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Keen Insights on Customer Experience

The need to improve customers’ experiences in interacting with insurers strikes me as so acute that I’m going to take a shot at the issue here, even though we’ve been hitting it hard in a series of articles from Capgemini and Salesforce over the past month. (The articles are here, here, here and here, and a related white paper is here.)

I want to share what I found to be some keen insights from a webinar I hosted last week with executives from the two companies and with Donna Peeples, a member of our advisory board who was the chief customer experience officer at AIG and who is currently the chief engagement officer at Motivated, a consultancy she founded to help improve experiences.

The basis argument goes like this: Customer ratings of their dealings with insurers are bad and getting worse, putting hundreds of billions of dollars of premiums at risk. Insurers need to solve the problems and even find ways to start delighting customers. Technology must play a huge role.

But a lot lies behind that straightforward argument, and a lot of art, as well as science, needs to be applied to the problem. Thus the insights from the webinar, whose panelists, in addition to Peeples, were Nigel Walsh, vice president, insurance, at CapGemini, and Jeffery To, senior director, insurance, at Salesforce.

The insights are too long to fit on bumper stickers but are still plenty pithy and deserve careful thought.

The Problem

Peeples:

“Let’s face facts. Who really gets excited about buying insurance? It’s just not that much fun.”

“We think of claims as our product, when in actuality peace of mind is really our product.”

To: 

“There’s $400 billion in premiums across P&C and life that is at stake. That’s because 70% of policyholders are making renewal decisions in the next 12 months.”

“You lose, not just the customer for that one policy, but you lose the lifetime value of that customer.… The second thing that insurers will suffer from when a customer leaves is brand erosion, because in this day and age, with social media and mobile and so forth, bad news travels fast.”

Walsh:

“Insurers get compared to every other retail product or retail approach that consumers make. More often than not, of course, those are retail purchases that you make. They’re joyful, they’re delightful, they’re exciting.”

What Customers Want

Walsh:

“GAFA — or Google, Amazon, Facebook, Apple: If I could describe the ideal experience every one of us wants, we almost want data like Google have it, supply chain like Amazon have it, a community like Facebook have and a brand like Apple….This whole concept of GAFA to me gives you the ideal framework for what a great experience would look like.”

The Key Words to Focus On 

Walsh:

Convenience: “Let me pick on Amazon and Amazon Prime, specifically. I’m still in awe that someone turns up on Sunday morning, first thing, with my package I ordered the day before, and it’s just there…. The speed at which they operate and are able to fulfill those things, we need to apply that to a claims scenario or a mid-term adjustment.”

Relevance: “We need to be relevant to customers time and time again, as opposed to approaches that we do once a year or at certain points in the year….Day in, day out. ADT and Nest is an example about how you become relevant to your customer by doing more than just insurance.”

To:

Seamlessness: “Customers are expecting the Apple-like experience….You want to provide that effortless experience to policyholders across all phases in their journey.”

Stickiness: “If you can provide agents and brokers with the latest product updates, support and expertise with the same ease as in a community like Facebook, you’re creating loyalty and stickiness.”

Integrated: “Insurers have grown through acquisitions….I’ve worked with insurers who’ve got hundreds of different legacy systems, back-office claims, policy billing systems that they have to deal with, and you can’t achieve a true single view of a customer without integrating all of these various pieces.”

The Solution 

Peeples:  

“Always start with the people. We have to stop thinking about sorting data, and we have to start thinking about beating hearts.”

“We all talk about busting silos, but silos are like cockroaches. They’re going to outlive us all.”

“How do you think about those verticals where we all take such good care of the customer and say we own them, when in fact we’re all just caregivers for a certain amount of time along that customer’s journey? The elegance, or lack thereof, of those hand-offs is where I would also focus.”

To:

“If I’m a service agent or a sales agent, regardless of what device I’m using, whether it’s a desktop or a mobile device, I want a single view of that policyholder that pulls together things like claims history, policy changes, interaction history, and add all of that in addition to policyholder profile information…. If I’m a life provider, it’s important for me to know who the spouse and the children are because they could be potential dependents or beneficiaries. Tying all these pieces together requires more than just a unified front-end user experience. You need to actually unify the underlying pieces.”

