Tag Archives: Khanolkar

New Business Models Are Needed

The pressures the insurance industry is facing seem to keep coming like an unending stream of tsunamis, beginning with changing customer expectations with millennials and Gen Z and gathering momentum with blurring industry boundaries and the wave of insurtech startups. The ability of the industry to invest large sums of money into creating opposing forces to fight these tsunamis is withering due to a triple whammy … the triad:

  • Increased claims costs
  • Soft market
  • Operational costs that challenge the existing business models

2017 turned out to be a record-breaking year of major catastrophes, including wildfires, hailstorms, flooding, snowstorms and hurricanes, to name a few. It has been reported that, in the U.S. alone, there was $306 billion in total damage in 2017, with 16 events that caused more than $1 billion in damage each. Much of this would be reinsured by the London market or reinsurers. The financial impact is being felt in profitability and the potential for increased risk that needs to be addressed.

The soft market is continuing, with no change soon, given the excess capacity in the market. The excess capital is fueling many new startups in insurtech. In addition, the low-interest-rate environment continues to challenge returns and is intensifying insurers’ focus on underwriting and claims fundamentals. But the pressures to optimize the organization do not necessarily move the organization forward innovatively to compete effectively in a fast-changing market.

See also: Changing Business Models, ‘New’ ERM  

How are insurers responding? Our Strategic Priorities – Knowing vs. Doing research highlights a growing gap between insurers that know about the changes and insurers that are doing something about them. There is an awareness of the pace of change that is signaling unheralded challenges and opportunities. Unfortunately, turning awareness into doing, with actionable initiatives, is elusive, creating an ever-widening gap between leaders who are taking action and those who are not.

If you look at parallels with other industries, it is clear that inaction or traditional approaches will not be enough.

Consider the media, taxi or music industries. The traditional models were significantly disrupted by new entrants or existing companies entering their industry. Just putting the business online or making it accessible via an app is not necessarily enough. Why? Because the fundamental business model did not change to adapt to the broader market change. You just “paved the cow path.”

While incremental steps may optimize your existing business and buy time for the organization, they do not fundamentally change the business model to enable growth and to capture a new generation of buyers with different needs and expectations.

We are seeing new models underway with recent entrants like Lemonade, Tapoly and Meet Mia, embedded insurance by Tesla and the potential for Amazon and Apple to enter the insurance market. All of these new products will be constructed on unique customer experiences that are compelling, consistent, engaging and seamless. The new definition of insurance may mean that you reach far outside of tradition to launch supplemental services you may never have considered. But, no matter how you grow, you’ll need to first shift into Digital Insurance 2.0 — a step that will make flexibility and growth viable.

See also: 4 Tech Impacts on Business Models  

With today’s pace of change, the path of least risk will include taking some risks. The risk to invest in new business models, new products and new channels can, at minimum, keep insurers competitive. Even better, taking these risks could allow insurers to leapfrog the competition. Because the new competition does not play by the traditional rules, insurers need to be a part of rewriting the rules for the future. There is less risk in a game where you write the rules.

This article was written by Viyesh Khanolkar.

Who Wins? Goliath or David, Big or Fast?

Why did we call David an underdog? He was young and smaller, whereas Goliath was older and a giant of a man, “whose height was six cubits and a span”. Goliath was an experienced warrior, a veteran soldier, whereas David was a mere shepherd. Goliath was outfitted with modern weaponry and all David had were his shepherd’s tools.

This contrast and disparity is because there were three types of warriors in ancient times:  First, there were warriors who fought with slings and bows as lightly armored troops, forming bands of skirmishers. Second, there were the more heavily armored soldiers who formed the bulk of the infantry as foot soldiers, who fought in close-quarters combat with swords, axes, pikes and spears, such as Goliath. Lastly, there were warriors who fought on horseback as the cavalry.

Goliath was a foot soldier with sword and spear, David a skirmisher with a stave and sling.  As the story goes, Goliath and David started their duel with some distance between them, Goliath expecting David to draw near and engage in combat. He wanted to engage David in a hand-to-hand fight where his reach and strength would make him unbeatable. David, however, decided on a different strategy, which played to his strengths as a shepherd, using a sling to defend his flock against lions and wolves.  He rejected the heavy armour and focused on what he knew best — excelling at attacking from afar with great accuracy.

