The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture

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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
The Digital Insurer
The Customer-centric
Insurer in the Digital Era
The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
What it takes to succeed in a
connected, always-on world
Accenture’s approach to planning and executing a
successful customer-centricity journey

Contents
Introduction                                                3
1.     The New Context                                      5
       1.1 What’s new in customer-centricity                5
       1.2 The new insurance customer                       6
       1.3 The insurer at a cross-road                      9
2.     Customer-centricity                                  11
       2.1 The foundations of customer-centricity           11
       2.2 The digital enablers                             14
       2.3 Competition, value at stake and value creation   17
3.     The Journey                                          21
       3.1 The conceptual challenges                        22
       3.2 The execution challenges                         25
       3.3 Approach to the customer-centricity journey      27
Final Remarks                                               29

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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
Introduction

The digital era gave birth to the new         fulfil the needs of the individual customer      capabilities and we have a view on cloud-
“connected world”, in which people are        best, that insurer earns the mandate to          based solutions. However, we are nowhere
“always on”, and a growing number             serve him.                                       on customer-centricity, using customer
of devices are linked in the so-called                                                         data, offering customized products and
Internet of Things. These developments        Banks have already entered the insurance         service levels, and achieving operational
and their underlying technologies are         space in search of new fee-based business.       simplicity.”
paving the way to new competitive             They currently distribute a significant
landscapes, questioning the sustainability    portion of the life business and are             Merely adding customer-centricity to an
of traditional business models, and           increasing their presence in the general         insurer’s vision statement is not enough.
raising consumers’ negotiating power and      insurance sector too1. High customer-            Knowing the customers below the surface
expectations.                                 touch mobile telecom providers, Web              of a name, an age and a zip code – often
                                              dominators (e.g. Google, Apple, Facebook,        poor and fragmented data stored in
Nowadays, consumers expect friendly,          Amazon, Alibaba, etc.2), retailers and the       different systems within the company
personalized, relevant and enjoyable          like are testing the ground.                     – is the first big task. But this is only a
experiences across multiple channels,                                                          prerequisite.
selected on the basis of their specific       As such, the competitive pressure on
circumstances and points in time. They        insurers to re-assess their strategies and       The real challenge of customer-centricity
want to be in control, too. Information       operating models and to enhance their            is to move away from the product-driven
asymmetries are fading away, since            customer-centricity comes from both              push and to develop the corporate ability
scrutiny and comparison of offers are         inside the industry and from other sectors.      to truly understand the customer’s
only a click or a touch away for almost                                                        stated and tacit needs, to generate new
everyone.                                     Due to the disruption it brings to the           ones, and to provide highly personalized
                                              consolidated patterns of the insurance           solutions and remarkable experiences
Additionally, consumers tend not to make      industry, customer-centricity in the digital     that are relevant to each individual’s
distinctions among industries (retail,        era represents, at the same time, a must,        preferences, circumstances and point in
telecommunications, media, travel,            a challenge and a significant business           time.
insurance, banking, etc.) when it comes to    opportunity for insurers which aim to
searching, purchasing, or justifying below-   serve the end customer.                          As we will see, customer-centricity is
standard experiences. They simply expect                                                       a journey, an iterative one that may
all industries to match or beat the highest   In today’s world,                                have significant impacts on the entire
customer experiences they have already        Digital + Customer Experience =                  organization, including its culture and
had or simply have heard about.               Customer centricity.                             DNA. Achieving customer-centricity
                                                                                               requires insurers holistically to rethink the
Consumers might appreciate that               The consequences of not taking customer-         way the business is conducted, starting
insurance is a regulated industry, but they   centricity seriously are grave for any insurer   from its customers. Customer-centricity,
cannot accept that it fails to provide them   that wants to compete in distribution.           at its best, means having each current and
with similar experiences to those they        Studies suggest that failure to deliver a        prospective customer at the center of the
enjoy from other industries. No excuses.      high quality customer experience can result      insurer’s business and operating models.
                                              in a staggering erosion of a company’s
As barriers across industries blur and        customer base – a loss of as much as 50          One of the risks of such a journey is to
digital technologies help to unveil           percent over a five year period3.                depend too much on the possibilities
individual customers’ needs, preferences                                                       offered by technology, confusing the tools
and locations, so competition intensifies.    But what does it take to become                  with the end. Customers come first.
This is especially true in distribution.      customer-centric? The following                  In 1997 Steve Jobs, then back at the helm
Today’s mass technologies negate              statement reflects the challenge that            of Apple, warned us:
the need for broad segmentation and           most insurers face as they work resolutely
standardization. Whichever insurer –          towards this goal:                               “You’ve got to start with the customer
incumbent or new, composite or niche,                                                          experience and work backwards to the
domestic or international – manages to        “We are progressing on multi-channel             technology… As we have tried to come