Walsh:

“[The three most important areas for focus are] connecting elegantly, engaging regularly and seeing completely.”

“Engaging regularly is actually a tough challenge for insurance organizations because ultimately, why would I want to talk to my insurance provider unless it’s a time of crisis? …There are some great examples, from the connected car, the connected home, the connected self, where we can actually regularly engage with each of our individuals that we want to market to and talk to. That’s really, really key.”

“Millennials want to connect the way that says, “We actually have no clue what we’ve bought. We’re worried about what we’ve bought. Therefore, can we speak to someone that’s going to give me the assurance and confidence and walk me through the process?”

Peeples:

“The call center folks generally, not always, are some of the lowest-compensated. Maybe some of the least-trained. But they still represent the brand every single day as surely as the senior executives when they’re speaking on analyst calls or to Wall Street. Those people are really where the rubber hits the road. If you haven’t gone out and stood in the retail locations and seen the interactions, if you haven’t sat at the caller processing centers… these are the warriors of your brand and of your company.”

“There was a study that was conducted around call centers that found that, in 2013, the average number of screens that a CSR would have to pull up to get to what you and I as a customer would think is a relatively simple answer, was five. That number jumped in 2014 to seven…. I would encourage just a very thoughtful process around connecting those systems.”

“We have to recognize that we no longer have the benefit and control of a monologue at the customers or stakeholders. It’s no longer ‘word of mouth’; it’s a ‘world of mouth’ out there.”

“We talk a lot about the customer’s journey, but there’s also equally as important an employee journey that creates this double helix that is the corporate DNA.”

Walsh:

“You can actually break the problem down into some quick hits. We’ve got some clients that launch products in 30 to 40 days. I say that to most people, and they almost fall of their chair because the usual time for these things is six, 12, 18 months….You need to tweak it, or it’s going to fail. But with modern technology at least you can try and prove it and move it into a full rollout or move on to a different thing.”

Peeples:

“We need to listen to our customers, get out of our focus group of one, out of our own head.”

To:

“It simply will not work to turn to the predefined business process maps that you’ve done in the past. Don’t turn to those. Think first about the customer and agent experience, what their goals are, and design the customer experience around those goals. Don’t pave the cow path.”

“Rationalize. Make those tough decisions about what systems that you have in your spaghetti factory of legacy systems, which ones of them are strategic and which ones are you going to sunset.”

“Unify. Before you can even take the first few steps toward actually deploying or designing, you need to get basic blocking and tackling stuff done, like governance. Like having a common data model in place so that everyone agrees on what the data is, how it’s defined and where it’s going to come from. Unify the visions across the various levels in the organization.”

“You want to be able to measure your results. At the end of the development and after we’ve let it run for a little while, have we met our objectives?”

“Before problems even arise, you want to be so in tune with where that policyholder is in their interactions with you or in their life events that you are able to actually provide value-adding services and information before it even has to be requested.”

Walsh:

“Think big, start small, act quickly.”

“The cross sale, up sale is a constant, constant challenge. Most companies that I work with right now have an average of 1 to 1.1 products per customer. Best in class will tell you that it’s probably 3 products per customer. What’s the route for 1 or 1.1 to 3?”

Final Words

Walsh:

“Believe me, it’s absolutely possible to do some crazy things out there.”

Peeples:

“Let’s be honest here, we talk about hearts and minds, but it’s really about hearts, minds and wallets.”

“By the numbers, 55% of our customers tell us that they would pay more for guaranteed better service, and 82% of our customers would buy more from us if we just made it easier for them. 89% of our customers said that they would quit doing business with us after a bad experience.”

“Stop thinking about transactions and start thinking about relationships. Whether they’re customers or they’re employees or they’re part of the bigger universe of stakeholders including the intermediaries and the legislators and the regulators, it’s about the people.”

“Always keep the people in mind. Be data-informed and technology-enabled, but always think about the people.”

To hear the full webinar, click here. To see the slides, click here. If you want the full transcript, email me at paul@insurancethoughtleadership.com.

