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In recent weeks we have all observed the power of new social media to facilitate change. From protests in Egypt to current clashes in Libya, the power of new media is now readily apparent. So the question to ask is whether or not the insurance industry is ready for these newer forms of social communication? How will social media transform the insurance industry?

While social media itself is undergoing rapid change, current attention has focused on Facebook, Twitter, Youtube, and LinkedIn as the leaders in the field. In a quick check of major insurers, many firms have already established a presence on those sites, primarily to distribute announcements from press releases and provide some background description of their firms, or to facilitate recruiting. Traders, employees, and others have made some comments on those company pages. But, the insurance industry has not yet effectively used social media to market its products, to handle claims, or to better communicate with and engage its customers and employees.

Insurers do not readily embrace change, so the slow response to date is not a surprise. But social media is quickly evolving and it has the potential to significantly alter the way insurance business is conducted in the areas of marketing, underwriting, and claims.

What if the industry shifted more of its marketing to social media?

Insurers typically market products through independent or captive agents, brokers, or directly to consumers. Most direct marketing is done via standard postal mail or phone solicitations, with some Internet commerce. The roadblocks to quick adoption of social media in insurance marketing concern the notion that the brokers/agents currently control the business and maintain the customer relationships; that the products are too complex to be readily saleable in a social media format; and that the open communication associated with social media does not effectively protect privacy. Moreover, many agents/brokers view social media as a threat that could eliminate their middleman status, and this could hinder progress in industry adoption.

However, marketing costs account for significant charges to first year sales, especially for life insurance products. If expenses could be brought down, then insurers could reap additional profits from those sales. The cost of maintaining an agency force is high, while the direct cost associated with social media is significantly lower. In a marketplace that demands efficiency, that difference in cost could be meaningful.

To date, most consumers use the Internet to learn about products and to scout out companies, and then seek the advice of agents/brokers to actually purchase their policies. This is especially true for more complex life insurance products or commercial casualty coverages, rather than for straightforward standard auto insurance policies. However, with social media, consumers can receive rapid response to their questions, buyers can quickly make price comparisons between companies, and consumers can get immediate feedback from existing policyholders concerning levels of satisfaction. As such, social media has the potential to transform insurance marketing into new cost structures and methods for product distribution. Notably, with social media, consumers will be more likely to purchase a policy if someone they know recommends it, rather than receiving the recommendation from a cold calling insurance representative, so the need to satisfy consumers will become paramount. With younger generations reliant upon social media as their favored form of communication, the future will most likely include more direct selling to end-user customers via these new distribution methods.

The critical elements that social media would appear to offer include: speed of response (text messaging), trust of provider (recommendation by friends), open communication (opinion of existing policyholders), and ease of sale completion (via smartphone apps). The benefits would be savings in time and cost. Some insurers would be expected to have business models that allow for this kind of dramatic change, while others will naturally be slow to adopt.

Application of social media to other insurance functions

Underwriting also has potential to benefit from use of social media. Social media enables underwriters to learn more about their policyholders than ever before, leading to better pricing and better policing of claims. Just as recruiters currently check social media to learn about unsavory habits of applicants, underwriters could learn more about their customers from social media. Community relationships and sharing of knowledge could also help solve problems associated with risk assessment, especially with respect to global issues of climate or other environmental threats, pandemics, emerging risks, etc.

The web already allows consumers to download claim forms and file claims electronically. Social media combined with new smartphone apps could enable claimants to file claims immediately after an event. Photos could be taken on the spot and claims submitted quickly. Payments could be credited directly to an account for immediate use by the claimant. Social media could also serve as a good tool for fraud detection.

The biggest potential drawback in using social media for insurance transactions involves the issues of privacy, risk, and control. Policyholders don’t want their individual information to be widely distributed. Also, companies don’t want to have negative comments posted on their social media pages about their poor claims processing or competitively more expensive products, so reputational risk is likely higher with use of social media. Nonetheless, change is constant, and it is only a matter of time until the insurance industry begins to use social media as a tool to more effectively conduct business. Cost pressures and focus on younger consumers will force its eventual adoption.

Source: Will Social Media Change the Insurance Industry?