It seems every press release you read, every case study in the news, every session at industry conferences and every webinar on tap for the next six months will at some point mention the 100% implementation success rate of the vendor involved. That fact, in and of itself, throws serious shade on what really constitutes implementation success and dilutes the impact or validity of the concept as a whole, but should it?
Depending on where a person sits, implementation success can mean different things and may include different elements, technologies or metrics. Implementation success is therefore often qualified by varying criteria that are completely dependent on the role of the individual in the project or the company. To truly guarantee implementation success, all perspectives and perceptions must be considered and incorporated.
For the CEO, it’s all about the big picture. Sure, nearly all CEOs want an increased ability to process new business and grow the company organically, but time and again individuals in this role will focus on these key questions:
Did we implement what we set out to implement?
How will this implementation affect our ability to modify existing products or launch new ones?
Does this implementation support our construction of a future-ready technology environment?
For the CFO, everyone instantly assumes a successful implementation is simply about being on-time and on-budget, and while those factors are definitely important, CFOs additionally want to know:
What is the maintenance and licensing like on this new technology product, and how does it affect our total cost of ownership (TCO)?
Does this implementation make other downstream or supporting systems obsolete, requiring the company to make additional technology investments in the coming year(s)?
Does this implementation allow the company to retire existing legacy systems and recognize cost savings in maintenance and support of these systems?
Is support or the professional services required to implement changes included in the initial contract price, or is it an additional, and continuing, charge?
For the CIO, data conversion is a crucial, yet truly not sexy, part of the package that allows one system to be turned off and the other turned on, so to speak. It is important to understand that while CIOs are often thought to have the most interesting, cutting-edge piece of the insurance technology puzzle, these individuals are not easily distracted by solutions, tools and gadgets that turn out to be little more than bright, shiny objects. Questions CIO typically focus on when measuring implementation success include:
Does my internal team have the expertise today to maintain the new solution, including making simple changes without deep technology programming expertise or the ability to create and implement custom coding?
Will I be able to easily integrate emerging technologies as the need arises?
What is the upgrade path for this solution that will clearly demonstrate my company is not implementing legacy?
Other players, including the company’s heads of claims, underwriting and customer service, are counting on achieving a certain percentage of straight-through processing (STP), decreasing the time from first notice of loss (FNOL) to claim resolution, and still others are rabid about mobile access and self-service capability delivered via a portal. Alternatively, FAIR Plans, for example, are less concerned about growth and bottom line profits, but instead are focused on increasing internal efficiency and delivering a top-quality customer experience. Different strokes for different folks.
So, maybe it’s time to acknowledge that the magical middle ground that will make everyone happy likely doesn’t exist. It’s back to the old saying that it’s impossible “to make all of the people happy all of the time.” The trick is knowing which stakeholders’ happiness is on the nice-to-have list and which is on the must-have list. Keep in mind, there are degrees of happiness, and incorporating even small pieces of capability can be important when it means validating stakeholders’ priorities and implying broader ownership across the enterprise.
Ultimately, what composes implementation success is unique to each company and should be well-defined for each company before the start of the project. All projects should have a well-defined set of expected outcomes from both business and technology that need to be achieved to have that project defined as a successful delivery. While budget and schedule can be a part of the objectives, they should not be the primary drivers. A successful implementation is one the delivers the required business and technology outcomes.
When the core system implementation itself is done right, with the right partners and a well-defined set of objectives, it leaves room for peripheral goals to be achieved at the same time with a faster ROI and the ability to get back to the business of insurance.
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.
“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.”
“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.”
“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
“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
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.”
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.”
“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.”
“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.”
“[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?”
“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.”
“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.”
“We need to listen to our customers, get out of our focus group of one, out of our own head.”
“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.”
“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?”
“Believe me, it’s absolutely possible to do some crazy things out there.”
“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 firstname.lastname@example.org.