Bonds Away: Market Faces Major Shift

As we are sure you are aware, the financial markets have had a bit of a tough time going anywhere this year. The S&P 500 has been caught in a 6% trading band all year, capped on the upside by a 3% gain and on the downside by a 3% loss. It has been a back-and-forth flurry. We’ve seen a bit of the same in the bond market. After rising 3.5% in the first month of the year, the 10-year Treasury bond has given away its entire year-to-date gain and then some as of mid-June. 2015 stands in relative contrast to largely upward stock and bond market movement over the past three years. What’s different this year, and what are the risks to investment outcomes ahead?

As we have discussed in recent notes, the probabilities are very high that the U.S. Federal Reserve will raise interest rates this year. We have suggested that the markets are attempting to “price in” the first interest rate increase in close to a decade. We believe this is part of the story in why markets have acted as they have in 2015.

But there is a much larger longer-term issue facing investors lurking well beyond the short-term Fed interest rate increase to come. Bond yields (interest rates) rest at generational lows and prices at generational highs — levels never seen before by today’s investors. Let’s set the stage a bit, because the origins of this secular issue reach back more than three decades.

It may seem hard to remember, but in September 981, the yield on the 10-year U.S. Treasury bond hit a monthly peak of 15.32%. At the time, Fed Chairman Paul Volcker was conquering long-simmering inflationary pressures in the U.S. economy by raising interest rates to levels no one had ever seen. Thirty-one years later, in July 2012, that same yield on 10-year Treasury bonds stood at 1.53%, a 90% decline in coupon yield, as Fed Chairman Bernanke was attempting to slay the perception of deflation with the lowest level of interest rates investors had ever experienced. This 1981-present period encompasses one of the greatest bond bull markets in U.S. history, and certainly over our lifetimes. Prices of existing bonds rise when interest rates fall, and vice versa. So from 1981 through the present, bond investors have been rewarded with coupon yield (continuing cash flow) and rising prices (price appreciation via continually lower interest rates). Remember, this is what has already happened.

As always, what is important to investors is not what happened yesterday, but rather what they believe will happen tomorrow. And although this is not about to occur instantaneously, the longer-term direction of interest rates globally has only one road to travel – up. The key questions ultimately being, how fast and how high?

This is important for a number of reasons. First, for decades bond investments have been a “safe haven” destination for investors during periods of equity market and general economic turmoil. That may no longer be the case as we look ahead. In fact, with interest rates at generational lows and prices at all-time highs, forward bond market price risk has never been higher. An asset class that has always been considered safe is no longer, regardless of what happens to stock prices.

We need to remember that so much of what has occurred in the current market cycle has been built on “confidence” in central bankers globally. Central bankers control very short-term interest rates (think money market fund rates). Yes, quantitative easing allowed these central banks to print money and buy longer-maturity bonds, influencing longer-term yields for a time. That’s over for now in the U.S., although it is still occurring in Japan and Europe. So it is very important to note that, over the last five months, we have witnessed the 10-year U.S. Treasury yields move from 1.67% to close to 2.4%, and the Fed has not lifted a finger. In Germany, the yield on a 10-year German Government Bund was roughly .05% a month ago. As of this writing, it has risen to 1%. That’s a 20-fold increase in the 10-year interest rate inside of a month’s time.

For a global market that has risen at least in part on the back of confidence in central bankers, this type of volatility we have seen in longer-term global bond yields as of late implies investors may be concerned central bankers are starting to “lose control” of their respective bond markets. Put another way? Investors may be starting to lose confidence in central bank policies being supportive of bond investments — not a positive in a cycle where this buildup of confidence has been such a meaningful support to financial asset prices.

You may remember that what caused then-Fed Chairman Paul Volcker to drive interest rates up in the late 1970s was embedded inflationary expectations on the part of investors and the public at large. Volcker needed to break that inflationary mindset. Once inflationary expectations take hold in any system, they are very hard to reverse. A huge advantage for central bankers being able to “print money” in very large magnitude in the current cycle has been that inflationary expectations have remained subdued. In fact, consumer price indexes (CPI) as measured by government statistics have been very low in recent years.

