Most insurers’ view of their policyholders is in isolation - one policyholder at a time, with the possibility that more than one individual in a household may have different or multiple policies from the same insurer. As such, the premium impact of the household is larger than that of the individuals.
What is Household Analytics?
Household analytics provides the ability for insurance carriers and agents to view and understand the portfolio dynamics at a household level, instead of just at the individual level. This is an advantage for insurers to optimize retention and cross-sell, while keeping in mind the overall portfolio of the household.
In the context of the insurance industry, the traditional default definition of a household has been “a family,” that is comprised of one or more individuals living at the same address with one policyholder. This model has been challenging for carriers and agents as most of the information they had access to was about the one policyholder.
Today, a household is comprised of:
- Households - a decision-making entity that can have one or more physical addresses such as second homes and apartments
- Individuals – people within the household who may or may not have a policy in their name or listed on the policy.
- Customers – individuals within the household who have one or more policies in-force.
The challenge for insurers and agents is easily accessing and consuming all the data that comprises a household.
Before household analytics can be applied, a “householding” process is created and run to identify connected individuals, customers or households across multiple policies.
Given a portfolio of policies, the process of house-holding involves two steps:
1. Identify every individual in the portfolio
2. Identify the relationships between these individuals
We can gain much information about the relationships between the individuals in the policy portfolio:
- There is a ‘proposer – insured’ relationship in every policy. If someone buys a policy for another person (barring group insurance), this indicates there is a relationship between the two people.
- Common addresses for different customers indicate that those individuals are staying at the same place or residing for some length of time. To “reside” is “to dwell permanently or continuously.”
- The beneficiary information and corresponding relationship information (spouse, child, friend, etc.) stored by insurance companies.
- Dual residency where clients may have more than one residency and ownership of more than one home. This may include child custody arrangements, divorce cases where children are living in two separate locations, blended families, children trying to establish independence from their parents, or even elderly parents moving in.
- Any immediate, extended, roommate, blood relative, adoption, foster child, domestic staff, or non-family household member living in the same household can be considered a member of a household by a car insurance carrier.
- Family members living separately in a duplex, such as a daughter and her husband and children living in a separate unit.
Once households have been identified, the insurer can now run campaigns involving households as well as the individual customers. The offers for households can be different than the offers for individuals. It also gives insurers an opportunity to prevent non-renewals in a household when they have a view of the households of risky customers.
The 4 Use Cases for Household Analytics
Householding is an important activity that can help unearth critical linkages between policyholders. A few immediate benefits that householding can provide are:
#1 - Errors and Omissions – Ensuring that correct limits are set
Having a clear understanding of the household helps insurance carriers and agents understand the customer sentiment at a higher level, enabling them to address any concerns or issues before they surface. This helps in retention, but more importantly, in avoiding coverage caps that could lead to preventing errors and omissions that an agent could be held liable and sued if the client relied on information that resulted in a lack of coverage or no coverage at all when a claim occurred.
According to Insurance Business America, one in seven insurance professionals is expected to be involved in an E&O claims some time in their career. This risk is particularly high in the property and casualty side.
#2 - Retention and Cross-Sell
In addition to providing a positive customer experience throughout a customer’s journey, the best way for insurers to retain customers is to handle all of their policies. Many times, customers start with one policy before adding others or a life event takes place that requires additional coverages.
It’s important to be able to identify and offer a product that may be useful for a household or individual. Knowing the household’s portfolio can improve the insurer’s chances for cross-selling or upselling. If the offer comes at an opportune time, it will be well appreciated by the customer.
Cross-sell is essential to every company as it increases revenue and profit. It can also lead to excellent customer satisfaction since it’s much easier for the customer to stay with their current insurer when adding products, than going out and looking for another insurer. Knowing which products are relevant to an existing customer based upon their household portfolio and current life stage is key. This means only the relevant products are offered rather than everything the insurers has in their book of business. Having this information makes cross-selling and upselling much easier and more effective.
More household information leads to gaining a deeper understanding of the customer’s personal needs.
#3 - Disrupting the Household
Conversely, not understanding the dynamics of a household can unintentionally have a negative effect.
Understanding which household a person belongs to may make it possible to reach out to their alternate contact / email addresses. This is critical when there are important policy-related updates that need to be communicated.
Knowing the dynamics of a household could prevent a policy from non-renewal by underwriting as they evaluate the entire family account or a VIP member of the household. A household profile is useful in many ways because it offers such things as:
- Cross-functional communication
Most of all it offers proper services and coverages necessary to help clients make the right insurance decisions where due diligence should be evaluated by each member of your insurance advisory team.
Having a strong service relationship with your key household clients is critical when renewing and reviewing these accounts as a whole by being proactive to prevent disruption to the household.
Risk #4 - Assessment
Risk assessment of a household can help the underwriting team when determining underwriting historical decisions. This is done by looking at the data in different ways:
- View the entire family and household portfolio for trends or inaccurate assessments,
- Analyze all risks associated with the household account
Once the assessment is done, the appropriate adjustments are made so you can improve your portfolio. In turn, you will have greater return of revenue and profitability.
For the insurer, the risk assessment at a household level in addition to the individual level can help write better premiums.
Household analytics can help carriers and their agents understand their customers better and therefore able to provide the proper consultation and expert advice necessary for the entire household.
Household analytics can help identify cross-sell opportunities with the goal of having all policies with the same insurance company for auto, home, umbrella, watercraft, and others. This reduces the possibility of having a coverage gap between the primary policies and the umbrella policy. All of this results in keeping the retention in place.