Trends in insurance

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1 Trends in insurance The disruption in insurance is ongoing From product oriented to customer driven With focus on prevention instead of claims

Transcript of Trends in insurance

Page 1: Trends in insurance

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Trends in insurance

The disruption in insurance is ongoing

From product oriented to customer driven

With focus on prevention instead of claims

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Inhoud Trends in insurance ........................................................................... 1

Introduction ..................................................................................... 3

1. Making products simple ............................................................. 4

“The main issue customers have with insurers is the lack of trust” . Fout!

Bladwijzer niet gedefinieerd.

2. Engage the customer ................................................................. 7

Apps ............................................................................................. 9

3. Technology ............................................................................. 11

Technology is an enabler ............................................................... 11

Technology as competitive advantage ............................................. 12

Digital stone age .......................................................................... 12

SME, all online and direct? ............................................................ 14

4. Business models ..................................................................... 15

Solution provider ......................................................................... 16

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Introduction

Nowadays you hear a lot about disruption and technology in insurance. Having

worked in insurance for fifteen years, mostly as a consultant in change projects I

decided it is time to write down my view on the trends in insurance.

I do not call it disruption simply because disruptors like Uber, Airbnb are not

likely to take over the complete landscape of insurance. Still big shifts in the

structure of insurance are around the corner and the question is whether insurers

are ready to cope with the impact even small changes can have. And even more

important, what can be done to remain a successful insurer in these demanding

times.

This book covers four main topics:

Simplify products

Engage the customer

Technology

New business models

These four topics are all answers to one simple question:

I know a lot of insurance professionals think insurance is not a commodity, but

ask your neighbour, the butcher and the man in the street and they will all say

that all insurers are alike. Because products are more or less the same, they

mostly compete on price and customer engagement is low.

Definition of a commodity:” A basic good used in commerce that is

interchangeable with other commodities of the same type.

How can I change the fact that insurance is a commodity?

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1. Making products simple

A few weeks ago I was at a congress about Marketing and distribution of

insurances.

One of the key-note speakers, James York founder of Worry+Peace an insurance

broker, stated that we need simple products. I absolutely agree with him on this,

but on the other hand making the current products easy is going to be nearly

impossible, because the products are complex and developed with the focus on

the product. So the whole infrastructure of the insurance company is product

oriented.

Several insurers have rewritten the terms and conditions of their products, this

made the terms and conditions more understandable, but this is not enough to

make a truly simple product. A simple product is easy to understand, has clear

terms and conditions and offers a good cover.

2014 research by EY states that people trust insurers even less than banks.

While banks where the bad guys during the economic crisis. For in the

Netherlands only 53% of the population trusts insurers.

So (re)gaining the trust of the customer is not so much about rewriting the terms

and conditions, but being a trustworthy party. And that means that insures can

only sell easy to understand products, tailored for the customer at a fair price.

This process should not start with the product, since the product is the result not

the starting point. Instead of looking like a car dealer, open a shop, buy a chair

and wait for the customer, start with the customers and deliver a solution

beyond their current needs. Remember that Henry Ford never asked the

customer what he wanted, he knew that answer. He looked for the demand

behind their current needs. And that is what a non-commodity insurer would do.

“The main issue customers have with insurers is the

lack of trust”

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Instead of having a product and trying to sell it, they sell the solution. And if you

are truly a trustworthy partner, you advise your customer in time to change the

product, so the product keeps up with the altered situation of the customer, even

if this means earning less premium.

The last economic down turn showed that customers are more and more looking

for low priced products. Why? Simply because the products are commodities so,

why should I pay more? And insurers encourage customers to search for the

lowest priced products. Aggregators focus mainly on price and we see very little

reaction against that by insurers. No insurer presents a top of the line product,

with a corresponding cover and service and of course a corresponding price.

There is absolutely a market for products like this.

Tailored products

In a tailored product, or in other words a modular product, a customer can

decide which covers he needs. This helps customers to understand what they

insure, the do not buy a standard product, they buy a product fit for their

situation. With the technology available at the moment we can help the customer

select the right combination of covers, without overwelming them with options

and possibilities. A trustworty partner advises the customer based on data which

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covers are best for the customer. Off course the customer is allowed to choose

his own set of covers. This functionality should be available for both brokered

sales as well as for direct sales. A broker shoud have all the possibilties direct

customers have and even more.

And per module the coverage is easy to explain, especially when the modules are

defined at atomic level, so a single module, covers a single event.

A simple product is not only easy to understand it also has simple and fast

processes and an excellent customer service. This combination makes a product

simple, not rewriting the terms and conditions or bringing products online. A

genuine simple product is provided by a reliable insurer looking at the best

interests for his customers.

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2. Engage the customer

More than 55% of insurance customers

want more interaction with their insurer.