When central bankers started to print money, many were worried this currency debasement would lead to rampant inflation. Again, that has not happened. We have studied historical inflationary cycles and have not been surprised at outcomes in the current cycle in the least. For the heightened levels of inflation to sustainably take hold, wage inflation must be present. Of course, in the current cycle, continued labor market pressures have resulted in the lowest wage growth of any cycle in recent memory. But is this about to change at the margin? The chart below shows us wage growth may be on the cusp of rising to levels we have not yet seen in the current cycle on the upside. Good for the economy, but not so good for keeping inflationary pressures as subdued as has been the case since 2009.

g1

You may be old enough to remember that bond investments suffered meaningfully in the late 1970s as inflationary pressures rose unabated. We are not expecting a replay of that environment, but the potential for rising inflationary expectations in a generational low-interest-rate environment is not a positive for what many consider “safe” bond investments. Quite the opposite.

As we have discussed previously, total debt outstanding globally has grown very meaningfully since 2009. In this cycle, it is the governments that have been the credit expansion provocateurs via the issuance of bonds. In the U.S. alone, government debt has more than doubled from $8 trillion to more than $18.5 trillion since 2009. We have seen like circumstances in Japan, China and part of Europe. Globally, government debt has grown close to $40 trillion since 2009. It is investors and in part central banks that have purchased these bonds. What has allowed this to occur without consequence so far has been the fact that central banks have held interest rates at artificially low levels.

Although debt levels have surged, interest cost in 2014 was not much higher than we saw in 2007, 2008 and 2011. Of course, this was accomplished by the U.S. Fed dropping interest rates to zero. The U.S. has been able to issue one-year Treasury bonds at a cost of 0.1% for a number of years. 0% interest rates in many global markets have allowed governments to borrow more both to pay off old loans and finance continued expanding deficits. In late 2007, the yield on 10-year U.S. Treasuries was 4-5%. In mid-2012, it briefly dropped below 1.5%.

So here is the issue to be faced in the U.S., and we can assure you that conceptually identical circumstances exist in Japan, China and Europe. At the moment, the total cost of U.S. Government debt outstanding is approximately 2.2%. This number comes directly from the U.S. Treasury website and is documented monthly. At that level of debt cost, the U.S. paid approximately $500 billion in interest last year. In a rising-interest-rate environment, this number goes up. At just 4%, our interest costs alone would approach $1 trillion — at 6%, probably $1.4 trillion in interest-only costs. It’s no wonder the Fed has been so reluctant to raise rates. Conceptually, as interest rates move higher, government balance sheets globally will deteriorate in quality (higher interest costs). Bond investors need to be fully aware of and monitoring this set of circumstances. Remember, we have not even discussed the enormity of off-balance-sheet government liabilities/commitments such as Social Security costs and exponential Medicare funding to come. Again, governments globally face very similar debt and social cost spirals. The “quality” of their balance sheets will be tested somewhere ahead.

Our final issue of current consideration for bond investors is one of global investment concentration risk. Just what has happened to all of the debt issued by governments and corporations (using the proceeds to repurchase stock) in the current cycle? It has ended up in bond investment pools. It has been purchased by investment funds, pension funds, the retail public, etc. Don Coxe of Coxe Advisors (long-tenured on Wall Street and an analyst we respect) recently reported that 70% of total bonds outstanding on planet Earth are held by 20 investment companies. Think the very large bond houses like PIMCO, Blackrock, etc. These pools are incredibly large in terms of dollar magnitude. You can see the punchline coming, can’t you?

If these large pools ever needed to (or were instructed to by their investors) sell to preserve capital, sell to whom becomes the question? These are behemoth holders that need a behemoth buyer. And as is typical of human behavior, it’s a very high probability a number of these funds would be looking to sell or lighten up at exactly the same time. Wall Street runs in herds. The massive concentration risk in global bond holdings is a key watch point for bond investors that we believe is underappreciated.