So here was David, the shepherd, experienced in the use of a devastating, precise weapon, up against a giant weighed down by a hundred pounds of armour and incredibly heavy weapons that are useful only in short-range combat. Goliath was a sitting duck. He didn’t realise it, but he had been outsmarted before the combat had even begun.

So how does this story relate to the insurance industry?

If you are a “large” and “established” insurance company (Goliath), the headlines regarding the disruption in insurance are provoking concern at the C-level.  Much of the material equates “large” to “lethargic and slow to react”, while “established” equates to “old and legacy”. In contrast, the material positions small, new and agile companies (David) as extremely innovative and disruptive.  The message is that these “disruptors,” with their new business models and digital capabilities, will make large, established companies irrelevant very soon.

Are larger, established insurers destined to be lethargic, slow off the mark, or can they become agile and innovative? It is definitely possible, if the larger, established insurers leverage their strengths and act like a new disruptor. In fact, Chunka Mui’s book, “The New Killer Apps:  How Large Companies Can Out-Innovate Start-ups”, co-authored with Paul Carroll, suggests such a scenario.

See also: InsurTech Start-Ups: Friends or Foes?  

So, how can established insurers disrupt these “disruptors”? Certainly not by fighting them on their chosen ground and with their weapons of choice. Insurers need to aggressively experiment and learn and accept that failures are part of the process of innovating. They need to leverage the strength of being big, with deep experience and expertise, and combine that with greater agility and innovation. It may even involve cooperative endeavours that could look more like Goliath and David working together than working as dire competitors. For now, however, we’re concerned about refashioning Goliath’s capabilities.

So what are the strengths that established insurers can use to forge ahead and disrupt them?

Your key strengths are precisely what are mentioned as your weaknesses – “legacy” – the legacy of reputation, the legacy of large customer bases and the legacy of experience and expertise. Those legacies are still highly valuable. It is the legacy mind-set, legacy business models and legacy technology that needs to be reconsidered.

Let us peel off a layer from your strengths.

The legacy of reputation

Whilst this should be a positive for most established insurers, sadly many reputations have been impacted with perceptions of not paying claims. No amount of statistics published by the industry will change the perception, because trust has been impacted. And increasingly, consumers are placing their trust in the voices of other consumers using an array of social media options.

Insurers can create a new business model with an underlying digital platform where consumers can easily rate your services openly, and anonymously, if they choose, with the assurance that they will be responded to and engaged with. They can also engage with other customers. This will go hand-in-hand with the creation of communities or interest groups. It will increase trust levels, bridge any trust deficits and help insurers build reputation. Even a slip in service is seen as acceptable if it is transparently acknowledged and acted upon. Doing that builds more trust and reputation. Do more of it and openly.

 The legacy of the customer base

The customers of today are fickle and loyal to nobody. They will change service providers for the slightest of reasons. How can you get them to be loyal to you? Engaged with you? The customers of today do not engage with “brands” as much as they engage with each other, often through social media.

Can you create communities from such customers? Certainly. Communities can revolve around any commonality or interest. Insurers can build communities revolving around areas of interest or even around the insurance type. For example, you could foster a community of insured musicians, passionate about their instruments. They could be part of such communities on the popular social media platforms. Insurers could take advantage of these social media platforms or create a simple one of their own focused on the special tasks involved in caring for these expensive musical treasures. The insurer’s proactive, preventive approach will also help them to keep a low claims ratio. Community-based groups are also less likely to make fraudulent claims because they are “known” within the community.

The legacy of experience and expertise.

There is a wealth of knowledge and experience in your company, knowledge about customers, about risk, about financial modelling of events, and about the business as a whole. This is likely not being leveraged to the extent it could be. By taking that knowledge and expertise from people’s minds into a system that can leverage it opens up possibilities for the business.  Insurers can automate and configure the business to rapidly adapt to change, using it to grow the business rather than hinder the business. A good example of this is the Majesco Transformation Framework, a path to modernizing without losing the essential aspects of an insurer’s foundation.