And also more than 50% of the customers

have proactively contacted their insurer,

according to EY research done in 2014

among 24.000 customers in 30 countries.

And still insurers do not contact their

customers. They hide behind a façade of a

nice office, a well-designed website and a

phone number, only open on business

hours.

My insurer only contacts me once a year, to

inform me about the new premium rates. And once in a while with a letter about

some internal change in their name, products or service.

The Agila story

A small German Pet Insurer, Agila Haustierversicherung, suffered from the

changing customer behavior due to internet. Instead of going along with the

competitor, who just reduced prices and kept doing the same, Agila turned their

way of doing business around.

Instead of selling only via intermediaries they now also sell direct, online. With

self-explaining products, reduced complexity in terms and conditions and service

via their own customer service center.

I had the pleasure of meeting mr. Marco Brandt, Marketing and Sales of Agila.

He explained to me that this was just part of the transformation. The big change

is the interaction with the customer.

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The have a moderated platform for pet owner and enthusiasts in Germany, via

Facebook. Here the customers can ask questions to dog trainers, veterinarians,

and other pet owners.

Because people love their pets like their children, this created a massive fan-

base for an insurer. People post pictures of their pets on the Facebook page and

even every year Agila gets contacted by the media to reveal the trends in pets

names.

They also invested in becoming the reliable partner, they process claims within 8

hours, and they have very simple terms and conditions.

Since they altered the terms and conditions the most commonly asked questions

is where are the complex terms and conditions? Because customers expect a

complex document full off small print and they get a one page document, stating

everything is covered except eight exclusions.

Marco Brandt, Agila Haustierversicherung.

The example of Agila is great, but if you happen to sell fleet, life or property

insurance, then you can’t expect customers to be engaged via a Facebook group.

But there is one essential thing all customers have in common, that is

“Customers don’t want loss”

Instead of focusing on risk, insurers should focus on prevention. Because by

helping customers to avoid accidents you can have a huge impact on the

customer. Every time a customer makes a claim, there is damage, an injury or

even death. These events interrupt the day to day life of the customer, it effects

the wellbeing of the customer. By preventing injuries and damage insurers can

have a great impact on people’s lives without customers being very aware of

that.

“Do not always give your customer what he wants, if he expects complex

terms and conditions feel free to ignore this need”

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A great example here is Axa in the UK. They decided to focus on Vans, because

vans are more likely to be involved in an accident than any other type of vehicle.

Based on customer data they know where their customers are located this

combined with the weather forecast results in a push-message on the app if

there is bad weather with strong winds expected in the area of the customer.

This way the insurer actively helps to reduce the change of getting involved in an

accident.

Customers appreciate this, because they now benefit from the knowledge and

experience of the insurer. Axa contacts his customers on a weekly basis via the

app, not only with alert messages also with tips. This creates both brand

awareness and customer loyalty, because now the customers gains something

additional by being insured by Axa.

A few weeks ago I have spoken to a surgeon, who specializes in heart diseases.

We spoke about wearable devices which share information with insurers. He was

enthusiastic about it because from the point of prevention it offers a great

benefit. The more data you have, the better heart attacks can be predicted. But

what have insurers done? They introduced these wearables and told customers

that in exchange for their data they would get a discount. The public reaction

was that customers wondered about their privacy etc. and that there was no

attention what so ever for the benefits.

Apps

I worked for many insurers, and most of them wanted an app in the last few

years. Because, customers expect us to have an app. When I talked to

management about the app and asked how they would use the app, they mostly

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came up with things like, customers can view their policy, in the future change it

(technology is always a struggle) and have all our contact information at hand.

But customers are not going to read their policy document and they only contact

us in case of a policy enhancement or a claim. Also we have to keep in mind that

a great deal of the business is done via intermediaries so customers contact

them first.

So we are not relevant for our customers, so neither is our app. So what is the

benefit of an app. Look at the bigger picture, the customer and the complete

customer experience you provide instead of just doing small parts and hope for

the best.

Always engage the customer

The real transformation is to engage customers, in an integrated manner so

customers have the same experience with your company during the purchase of

the product, during renewals and in case of a claim. Because just having a good

sales processes is not enough to gain the customers engagement. When a

customer has a good initial experience, due to a smooth sales process but once

the policy is up for renewal the processes are complex and slow customers get

disappointed. This bad experience has much more impact than the initial good

experience. In case of a bad experience customers are likely to tell 10 people in

their social circle about their bad experience.

The best way to avoid the commodity is by really adding value for the customers,

giving them the experience they have with non-insurers. The customer service

provided by Amazon is the standard, not the customer service provided by

insurer Y.