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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
up with a strategy and a vision for Apple,    embark and succeed on their journey to
it started with ‘what incredible benefits     customer-centricity in the digital era.
can we give to the customer? Where can
we take the customer?’ … Not ‘let’s sit       Section 1 – The New Context – describes
down with engineers and figure out what       the new relationship between consumers
technology we have and how we can             and insurers and questions its implications
market it…’”                                  for the competitive landscape and the
                                              insurer’s strategic options.
What incredible customer experience can
you provide to your insurance customers?      Section 2 – Customer-centricity –
Where can you take them?                      discusses the foundations of customer-
                                              centricity, how it can be enabled by
Customer centricity = Value Creation.         digital, and the implications for value
                                              creation.
In today’s insurance environment, where
products and prices can be quickly            Section 3 – The Journey – explores the
matched by competitors, tailored offers       customer-centricity path, highlighting the
and superior customer experiences             conceptual and execution challenges it
are becoming the primary drivers of           poses, and providing a sound and proven
differentiation and, therefore, value         framework for implementation.
creation. Customer-centricity in the
digital era is not a goal per se: it is all
about business.                               Customer-centricity is a journey, an iterative one,
The purpose of this paper is to share our
                                              that may have significant impacts on the entire
research and experiences to help insurers     organization, including its culture and DNA.

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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
1. The New Context
1.1 What’s new in customer-centricity?
Customer-centricity is not a new                                      The average time spent on social media     physical and digital components coexist
paradigm. It has always been there.                                   is 2.1 hours a day7.                       and enrich each other. Mobility and
Customers started to matter since the first                         • Smartphone sales surpassed feature         machine-to-machine (M2M) connectivity
business activities emerged.                                          mobile phones for the first time ever in   are providing additional opportunities
                                                                      2013, and tablet sales increased 53.5      for real-time tailored services and access
What makes customer-centricity a                                      percent (to 221 million units) in the      to ecosystems – and thus to the borders
renewed priority on CEOs’, CMOs’ and                                  same year8.                                of new industries. The improvement
other C-suite agendas is the new way                                • They represented 21 percent of the         of infrastructure and computing
it can and should be interpreted and                                  total mobile devices in use in 2013, but   capabilities, and the availability of
executed in the digital era.                                          accounted for 88 percent of all mobile     scalable pay-per-use services, are
                                                                      data traffic9.                             creating new options for internal and
Nowadays, every business is a digital                               • People check their phones approximately    external competition.
business4. As recently as five to 10 years                            150 times a day, on average10. Global
ago this was not the case. Things like                                mobile data traffic grew 81 percent        Emerging technology trends are
digital penetration among consumers,                                  year-on-year in 2013 (1.5 exabytes per     enabling new patterns of behavior (see
smartphones, tablets, connectivity across                             month by the end of that year), reaching   Figure 1), and are having a significant
multiple devices, massive real-time data                              nearly 18 times the size of the entire     impact on the relationship between
and analytics, cloud computing, social                                global Internet in 200011.                 the insurer, its distribution channels
networks and others simply did not exist.                           • Nine-tenths of all of the world’s data     and its customers. The polarization of
Now they do, and they have emerged with                               in 2012 had been generated in the          customer-centric and production-driven
all their importance.                                                 previous two years12, and according to     business models is becoming amplified
                                                                      Gartner, worldwide information volume      (see 1.3 below).
Let’s look at some telling facts and                                  is predicted to increase by at least 59
figures:                                                              percent a year13.
• At the end of 2013, the Internet was
  accessible to approximately 40 percent
                                                                    • By 2017, more than 50 percent of
                                                                      analytics implementations will make
                                                                                                                 Brand new customer-
  of the world's population (8 percent                                use of event-data streams generated by     centric value propositions
  in 2001), with developed economies                                  instrumented machines, applications,
  reaching a penetration of about 77                                  and/or individuals14.                      can be launched on all
  percent (29 percent in 2001)5.                                    • The Internet of Things is forecast to      digital channels in less
• 75 percent of the Internet population is                            comprise approximately 212 billion
  on at least one social network6. Globally,                          “things” by 2020. This will include 30     than 12 to 18 months, by
  the average time spent on the Internet
  is 4.8 hours a day on laptop / desktop
                                                                      billion connected (autonomous) things15.
                                                                      There is no longer a physical world
                                                                                                                 new digital players as well
  and 2.1 hours a day on mobile devices.                              and a digital world. In most situations,   as incumbent insurers.
Figure 1. New emerging technology trends are enabling new consumption models.

