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‘It’s Life, Jim, but Not as We Know It’

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.

The title for this article has been chosen for a number of reasons. It’s meant to be a mildly funny reference to the original Star Trek TV series, about boldly going where no man had gone before. This article is doing something similar, but specifically in insurance. We are going to discover new, unfamiliar ways to manage customer risks.

There is another reason for the tiel. There is a case of misattribution to be found here. Many of us may remember the phrase, “It’s life, Jim, but not as we know it” from the original Star Trek TV series. However, this specific sentence was actually never a part of the series. Instead, it was introduced in a parody single – Star Trekkin’ – released in 1987 by British group The Firm.

There seems to a bit of a similar misattribution when it comes to insurance in general, and life and pensions insurance, in particular. On the one hand, we all have clear customer needs: We are looking for a safety net for ourselves or for our loved ones. Or, we want comfortable living after retirement, being able to buy a holiday home or provide education for our kids. Or, we want to make sure we have sufficient income even in case of illness or unemployment. Insurance marketing has been playing on these needs for decades, strengthening the notion that, to manage our lives, risks and ambitions, we need to buy an insurance policy.

We are all policy holders ourselves, so we know this is how we are being seduced. While our need as customers is this safety net for ourselves or for our loved ones, reality unfortunately is a little bit different, and we have to settle for an insurance policy that provides only a partial solution for these needs. The limitations are often legally required; still, we always wind up meeting a crude approximation of our actual needs.

See also: Thought Experiment on Life Insurance  

I suspect that if you’re really honest, nobody ever really wanted to buy an insurance policy. Either you have to or there is no better alternative available. So we end up buying a product that doesn’t really cover our needs in the first place, and, on top of this, processes and interactions around it are not really helping us to become engaged, happy customers.

Now, insurers are increasingly aware of this gap between the products offered and customer expectations, fueled by the digital revolution. We see how other sectors have been disrupted by concepts powered by the latest tech, allowing us to manage our lives increasingly through easy, friendly, highly integrated apps and digital infrastructures. People are actually waiting in long lines to buy the latest Apple product!

So, here are a couple of challenging questions: Can insurance become as hot and sexy as an iPhone? Can it become something that customers actively engage in? That seduces people to actively manage future risks? That becomes urgent, relevant, an integral part of your life, even fun?

As an optimist, I would like to say: Yes, you can. But it’s going to take some changes from current insurance practices. Let’s address two approaches to make this happen.

Redefine your value proposition

The first approach is to redefine your product and shift to a value proposition that takes a broader view on your customer risks and builds new solutions. Now, of course, insurers have an excellent position to support customers with managing their risks, through a contract, by transferring this risk to a large group of individuals or businesses and investing in future income. We already know the limitations of this approach. But what if you use all available expertise to design other solutions to manage or reduce risks? All you need to do is realize that there are other options besides an insurance policy. Once you take on that view, a wide range of opportunities arise, offering new way to interact with customers.

As an insurer, you can build your expertise on risks, impact, behavior and probabilities and support your customers with individual risk assessments. New technologies allow you to make this assessment much more granular, incorporating individual behavior and internal and external data. Using these advanced data analytics, you can use these insights to build awareness among stakeholders and create new value propositions. You can offer customers a choice between different mitigation strategies – assuming, reducing or transferring risks.

Now, some of these activities may already be in place for specific business lines or customer segments. But this is different – we’re not assessing risks to set the right premium or clauses on a policy. We are investigating risks to reduce them.

Take the Discovery Vitality solution, rewarding clients for healthy living. With this health and wellness program, participants can save on their premiums and earn valuable rewards and discounts by simply living a healthy life. The more active your lifestyle, the more you’ll save and the greater your rewards. You can earn a $300 Apple Watch for $25 by exercising regularly.

This may imply that insurers need to redefine their role as part of an extended eco-system as they are broadening their insurance offering to increase customer relevance. Examples include integration with health, safety, housing, mobility and personal financial planning. Life insurance may become a part of the client’s broader financial plan, including healthcare requirements or housing arrangements after retirement.

