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Demographics and P&C Insurance

The way people and companies interact with each another is tremendously different from the way they conducted business just 10 years ago. Technology is pushing the boundaries of how and when business is conducted between businesses and their customers. That being said, the insurance industry’s customer journey over the last 100 years has not evolved or diverted from its basic business model: Brokers and agents are still the primary means for insurance companies to market and sell their products. This broker-dependent model served the industry well and remained the same while other industries have evolved their delivery channels. While there are some exceptions—such as Progressive and Geico, which use direct channels quite successfully—the industry’s most prevalent delivery channel remains with agents and brokers.

Given the insurance industry’s stability and profitability over time, the notion of a distribution chain realignment or agent disintermediation seems quite unlikely. This is bolstered by the fact that many large and successful companies played by the old business model quite profitably. Accordingly, there had been little incentive in the past to alter this business model. Today, however, insurance distribution is ripe for technological disruption, and carriers that ignore this trend are doing so at their own peril. We are on the verge of the perfect storm; the magnitude of technological availability and shifting demographics in the U.S. has the potential to disrupt and reorganize almost all aspects of the insurance customer journey.

Technology’s Adoption and Diffusion: Its effects on the general population

During earlier periods of technological growth, technology created more efficiency within the brick-and-mortar framework. Businesses were able to cut costs, automate design and streamline processes. The ultimate consumer did not necessarily enjoy lower prices or a better buying experience as a direct function of improving economies of scale. Moreover, consumers did not have additional access to pricing information, product research, reviews or product promotion pieces in real time. Instead, the average consumer bought through the retail channel that businesses sold through without any alternative.

Today, access to information is widely available in real time. If you want a product review on something you are interested in at your local store, you Google it. Then, if the review is satisfactory to you, you can go to a brick-and-mortar location and purchase it, or you can log on to an online store and purchase it from your sofa. The average consumer has more information and power at his disposal than ever before. He can search for prices at no cost to him and then make purchases. According to the U.S. Census in 2013, 84% of U.S. households reported computer ownership, with 79% of all households having a desktop or laptop computer and 64% having a handheld computer. 74% of all households reported Internet use, with 73% reporting a high-speed connection.

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Complementing this growth in computer home ownership is the increasing popularity of tablets. In just three short years (between 2010 and 2013), tablet ownership increased from 3% to 34%. With this advance in personal technology there comes access to information.

All these statistics raise the question, “Why is technology growth at the individual level important to the insurance industry?” Because many products offer information on the web just by clicking, there is a fundamental shift in buying behavior because of the speed of information. There is a certain convenience factor individuals currently enjoy by using digital channels for research. Convenience is a key factor along the customer journey. As an example, when buying an airline ticket, do you call the airline or simply log on to a travel site to research options and make a purchase?

Many in the insurance industry state that insurance products’ complex nature will require that consumers use agents and specialty advisers to assist with product selection. Many would agree with that statement, with some qualification. For large commercial and other extremely complicated risks, the agent and broker channel will exist, but for small commercial and personal lines the delivery channels will blur.

Some consumers will always pick up the phone or meet with someone to get a better understanding of risk products. That preference, however, may be a generational one. People born in the 1960s and 1970s did not have computers and tablets from a young age. The millennial generation is used to the convenience and the speed that digital technology affords.

As an example, a 24-year-old told the story of his first experience purchasing automobile insurance. He called a national firm’s local office to inquire about a policy. The agent was friendly but was not available to meet with him for several days. Thinking that was ridiculous, he declined the appointment and used a website to research, evaluate and price a policy. Following that, he spoke to a customer service representative who explained coverages and what they were. At the conclusion of the phone call, he paid for the policy and was done. His primary goal was to 1) get information quickly, 2) evaluate the coverages, 3) determine that the price was fair and 4) purchase his policy. This was also accomplished after business hours when it was convenient for him, not the agent. All told, using digital channels first and later interacting with a call center was the optimal delivery channel path for him.