Is the world coming to an end for bond investors? Not at all. What is most important is to understand that, in the current market cycle, bonds are not the safe haven investments they have traditionally been in cycles of the last three-plus decades. Quite the opposite. Investment risk in current bond investments is real and must be managed. Most investors in today’s market have no experience in managing through a bond bear market. That will change before the current cycle has ended. As always, having a plan of action for anticipated market outcomes (whether they ever materialize) is the key to overall investment risk management.

Absence Management: Work Comp’s Future?

American employers will dispatch hundreds of staff members to an April gathering in Washington, DC, on corporate compliance issues. In all likelihood, hardly any CEOs in the workers’ comp industry are fluent in these issues, even though by the end of this decade they may change the direction of the workers’ comp businesses, separating the successful from the laggards.

A change for workers’ comp leaders hides in plain sight.  Claims have been declining in frequency by about 3.5% a year. It’s prudent to expect continued decline, as jobs become safer every year. Average claims costs, which used to bump up by more than 5% a year, aren’t growing beyond a few percent.

Meanwhile, the typical employer’s agendas of employee leave, disability management and wellness have been surging in scope and complexity. A few workers’ comp companies have already repositioned themselves to provide a broad array of solutions for these agendas.

Most workers’ comp CEOs appear to think these burgeoning workplace concerns have little to do with their company’s future. They may be right. Or they may be whistling past the graveyard.

Since the beginning of the Great Recession, demographic, technology and legal trends visible in recent decades began to accelerate in the direction of smaller work injury risk and larger non-occupational employee risks. Frank Neuhauser of the University of California at Berkeley estimated that for most workers it is more dangerous to drive to work than to be at work.

And notice the rise in employee leave benefits and the greater emphasis on wellness (despite deserved criticism of overselling that concept). Perhaps this is how Occupy Wall Street ends: not in a revolutionary bang, but a paid parental leave benefit and a worksite yoga studio.

The Disability Management Employer Coalition puts on the April conference as its annual problem-solving exercise for the Family and Medical Leave Act and Americans with Disabilities Act. In addition to these federal mandates, states and localities have been promulgating leave-related mandates by the dozens. In January, for instance, Tacoma, WA, enacted a law requiring employers to offer at least three days of paid sick leave come January 2015.

ClaimVantage, which sells absence management software, reports there are about 140 federal and state family leaves across the nation. When adding ancillary leaves like jury duty and blood donor leaves, the numbers rise to about 400. Paid family leave is gaining momentum to become a mandated benefit. The U.S. is the only high-earning country that does not offer paid leave after the birth of a child and only one of eight countries in the world that doesn’t mandate paid leave for new mothers.

According to the Integrated Benefits Institute, workers’ comp accounts for a mere 11% of all work absences involving a medical condition.

Legally mandated and voluntary benefits, disability accommodation, wellness and other employee-centric programs have by intertwining themselves raised their visibility in corporate C-Suites. No single, memorable descriptor today captures them successfully. Phrases such as “health and productivity management” and “total health” are bandied about. I suggest a simple term, “absence management,” in a report I wrote called “Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers’ Comp,” which WorkCompCentral published in February.

The absence business beckons

Although the labels will evolve, the need of employers for expert outside assistance to address their agendas is bound to grow. Will workers’ comp companies deliver solutions?

The employers most ready to ask for help include those with relatively large workers’ comp costs to begin with: middle- to large-sized employers. Workers’ comp claims payers today will process about $65 billion in workers’ comp benefits this year. Perhaps 15% of these benefits involve very large employers. A further 25% involve employers that are not that large yet incur workers’ comp losses of about $200,000 a year or more. Combined, these employers account for 45% of workers’ comp benefits. In other words, about half of the workers’ comp business today is with employers big enough to know they have a complicated absence management problem on their hands.

Their human resource executives and legal counsel have been telling CEOs that the compliance risks of government mandates can’t be ignored. The mandates have grown into an elephantine mass so thick that without expert outside assistance an employer has a high probability – say, 100% — of violating some law or other.

The more alert and early-adapting segment of employers tends to affiliate with the San Francisco-based Integrate Benefits Institute. Their individual staff members join the San Diego-based Disability Management Employer Coalition. These membership organizations feed the demand for training, resource networking and applied research.