                                                          Analytics
                                                         Revolution

                                                         n   g technologica
                                                  e   rgi                  l tr
            Digital Evolution                  em                              en
                                           w                                      d             Cloud
              (Digital Marketing
                                                                                     s. .

                                                                                              Computing
                                      Ne

                                                                                      .

            Social Media, Mobility)

                                                       Customer-
                                                       centricity

                                           .en
                                       ..

                                                 ab                              s
                                                      le n                   del            Social to Share,
           High Demand for                                 e   w behavior mo
                                                                                             to Know and
            Customization                                                                    to Co-create

                                                     Multi-channel
                                                  Customer Experience
                                                      (Mobile, Web, Physical)
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The Customer-centric Insurer in the Digital Era - The Digital Insurer - Accenture
Time is of the essence16. In the early 2000s,   after it acquired an asset manager and          since 2007. And what about insurance?
incumbent banks could defend themselves         launched the fund on its platform18.            What if these giants were to direct their
against the new Web-based entrants by                                                           advantages in customer-centricity toward
setting up their own online systems and,        But much more is going on with incredible       the life or P&C industries? Will insurance
thus, largely preserving their customer base    speed, both by the known players and            be their next area of focus? No – but
and relationships17. Since then, a new wave     the unknown – or to be known in the             simply because it is already happening,
of developments has occurred. Customers,        future. Let’s take Apple, for example. Its      as we will highlight when we assess the
with the Web accessible on mobile devices       iTunes has 575 million registered users,        insurance competitive landscape (see 2.3).
in their hands, are much more informed          growing by half a million daily. It has sold
and demanding thanks to search engines,         approximately 375 million iPhones over          Brand new customer-centric value
relevant content, comparison sites, social      the past five years and 155 million iPads       propositions can be launched on all digital
networks and more choice. Customers             since they were first introduced in 2010.       channels, including mobile and social
are also closer than ever before to a vast      These numbers compare with PayPal’s 137         networks, in less than 12 to 18 months.
number of players from other industries,        million active accounts and Amazon’s 182        This is possible by new digital players as
and are accessible to almost anyone who         million customers.                              well as incumbent insurers. Adding to the
has a relevant proposition to reach them.                                                       threat: customers’ propensity to change
This makes it even more challenging – and       E-commerce can only continue to grow.           their insurer in the next 12 months is
urgent – for established financial services     With the many features and capabilities         higher than ever (see below).
companies (insurers being on top of the         needed by Apple to charge for its products,
list) to mount an effective defence and         including clients’ trust, it is not difficult   Moreover, contrary to what some may
counter-attack.                                 to understand why many commentators             think, financial services regulators are
                                                expect the giant from Cupertino, California,    not likely to be the anchor that preserves
The pace of change is indeed dramatic.          to soon become more active in the               the status quo. On the one hand, they
Amazon surprised the market in late 2012        financial services arena19.                     embraced the consumer agenda vigorously
when it announced the introduction of                                                           and are posing important challenges to
“Lending”, a service which provides loans       At the time of writing, Facebook was just       the way products are marketed, priced and
to merchants which operate through              weeks away from receiving authorization         sold. On the other, they are progressively
the company’s platform – and whose              by Ireland’s central bank to become an          exploring new ways to promote
creditworthiness is therefore very well         “e-money” institution20. Vodafone has           competition in the industry.
known to Amazon. But in fact, it simply         acquired an e-money licence for the
copied what the Chinese e-commerce firm         phone company to offer financial services       The race to achieve growth through
Alibaba did three years earlier. The same       in Europe, and has purchased a vehicle          customer-centricity in the digital era is
Alibaba became the world’s fourth-largest       tematics software firm. Google has held         well under way. But most insurers have
money-market fund only nine months              a banking licence from the Netherlands          yet to leave the starting blocks.