Technology and New Channel Formation

With the widespread growth of personal computing devices in the U.S. increasing each year, insurance companies have begun to take notice. It’s not uncommon to see websites that outline the company’s products. As a general rule, however, when it comes to pricing policies, insureds are still referred to agents. Consumers of insurance products demand information on multiple channels. Many want the ability to research and evaluate products on their own, without an agent (this is an evolutionary change), but this does not mean they might not want to BUY insurance from the agent. The agent will be there to answer any final questions and to fit the product into the overall financial situation of the consumer. The real challenge for most agents is remaining relevant and finding a way to create value within the digital customer journey. To that end, agents must find a way to help expedite how information is distributed and consumed. If agents relegate themselves to becoming just order-takers, they will quickly become irrelevant and will add very little value to the process. In other words, the agent’s role must evolve to avoid obsolescence. The agency distribution channel is not dead.

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While there will always be agents representing insurance companies, their roles and their interactions with the industry and insureds will change over time as new distribution channels manifest themselves. The questions of “where” and “how much value” are what is changing. Some customers will use channels differently, but it is up to agencies and brokers to understand their target market’s preferences for channel selection. Agencies who do not use an omni-channel strategy will lose business to other agencies that do. Also, agencies need to create value through content, creating a clearly defined holistic- and flexible-guidance value that resonates with customers. Those who are able to evolve will continue to thrive, but those who do not will either continue to lose business or will close their doors. If you look at the travel agent industry, the number of travel agents has declined markedly, but there are still agencies in business that provide value to their customers. These agencies simply evolved and realigned their value proposition and targeted their customer segments quite successfully. The result is that there are far fewer agencies than there were 10 years ago. The same will occur with the agency channel.

The Rise of Omni-Channel Delivery

Under the old insurance distribution model, consumers were expected to shop for insurance with their agent, who would also be there for their subsequent questions or for submission of claims. Today, consumers increasingly expect to interact with their insurance provider on the consumer’s schedule through omni-channels. Subsequently, the agency delivery channel’s role is changing.

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Perhaps, spoiled by a streamlined customer experience in other industries, consumers now want to research their purchases online and then decide whether to buy online or through brick-and-mortar stores. Blogs and consumer reviews are also important to today’s consumer. The way people shop is evolving at a rapid rate, and insurance companies need to recognize that. Carriers like Plymouth Rock, for example, are experimenting with an “option direct” delivery strategy. It allows prospective insureds to quote policies and, at their option, bind the business directly with the company. If the prospective insured does not purchase the policy online, it is released to an “agent exchange” where an agent purchases the lead and then follows up to cross-sell, up-sell or quote other companies. Using this approach, Plymouth Rock allows for a direct distribution channel with an option to work with an agent for coverage advice.

Time will tell if Plymouth’s model is successful, but, given the demands for omni-channel availability, it certainly makes sense that the company tests the model’s efficacy. This test presents an interesting business practice. Testing new distribution channels is a must. No one person—or expert—truly knows how distribution channels will evolve over the next few years. What is widely known, however, is that these channels exist and that they are viable alternatives with lower cost structures to insurance carriers. Also, what doesn’t work this year may work quite well five years from now. These new channels may just be a step in the customer journey, or they may turn out to be the point in the customer journey where purchases are made: i.e. the moment of truth. Either way, understanding target customer preferences is critical in an omni-channel world. Successful insurance companies will constantly test their channels to determine what the most effective strategy is for sales conversions.

Omni-Channel and Commoditization

With the proliferation of multiple distribution options, insurance companies are increasingly forced to compete on price instead of features. The growth of price comparison sites and aggregators makes buying insurance based on price even easier for the consumer. These channels provide a list of insurance policies ranked in ascending price order. On the surface, this presents challenges. From the carriers’ perspective, this is not the optimal solution because price alone does not explain the value of a policy or a company’s ability to pay claims. From the consumers’ perspective, buying solely on price potentially subjects them to improper or incomplete coverage. Yet, despite these challenges, over the last decade insurance product commoditization has occurred (e.g. personal auto).

To counter commoditization, insurance companies need to position themselves effectively to differentiate their product offerings. Evaluating the demographic preferences and buying habits allows insurance companies to more effectively target their customer base and not rely on price alone as the distinguishing factor. Deciding on a differentiation framework is even more important today given the changes in the market. Companies can compete on service (e.g. fast, no hassle claims), 24/7 accessibility, customer experience, unique product offerings, speed to market, leadership in the industry, etc., but they must fight to make sure these differentiators are made known in the midst of increasingly commoditized interfaces, distribution and thinking. To counter commoditization in the digital era, it might behoove insurers to select strategies other than price to compete and stand out from the competition and, secondly, to make sure these strategies are obvious and well understood by the consumers who might tend to look first at price.