A contractor’s most important resource, and one of its leading costs, is its employees. By investing in employee, supervisory and leadership development programs, those in construction and facilities management (CFMs) can expect positive ROI and other measurable outcomes in both risk management and human capital. This strategy combines organizational development practices to leverage human capital risk management and protect a company’s bottom line.
What Is Human Capital Risk Management?
Defined as leveraging human resource assets to achieve an organization’s strategic and operational goals, human capital risk management implies the following realities for CFMs to consider:
Human capital is a tangible asset
Human capital yields tangible and intangible results
Human capital can generate a positive or negative rate of return
Human capital risk management can create a sustainable competitive advantage
Benefits & Consequences
There are numerous benefits of leveraging human capital risk management strategies. Likewise, there are serious consequences for failing to effectively manage human capital risk management strategies.
The categories of human capital costs include salaries, health and retirement benefits, workers’ comp and other required insurance costs (e.g., state and federal unemployment taxes). Other possible human capital costs stem from losses attributable to consequences from unsuccessful human capital risk management practices, including: fraud and internal theft; absenteeism; substance abuse; and costs of incidents, accidents and injuries that include workers’ comp losses and resulting third-party liabilities. These costs can be affected by the type of contractor, where the contractor (or project) is located, whether the contractor is union or merit shop and other variables.
Today, senior business leaders are looking to the HR function to provide innovative solutions to attract, retain and grow their talent. The evolution of HR to a talent management model focuses on processes leading to organizational development. As a result, the modern HR department is responsible for seven fundamental functions:
1) Compliance – Ensure regulatory and legal compliance
2) Recruitment – Find a work force
3) Employee Relations – Manage a work force
4) Retention – Maintain a work force
5) Engagement – Build an engaged work force
6) Talent Development – Create a high-performing work force
7) Strategic Leadership – Plan for a future work force
Investing in human capital makes good business sense, especially considering the costs to recruit, onboard and train a new employee. Not only is employment advertising and recruiting costly, but there are also other adverse impacts to the business. Work previously being done by the exiting employee still needs to be completed, so it falls to teammates and the supervisor.
A new employee typically does not reach full productivity until at least four to six months into her new role. In total, the lost productivity costs to turn over one employee is at least six months.
The Link Between Employee Engagement & Business Performance
Engaged employees want both themselves and the company to succeed. However, companies often only focus on employee satisfaction, which can lead to complacency and a sense of entitlement. Employee engagement is frequently defined as the discretionary effort put forth by employees – going above and beyond to make a difference in their work. Discretionary effort is the extra effort employees want to give because of the emotional commitment they have to their organization.
Unlocking employee potential to drive high performance results in business success. However, according to research by the Employee Engagement Group, 70% of all employees from all industries are disengaged. Employees with lower engagement are four times more likely to leave their jobs than highly engaged employees. And disengaged managers are three times more likely to have disengaged employees.
Research shows employees become more engaged when business leaders are trusted, care about their employees and demonstrate competence. By working to engage their employees, contractors can improve their productivity, innovation and customer service. They can reduce incident rates and decrease voluntary attrition.
One of the earliest links between employee satisfaction and business performance appeared in First, Break All the Rules: What the World’s Greatest Managers Do Differently, which includes a cross-industry study that demonstrated a clear link among four business performance outcomes: productivity, profitability, employee retention and customer satisfaction.
The organizations that ranked in the top quartile of that exercise reported these performance outcomes associated with increased employee engagement:
50% more likely to have lower turnover
56% more likely to have higher-than-average customer loyalty
38% more likely to have above-average productivity
27% more likely to report higher profitability
Recognizing and acting on the correlation between engaged employees and business performance will directly affect the bottom line. Some strategies employers can implement to increase employee engagement include:
Focus on purpose and values vs. policies and procedures, which has led companies to outperform their competitors by six times.
Encourage empowerment and innovation, then reinforce and reward the right behaviors.
Unleash the flow of information and ensure individuals have a clear understanding of how their particular job contributes to the company’s strategy and mission.
