Are insurers ready to meet the new customer requirements on time? Author: Koen Klokgieters

Co-author: Herman-Jan Carmiggelt

Published: 2007

Stagnation means decline. But there are many external factors that make change

essential. In the case of insurers, law and regulations are important external factors.

The external influence factor that is rapidly gaining ground is the behaviour of the

customer!

The behaviour of customers and the way in which they experience products and

services is liable to change constantly. Products which the insurer brings to the market

and which perform outstandingly are becoming obsolete ever more rapidly in the eyes

of the customer. The quality of the product or service is no longer the only aspect

which the customer considers. Aspects such as service, price, accessibility and the

reputation of the organisation and the experience of the customer when purchasing

and using the product are becoming increasingly important. SNS-Reaal, for example,

has taken an innovative approach to its distribution channel and opened up a new

access route through a retailer outside the sector, namely Kruidvat.

This total set of characteristics is a company‟s value proposition. The changes in the

customer‟s behaviour and experience require organisations to adapt this value

proposition constantly. But adaptation of the value proposition to the customer‟s new

requirements is not sufficient. In order to become the customer‟s preferred supplier,

organisations must offer a distinctive value proposition compared to the competition.

A customer ultimately chooses those products and services whose total set of

characteristics best matches his or her requirement at that time. The creed is therefore

a continuous quest to renew the value proposition. For the company this means

constant innovation in business. In this connection, Business Innovation concerns the

development and implementation of a unique added value which customers adopt.

This article shows clearly that Business Innovation is not only an “internal party”

within the organisation. Success is determined to an ever greater extent by the active

involvement of customers. The big question is whether insurers are able to adapt their

existing organisation in such a way that the customer can also participate actively in

the innovation.

Increasing unpredictability in consumer behaviour

If consumers show stable purchasing behaviour and allow themselves to be readily

divided into customer segments, the company can clearly demarcate the segment on

which innovation must be focused. For example, Volvo and Saab were able to address

a clear target group with a safe luxury car. Nationale Nederlanden has for a long time

been able to develop a strong brand in the insurance market. Customers have therefore

remained faithful to these brands over the long term.

From now on, however, consumer behaviour will be characterised by fickleness. New

forms of coexistence, communication, consumption and experience are clearly having

an impact. The modern consumer wants to be addressed in terms of his DNA, the

“genetic blueprint” of his behaviour. The company must be able to understand this

DNA and translate it into a new value proposition. The company‟s chances of survival

are determined by two crucial factors: insight into the specific customer and speed of

reaction to the constant changes within the target groups. The Capgemini Trends in

Retail (2006) survey shows that only a few companies have proved successful in this

regard.

New-generation customers are the beacons of the new requirements of existing

customers

In their book “Generatie Einstein” [The Einstein Generation], Jeroen Boschma and

Inez Groen describe a new generation of customers. Whereas the previous generation

was focused on the individual: Enjoyment (including in my retirement), Convenience

(home financial adviser) and Gain (investment mortgage), the new generation

operates mainly on the basis of Smarter (I am my own financial adviser), Faster

(everything through the internet) and More social (no investments in “bad”

companies). For insurers too, this means an enormous change in the relationship with

the customer:

Communication changes from one-way traffic to two-way traffic (customer

wants to discuss the type of policy to be taken out);

(Marketing) communication cannot be a palliative for errors or deficiencies

but must be based on concrete proof. Progressive Insurance, for example,

offers complete transparency by placing products from competing insurers on

its own site, including price information, even though its own products are less

economical;

The „smarter‟ customers demand equality and punish arrogance mercilessly

(customers work out for themselves whether you can offer the best personal

services);

Intertwining of interests and companies‟ poor reputations must make way for

entirely logical and transparent messages (linking of different financial

services must not only deliver more profit for the insurer).

This new generation of customers wants to be actively involved in change, renewal

and innovation. They will no longer accept the company pushing new products onto

the market without their participation. The new generation will confront the insurer

with a new division of roles between the consumer and the producer: the

PROSUMER (the consumer has also become a producer). An international example is

„co-creation‟ at Lego. Children (in other words the new generation of customers) are

actively involved in the development of new Lego kits. The children work with R&D,

Marketing & Sales and Operations via the internet. That is how the three best-selling

LEGO kits came into being. We do not see such far-reaching forms of co-creation in

the Dutch insurance market. Why is that?

Large mature organisations experience great difficulty with changes in their

customers and look at their own role

In many cases insurers are large companies which change relatively slowly and adapt

gradually to external factors. This type of organisation is based on a number of clear

characteristics:

Certainty by means of procedures and regulation (standardised and

bureaucratic);

Political stability by establishing clear duties, powers and responsibilities,

(clearly demarcated organisational boundaries, internal „silos‟);

Strong historical corporate culture with little room for free-thinkers;

Conventional (legacy) back-office information systems focused on

productivity.

Innovation within a company requires organisational capability in order to bring about

renewal across internal boundaries (from Product Development through to Marketing

and Customer Service). In view of the characteristics referred to above, that in itself is

an enormous challenge, let alone co-operating outside the boundaries of the company.

In spite of all these challenges, innovation ambitions are devised which require

intensive co-operation on innovation with partners outside the organisation, so-called

Open Innovation (for a more detailed explanation see www.openinnovatie.nl ).