1.2 The new insurance customer
A new insurance customer has emerged.           • 71 percent are willing to purchase at           on-year increase in consumers who
The new insurance customer is much                least some insurance products via digital       contributed to online product or service
better informed and more demanding, may           channels.                                       reviews or blogs.
belong to consumer groups, and may have         • 67 percent would be interested in being       • Consumers rely on “the wisdom of
different requirements and expectations,          offered insurance services via their            crowds” (social media, blogs, etc.) and
depending on products and circumstances           mobile devices.                                 want to contribute, share and learn.
(see Figure 2).                                                                                 • They express significant interest in
                                                Social                                            buying products which they help to
According to recent research studies            • 47 percent gather information about             design22.
conducted by Accenture21, the new                 products and services from social media.
insurance customers are:                        • 48 percent regard the advice they             Informed and self-directed
                                                  receive from social media, blogs and          • It is the norm for consumers to research
Connected                                         consumer sites as “important” or “very          online (and digital purchasing of small-
• 72 percent use mobile devices while             important”.                                     ticket and commoditized insurance is
  in-store for price comparison (UK and         • 55 percent would be interested in               set to boom).
  US respondents).                                insurance services provided through           • Digital channels are the preferred
• 2 out of 3 consider it “extremely               social media, blogs and consumer sites.         solution for almost every interaction
  important” to be able to buy what they                                                          with insurers, ranging from 44 percent
  want, when they want and how they             Co-productive and willing to share                for “advice” to 68 percent for “updating
  want (e.g. in the shop or online).            • In 2013 there was a 46 percent year-            personal data”.

                                                                                                                                            6
• If convenient, third-party distributors          • Consumers want to be in control.                                               assured their data will be used sensibly
  are welcome (67 percent would consider             They know how to search the market                                             and can be deleted on request.
  buying insurance from non-insurance                and they switch insurers if they are                                         • 57 percent of US consumers are likely
  channels such as banks, online service             not happy. As a result, the insurance                                          to abandon an online purchase if an
  providers, retailers, etc.23).                     “switching economy” was calculated to                                          answer is not immediately forthcoming.
• Consumers expect real-time access to               be worth as much as US$400 billion in                                        • Insurance customers want to be
  relevant content and are used to instant           personal-lines P&C and life premiums24.                                        recognized by their insurer, irrespective
  gratification.                                                                                                                    of the channel they use to contact it.
                                                   Experiential
Price-sensitive                                    • 80 percent would switch for more                                             The traditional insurance customer has
• 64 percent are actively searching for              personalized services and 41 percent                                         been joined by the digitally-oriented,
  value for money rather than brand, and             would be willing to pay an average                                           multi-channel and 24/7 connected
  are willing to spend an additional 5 to 10         increase of 7.8 percent for such services.                                   customer. Sometimes they are two
  minutes online, after finding the product        • Customers would consider providing                                           different types of customer; in many
  they want, to secure a better price.               personal information in exchange                                             instances they are the same person, simply
• 40 percent of insurance customers say              for optimized coverage (82 percent),                                         in different spatial and temporal contexts.
  they are likely to change their home or            an optimized premium (81 percent)
  motor insurance provider in the next 12            or better service (78 percent). The                                          The new insurance customers increasingly
  months (51 percent in the 25 to 34-year            conditions would be that they know                                           manifest 10 demands – see alongside.
  age band).                                         what the benefits are, and that they are

Figure 2. The new insurance customer.

           Self-directed                                                                                                      Changing customer behavior
           Looks for what he wants,
           anytime, anywhere
                                                                                                                              71%
           Experiential                                           cs                       Big                                of consumers are willing to purchase insurance
                                                           al yti                                 Da
           Looks for “unique experiences”                                                                ta                   via digital channels
                                                        An                       Self-D
           tailored to his personality &                                   ed          irec
                                                                       orm                 te
           preferences                                               Inf                                                      67%
                                                                                            d

                                                                        Customer-centric                                      would be interested in being offered insurance
                                                                                                 Experiential

           Co-productive                                                                                                      via their mobile devices
                                                         Connected

                                                                                                                   arketing

           Engages with service providers
           in product co-creation                                                                                             48%
                                            Mobili

                                                                       The new customer
                                                                             is now...                                        regard product advice on social media as “impor-
                                                                                                                    lM

           Social                                                    Soc
                                                                                            e

                                                                                                                              tant” or “very important”
                                                   ty

                                                                                         tiv

                                                                         ial              c
                                                                                                                ita