But there are approaches to increase customer relevance. While we may have life or funeral insurance, there are still a lot of difficult, complex financial and legal items to manage. Especially at a time where you really don’t want to handle that. So how can you help your customers? By offering them a solution to prepare.

The startup Tomorrow. from Seattle, recently received $2.6 milliion of funding from VCs, angel investors and Allianz Life. The company’s solution provides an easy way for families to prepare themselves for the future, both financially and legally, making arrangements for when a relative passes away. The app helps to set up roles like guardian, executor or trustee, to create a will or a trust — and to buy life insurance.

Another example is Afternote, providing a digital platform where you store your life story, leave messages and make last wishes known for your funeral and legacy. The purpose is to help customers to reduce the complexity and fuss when preparing for a funeral, managing digital legacies and honoring last wishes.

Both Tomorrow and Afternote provide a broader service than a life or funeral insurance. We expect these kinds of solutions over time to become more and more integrated with service partners and other functions or platforms (e.g. healthcare, support groups, notaries, public records) creating integrated work flows reducing complexities and inefficiencies we have around these events today, that make a difficult time just a bit easier in a difficult time. That’s where the added value is going to be.

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

Of course, you can apply these concepts to pension insurance, as well. If you understand all the complexities of pension insurance, the real challenge can be to translate this into clear communications and interactions with your customers, not only digitizing channels but creating attractive, interactive environments where customers can increase their awareness and involvement. Digital solutions offer the opportunity for real-time notifications or attractive simulations for advisers, employers or private customers. This way, you can offer new services and new ways to strengthen the relationship.

The second approach to change insurance into a product that customers actually want to buy will be covered in Part 2.

What Maslow Means for Keeping Customers

Explaining customer needs through the theory of Maslow is common practice. Marketers often apply the principles to attract new customers. However, if you fail to continue to do this once you have attracted a customer, your ability to retain her will be compromised.

In this article, the authors suggest an approach that takes into account the position of the client within the needs pyramid. After all, if you understand the initial need that has led to a buying decision, you can continue to apply this to retain your customers.

Maslow’s theory of needs – again?

Humans are predominantly driven by universal needs. The original motivational theory of Abraham Maslow (1943) arranged those needs in a pyramid, sometimes referred to as the pyramid of needs. According to the model, people will only strive for gratification of the higher needs in the pyramid after the lower ones have been fulfilled.

For this article, we use a three-layer, simplified version of the needs pyramid.

At the top of the pyramid, Maslow placed the need for self- actualization; the desire to develop your personal self and realize your full potential. The middle part of the pyramid describes the desire to belong somewhere and to be valued. The bottom part of the pyramid represents the basic physiological needs for survival: food, shelter, safety and security.

See also: How to Get Broader View of Customers  

Maslow always remained critical toward his own model. But in this article, we assume Maslow sticks to his own theory and acts accordingly. We use a mortgage product in the narrative, but the argument applies to financial services products in general.

Level 1: Customers need safety and security

Suppose it is the day that a young Abraham Maslow leaves his parental house to start his adult life. Maslow is looking to buy a house to fulfill his basic needs for security and safety and requires a mortgage to do this. His demands are simple: basic, cheap and something he doesn’t have to worry about.

Most financial products will answer to these basic needs. Some insurance products are simply required by law. You’ll need a debit card for making payments, at least for now. Customers looking for these products to fulfill their basic needs receive a warm welcome. However, once a prospect has become an existing customer, the approach often changes.

For instance, after choosing a mortgage Maslow would like to be informed about the suitability in terms of risk and costs. It would be great to receive confirmations that his mortgage still fits his profile and that he has made the right choice, or if better alternatives are available.

Often, this doesn’t happen. Instead, Maslow is being approached with offers made by competing mortgage providers, arguing he could be better off elsewhere. And while Maslow’s current mortgage provider receives payments on time and assumes Maslow is a satisfied customer, Maslow has not been able to resist the temptation and switches to a competitor offering more security and safety, as soon as his contract allows him to do so.

So what could Maslow’s original provider have done differently? First, it should have acknowledged Maslow’s primary buying motivation. As a next step, it should have contacted Maslow periodically to evaluate his choice of product. Providing customers with a regular check on their product portfolio builds relevant customer contacts and ensures some control at the provider.