See also: Getting to 2020 — Defining the Unknown (Part 2)  

So, the end goal is to embrace your “Goliath” position while integrating and employing your “David” tools for better competitive strength. To accomplish this you need a robust platform that can support the core of the business with a digital front-end that engages the customer. Robust platforms with back office and front office components, rich in insurance content for products, processes and channels allow the traditional insurers to be big and agile. And as noted in The New Killer Apps, “Yes, small and agile beats big and slow, but big and agile beats anyone — and that combination is now possible.”

Systematic Approach to Digital Strategy

There has been a new virus spotted in some insurance operations. digital myopia. It is often found in the presence of another related issue — transformation shock. Together, they often bring about framework chaos. Fortunately, there is a straightforward vaccine in use —systematic analysis.

The ever-rising digital bar for the insurance industry creates challenges and opportunities and a bit of chaos. The opportunities can help insurers build customer loyalty, compete, transform customer engagement and improve retention, which can lead to improved profitability. But how can insurers overcome the challenges of the digital transformation journey, and at the same time rid themselves of the feeling that they may be approaching digital transformation in the wrong way?

See also: Why ‘Digital’ Is So Important

To gain a new perspective, insurers can look at their key issues from a systematic approach. They can start with a few simple, but pertinent, questions.

  1. Where does our organization sit on the spectrum of digital need?

In working with a broad array of insurers, from the largest to the smallest, from the traditional to the new start-ups, Majesco sees and helps many customers battle a variety of challenges on their paths to digital leadership. Often, they are confronted with pressure to “go digital.” We hear statements like this: “My board is pushing me to go digital, but I don’t know where to start, what to prioritize and what the ultimate goal is.”

If this is you, welcome to the club. So many organizations try to think about their digital efforts before they ever consult their core business strategy. This throws off the ability to make wise digital decisions. It’s important to remember that digital strategy begins with the most basic, non-digital question — “Who are we?”

So you start with your business strategy. Do you have one? If so, do you then focus on the gaps between your current digital capabilities and your target operational model — the one that fits your business strategy? Does your organization want to be a quick follower to current market leaders? Or, alternatively, does it want to be a market leader and disruptor? Finding the right model and approach that aligns with your business strategy instantly empowers your business priorities and aligns your organization’s DNA to the digital strategy it will adopt. Once this happens, a sense of relief will often flow throughout the organization —even before the digital work has commenced. Organizations need to know where they fit before they can grasp where they sit on the spectrum of digital need.

2: Do we need to create a coherent, comprehensive digital strategy?

If your organization has its core business strategy defined, then you are ready for the next level of systematic analysis. Your organization (and often a technology partner) will assess the current environment and the array of digital initiatives underway. It is at this phase that we often hear, “We seem to have too many digital projects and initiatives going with no real plan or strategy behind them.”

Many organizations started their digital initiatives before the digital strategy came into play. They are now realizing that the sum of the initiatives (parts) is less than it should be, sub-optimizing the business strategy and customer experience. This is often where most companies find themselves requiring urgent action to avoid a scattering of digital islands that do not connect to each other. Evaluating and consolidating these initiatives against your business strategy is crucial to digital transformation. Decide which initiatives are critical to your business success and kill those that do not align, creating clarity and focus for resources. There is nothing like the feeling that comes at this stage of the digital strategy. The organization and projects are aligned, the moon and the stars have moved into place and order is emerging from the chaos. The vaccine (systematic analysis) is working!

See also: Waves of Change in Digital Expectations

3: Is our digital road map clear, but legacy issues stand in our way?

If you find yourself in the position where you have a clear digital strategy and road map, but you can’t do as much as you wish because of legacy core insurance systems, then there are innovative approaches to address this obstacle.

We advise insurers to adopt a digital platform that can provide a multi-speed digital transformation approach. This digital platform provides two critical components: First, it holds an enterprise service bus platform that can easily orchestrate transactions and data flows between multiple systems (including legacy) easily and efficiently. When the organization replaces the legacy systems, the new systems can be easily plugged into to this platform. This provides a quick win, using an underlying business and technology architecture that provides the foundation for your digital road map. And the best part is … it requires no change to your legacy systems, and it can be completed quickly.