Understand and demonstrate that work/life balance is important.
Developing Sustainable Leadership & Human Capital Strategies
Many organizations are hyperfocused on implementing training programs and processes. However, training should not be the only activity. Effective human capital management demands forward thinking and strategic planning about how contractors can engage their human resources to make a difference in driving the business forward into the future.
A spectrum of sustainable employee, supervisory and human capital and leadership development strategies includes orienting/onboarding, performance reviews and developmental plans, coaching/mentoring, job rotation and cross-training, 360-degree feedback surveys, defining career paths, work/life balance and competency assessment.
Research & Connect With Peers
Developing a sustainable human capital development program can seem overwhelming, but that does not need to be the case. Reach out and connect with peers and subject matter experts to identify and share best practices and challenges. There are many resources available that can be tailored or adapted to meet your business needs.
Define & Align Sustainable Long-Term Human Capital Strategies
It is essential to not only align human capital strategies with core business strategies but to also continually review them to ensure long-term sustainability and to address areas for development and improvement. Connecting these areas of focus will ensure a consistent vision is communicated and executed throughout the organization.
To gain a better understanding of your company’s human capital strategic thinking and planning, conduct a needs assessment or gap analysis. Based on the results, a human capital action plan can be developed to help guide your company’s future human capital leadership and investment.
Integrate Human Capital Strategies With Organizational Culture
All human capital strategies should closely align with a company’s intended organizational culture. The strategies may require a shift in culture, but not so much that it creates implementation barriers. Having a formal rollout and communication plan developed in advance will help prepare employees for the coming change.
A variety of communication approaches helps to reach all intended stakeholders and should include what, why and expected outcomes. To ensure all employees “hear” the message, communicate strategies that outline a clear plan and are easy to follow through creative visual and auditory media. Examples include interactive meetings to communicate coming changes, postcards with graphics that present the message, e-mails that are fun and positive, conference calls so people can participate regardless of location, as well as podcasts, webinars, Skype, etc.
Implement Talent Review & Succession Planning
To create a culture of learning and development, contractors should include all employees in their talent development practices rather than focus only on preconceived “high potentials.” Through an effective talent review process, managers can determine the potential future and developmental needs of all employees.
Effective talent review discussions will unveil high-potential employees, which will help populate employee development
and succession plans. True high potentials should be given stretch goals to be accomplished throughout the year to aid in assessing and developing their readiness for future roles.
Everyone Is a Leader
At the end of the day, it is not realistic to expect companies to provide the same training to all employees. However, it is important to remember that everyone is a leader in what they do. Setting these expectations better prepares employees for future leadership roles and helps to build accountability across the company.
Importantly, not all leadership competencies and behaviors will apply to every position. However, by consistently applying higher performance expectations across the organization, employees who were not previously considered high-potentials might begin to excel and even surpass previously identified potential levels. You never know when a new rock star employee will emerge!
Case Study: Lakeside Industries’ Annual Leadership Conference
Lakeside Industries, Issaquah, WA, is a third-generation family-owned business operating for more than 60 years. A producer of hot mix asphalt and paving contractor with 20 locations in Washington, Oregon and Idaho, Lakeside Industries has a total of 625 employees and is signatory to various locals of three labor unions: Laborers, Operating Engineers and Teamsters.
The vision of the company’s third-generation President Michael Lee is to “attain exceptional performance in everything we do.” In this case, “exceptional” has been further defined as aspiring to attain “world-class” performance. He says:
“Several years ago, we realized the need to invest in its leaders. We know that effective leaders translate to improved quality, employee engagement, better communication, fewer incidents, higher production, etc. Each of our 12 divisions operates as an individual entity with its own crews, shops, plants, and fleets. Geography and diversity produce challenges related to training.
“We started with two groups. Managers and PMs were in one group, and superintendents were in the other. Each group met once a year locally to share ideas, procedures and challenges.
