Offering optionality: Why it’s easier said than done

Canadian policyholders are increasingly interested in ‘optionality,’ which means picking and choosing insurance coverages that match their individual circumstances. But what does that mean for insurance companies designing insurance products to offer that kind of choice?

It means a coordinated, holistic integration of all parts of a company’s insurance operations, studies and P&C professionals say.

“We understand that a broad-based, human-centred approach to customer transformation is essential for achieving long-term success in the insurance industry,” says an EY report, Embracing human-centred transformation in insurance can bolster customer loyalty in a competitive landscape. “By aligning the current- and target-state visions of customer experience with those of back-stage operations, we help the overall transformation address both critical human and business needs….

“The human-centred digital transformation approach is designed to foster cross-functional collaboration among [insurance company] departments, strengthening internal alignment and enhancing shared expertise. This collaboration creates opportunities for innovation across various functions, including process, technology, finance, data, HR, legal and compliance.”

That’s the theory. How does it work in practice?

It takes time and effort to build a seamless customer experience featuring flexibility and optionality for consumers, industry professionals tell Canadian Underwriter. Especially in an industry built on a tradition of siloed, legacy experiences arising from decades of mergers and acquisitions.

For Definity, it took two years to reimagine its personal property insurance offering. Their approach required a reconstruction of the two existing property forms from the ground up and the creation and introduction of a new flagship comprehensive form. That new offering was just introduced this month.

Donna Ince, senior vice president and chief underwriting officer of personal insurance at Definity, notes consumers need a solid base policy covering the essentials. But, as premium costs increase, they like the ability to control their costs by choosing policy endorsements they want or need to add on top of the base coverage.

For example, a home insurance policy may offer optional endorsements for identity theft or by-law coverage instead of blending these options into the base coverage.

How does offering that kind of choice affect an insurer?

It may require an insurer to realign its current policies, making inclusions and exclusions clear. And decisions will need to be made about what stays in the base policy and what is offered as an endorsement.

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On the underwriting side, that requires a team effort, Ince tells CU in an interview.

“[We had to ask ourselves] how do we have policies constructed today?” Ince says. “Do we have clauses [in a policy] conflicting with other clauses? Do we have any ambiguity in the wordings?

“So we had our internal lawyers, and we had our external lawyers, review the policies. We also reviewed Quebec policies, because you have the Civil Code to consider, as well as the French language. So that’s a technical review.

“There’s also the strategic thinking around, ‘Okay, what’s going to be an endorsement? What’s going to be in the base policy?”

And then there is the actuarial analysis of segmenting and pricing the product and endorsements. The risks are quantified using claims data, and the price set reflects the risk.

Digital advancements over the past decade allow insurers to segment data at a more granular level, allowing pricing for the endorsements to be further refined, Ince notes.

After this work is done, underwriting rules must be clarified and explained to third parties, so that the product is effortlessly and accurately offered by the broker channel as well as quotation vendors and aggregators.

If optionality results in the use of different product types, the distinctions must be clear to policyholders and the sales force alike.

That’s where professional training and public education comes in.

“We built training modules for our brokers, which they could access online at any time, that were really clear and did coverage comparisons,” Ince says. “There was a full communication plan both internally and externally for our brokers.”

That training extended to the claims side of the business as well, as Ince notes.

“We have to train our claims people. They need to know what the new coverages look like, and how they will adjust them going forward.”

So, there are a lot of stakeholders, both internal as well as external, to develop choice and offer optionality, as Ince says. And the key question to answer will be why the changes are being made.

And the answer is: optionality.

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.