Second, the organization should look at key functional areas, like service areas, that need a digital mobile or portal to meet customer engagement expectations. Identify the few processes that are discrete and can be revamped, digitized, automated and integrated into the digital platform without major changes to your legacy systems. Digitize them and expose them to a federated or a self-serviced model. This digital transformation approach helps you meet the most immediate needs of your customers by turning obstacles into opportunities. It also gives you time to address the most pressing strategic obstacle, your legacy core system transformation.

These two steps, once completed, will help build confidence and momentum in your organization’s business strategy. They will accomplish most of your digital transformation goals with your customers and staff and help make your total business transformation more viable, and more agile.

A cohesive IT strategy and a successful business strategy nearly always go hand in hand. Your reward in pursuing a systematic digital transformation will be a clearer road map, a sense of direction and a group of people unified behind a common path.

Are We Listening to Our Customers?

There seems to be a growing mismatch between what consumers want from their insurers and how insurers are attempting to satisfy them. Is it intentional, or is the lack of alignment between insurers and their customers because of some unforeseen technology hurdles that require too much work to correct?

Key relationship indicators are all pointing toward growing communication issues. To build long-lasting relationships, insurers need to address their external communication issues, but only after they have determined that they are truly interested in listening to what the customer has to say.

In April 2015, Majesco commissioned a survey of 1,000 insurance customers in the UK. The respondents came from a broad cross section of occupations, ages and incomes. The survey pointed out some insurance industry issues, with implications for all geographic markets, and also uncovered some details that may be worth further exploration.

In a two-part blog, I am going to focus on the findings and what we should do about them.

The first of our findings was striking. What insurers seem to think is important to consumers isn’t always what consumers say is a priority when it comes to choosing an insurer. Insurers and consumers agree on the importance of pricing — insurers say they want to provide a competitive price, and consumers say they want a reasonable and understandable price — but then the two sides differ.

Insurers want to build loyalty and referrals through branding. Customers want relevant products, a high level of service from a wide array of options, clarity about products and a simple process.

Here is where we begin to find some problems.

Pricing Problem #1 – Majesco’s study found that many consumers are focused on price — but not all. Companies that focus on price and not a) service levels, b) relevant products or c) ease of access may alienate 30-40% of insureds. The policyholders least focused on price are naturally those who are more affluent – those who can afford more products and higher premiums to cover greater assets – so insurance companies are putting their best customers at risk.

Pricing Problem #2 – Clients are more likely to find pricing information on aggregator sites than on their own insurer’s website. While some insurers were digitally sleeping, aggregators cropped up and stole their territory. Aggregators may be a source of fuel for new business, but they are most certainly also poised to be a major contributor to client attrition.

Technology improvements and marketing efforts aimed at price messaging within the client base can help stem the flow of lost policyholders.

Besides pricing problems, there are two service problems that cropped up in Majesco’s survey, as well.

Service Problem #1 – One in three survey respondents felt that insurers were failing on minimum service levels. The Majesco survey found that between 47% and 60% of respondents are contacted by their insurance company only once per year! The irony here is that insurers are traditionally risk-averse, doing anything to avoid incurring an additional 1% to 2% of risk. Yet disruptive technologies have brought to market a new breed of competitor that could grab 33% of their business because of inattention. That is a tremendous risk!

Improving service through more digital and mobile communication (and even through more phone calls and mailings) will lower insurer risk.

Service Problem #2 – Insurers don’t seem to realize that what consumers are asking for, such as improved self-service through improved technology, will actually save on administrative costs. While some insurers seem to be waiting for a better scenario, there is no time better than now to build a labor-saving business case that improves customer communications. In this case, listening to the customer will do more than improve relationships; it will improve the bottom line.

The Majesco survey uncovered additional surprising data, as well, related to desired products vs. product offerings. Younger insurance customers (under 35) were surprisingly less influenced by price than older customers; price, while always important, may become even less important than service, brand trust and product types in the coming years.

It is clear that often insurer perceptions are no match for consumer realities. To clear away these notions, insurers need to listen to their customers, listen to trends and embrace the idea that giving the customer what she wants can be a key to success.

In my next blog, we will look at the practical aspects of developing a listening organization. What actions can insurers take to hear their customers, act upon their needs and anticipate the development of products that will take them into the next generation? How can technology assist insurers as they rebuild a relevant relationship? I hope you’ll join me as we discuss several options that insurance companies can use to stay effective and remain competitive.