The Importance of Millennials and their Preferences

The demand for omni-channel customer journeys is in its infancy. Consequently, there are fundamental differences in Internet use and shopping behavior by millennials, as compared with other generations. As baby boomers and Generation X age out, millennials and the subsequent generations who have experienced technology from an early age are going to drive market behavior on a larger scale. They are comfortable with an omni-channel approach and expect to find information available on the Internet so they can research their purchases. These consumers have skills, beliefs and requirements that previous generations did not have. (How many children help their parents and grandparents with their online challenges?) If one were to summarize some of the millennials’ characteristics and their digital preferences, a number of the following points deserve mention:

  • Based on their familiarity with technology, they are open to using digital channels as an option for purchases;
  • Millennials currently make up 25% of the population but will make up 75% of the population in 2025. Some of them are going to rise to the management level;
  • Convenience and ability to purchase goods and services 24/7 is important to them;
  • Online reviews and blogs are widely used in their decision making;
  • Millennials interact with brands on Facebook and other social media sites;
  • Opinions of others—particularly friends and family—influence buying decisions.

The power of insurance customers to voice their opinion is particularly strong with digital channels. A dissatisfied customer has the ability to vent his negative experiences to a massive audience. Online reviews and blogs are a powerful information source for current and potential customers, and these

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sources can—and do—influence customer behavior. This shift in power drives home the importance of customer experience. With today’s social media, a negative experience could go viral and give a company a public relations nightmare. Conversely, publishing success stories that prove alignment with customer needs is an excellent way to demonstrate a company’s core values and reinforce its positioning as an insurer that fosters an excellent customer experience.

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As stated earlier, over time, millennials’ buying preferences will become more and more important to numerous industries, including insurance. Because the millennials’ demographic will make up 75% of the workforce in 2025, many insurers will need to evolve their distribution channels and their customer interaction strategy to better serve this demographic. As far as personal lines are concerned, this demographic group will influence distribution channels more immediately because millennials are now at the age where they need to purchase insurance products. What is not clear today is which omni-distribution channel is the most effective for insurance distribution. Recognizing that, providing omni-channel delivery ensures that all options are covered and that marketing opportunities for customer touch are available.

It is the prevailing wisdom that the more an insurance company interacts with its customers, the more likely it is that customers will renew their coverage. In the old agency model, the only touch points for an insurance company are the claims and billing processes. To accomplish additional touch points, publishing content works quite well. Today, content- and information-sharing is one of the main avenues for adding value to customers. As an example, some homeowners insurance companies send out text warnings to areas in the path of a hurricane or tornado to guard against loss of life and property. Others use content quite differently. Topics that are relevant to a customer base (that are not insurance-related) work equally well. As another example, one insurance company sends out gardening suggestions based on demographic data.

Because insurance is a low-interest category to most consumers, insurers that publish content that interests their customers will create engagement and, consequently, develop a connection with their insureds. Only a small percentage of consumers actually file claims, and most insureds have little or no contact with their carrier. As a result, a content strategy allows insurers to interact with the majority of their customers other than just in claims or billing situations. This greatly increases customer touch and provides the opportunity to improve the customer experience. In the near future, however, content will become commonplace and expected, while user experience will determine the winners and losers in the marketplace.

Additional Demographic Shifts

The U.S. of 2050 will look very differently from that of today: Caucasians will no longer be the majority. The U.S. minority population, currently 30%, is expected to exceed 50% before 2050. No other advanced country will see such diversity. In fact, most of the U.S.’s net population growth will be among its minorities, as well as in a growing mixed-race population. Latino and Asian populations are expected to grow threefold, and the children of immigrants will become more prominent. Today in the U.S., 25% of children under five years old are Hispanic; by 2050, that percentage will be almost 40%. As a direct consequence, insurance companies need to start their long-term planning for these demographic shifts and must have strategies to serve these segments. In addition, the number of women in the workplace is increasing. As women grow in the management ranks, their influence on buying decisions will increase accordingly. Currently, women are responsible for 85% of all consumer purchases, including everything from autos to healthcare. Farnaz Wallace—the founder of Farnaz Global, a strategic consulting firm—said, “In the New World Marketplace, women, youth and multiculturalism are shaping our future economically and culturally, and companies must find ways to stay relevant in a world different than the one taught in textbooks.” He also said, “Millennials are the most racially and ethnically diverse generation in American history—gender-neutral and colorblind—transforming business norms.”