Level 2: Consumers want to belong and be valued

Maslow, who has advanced in his career and now is a doctor, is looking for a place that allows him to build a practice at home. He learns about a mortgage provider that specifically serves the medical community. A provider like that should be able to exactly serve his needs.

Many financial products can be connected to a specific field of expertise or area of interest. Customers benefit from the specialty expertise offered by their bank or insurer. This may be realized through targeting specific customer groups or customers sharing a common interest. These customers expect a close relationship with their financial services provider.

Often, existing customers do not receive the same treatment as prospects. Maslow would like to remain informed about developments that relate to his profession. And he would like to share his experiences and insights with his financial services provider and colleagues. Because he now belongs to a specific target group, Maslow receives regular marketing messages and newsletters. However, these are often generic, and Maslow lacks the opportunity to share his ideas and suggestions to improve services.

During the course of his mortgage, Maslow is actively approached by competing mortgage providers, arguing he could be better off elsewhere. They may offer more expertise, additional services and other customer engagement activities. Maslow may not resist the continuous temptation and decides to switch to a competitor offering more of the services he is looking for.

So what could Maslow’s original provider have done differently? Again: Acknowledge Maslow’s primary motivation for buying in the first place. If his financial services provider had realized why Maslow had chosen it, the provider could have engaged him through activities and programs aligned to his interests and needs, e.g., by giving Maslow the opportunity to provide feedback and tips, and by actually recognizing his contributions. Companies like Tesla provide an amazing customer experience by acknowledging customers’ contributions to a new software release.

Level 3: Customers strive toward self-actualization

As a doctor, Maslow treats a set of patients suffering from post-traumatic stress disorder. Being confronted daily with the struggles of his clients, he finds it increasingly difficult to stop thinking about global politics and the causes of his patients’ condition. This afternoon, he has a meeting about a new mortgage. It would make him feel a lot better if his financial services provider demonstrates social responsibility and awareness.

Connecting financial services to social themes, lifestyle or trends may not be that difficult. Nobody cherishes a mortgage, savings account or insurance policy, but these are means to an end: the pleasure of owning your own home, to realize dreams or to take care of your loved ones. Managing the carbon footprint and supporting fair trade while avoiding child labor are increasingly the themes to reach younger generations. Only a small part of financial services providers embrace these themes.

See also: 5 Technologies That Connect to Customers  

As an engaged customer, Maslow hopes to hear how his bank or insurer is contributing to making the world a better place. He expects a regular confirmation that he has made the right choice and is very much prepared to pay extra or settle for less service as long as his bank supports his ideals.

Conclusion

Many financial service providers apply Maslow’s theory to seduce customers. Campaigns and commercials cleverly play on human needs. However, as soon as a customer has become part of a back-office system, the urge to leverage these data disappears. This is partly understandable, as many organizations lack a focused customer-retention approach. However, we believe significant steps can be made in customer retention by applying Maslow’s theory.

As a first step, you need to define your pyramid. What are the needs that make up the layers in your customer pyramid? There might be a link to a specific distribution channel. Leveraging all data from the customer on-boarding process is an obvious approach.

Next step is to assess in which layer a customer resides. All customer interactions provide valuable data. Next to questionnaires, interviews and feedback, actions and responses are a tell-tale.

Once a Maslow profile has been determined, the individual customer contact approach can be selected. This step should involve some level of experimenting.

By analyzing all customer contacts, financial service providers will gain valuable insights. An active customer may be involved in product development or asked to become an ambassador. For less active customers, it is important to periodically get in touch and re-assess their product choice.

What’s next?

The motivational needs theory of Maslow is not undisputed. The thought that individuals only strive for higher needs once the basics have been fulfilled, has not been tested by Maslow. To his great disappointment, his theory has been used widely while nobody ever has had the urge to thoroughly analyze or test this.

However, we do have this ambition. Will the Maslow approach add value in the area of customer retention? Is it possible to better understand customer needs through this approach?
Is it possible to create a formula based on customer contact data predicting in which level a customer resides in the needs pyramid?