“We also used this time to conduct leadership training. Sometimes instruction was internal, and sometimes we brought in external experts. While this was a great start, we knew we needed more consistency communicating company objectives, ethics and expectations. Many of our foremen never had any formal leadership training.
“So, for the past few years, we’ve had one annual meeting that includes every employee in a leadership position. Managers, PMs, superintendents, foremen and anyone who supervises another employee is invited; about 175 people attend annually. To remove distractions, we hold the three-day meeting in Denver, CO.
“Each year we decide which company goals are our top priorities. We bring in a speaker to communicate those goals and to motivate and train our leaders.
“A very popular component is the breakout sessions. All PMs and superintendents meet in groups, as do paving foremen, project superintendents, traffic control supervisors and so on. There are usually 10-12 breakout groups that are conducted by a facilitator in a roundtable format to address issues specific to their positions. We have also conducted breakout sessions by division. It’s an opportunity for division leaders to communicate outside of their daily busy environments and set goals for the coming year. We ensure training is interactive and effective. There is also time for relationship building with recreational activities.
“An important component of this concept is follow-up. It’s essential to repeat and reinforce what was learned when we return home to our busy routines. HR and risk management/safety work with division managers to integrate learned concepts into daily operations. Key learning points are communicated to all of our employees.
“Our vision is for the entire company – from divisional and departmental managers to field staff – to understand and implement our goals and expectations. We want all employees on the same ship, sailing in the same direction, and we work on this all year.
“We started with the goal of training effective leaders, but we’ve unexpectedly achieved so much more. There is improved communication among peer groups including:
we have innovation, new lines of communication, collaboration and lasting relationships;
our leaders are now united and understand the company’s vision; and
our leaders make better decisions and communicate more effectively, resulting in more engaged employees, improved quality, and what we call safe production.
“The bottom line: This leadership conference is absolutely worth the investment.”
As the construction labor market tightens because of demographic, societal and industry shifts, finding and keeping skilled workers will become increasingly challenging. Progressive workforce development strategies can differentiate contractors as employers of choice.
CFMs who think strategically recognize that employee, supervisory and leadership development programs, processes and practices can provide a competitive advantage. Investments in human capital yield tangible and intangible gains that improve productivity, quality, risk, safety and financial performance. This should neither be unexpected nor surprising: after all, people are our greatest asset.
This article was co-written by Tana Blair and Tammy Vibbert. Tana Blair is responsible for organizational and leadership development at Lakeside Industries in Issaquah, WA. S he can be reached email@example.com. Tammy Vibbert is the director of human resources at Lakeside Industries in Issaquah, WA. She can be reached at firstname.lastname@example.org.
I recently read an article about “digital insurance stores.” The article made some good points, though this was not one of them: “Agents need to go beyond their traditional roles as sellers of auto insurance because auto is fast becoming more commoditized.” [emphasis added]
Once again, we’re told that auto insurance is a commodity. In articles (see the “Price Check” article, for example) and webinars, we’ve communicated why auto insurance in particular, and personal lines insurance in general, is not a commodity, nor is it “fast becoming more commoditized.” If anything, the opposite is true. In his paper, “Reevaluating Standardized Insurance Policies,” University of Minnesota Law School Professor Daniel Schwarcz writes about homeowners insurance:
“The current personal-lines insurance marketplace is largely organized around a myth. That myth is that personal-lines insurance policies are completely uniform. This myth explains regulatory rules that do nothing to promote insurance contract transparency….
“Different carriers’ homeowners policies differ radically with respect to numerous important coverage provisions. A substantial majority of these deviations produce decreases in the amount of coverage relative to the presumptive industry standard….”
“If regulators do not act to substantially improve consumer protection in this domain, then it can be expected that coverage will continue to degrade for most carriers, in a modern-day reenactment of the race to the bottom in fire insurance that triggered the first wave of standardized insurance policies….”