Conclusion

Throughout business history, products have fulfilled human needs. Think about how the automobile, air travel and the microwave oven changed the way we live. All these innovations took place on the company side of the value chain. In the past, these products disrupted other products. What makes disruption more likely in the insurance industry today? The major shift in the customer journey. Today, information is available to consumers on a massive scale and is virtually free. The agent is no longer the sole channel for information and product delivery. This disruptive cycle is substantially different because it empowers customers to use different channels during the purchase journey, channels that never existed before. Additionally, a generation of insurance purchasers are coming online with a major predisposition for utilizing omni-channel approaches. Companies that ignore these shifts are taking a major risk with their future viability because these shifts have already occurred and will continue with tremendous momentum.

Connected Humans, Version 3.0

Whether you commute to work on public transport to work or fly between busy airports to serve your clients, wherever you go you will see people glued to their phones, tablets or e-readers. More than likely, all these devices are connected to the Internet in real time over a mobile network or capable of connecting via Wi-Fi.

There is so much written on the connected car and the connected (“smart”) home, but we also need to open a discussion about connected humans.

Let me clarify: I have no interest in talking about social networking. I’m more interested in connections from the perspective of tracking health and biometric data to be used by the healthcare and insurance industries for pricing.

A decade ago, we were limited by the technology and the computing power of hand-held devices. Wearables and ingestible devices were nowhere in the ecosystem. It made perfect sense to use historical data to price and sell products based on stale census information.

Technology drivers

Fast forward to the current time. Computing power has scaled exponentially over the last decade. We have devices that can track, store and filter essential lifestyle and health data, and we have predictive analytic capabilities that would make historic rating methods look like the Stone Age.

Market demographics

The growth rate of Millennials earning paychecks is not keeping pace with the growth in the aging population living off savings. If that was not bad enough , buying behaviors of Millennials indicate that insurance is not one of their top priorities. There are numerous surveys you can find online that point to this problem.

We have heard of “gamification” and customer engagement in the context of banking and financial services, to attract Millennials, but insurance and healthcare companies have barely touched the tip of the iceberg on this. The amount of biometric data that can be harvested and used for predictive analytics could include a host of items, including blood pressure, heart rate, vitamin count, sleep patterns, activity metrics and blood sugar, just to name a few. All this information, harvested and analyzed to price and sell a host of new products to new market segments with lifestyle diseases like diabetes or obesity, opens the route to gamification of healthcare apps and much better life insurance pricing. Providers today stop at just providing discounts on the fringes as I see it, not truly revisiting pricing.

With technology evolving at the pace it is and with our ability to get more out of the data through predictive analysis, the healthcare and insurance segment could look very different 10 years from now.

There is a school of thought that says privacy issues will limit the use of biometric data, but, if there is a business model that works for weight watchers and diabetic forums, there is a business case and a market segment to change the way insurance and healthcare products are priced and sold.

Hertz has begun to pitch itself as a used-car sales channel, allowing the consumer to test drive a car for an extended renting period and then buy or not buy the car. In the insurance or healthcare context, if pricing were driven by behavioral patterns and biometric statistics, you could offer an extended free look or evaluation period allowing a skeptical diabetic or obese customer to try devices, see the effects on their health and the corresponding premium discounts and then make a decision on locking into the product.

Insurance and healthcare have not truly embraced the technology and buying behavioral shift of customers. What remains to be seen is who leads the charge. Will it be insurance and healthcare companies? Will it be technology giants like Google, which are already tracking a lot of what people do? Or will it be a company like Tesla and Uber, which have disrupted traditional industry segments where they were never the incumbent.

What Microsoft’s Errors Can Teach Us

What would it take to convince people that your business delivers a great customer experience? For tech giant Microsoft, the answer was more than $1 billion.

That’s how much the company reportedly spent on its Windows 8 marketing campaign when the new operating system was launched in 2012. (See, for example, “Microsoft Betting BIG On Cloud With Windows 8 And Tablets,” Forbes, Oct. 11, 2012.)