The insurance sector is characterised by co-operation between the different parties in

the value chain. It is a network of financial intermediaries focused on extensive

automation (insurers shift work to the front office by means of a front-end system)

with the main aim being cost reduction. The renewal is focused on the development of

a fully-fledged technological solution, whereby independent intermediaries can work

with insurers and other parties in the insurance sector in a uniform way. However,

there is not yet any systematic open innovation.

Outside the insurance sector there are companies in the Netherlands that are

successfully dealing with open innovation in a systematic way. Philips is a good

Dutch example in which innovation is delivering the first successes with many

different parties outside the conventional organisation. At the new High Tech Campus

in Eindhoven, Philips has created the conditions in which existing and potential hi-

tech companies can easily meet each other and work together. Another good Dutch

example is the Food Valley, the innovation engine of the Dutch agrifood cluster. It is

time for the Netherlands to create an Insurance Valley, the innovation engine of the

Dutch insurance cluster…

The above cases are good examples of innovation outside the organisation. However,

the focus is predominantly on co-operation between different partners in the value

chain and still hardly if at all on co-operation with the consumer!

Mass Participation: a new way of organising Open Innovation with an active

customer role

Customers today are increasingly organising themselves into so-called communities,

networks which connect people via the internet around a specific theme or passion.

For example, there are communities for senior citizens who support each other with

various issues (see www.seniorweb.nl ).

An example in the insurance sector is Vegapolis, which has introduced the first group

healthcare insurance for vegetarians to the market in co-operation with Agis. The

policy has various benefits for vegetarians, including lower premiums as a result of

purchase discounts and cover tailored to the requirements of vegetarians, consistent

with a conscious lifestyle (health benefits of vegetarianism). A substantial share of the

income from the insurance also goes to appropriate good causes.

Such communities are set to grow in the future. The communities also operate as

purchasing organisations and thereby acquire a great deal of power in their dealings

with the insurers. As a result, they will force the insurer to take part in their adaptive

and self-organising communities.

The question then arises of how as a company you organise intensive co-ordination

with so many customers at the same time.

A possible answer is provided by Charles Leadbeater. In his new book he describes

the concept of Mass Participation. This concept is a means of innovating by having

people participate actively on a worldwide scale at extremely low cost. Just as Henry

Ford created a new logic for mass production, the new concept will create a new logic

for business innovation. Companies will consequently lose part of their control of

innovation, but will gain a whole army of very passionate innovators in return.

Examples of mass participation apart from Lego are Wikipedia, Linux, OhMyNews

and WaveMarket. As yet, there are scarcely any examples on a comparable scale in

the insurance sector.

Charles Leadbeater states a number of basic rules for the introduction of the new

concept:

1. Create a core basic idea: sufficient to work on but also with sufficient scope

for additions. For example, an insurer could introduce a new idea focused on a

specific community without already having worked out the idea in detail. This

idea does not have to be focused directly on an insurance product. It is about

delivering added value to the community and consequently becoming a joint

player.

2. Motivate and entice participants: treat the participants as peers (insurance

experts) and not as employees, suppliers or customers. Participants see their

contribution as personal development and status. They are looking for concrete

and practical benefits. Low barriers to entry and user-friendly tools are also

required. The insurer can also be the party which supplies the tools and assists

the community with the self-organisation.

3. The need for meeting places: a place in which people can work interactively

with each other and clear rules of ownership (taking, using and returning) have

been drawn up. The insurer must not participate only in order to add the

participants‟ personal information to his CRM system. By bringing actual

added value into the community, the participants will automatically become

interested in the insurer as a party.

4. Self-distribution of work: an open working method based on a high

acceleration of the peer-to-peer review process (in which the customer is also

seen as an expert and is asked his opinion), which rapidly identifies the good

ideas and allows them to be elaborated further. When a new product is

developed, the insurer must enable everyone in the community to play a part

in the development and building work. To this end, web-based applications for

product development must be available to customers.

5. Think LEGO: innovations are divided into a series of compatible and

integratable modules. The integration is based on clear, simple and centrally

formulated design rules. These rules and protocols make it possible to allow

mass innovation. The total set of new insurance products must be integratable

with existing and future products. For example, extensively personalised

policies can be created which can evolve very flexibly with the customer‟s

various life phases.

6. A new form of leadership: these are not conventional corporate chief

executives but leaders with characteristics such as modesty, in the background,

self-confident, strong standards and values, passion and solidarity. Their

specific top-down leadership style enables bottom-up innovation initiatives to

be launched on a large scale and in a decentralised way. The conventional

financial grey-suit image of the insurers could use an „extreme makeover‟!

Today‟s customers, the new-generation customers, employees, suppliers, owners, etc.

will feel right at home in this new form of organisation. But it is quite a leap to go

from the current situation to full-scale mass participation. Perhaps too great a leap for

many. The insurer could start by adopting a community and shaping this new concept

jointly with its employees. A subsequent step could be creating a new community

itself.

Dutch companies such as KLM, DSM, Philips, Reaal and Achmea are already taking

substantial steps. The question is whether the existing conventional insurers will have

time to adapt their organisation and working methods. Those which are not able to

develop rapidly towards the new concept of mass participation will face very tough

continuity issues. After all, the customers will create and market the required products

and services themselves in their existing communities.