Most of the agents I know recognize the demonstrated market share threat of direct, price-focused sales but don’t fear it. Transparent competition is generally a good thing. Historically, intensified industry competition has, more often than not, resulted in more broadened, innovative products. That’s no longer the case given the lack of transparency in the marketing of direct/online insurance products.
Given a focus almost entirely based on low-price, “painless” marketing by increasingly data-driven, tunnel-visioned and short-sighted financial bean counters, what we’re likely seeing now is the beginning of a lemming-like stampede over a coverage oblivion cliff. Too many carriers today couldn’t care less about the role their products play in protecting American families from financial ruin. They’ve convinced themselves (and much of America) that what consumers really want and need is fast, cheap and funny and that the way to sell that is through lizards with Australian accents and box store clerks who’ll sell you a generic brown-paper-packaged insurance product at whatever price you tell her.
So-called experts and researchers who likely have never read their own auto policies and almost certainly have never compared two or more policies tell us that car insurance is a commodity where the best deal is the cheapest price that can be quoted in two minutes (yes, one company implies that it can ascertain your unique exposures and quote you the right product in two minutes, not 15, 7.5, or five). The experts tout the efficiencies of the Internet as the marketing channel that can bring even greater riches to insurers, as they predict the imminent demise of ignorant, un-hip Baby Boomer insurance agents who foolishly believe that consumers need consultation and advocacy. Note, too, that virtually all of these research reports focus on the advantages to the insurance company, with almost complete disregard to the obvious disadvantages to the American consumer.
But let’s say they’re right, that the Internet provides efficiencies that traditional marketing and sales channels cannot compete with. When all you can offer is “fast and cheap,” at some point you can’t provide that product any faster or cheaper. You’ve become as efficient as you possibly can be. So, when price is your only value proposition, what do you do at this point when you can’t cut the expense ratio any closer? Presumably, you’d look to, by far, the biggest component of premium – losses and loss adjustment expenses. So, how do you reduce that component, which accounts for 75% to 80% of premium, to continue to compete on price?
One way would be to actually return to underwriting. But you can’t do that when you’re quoting in two minutes. So, what does that leave? Reducing coverage or becoming more restrictive in claims handling practices. After all, who will know? Everyone agrees that “car insurance” is a commodity, so no one is considering what the policy actually covers or doesn’t cover. Until claim time. And, on average, that’s only once every seven years or so. So, again, no one much will notice…other than the families who lose just about everything they own because they bought an inferior product.
As Mr. Schwarcz opines, that’s exactly where the industry is headed in auto insurance unless agents make their case to the consuming public about the value of consultative selling and claims advocacy. And unless regulators return to carefully vetting the products they approve for the marketplace to ensure that they do not leave unreasonable, potentially catastrophic coverage gaps for insureds and that they reasonably protect the public from becoming victims to overly restrictive policy exclusions and limitations.
Copyright 2015 by the Independent Insurance Agents & Brokers of America. Reprinted with permission.
Early in November 2014, immediately following the release of the SMA research report Crowdsourcing and Open Innovation: Powering the Sharing Economy, which explored the shared economy and its implications for insurance, I received an interesting email from the CEO of a shared shipping start-up. The CEO stated, “I just wanted to let you know that I have found the hardest problem to solve as the CEO is that, after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.”
My instant reaction was … what a powerful voice, and what a compelling, if troubling, customer statement! I immediately reached out to him to discuss his predicament.
In our SMA research, we have written about how the shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere, at any time based on an instantaneous need. The change is spawning new business models and leveraging the combination of crowdsourcing, open innovation and technology. These new business models are challenging decades of business assumptions, models, pricing and growth that were based on the principle of ownership, rather than access or subscription. As a result, the fundamentals of insurance, from risk models to pricing, products and services, are feeling shockwaves. My discussion with the CEO about his business provides a great but jolting example of the need for these new business models, new risk models and (especially) new insurance products. He agreed to do a webinar to describe his needs and his frustrating experiences for our SMA Innovation Communities.