Engaged customers who are more likely to renew their policy, because they

experience a mutual relationship. This is in my opinion one of the best ways to

avoid the commodity trap. Because a group of loyal customers is not very

interested in switching to a new provider, who just offers a low premium. In

fact the absolute price matters less than the

individual perception of price. A too low price has the

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same negative effect on loyalty as on that is too high,

states the IBM Institute for Business Value.

The issue of retention will be the topic of one of my upcoming blogs. For more information please visit insurance-innovator.com

3. Technology

When we speak about innovation, disruption etc. most people look at technology

for the solution. With reason since technology provides us with new insights, new

possibilities and it shift the way we work.

The possibilities of big data seem endless, pricing at individual level, prediction

accidents, prevention due to better insights. All very interesting and good

initiatives where customers and insurers can really benefit. Because when a

wearable device can predict my changes of a heart attack I can visit a doctor

before it happens. And that is great news, for the customer and the insurer.

Because nobody wants a heart attack.

But I still have trouble with this whole subject. I do not believe that you can

truly beat the commodity insurance is, by just having the newest technology or

the best data analysis. The newest technology and data analysis need to be part

of a bigger picture and then can absolutely tribute to the success.

Technology is an enabler

Technology is a game changer since it enables us to do thing we did not think

were possible a decade ago. The analysis of data allows us to predict the claim-

ratio for every individual car and driver. This creates new possibilities, like

individual pricing based on a complete understanding of the risk. Internet only

insurers have only a handful of employees, compared to traditional insurers who

employ several thousand people. And that by itself is the great disruption

insurance is facing.

People always talk about Google entering the insurance market, but via their

growth-equity fund Google Capital they already entered the health insurance

market in the US via Oscar.

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Oscar aims at transforming the cost curve through technology. So instead of

starting a new health insurer they invest in a start-up with the potential to

change the business. They change the business by having a new perspective on

the market supported by technology, but not just by technology.

Technology as competitive advantage

Technology can be copied and is in itself not a long-lasting competitive

advantage. If insurer A develops a new platform, insurer B and C will copy the

idea and launch their own (improved) version of the platform. And from that

moment on the playing field is level again. Via technology you can beat the

competition, if your platform is agile and time to market is short, then you can

launch several new products or features per year. Competition will follow, and

copy but after a while they won’t be able to handle the processes the way you

can. Being technologically fit with an organization prepared for change that is a

competitive advantage which will last, because to become fit and ready takes

time.

Digital stone age

In the Wall Street Journal of 29. October 2015, Mark Wilson, the Chief Executive

of Aviva, said that insurance is in the stone age when it comes to using

technology. In order to update the technology they hired people from Google and

Amazon.

I am sure that not only Aviva is in the stone age. For one of my former clients I

was responsible for run off program for legacy applications. During a two year

period we were able to eliminate 60 applications of the 153. And this was just for

the life insurance part of the organization. So insurers have a lot of applications,

not all modern, which need maintenance and cost a lot of money. Especially in

life insurance legacy is holding transformation back, due to the long term

contracts and the legislation related to pensions and life insurance.

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Most insurers have a lot of legacy to maintain. These legacy systems are not

always suited for the current demands. On the other hand, during the Insurance

and Marketing Summit I visited in December 2015, Isabel Connor, Chief

Marketing Officer of Generali, talked about the enormous transformation Generali

P&C was going through. A lot of work needed to be done to change from a

product driven company to a customer centric organization, but technology was

not top of the list. So the focus should not be on technology but on the

customers needs.

During the Insurance and Marketing Summit, I attended a presentation by mr.

David Stevens, Head of Automated Advice Strategy at LV=. They developed

online tooling to support customers in choosing the right strategy to get the most

out of their hard earned retirement savings.

This is online tooling which enables the customer to fill out the data and get an

online personal advice. Key element is their support, all customers are contacted

by certified advisors to discuss their report and to make small adjustments if

necessary. This combination of online and offline is key in delivering trust to a

customer. Certainly the customers of LV= are attracted by this approach, since it

is a big decision and the confirmation of a real person helps in the decision

making. You can only choose once and the result will impact the rest of your life,

so it is a very important decision.

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SME, all online and direct?

Recently I’ve spoken to one of the strategy consultants of a big insurer. He

stated that in the near future up till 80% of SME business would go online and

direct. Since the insurer operates mainly in the Dutch market this is quite a

prediction since nowadays only a small percentage is done direct in the SME

market, and the percentage online is even less.

And even in the more developed UK market, only 40% of the private lines and

10% of the commercial lines are sold direct (via internet). So intermediaries are

still a great factor. And intermediaries will be a great factor, more in commercial

lines than in private lines, because the risks in commercial lines are bigger and

impact not only the organization but also the entrepreneur and the employees.