Marketers are convinced of the relevance of the theory in analyzing initial buying decisions. Applying the same principles to customer retention doesn’t seem like a particularly big step. We therefore are confident that this approach may provide value for retention programs. We are interested to discuss the potential of this model with you in more detail and would love to hear from you!

For this article, Onno Bloemers has joined forces with Leon Veenhuijzen, associate partner at Improven. 

2017: A Journey Toward Self-Disruption

Last year, an EIOPA stress test revealed that a large portion of European insurers remain vulnerable for one or both of the tested scenarios. At the same time, insurers continue to struggle with a constant shift in customer expectations. We are all used to seamlessly working digitally in more and more aspects of our lives, and we’ve come to expect the same treatment when it comes to insurance.

So what’s the problem? Shouldn’t a healthy insurer be perfectly able to cope with some adversity while making the change to become a more digital and customer-minded organization?

Unfortunately, a number of reasons mixed together provide a particularly toxic combination that slows the transformation. To start with, insurers are still largely running on legacy applications. Not only does this limit organizational agility dramatically, but it also means that available change capacity is predominantly used to keep the legacy infrastructure up and running.

On top of this, regulatory pressures are dramatically increasing the cost of doing business. Complex risk and compliance requirements in legacy-dominant environments reduce the ability to transform on a more fundamental level. Furthermore, there is continued pressure on product margins, and historically low interest rates are reducing returns.

See also: Insurance Disruption? Evolution Is Better  

Beyond the insurtech hype

As incumbents struggle with internal inefficiencies and adverse conditions, fintech and insurtech initiatives are starting to emerge – based on fresh thinking and modern application architectures. These new initiatives relentlessly exploit inefficiencies in the value chains. And with the rise of the sharing economy, new ways to manage risks like usage-based or P2P insurance are becoming increasingly important.

The right stuff?

The awareness that incumbents need to transform their way of working, and solve some fundamental problems in their business models, is prevalent. There is in fact a lot of activity and experimentation taking place, through innovation labs, partnerships or direct strategic investments in insurtech.

This is all well and good, but are these initiatives sufficiently grounded to become successful? Do incumbents possess the right stuff to create, develop, nurture and scale new business concepts with sufficient impulse to remain relevant and profitable in the long run?

The journey toward self-disruption

These are all questions that the industry will be posing in 2017, and there is no doubt the insurance sector needs to adapt to a new world. One thing is for certain, simply embarking on a journey to implement one of the “Top-10 Insurtech Solutions” is not going to cut it.

The real challenge lies in first removing the legacy culture from organizations before trying to solve the challenge in application landscapes and value chains. This journey toward self-disruption requires courage and leadership. To reach the desired destination, boards may consider numerous approaches to rebalance change programs. 

Considered approaches

Scenario planning and storytelling can be a powerful tool for coping with a large number of uncertainties. Scenarios are perfectly suited to translate into compelling, vivid images of the future, using powerful storytelling as an effective way to convey messages.

Changing the innovation mix is also something insurers will be contemplating. The composition of your innovation mix (product-, process- or business-model focused) should be in line with the lifespan of your dominant business model. For insurers, this might imply that now is the time to direct more resources toward more radical forms of innovation.

Replacing incentives blocking change is another approach to consider. If a board’s primary responsibility is to facilitate the presence of a long-term business model, then this implies that the board should worry about anything in the organization that blocks this purpose. A review of existing performance management and key performance indicator (KPI) frameworks might be one of the most critical things to address as this drives behavior throughout the organization.

See also: Which to Choose: Innovation, Disruption?  

Then there is creative destruction as a driving force. A constant process of internal creative destruction is required to avoid becoming the victim of an external, competing creative force. The likes of General Electric and Johnson & Johnson have mastered this. Carefully applying these design principles in the insurance sector might be a critical activity.

Looking ahead  

The insurance sector has a long way ahead adapting to a new world. There is a critical role for current and coming leadership. We see insurers increasingly partner with insurtech companies, hoping to find fresh thinking, agility and entrepreneurship. We’ll have to find out if this brings sufficient change. Otherwise, the EIOPA double-hit scenario might be a blessing in disguise – it could, in fact, provide the required burning platform for the long-awaited transformation.