insurance industry experts in New Zealand think about it.
Bundling insurance with other products
Lyon says he has been looking at other industries to explore different ways of distributing insurance.
He’s keen to look at bundling insurance with other products in the same way Wifi can be bundled with your electricity supplier.
The banks are already doing this, offering life insurance when you take out a mortgage, for example.
Lyon also suggests considering a different approach to pricing insurance, where a customer asks an insurer what cover they can get for X amount of money, rather than an insurer telling a customer how much cover will cost them.
In order to change the way insurance is distributed, Lyon says “you’ve got to break out of the shackles of traditional insurance thinking”.
Creating efficiencies in the supply chain by eliminating the admin
Lyon has his sights set on creating more efficiencies through the insurance supply chain – from reinsurers who provide insurers with the capital, to brokers who distribute the insurance product.
As discussed in this article, he aims to better use technology to share information throughout the supply chain, to prevent double handling.
For example, rather than an insurance claim being separately processed by brokers, insurers and reinsurers, it could go into one system used by everyone.
Lyon maintains creating these efficiencies is crucial, as insurers need to add value to the supply chain, so they aren’t pushed out of the market by reinsurers and brokers.
“What’s happening now is that as capital markets come under more pressure – with interest rates being low, with reinsurers being pressurised by alternative capital coming through, with insurance linked securities and other forms like that – the reinsurers are now pushing more into the primary insurance space,” Lyon says.
“Some of the big global reinsurers are now operating direct insurance brands and they’re in effect competing with some of the insurance companies.
“On the other side you’ve got insurance broker groups who are buying underwriting agencies and who are taking on more of the functions typically carried on by insurance companies as they look to grow, increase their margins and take on more of the value chain.
“Intermediated insurers are now under more pressure than they’ve ever been under before.”