Broadspire, ESIS, Sedgwick, York and perhaps other third-party administrators already market services to manage at least some aspect of non-occupational absences.

Workers’ comp claims payers can manage non-occupational absences because they already possess the needed core competencies. Pared down to the essentials, the workers’ comp claims payer does six things:

  • It processes claims.
  • It assists at some level of intensity in reducing the rate of incidents that end in claims.
  • It coordinates medical treatment and vocational recovery
  • It understands return to work.
  • It prices its product.
  • It complies with pertinent laws.

Absence management does basically the same things.

Further tying together workers’ comp and non-occupational absences in a workforce is the vital role of health behaviors of employees. The workers’ comp claims executive is acutely aware that health behaviors of injured workers often drive up claims costs. It is increasingly clear that smoking can be a more costly unsafe act than, say, distraction. Not that smoking precipitates an occupational or non-occupational injury (there’s scanty evidence of that), but that smokers are at more sharply higher risk to heal slowly and to become dependent on opioids in treatment.

The Integrated Benefits Institute has for years carefully analyzed patterns in non-occupational absences. It says that employers can and should use a coherent master plan for absences of all kinds, wellness initiatives and claims management.

In a phone and email exchange, IBI President Tom Parry suggests that workers’ comp claims payers think through their strengths in medical care, disability management and return to work. “These all are key parts to an employer’s strategy in taking a comprehensive approach to lost work time management,” he says.

Also, he advises, be prepared to benchmark and compare. Get hold of industry-specific benchmarking data across lost time programs, workers’ comp, FMLA and short and long-term disability. Become fluent in plan design terminology on the non-occupational side. Review the research literature on the cross-program impacts of health and a total absence management approach. IBI just published research on claims migration across programs, “Crossing Over — Do Benefits and Risk Managers Have Anything to Talk About?”

Why companies may hold back

A workers’ comp claims payer might enter the absence business because it does not believe that the workers’ comp industry is shrinking. For instance, the average cost of claims may, as it has in the past, grow faster than the reduction in injuries, leaving claims payers with an ever-larger pie. But in recent years average indemnity and medical costs have greatly slowed their growth and in some jurisdictions declined. And the incidence of lost time compensable claims continues to decline, the one clear exception being the island of all exceptions, Southern California.

Also, workers’ comp executives might say there is no apparent demand from their clients for non-occupational services. This sort of flies in the face of the experience of TPAs that have launched non-occupational service units. (True, they focus on the higher end of the employer market.) But the observation also doesn’t jibe with the workers’ comp industry’s experience with emerging services in the past. In instances of innovation, from medical bill review to pharmacy management to Medicare set-asides, large-scale and profitable services emerged after initial years of puzzlement. The fog banks eventually lift.

Then there are impediments in the broker community. It’s almost inevitable that absence management involves insurance products sold through benefits brokers and products sold through property and casualty brokers. They don’t talk a lot, even when working under the same roof. This complicates the work of product design and marketing.

Another reason to say no to opportunity is the challenging learning curve that absence management brings. But look at how the TPAs handled that. Those that have expanded their service offerings beyond workers’ comp claims all appear to forge alliances with, or acquire, servicing partners already steeped in some aspect of absence management.

It may be too harsh to equate workers’ comp claims payers with the railroad industry, which 60 years ago asserted that it was in the railroad, not the transportation, business. Perhaps too harsh, but there may be a lesson in that story.

The decline of work injuries

Injuries requiring at least 31 days away from work

year 1993 2015 2022 (projected)
injuries 450,000 250,000 175,000
Total employment 110 million 133 million 148 million

 

 

Future Is Bright for P&C Agents

The experts guaranteed that the Baylor and Alabama football teams would win their bowl games after the 2013 season. Both lost. Baylor was favored by a whopping 17 points over Central Florida but lost by 10, while Alabama was favored by 15 over Oklahoma but got crunched by 14. 

