Life Insurance

'It's Life, Jim, but Not as We Know It' (Part 3)

The article below has been according to a keynote presentation delivered at the Euro Events Life Insurance & Pensions Conference in Amsterdam on Nov. 16, 2019. This really is part 3. The previous parts can be found here and here.

Summary of Parts 1 and 2

In the previous parts, we discussed that customers do not buy insurance because they like it, but because they have to or there is no better alternative available. We started by asking the best way to turn a subject like insurance into something which customers actively engage in? Can, for instance, a pension become an urgent, relevant, integral a part of our everyday life? We discussed two options.

The first option is to provide a broader, more relevant solution with insurance as a component. The insurance product becomes part of a larger, more relevant value proposition. Examples include integrated solutions for risk management and safety, health, housing, mobility or personal financial planning.

The second approach to turn insurance into a product customers actually want to buy, is to reconnect together with your customers. There's still a large engagement gap between insurers and their customers. We touched upon numerous relevant concepts, including the Theory of Planned Behavior, the dynamics of inertia and financial anxiety.

In this third and final part, we bring the insights in the previous parts together and wrap things up.

The relationship between redefining and reconnecting

Now, we know that current relationships between insurers and their customers could be improved. We've covered two different approaches to make life and pensions more attractive. We started off by investigating how insurance solutions may become better connected to the everyday life of your customers. This is all about extending the value proposition with products and services. Logical themes are health, safety, housing, maintenance, mobility and personal financial planning. With these broader solutions in mind we then addressed the have to overcome inertia and financial anxiety to reconnect with our customers. This may give the impression that these approaches were distinct, separate activities. But they're in fact closely related. Consider this: if you successfully redefine your value proposition, you create new and meaningful customer touchpoints which help you finding better ways to reconnect together. And as the capability to understand your customers grows, you learn more about preferences which help you to definitely in turn to develop better value propositions.

There is work to complete!

These considerations will undoubtedly trigger a great deal of questions among insurers. Are we going to be within the business of selling and administering policies or are we going to transform towards becoming a risk & income management expert? What's going to be our position within the value chain, what role are we going to play in this new extended eco-system? How can we develop these new concepts right into a viable business model? And what kind of capabilities do you have to thrive in this new world of continuous change? Some key capabilities from existing insurers, like the ability to design and manage complex policy products, may become less relevant in a world demanding attractive risk management solutions. Similarly, having a true customer focus embedded in your organisational DNA is going to bring you further than having only a regulatory imposed customer orientation.

Building these skills in an environment that is still dominated by different types of legacy isn't easy. This is one of the reasons we see a rise in partnerships between existing insurers and Insurtechs.

Organizing the transformation – the 7 habits of effective insurers

So let's assume that first thing tomorrow you plan to begin to rethink how to design and implement a wider service proposition around your insurance core. What exactly are some key principles to bear in mind when organizing the transformation? I am not going to test to summarize the numerous excellent books available regarding how to foster a culture that embraces organizational change and innovation. Let me just highlight a number of points from my very own experience:

  1. Be very aware of internal bottlenecks and when increasing agility. Organizations are likely to become more complex and bureaucratic – not fit for purpose in the digital world. This could mean that to move fast, you first have to shed some weight and find a solution for the closed books or other legacy infrastructures.
  2. Start talking, not just with your customers but also with employees, distributors, partners, regulators, etc. It isn't just insurers that increasingly recognize the requirement for change – a full range of companies within the value chain are co-depending on the model that's increasingly under pressure. New business concepts will have impact on insurance value chain partners, and service and IT providers just as much (or possibly more!) as they will affect the insurers themselves.
  3. Don't make the mistake of copying concepts out of your fiercest insurance competitor, but learn from the best-in-class companies outside your own sector and apply these principles for your own business. Traditional industry boundaries and barriers to entry are rapidly shrinking, and the proper response is to enjoy and learn in the emerging panorama.
  4. I've always found that the scope and intensity of R&D within Financial Services is quite low, compared to other sectors. Now is the perfect time to alter that. The rise of innovation labs is really a step within the right direction however we need to learn to organize innovation at different speeds as well as for different facets of a business model.
  5. While I perfectly understand why many insurers choose differently, my conviction is that insurers should organize innovation at the center of their organization. I've heard many arguments why insurers choose to setup innovation in labs or outposts but you will find serious limitations and issues when it comes to reconnecting with the main organization. That will be subject of another article. For now my summary is: return in the building!
  6. Invest in your capabilities not only to start up but to scale up a new value proposition – that's where it becomes really complex. Everybody can produce a small scale working model, a MVP or a pilot project. But turning it right into a large scale operation that contributes to revenues, that's something else.
  7. And most importantly: If you are 80% sure that your current business model is future proof (which means you are pretty confident about this!) you should still spend 20% of the change budgets on more fundamental, radical or disruptive types of innovation. Just make sure you have all possible scenario outcomes covered!

In closing

The time to repair the roof happens when the sun is shining. Has that window of opportunity already passed by or will incumbents have the ability to adjust their course over time? It's only now, when we see rising costs of doing business, signs of diminishing returns and demographics putting pressure on existing products that we see emerging initiatives.

Solutions for managing risks should become urgent, relevant, top of mind and connected to the daily life of customers. Insurers rethinking their value propositions possess the opportunity to design a new generation of solutions beyond a singular insurance policy which will transform their relationship with customers.

These solutions may have to overcome the key psychological challenges associated with certain or possible events that may be far off in the future. Applying advanced insights and techniques (in the fields of behavioural science, neuromarketing, and applied psychology, etc.) to reconnect with customers ensures that the future is becomes increasingly something which is clear and present and to be handled right now.

If insurance becomes the means to an end as part of a broader customer need, you have to organize this transformation. It's not just a product gap – it's a gap between capabilities present and capabilities needed on different levels: organization, technology, application landscapes, culture: e.g. how can you combine a solid long term investment management function with short term entrepreneurial activities and innovation?

Corporate innovation and strategic change initiatives should fix numerous key existing internal challenges and create the best fundamentals to enable more disruptive types of innovation. The traditional product development scope must be enhanced to facilitate the creation of hybrid forms of products and services.

Addressing these aspects will enable insurers to design solutions and services that bring us closer to their original marketing promise to provide more security and peace of mind.

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