During the webinar, the CEO shared his experience and powerful insights for insurers:
It was easier to obtain $2 million for investment funding than to find insurance. The funding would likely be completed within 30 days. Contrast that with finding insurance coverage: After talking to more than 20 insurers, brokers or agents, over nearly 12 months, there is still no coverage. He found two companies, one of which works with Peers (the non-profit company backed by shared economy companies), that are bringing insurance to this market segment. But he is still awaiting confirmation.
Outdated insurance business models don’t fit today’s market needs. The old models are based on historical actuarial models, rather than real, point-in-time data (i.e. coverage when driving and shipping something). The lack of visibility into capabilities of insurers and independent agents and the language barrier (the coverage needed is inland marine, which implies the use of a boat rather than land surface shipping) make it especially difficult to find exactly the right coverage.
Finding the right independent agent is “tricky” because of referral chains, lack of skill sets, unclear representations, and agent incentives. In seeking coverage, he was told by many in the industry that, “Insurance has not updated the business model since the 1800s, so you won’t find anything.”
What does this mean for the insurance industry? Mildly put, listening to the voice of the customer should be a wake-up call. The lack of understanding and inability to respond rapidly to new market needs opens the door to new competitors and the potential loss of customers.
Just like many other industries that are being disrupted and transformed, insurance must reimagine its business models – from the mission to the customer to the product, pricing, operational and revenue models. Historically, insurance has been about the transfer of the risk of a loss from one entity to another in exchange for payment. In today’s fast-paced, changing world of emerging technologies, new business models and shifting industry boundaries, is that focus limiting our opportunities? This experience by a “could-be” customer clearly suggests we are at least limiting our future, if not risking it altogether.
Other industries (and companies) are noticeably redefining their visions and focus to compete in this new world. At the 2015 Consumer Electronics Show, the media noted that Ford CEO Mark Fields sees Ford as rethinking itself as a mobility company rather than being defined by its legacy as an automotive company, and Ford is delivering a wide array of new services and experiences via the auto. Even Google’s CEO, Larry Page, has acknowledged that its vision statement – “To organize the world’s information and make it universally accessible and useful” – is too narrow, as reported in a Nov. 13, 2014, Fortune magazine article, “Google’s Larry Page: The most ambitious CEO in the universe.” Page is creating a future by leveraging emerging technologies to reshape the business beyond the legacy as a search engine.
Yet the view that insurance vision and business models are shackled in decades or even centuries of tradition is, unhappily, very real. This notion is reinforced in a Jan. 21, 2015, Forbes article titled “Insurance: $7 Trillion Goliath” that compares banking with insurance relative to change and innovation. The article notes that 15 years ago banking was a lumbering, vertically integrated giant that was largely untouched by the technology revolution. Today, however, there are a group of “Davids” like CoverHound, Lending Club and Square that are challenging traditional banking “Goliaths” with some digital “slingshots.” The article further observes that insurance has also remained largely untouched by the technology revolution, but that we are beginning to see the emergence of “Davids” who will challenge the traditional “Goliaths,” leveraging the technology revolution to disrupt the traditional business assumptions and models of insurance.
Insurers must redefine their vision and reinvent their business model, taking into consideration the new and emerging technologies, the growing amount of real-time data, new market trends and much, much more. If they do not, they risk facing a disruption that will be devastating, when it could have been transformational, creating new relevance in a rapidly changing world.
The reimagination of businesses in the context of today’s world and tomorrow’s potential are already defining and revealing future market leaders and winners. Will insurance remain focused on risk transfer products? Or will we look more broadly toward offering products and services that provide much more, enhance the lives or businesses of our customers and meet the needs of a reimagined business model, like the shared economy?
The possibilities are significant. Are you reimagining your business, considering the impossible as the new possible? Insurers need ingenuity and outside-in thinking to reimagine their business as a Next-Gen Insurer and ignite a vision of possibilities.
If not you, then someone else will. So dream the impossible and become a Next-Gen insurer