Likewise, for decades, the “experts” have been betting against independent insurance agents, yet agents keep winning. Why? The consultants, finance guys and others who populate the skyscrapers on Wall Street discount the power of the local trusted insurance agent who does business on Main Street.

That’s not to say that the recent report from McKinsey on the future of property/casualty insurance agents should be discounted. It raises some very good points about how insurance agents need to evolve to continue to be the distribution channel of choice in the insurance industry.

McKinsey got some things right, some wrong. Let’s start with the latter.

What McKinsey got wrong

— The agent’s role hasn’t changed.

Automation has reduced independent agents' role in underwriting and processing, so insurance companies perceive agents are doing less and should get less commission. But the agent’s role has not changed. The client still needs a local, trusted adviser to explain and recommend the proper insurance coverage. Today, that role is valued even more, with trust in big corporations and the government at all-time lows. Cost-cutting is the easy way to increase short-term profits, and the biggest cost for most insurers is commissions. The McKinsey report gives a short-sighted insurance company executive a reason to lower commissions, but companies that reduce commissions will be following a “fool’s gold” strategy producing short-term gains at the expense of the long-term viability of their agent-based distribution.

— Brand awareness doesn’t translate into customer loyalty.

A talking gecko, the discount double-check, Flo, Mayhem or Farmers University don’t build customer loyalty. They do build customer awareness, so the big insurance companies spend hundreds of millions of dollars on ad campaigns. But being top of mind doesn’t mean the customer will have any loyalty to the company. You can’t create a relationship with a person through advertising. People create relationships–for example, with someone whose son or daughter plays on the same soccer team and attends the same school as the agent's children. The opportunity to establish a relationship is unique to the agency distribution channel. It takes time and effort, but once established the relationship creates strong customer loyalty. That’s why you never see any studies from big consulting firms that ask people whom they trust more – their local agent or the insurance company We all know the answer.

— Independent agents will gain market share as auto insurance becomes commoditized.

I agree with McKinsey that some parts of the auto insurance market are becoming commoditized but disagree with the conclusion that this will hurt independent agents. Because they can offer multiple carriers, independents will still get the sale. They will just place the business with the best-priced carrier. The big losers will be the captive distribution companies, which will be unable to offer their clients choice.

–A multi-channel distribution strategy ends up cannibalizing agent-based distribution. McKinsey argues that insurance companies must balance their investments among multiple distribution platforms. It sounds reasonable, but in reality it means a company must reduce the amount of money it commits to its agency distribution channel to reallocate its resources to contact centers, web portals, advertising and other costs of building a direct consumer platform. Companies that follow this strategy will discover that they traded valuable multi-line customers for single-product consumers with no company loyalty.

Where McKinsey got it right

— Agents must evolve in the way they attract and retain their customers.

Absolutely! The cost of technology is dropping so fast that small and mid-sized agencies can now use tools like social media and data analytics that only large companies could afford a few years ago. Local agents need to be able to engage with their customers in real time. That requires they have a digital media and mobile-compatible platform as well as a social media capability to engage with clients and prospects.

— Agents must be seen as able to handle all of a client’s insurance needs. Product peddlers won’t survive. Agents have to be able to demonstrate the value they add by virtue of their expertise and that their advice can be trusted.

— Agents must understand the customers they are targeting and stay focused on that segment. One size no longer fits all in today’s insurance market. Independent agents need to understand their target market, the attributes of profitable customers, and how to reach and serve them. Just like the big insurance companies use advertising to create a top-of-mind brand, agents today must become top of mind with their customer segment.

Today, we live in a world that is moving so fast and becoming so much more complicated that people need someone they can trust—and work with conveniently when and where they want. Current trends in the insurance marketplace bode well for the local, trusted, independent adviser who represents the interests of her clients. The McKinsey report supports that conclusion.

‘Surviving Workplace Wellness’: an Excerpt

Our series of excerpts from Surviving Workplace Wellness starts with the epilogue, because Aetna managed to incorporate everything that is wrong with workplace wellness, as described in the book, into one press release. It is the book’s epilogue because Aetna’s announcement followed the completion of the text. We actually held up publication of the print version to squeeze this epilogue in.