And how’d that work for them? Not so well. Windows 8 sales were underwhelming at launch, garnering far less market share than Windows 7 at the same point in its release cycle. So, what went wrong?

In a word, it was the experience of using Windows 8. The software was designed to support both touchscreen tablets and traditional desktop PCs, but it handled neither particularly well. Many software reviewers and design gurus found the Windows 8 interface just plain confusing. One even declared that it “smothers usability” (Jakob Nielson of Nielsen Norman Group, Nov. 19, 2012, article titled “Windows 8 — Disappointing Usability for Both Novice and Power Users.”)

But this isn’t a story about the usability of a new software program. It’s a sobering reminder that great, loyalty-enhancing customer experiences — the kind that get people talking and buying — can’t be created with Super Bowl ads, stadium naming rights, public relations blitzes or any type of advertising campaign.

Those marketing instruments may help pique people’s interest in what you have to offer, but it’s the actual interactions they have with your company — the customer experience itself — that will ultimately drive long-term engagement.

Microsoft isn’t the only organization that’s erred in this regard. Many companies, across many sectors, try to use their marketing muscle to win the hearts and minds of consumers. The property/casualty industry spent more than $6 billion on advertising in 2013, according to research firm SNL Financial. And that’s just the carriers. It doesn’t include marketing expenditures by agents and brokers that, albeit smaller in absolute terms, are nonetheless material expenses for many field offices.

Some in the industry would argue that these are necessary expenditures, required elements for raising brand awareness and consideration among one’s target market.

That’s a fair statement, but in reality what often happens is that the marketing of a company’s brand promise gets far more attention than the fulfillment of that brand promise. And it’s that disconnect for customers that will undermine even the most carefully orchestrated branding campaigns, as Microsoft learned.

How can you help your organization avoid this kind of misstep?

Use the three tips below to reconsider what it really means to manage your company’s brand experience:

1. Think about brand in a brand new way.

If the term “brand management” conjures up images of your chief marketing officer or advertising agency, then it’s time to think more broadly. People’s impressions of a company’s brand will be shaped by the totality of interactions they have with the firm.

Granted, some of those interactions will be more influential than others, but they all serve to shape customer perceptions in some fashion.

Companies that cultivate intense customer loyalty recognize the broad array of touch points that compose their brand experience. And they actively manage those touch points to create great, even legendary, brand impressions.

For them, brand is about much more than a billboard, radio spot or TV advertisement. It’s about the end-to-end experience, from pre-sale to post-sale. It’s about their website, their call center, their retail outlets, their customer correspondence, even their billing statements. Every live, electronic or print interaction you can imagine.

Case in point: Amazon.com’s obsession with packaging. The online retailer, perennially rated among the most loved brands in any industry, obsesses over every detail of their brand experience, right through and including the act of opening up the box they send you.

Amazon recognizes that, even if subconsciously, the mere act of opening up a package will necessarily influence customers’ perceptions about the purchase process. And so they’ve tried to make even that as easy as possible by introducing “frustration-free” packaging that eliminates metal twist ties, razor-sharp plastic clamshells and other annoying wonders of modern packaging.

As a result, it isn’t just buying from Amazon that’s effortless (thanks to their patented one-click purchase button), so, too, is opening the package they send you. That’s what end-to-end management of the brand experience looks like in practice.

Think of all the customer interactions that will either reinforce your company’s brand promise or undermine it: coverage quotes, sales proposals, insurance applications, policy contracts, loss control programs, renewal communications, premium audits. The list goes on and on.

No matter what you choose to have your brand stand for — simplicity, expertise, helpfulness, sophistication, expediency or some other attribute — ask yourself if that theme truly permeates your company’s brand experience, and not just its advertising. If it doesn’t, remedy that by better balancing investments in promoting your brand promise with investments in actually fulfilling it.

2. Don’t just say it, prove it.

Talk is cheap when it comes to brand promises.

Any company can claim through its marketing to be something that it isn’t: fast, friendly, knowledgeable, client-focused, easy to do business with. What ultimately matters to customers isn’t what you say but what you do.

The most compelling brand promises are those that are backed up with tangible proof points — things that demonstrate very clearly to customers (or prospects) that your business really walks the talk.

Take Southwest Airlines, a company that aims to make air travel a bit friendlier, fun and hassle-free. Among the proof points: warm, personable staff and no baggage fees.