The SME market is an interesting market for insurers. There are a lot of small

and medium size enterprises and the risks are relatively simple. But that is not

the perception of the entrepreneurs, most of them seem married to the

company. So they want to protect their assets. So they have the same need for

advice a larger company has, but they are less profitable, so the time per

customer needs to be limited.

I know a Dutch binder who services micro-SME and small SME customers via

internet. The freelancers, without personel, they buy online. But the customers

with a few employees check the site, generate a quote but do not buy their

insurance online. The reason this type of customer does not buy an online

insurance is trust, not only do they mistrust insurers, but also they need

confirmation that they have the right cover for their valuable assets. This binder

has a website where the customer enters all relevant data. The system generates

a quote and plans a call, in which the broker and the customer go through the

quote via a shared screen. During this call the broker asks a lot of questions to

validate the quote against the needs of the customer. If the quote needs change,

they do it during the call. At the end of the process the customer has his cover

and the comfort of having an expert looked at his insurance.

This unique combination of online and offline increased the number of customers

and these customers are loyal customers.

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4. Business models

Peer to peer insurance is the buzz word when talking about new business models

in insurance.

This is a new way of doing business, since a group of people collaborate via a

platform to share their risks and benefit from remaining claimless. This is a big

threat for insurers since they only get to insure the excess. So the group can opt

for a larger deductible, which automatically means a lower premium. On the

other hand the insurer can benefit from this model also, since all small claims

which are relatively expensive to handle are now handled via the pool. The vast

majority of claims will be below the deductible, so the insurer will need less

employees in the claims department.

The benefits of a peer to peer insurance are not only a lower premium the

customer also benefits from:

“Based on a shareconomy approach, policy owners with the same insurance type

form small groups. A part of their premiums is paid into a cashback pool. If no claims

are submitted, the members of the group get some of their money back at the end of

the year. In case of claims, the cashback decreases for everyone. Small claims are

settled with the money in the pool.

In the event of bigger claims, the standard insurance company covers any amount

that exceeds the coverage through the group. In case there is insufficient money left

in the pool to cover a claim, a stop-loss insurance covers the rest. As a result, policy

owners always enjoy full coverage and never pay more than they would

without Friendsurance.” 1

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A closer relation with your group, especially if the group is a self-selected

group

Based on mutual interest

No administration with the insurance

The insurer benefits from:

A positive innovative image

Reduces fraud, since the people are less likely to make fraudulent claims if

they are engaged.

And the people are engaged in the group and also the self-correcting

mechanism of the group will limit the number of fraudulent claims

A new distribution channel for insurance products

Increased affordability 1

Solution provider

Another business model insurer can adept is to move on from being a risk

oriented insurer to being a solution provider. A risk oriented insurer focusses on

the risk and puts a premium on that risk. You can extend that risk by adding

additional services, for instance in health insurance offer benefits for your

customers, related to their health. If the customer shares his personal health

data he will not only get a discount in the gym but also he will get a personalized

premium based on his data. And for the customers who want the whole package,

they not only get the gym discount and premium but also a complete cover of all

costs of recovery including in necessary taxi rides to the hospital etc. There is a

market for added value insurance. Insurance not focusing on the risk but on

continuation.

As mentioned before nobody wants an accident or a heart attack. With this in

mind you can divide customers in three groups, customers only looking for a

cover, customers looking for a cover with extra benefits and customers looking

1 Inspeer presentation by Louis de Broglie at the Insurance Marketing & Distribution

Europe Summit

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for continuation. The last group is not very price sensitive because they expect

excellent service and coverage and are willing to pay for that. Side stepping into

these segments of the market can be very profitable for an insurer since they are

now focusing on quality and service and working on customer relations without

the permanent struggle for the lowest prices.

Are a manager in insurance and looking for a way to improve business results

without huge investments in IT?

Contact me and let’s start the innovation from within!

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About the author

Joost Smaardijk is an experienced business consultant with over 15 years

of experience in insurance. He had worked for many insurance companies,

from small regional insurers to the top 5 companies like AIG and Allianz.

Joost started his career as claim handler property, this job made him

aware of the impact claims have on customers. And it also helped him to

realize that the way claims are dealt with is very determining for the

customers experience of the insurer as whole. After several roles in

underwriting, team management and change projects, Joost became an

independent business consultant focusing on adding value for the

customer.

He helped a small insurer in developing an agile approach to change. He

transformed the product development process from being product driven

to a process which focusses on customer’s needs. He is available for

several roles like:

Manager product development (starting point: the customer)

Retention manager (new customers are expensive let’s focus on

keeping the current customers)

When not working Joost loves to run and in the winter ski.

He lives with his wife and daughter in Rotterdam, The Netherlands.

Contact:

https://nl.linkedin.com/in/joostsmaardijk

[email protected]