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February 22, 2018

‘It’s Life, Jim, but Not as We Know It’ (Part 3)

Summary:

Don’t just copy other life insurers; learn from the best-in-class companies outside your own sector and apply these principles to your own business.

Photo Courtesy of Pexels

The article below has been based on a keynote presentation delivered at the Euro Events Life Insurance & Pensions Conference in Amsterdam on Nov. 16, 2017. This is part 3. The previous parts can be found here and here.

Summary of Parts 1 and 2

In the previous parts, we discussed that customers do not buy insurance because they like it, but because they have to or there is no better alternative available. We started by asking how you can turn a subject like insurance into something that customers actively engage in? Can, for instance, a pension become an urgent, relevant, integral part of our daily life? We discussed two options.

The first option is to offer a broader, more relevant solution with insurance as a component. The insurance product becomes part of a larger, more relevant value proposition. Examples include integrated solutions for risk management and safety, health, housing, mobility or personal financial planning.

The second approach to turn insurance into a product customers actually want to buy, is to reconnect with your customers. There’s still a big engagement gap between insurers and their clients. We touched upon a number of relevant concepts, including the Theory of Planned Behavior, the dynamics of inertia and financial anxiety.

In this third and final part, we bring the insights from the previous parts together and wrap things up.

The relationship between redefining and reconnecting

Now, we know that current relationships between insurers and their customers can be improved. We’ve covered two different approaches to make life and pensions more attractive. We started off by investigating how insurance solutions can become better connected to the daily life of your customers. This is all about extending the value proposition with products and services. Logical themes are health, safety, housing, maintenance, mobility and personal financial planning. With these broader solutions in mind we then addressed the need to overcome inertia and financial anxiety to reconnect with our customers. This may give the impression that these approaches were distinct, separate activities. But they are in fact closely related. Consider this: if you successfully redefine your value proposition, you create new and meaningful customer touchpoints that help you finding better ways to reconnect with them. And as your ability to understand your customers grows, you learn more about preferences that help you to in turn to develop better value propositions.

See also: Thought Experiment on Life Insurance

There is work to do!

These considerations will undoubtedly trigger a lot of questions among insurers. Are we going to be in the business of selling and administering policies or are we going to transform towards becoming a risk & income management expert? What will be our position in the value chain, what role are we going to play in this new extended eco-system? How can we develop these new concepts into a viable business model? And what kind of capabilities do you need to thrive in this new world of continuous change? Some key capabilities from existing insurers, like the ability to design and manage complex policy products, may become less relevant in a world demanding attractive risk management solutions. Similarly, having a true customer focus embedded in your organisational DNA is going to bring you further than having just a regulatory imposed customer orientation.

Building these skills in an environment that is still dominated by different types of legacy is not easy. This is one of the reasons we see a rise in partnerships between existing insurers and Insurtechs.

Organizing the transformation – the 7 habits of effective insurers

So let’s assume that first thing tomorrow you plan to start to rethink how to design and implement a wider service proposition around your insurance core. What are some key principles to keep in mind when organizing the transformation? I am not going to try to summarize the many excellent books available on how to foster a culture that embraces organizational change and innovation. Let me just highlight a number of points from my own experience:

  1. Be very aware of internal bottlenecks and when increasing agility. Organizations have a tendency to become more complex and bureaucratic – not fit for purpose in the digital world. This could mean that to move fast, you first have to shed some weight and find a solution for your closed books or other legacy infrastructures.
  2. Start talking, not just with your customers but also with employees, distributors, partners, regulators, etc. It’s not just insurers that increasingly recognize the need for change – a full range of companies in the value chain are co-depending on a model that is increasingly under pressure. New business concepts will have impact on insurance value chain partners, and service and IT providers just as much (or possibly more!) as they will affect the insurers themselves.
  3. Don’t make the mistake of copying concepts from your fiercest insurance competitor, but learn from the best-in-class companies outside your own sector and apply these principles to your own business. Traditional industry boundaries and barriers to entry are rapidly shrinking, and the proper response is to enjoy and learn from the emerging panorama.
  4. I’ve always found that the scope and intensity of R&D within Financial Services is quite low, compared to other sectors. Now is the perfect time to change that. The rise of innovation labs is a step in the right direction but now we need to learn how to organize innovation at different speeds and for different aspects of a business model.
  5. While I perfectly understand why many insurers choose differently, my conviction is that insurers should organize innovation at the heart of their organization. I’ve heard many arguments why insurers choose to set up innovation in labs or outposts but there are serious limitations and issues when it comes to reconnecting with the main organization. That will be subject of another article. For now my summary is: get back in the building!
  6. Invest in your capabilities not just to start up but to scale up a new value proposition – that’s where it becomes really complex. Everybody can create a small scale working model, a MVP or a pilot project. But turning it into a large scale operation that contributes to revenues, that’s something else.
  7. And most importantly: If you’re 80% sure that your current business model is future proof (which means you are pretty confident about it!) you should still spend 20% of your change budgets on more fundamental, radical or disruptive types of innovation. Just make sure you’ve got all possible scenario outcomes covered!

In closing

The time to repair the roof is when the sun is shining. Has that window of opportunity already passed by or will incumbents be able to adjust their course in time? It is only now, when we see rising costs of doing business, signs of diminishing returns and demographics putting pressure on existing products that we see emerging initiatives.

Solutions for managing risks should become urgent, relevant, top of mind and connected to the daily life of customers. Insurers rethinking their value propositions have the opportunity to design a new generation of solutions beyond a singular insurance policy that will transform their relationship with customers.

These solutions will have to overcome the key psychological challenges relating to certain or possible events that may be far off in the future. Applying advanced insights and techniques (from the fields of behavioural science, neuromarketing, and applied psychology, etc.) to reconnect with customers ensures that the future is becomes increasingly something that is clear and present and to be dealt with right now.

If insurance becomes the means to an end as part of a broader customer need, you need to organize this transformation. It’s not just a product gap – it’s a gap between capabilities present and capabilities needed on different levels: organization, technology, application landscapes, culture: e.g. how do you combine a solid long term investment management function with short term entrepreneurial activities and innovation?

See also: This Is Not Your Father’s Life Insurance  

Corporate innovation and strategic change initiatives should fix a number of key existing internal challenges and create the right fundamentals to enable more disruptive types of innovation. The traditional product development scope needs to be enhanced to facilitate the creation of hybrid forms of products and services.

Addressing these aspects will enable insurers to design solutions and services that bring us closer to their original marketing promise to provide more security and peace of mind.

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About the Author

Onno Bloemers is one of the founding partners at First Day Advisory Group. He has longstanding experience in delivering organizational change and scalable innovation in complex environments.

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