Or Trader Joe’s, a company that’s sought to make the grocery-shopping experience less overwhelming. (How many varieties of ketchup does the world really need?) Proof point: The company stocks shelves with just a fraction of the number of SKUs carried by competitors, each carefully selected based on target consumer tastes.

Patagonia, a maker of outdoor clothing and gear, has marketed itself as an environmentally responsible company. Proof points: The company uses organic cotton — and even recycled soda bottles– to make clothing and also donate 1% of revenue (sales, not profit) to environmental organizations.

All three companies are beloved by their customers, in part because people know what these organizations stand for and see them delivering on their brand promise in very demonstrable ways.

Does your company’s brand promise pass the “proof point” test?

Consider what your firm has chosen to be famous for, what brand attributes you’ve claimed, and then ask yourself: What could you point to that proves it?

If you’re at a loss to identify some tangible proof points, start creating some. Look at your customer touch points through the lens of your brand promise — coverage quotes, applications, policy documents, correspondence, premium audits, etc. Think about how those touch points could be reshaped (or new ones added) to help bring your brand message to life during routine interactions with customers.

And even if you are able to identify some existing proof points, it’s worth asking: Are you adequately highlighting them in your marketing campaigns? You might be aware they exist, but your customers and prospects might not. Don’t keep them a secret. Follow the lead of companies like Southwest, Trader Joe’s and Patagonia and show the marketplace that your organization’s claim to fame is anything but hollow.

3. Don’t sabotage your sales.

While you can’t advertise your way to a great customer experience, you can at least hope to fill your sales pipeline via those marketing efforts.

But even that marketing investment is pointless if it’s not easy for people to comprehend and buy your products. The purchase experience is an integral part of the customer experience. Sales interactions are as important to shaping your brand as service interactions.

Yet companies often sabotage their sales (and undermine their marketing efforts) by making it difficult for people to buy their products. From poorly staffed retail stores to ill-equipped telephone sales reps to unnavigable websites, businesses erect obstacles that exhaust even the most interested prospects.

BlackBerry, a company that dominated the mobile handset business for years, learned this the hard way as its product portfolio burgeoned and sales process became increasingly complex.

The inflection point came around 2011, when consumers who visited BlackBerry’s website were met with a wall of more than 20 device images– all with confusingly similar names (Bold 9780, Bold 9700, Bold 9650, etc.)– presented on a black screen that made it difficult to even see the devices. Plus, the site offered no “electronic wizard” to help prospective purchasers narrow down the handset selection based on how they intended to use the device.

Contrast that with what visitors to Apple’s iPhone website saw: just three smartphones, presented on a beautiful, bright and transparent background, making it easy to not just discern the devices but to choose the one that best met their needs.

Comparing these two product purchase experiences, is it any wonder that Apple’s handset business thrived while BlackBerry’s stumbled?

Oftentimes, it’s not the best product that wins in the marketplace but rather the one that’s most easily accessible and understandable to the customer. Our brains are wired for the path of least resistance. The more thought and energy required to navigate the purchase process, the more likely it is that people will just abandon the effort — and buy something that’s less taxing on their minds.

Maximize the effectiveness of marketing programs by carefully shaping the customer experience — long before they’re a customer. How easily can prospects navigate your product portfolio? Comprehend product features? Interpret a sales proposal? Get purchase guidance when they need it?

These are the questions you should be asking to create a purchase experience that not only burnishes your brand but also turns more prospects into customers.

No matter what you’re selling, the real battle for people’s hearts and minds isn’t waged on billboards and airwaves. Marketing campaigns may provide air cover, but the hand-to-hand combat of each customer interaction is where true loyalty is forged — the simplicity of your sales process, the usability of your products, the clarity of your communications, the helpfulness of your staff, etc.

So, before you hang your hat on an expensive marketing campaign to convince people how wonderful your product or service is, ask yourself why they need convincing at all.

This article first appeared at Carrier Management.

Insurance in a Digital World: The Time Is Now

From market instability to catastrophic losses from natural disasters, insurance companies face many conflicting challenges. But the toughest challenge facing the insurance sector now is the adoption of digital technology.