The caveat for brokers: Be careful what you sell. Your commission checks may come from the seller, but your business value comes from retaining your clients.  As your clients grow more skeptical of wellness vendor claims, you need to be a step ahead, anticipating their skepticism rather than being blindsided by it.

Dr. Aetna Is In

Imagine how you’d feel if you got a letter saying basically:

Dear Fat Person,

We aren’t doctors, and you’re not sick, and you never asked for our help and probably never would, but we’ve got the solution for you anyway: Arena’s Belviq and Vivus’s Qsymia, obesity drugs made by companies we’re partnering with. True, these drugs are expensive, have side effects that you may not tolerate (the nasty outcomes in clinical trials included a 20% incidence rate of paresthesia, a 5% incidence of high blood pressure and a 12% incidence of back pain) and lack a generally accepted treatment protocol, but nonetheless we’d like you to give them a try.

Sincerely,

Dr. Aetna

This is basically what Aetna has in mind. They essentially made a list of all the things wrong with wellness programs — unwanted interference in people’s lives, playing doctor, unproven therapies, opaque relationships with “recommended” suppliers, high expense and “diagnosing” people who aren’t sick — and packaged them all into one press release (1/14/14).

This release came out after our e-book, and we considered holding our two cents for Surviving Workplace Wellness: The Sequel. Yet naïve optimists that we are, we decided that by the time any sequel would be published, wellness will have gone the way of the Edsel, pet rocks, Netscape, colon cleanses (we hope) and Sarah Palin (see “colon cleanses”), thus rendering us obsolete along with the rest of the industry. Hence we are squeezing them into an epilogue now.

To summarize, Aetna is pitching specific name-brand drugs — not just any name-brand drugs but name-brand prescription drugs that consumers have rejected (Arena’s Belviq and Vivus’s Qysmia) to the point where one Wall Street analyst described them as ”flailing” — to “selected Aetna members” who aren’t even sick, just obese. So this is a wellness first two different ways. No health plan has ever pitched name-brand drugs to its members before, let alone to members who aren’t sick.

But wait…there’s more.  Because it’s likely that not a lot of obese people would ever call Aetna to ask: “What specific flailing drugs from manufacturers you’ve made side deals with would you recommend for me even though I’m not sick?” Aetna isn’t taking any chances by just sitting by the phone. Instead, it is providing “outreach” to those members (maybe not using that exact letter above but not far from it) — combined with an incentive that is really hard to come by, a totally free app — to convince people to take these drugs.

In your eagerness to get this free app and lots of drugs that don’t work, you’re probably asking: “How do I get to be a ‘selected Aetna member’? I bought a policy from them.” Haha, good one. You didn’t seriously think Aetna would actually spend its own money covering its own insured members for its own program covering its own partners’ drugs endorsed in its own press release, did you? Hello? Have you actually read this book? Obviously, Aetna executives don’t believe this program can save money any more than you and I do, so participation is a privilege they reserve for their self-insured employer customers who want to follow Harvard Professor Katherine Baicker’s advice in Chapter 3 to ”experiment” on their employees, taking the advice a step farther by using flailing drugs.

After you’re done wondering how something could be good enough to sell to Aetna’s customers but not for Aetna’s insured members themselves, you may also be excused for then wondering whether Aetna knows anything about weight control in the first place, as the release demonstrates a failure to understand the difference between short-term weight loss and long-term weight loss maintenance, an overreliance on anecdotal outcomes and an insufficient disclosure of product side effects.

However, the misunderstanding of the basics of study design and weight control — along with the ignoring of any consequences of Aetna’s actions such as any potential liability if these drugs turn out to be another fen-phen (phentermine of fen-phen fame is one of the two active ingredients in Qsymia) — is not the lead here. The lead here is that Aetna is playing doctor with a license it doesn’t have, pushing drugs that no one seems to want on people who aren’t actually sick, without even taking the financial consequences of its own actions but rather foisting those consequences on the very same employer customers whose financial risks and whose employees’ health it is supposed to be protecting.

Now you see why we couldn’t wait for the sequel even if there is one, and why there’s likely to be one.