Digital is transforming consumer behavior and driving insurance executives to reassess their business models. Our 2013 global survey of more than 100 insurance companies explores digital readiness, leadership strength and future strategies. With many insurers on the sidelines of the digital shift, it’s time to make the digital agenda a higher priority and tackle the challenges ahead.

Insurers view digital as a key priority, but are lagging far behind

While the majority of insurers believe in the importance of digitalization to deliver the customer experience, many express concern that they will be left behind as shorter-term corporate priorities lie elsewhere.

79% say they are “not setting the baseline” for digital or are “still learning.”

57% have operating models that do not faciliate digital.

89% don’t consider past interactions when recommending products or services to online customers.

Key findings from the survey

1. Insurers acknowledge their current low levels of digital maturity and the need to take action. Almost 80% of respondents do not see themselves as digital leaders, and are instead trailing the spectrum in customer engagement, analytics and adoption of mobile and social media. The majority believe instead that they “only play the digital game” or are “still learning to use digital capabilities for a competitive advantage.”

2. Companies have high digital ambitions – but are they grounded in reality? While insurers aspire to future digital leadership, they haven’t made the significant improvements necessary to realize their ambitious digital objectives. By their own admission, more than two-thirds of insurers have delivered some easy quick wins, but only 10% cite transformational changes to digital capabilities.

3. Insurers are holding themselves back. Internal factors — legacy technology, slow pace of delivery and cultural constraints — are hindering digital progress. Focusing on key enablers such as culture and innovation will release significant future value and enable companies to better grasp digital business opportunities as they arise.

4. It’s all about retention through improved customer experience. The two biggest drivers of digital strategies are “enriching the customer experience” and “regaining more direct control of the customer relationship.” While the cost of acquisition continues to rise, retaining existing customers is an increasing necessity and should be a critical and measurable benefit of any improvement in the customer experience, digitally enabled or otherwise.

5. Distributors are digital customers, too. Insurers cite intermediary and agent channel strength or resistance as one of the top three inhibitors in implementing a digital strategy. Sharing the benefits of investment in digital and communicating a clear mutual value proposition to deliver a better customer experience will help to minimize channel conflict.

6. Analytics are critical to digital success. Segmentation, customer data analytics and predictive modeling emerged as the digital skill set most in demand, followed closely by technology and marketing capabilities. Analytics capabilities are a prerequisite for extracting maximum value from digital investment.

7. Insurers need to embrace the mobile and social media wave. With mobile and tablet use growing exponentially, neglecting mobile is turning one’s back on the future. Similarly, insurers could be taking social media more seriously, recognizing its value as a relatively inexpensive marketing tool and a means to engage with and influence skeptical, digitally-savvy younger consumers.

How insurers should respond

Adapting to a new digital landscape presents many difficulties for insurers as they face challenges in introducing new channels to market while simultaneously remodeling traditional ones.

While no single solution can seamlessly integrate digital into a business, there are elements intrinsic to all effective digital strategies. Insurers need a vision that focuses on the basics:

  • Framing the investment argument for digital
  • Building the analytics infrastructure
  • Embedding a culture of innovation into the organization

A robust digital strategy begins with a plan and a sound understanding of the practical realities of implementation. Each of the elements – corporate strategies, customer expectations, target operating models and enabling frameworks – will shape each other as digital capabilities develop.

Related Resources
Download the full study
Review an illustrative summary of the survey
View the on-demand webcast
Read the press release

Authors

Graham Handy collaborated with Shaun Crawford in writing this article and in preparing the deeper study based on the survey. Shaun Crawford leads Ernst & Young's Global Insurance Industry across all services; audit, consulting, tax and corporate finance. Although based in London, he spends the majority of his time traveling across the Americas and Asia.

Location, Location, Location – It Matters in Insurance, Too

Location plays a critical role in the insurance industry. The issue of place is central to business acquisition, channel management, underwriting, and claim adjudication, to name a few insurance business functions. However, most insurers are challenged by how to find, access, and use the requisite geographic information to improve decision-making, operations, and customer service. Fortunately, one potential solution to the challenge is emerging through the use of three groups of technologies – social media, location intelligence, and mobility – which some technology and telecommunication firms are beginning to support and/or package together into one set of interdependent capabilities called SoLoMo. Ovum's recently published report SoLoMo: Social, Location, and Mobility Join to Enhance Insurance Commerce and Service describes what SoLoMo is and discusses SoLoMo's stages of engagement, major capabilities, and revenue opportunities for insurers. One revenue possibility is offering telematics value-add services such as discounts at restaurants to reward good driving behavior.

SoLoMo is a set of capabilities that “knows” about the longitude and latitude of a geographic area and, to some degree, knows in real time about the tangible assets (e.g. buildings, vehicles, livestock) within it, whether those tangible assets have embedded sensors or not. SoLoMo creates and delivers its knowledge in a real-time, geographically defined context. The contextually determined knowledge is created by streams of information captured on a device as a person travels to or moves through a location. That information includes the needs of the person using the device, the device's location, and the location's tangible assets. The information also includes social media and business enterprise social network feeds about the location and its tangible assets. Currently, a SoLoMo device could be a smartphone, tablet, or vehicle with an embedded sensor.

There are four stages of real-time engagement between a SoLoMo device and its surroundings. SoLoMo devices can already support some of the capabilities of the first three stages of engagement:

  • Stage 1 – Passive engagement: This is the basic level of SoLoMo engagement, and it offers a “for your information” purpose about the location of homes or businesses.
  • Stage 2 – Active engagement: This level of engagement includes the commonly available turn-by-turn directional guidance with or without voice navigation. However, it could also include receiving information from other smartphones or tablets in the geographic area.
  • Stage 3 – Interactive engagement: This level of engagement enables insurance stakeholders to receive and incorporate information from sensor-embedded tangible assets in the geographic area concerning their state (e.g. damaged or destroyed).
  • Stage 4 – Autonomous engagement: This level of engagement enables the SoLoMo device to accomplish everything in Stage 3 but without human intervention.

SoLoMo will need to encompass six major capabilities to support insurance company commerce and service requirements as the levels of engagement evolve through the four stages. The objective of each capability is:

  • Determine: This capability enables users of a SoLoMo device to determine if a physical artifact exists in a given location, whether the person using a SoLoMo device is stationary or moving through the geographic area.
  • Share: This capability enables users of a SoLoMo device to share ideas with personal social media or enterprise social network (ESN) members about the state of the physical artifact and its content.
  • Capture: This capability enables users of a SoLoMo device to capture information about the location and its tangible assets (and possibly the contents of each tangible asset).
  • Interact: This capability enables users of a SoLoMo device to interact with a digital avatar representing the tangible asset and its content. The digital avatar would store the date and nature of the interaction as well as the name or other identification of the SoLoMo device (or person using the device) engaging with it.
  • Integrate: This capability enables users of a SoLoMo device to integrate third-party data sources (e.g. NOAA, Marshall & Swift/Boeckh) and information from the insurer's ESN, core administration, and customer relationship management or customer experience management (CRM/CEM) systems together on the device.
  • Personalize: This capability enables the user of a SoLoMo device to receive personalized information based on the insurance stakeholder's needs and the geographic area.

SoLoMo offers insurers an opportunity to provide fee-based value-added services. This is important because it helps insurers diversify their earnings from being primarily risk-based premium revenue. Examples of value-added services that insurers could offer policyholders or prospective clients include the following, which could be augmented with social media feeds or, where appropriate, the insurer's ESN content and real-time commentary:

  • Telematics services – Insurers could offer: (1) discounts at restaurants based on good driving behavior; (2) safe driving programs that provide discounts on automobile insurance premiums to policyholders willing to install a device, or an app on an existing device, that prevents the driver from using a smartphone while the vehicle is in motion; or (3) information about the closest authorized automobile repair shop.
  • Remediation services – Insurers could provide a buying service for requisite items to restore retail customers’ homes or commercial clients’ business facilities, including bundling reviews from other policyholders or the general marketplace about the quality of products and services from companies selling the replacement products.
  • Child or elderly parent safety monitoring – Insurers could offer clients monthly geo-fencing monitoring of children or elderly parents' movements within a target location.
  • Business interruption cost estimation – Assuming the enterprise has a sufficient number of embedded sensors in the facility's structures and content the enterprise sells, insurers could estimate the state of each of the enterprise's tangible assets (existence, destruction, damage), compare that with data sources relating to labor and material cost to replace or remediate the tangible assets, and wirelessly report that information to the enterprise's CFO and chief risk officer (and to the insurer's actuarial and claim departments).