                                                                                        du
           Relies on “wisdom of crowds”                                           Co-pro
                                                                                                         Dig

8          (social media blogs) to share                                                                                      67%
                                                                       Social Networks                                        would consider buying insurance from non-
           Connected                                                                                                          insurers such as online service providers or
           Switched on to multiple                                                                                            retailers
           devices & channels
                                                                                                                              40%
           Informed                                                                                                           say they are likely to change their home / auto
           Gets relevant content with                                                                                         insurer in the next 12 months
           high frequency
                                                                                                                              80%
                                                                                                                              would switch for more personalized services

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What customers increasingly demand of their insurers
1. Be at least as digital as      8. Offer them relevant
   they are.                         products and services with
                                     transparent and convenient
2. Recognize them, always and        pricing structures.
   across all channels (and not
   as mere policy numbers).       9. Develop customized
                                     solutions which reflect
3. Listen to them and                their inputs and
   remember what                     requirements, preferences,
   they say (to take it              circumstances and previous
   into account in any               interactions, at prices and
   subsequent interactions           conditions which are right
   or relationships, as              for them.
   appropriate).
                                  10. Recognize and reward
4. Be there to support and            their loyalty.
   help them when they need
   it, 24/7.

5. Engage with them with the
   frequency of interaction
   they consider appropriate,
   through the channels they
   prefer, and in ways which
   are tuned to their
   personality and the
   specific situation.

6. Make the interactions
   easy, consistent,
   convenient and enjoyable
   across all channels.

7. Empower them and let
   them be in control, and be
   able to satisfy their needs
   when, where, and how
   they like.

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1.3 The insurer at a cross-road
How do the digital revolution and the         satisfy their requirements, and to delight    customer we often see traditional insurers
new customer behavior impact your             them with superior customer experiences,      that appear too absorbed in dealing with
competitive position and corporate            delivered seamlessly across all channels?     the constraints and costs of their legacy
strategy?                                                                                   systems to focus attention on what they
                                              Are you able to efficiently and effectively   really need to compete and prosper:
Do you really know all your current and       provide them with personalized solutions      making their customers happy and loyal.
target customers and their stated and tacit   (e.g. through modular offerings and mass-
needs and preferences, and can you address    customization engines), as providers in       It is common within the industry that
them in real time, across all channels and    other industries already do25?                insurers’ attributes make it difficult
customer points of contact?                                                                 for them to meet the needs of the new
                                              Very few insurance players can reply          insurance customer. Retail insurers
Do you have the right products, people,       “yes” to the above questions. In fact,        are often:
processes and technologies in place to        contrasted against the new insurance

• Distant, with an average of fewer than two contacts per customer per year, and fewer than
  1.5 products per customer.

• Product-driven, with silos that pervade their culture, their organization structure and their
  distribution platforms.

• Third-party-dependent, with distributors often having an unbalanced negotiating power and
  enjoying the lion’s share of the customer value.

• Old fashioned, with only 7 percent of services provided through digital channels – in spite of
  customers’ expectations being 7 to 10 times higher, depending on the type of interaction.

• Reluctant to change, with 48 percent of P&C insurers and only 23 percent of life insurers
  acknowledging the pressing need to change26.

There is a great opportunity for insurers     genuinely with customers and prospects,       mainly dedicated to B2B and/or B2B2C
to seize the first-mover advantage, and       taking advantage of the multiple              models. In other words, they should
adjust their strategies and operating         possibilities that the digital era offers.    become excellent at underwriting and re-
models for the new insurance customer.        They should leverage all of the insights      insurance, selling their products through
This will allow them to deliver unique        and data available to them to understand      reliable and effective distributors for a fair
propositions and seamless and consistent      the important things about their              share of value.
experiences across both traditional and       customers: their likes, social trends,
innovative channels, before others are        communities and friends. They must take       We might say the insurance industry is
able to do so.                                advantage of partnerships and ecosystems      at a cross-road (see Figure 3). Each and
                                              to create new value and loyalty for their     every insurer needs to decide if it wants
Customer-centric themes should drive          customers.                                    to reinvent itself to compete in the new
insurers’ agendas.                                                                          distribution arena for the new insurance
                                              Alternatively – an equally legitimate         customer, or if it prefers to specialize as
Insurers need to learn how to understand      strategic decision – they should opt          a utility, providing superior underwriting
and to deal with the customer beyond          to move away from customer-centric            skills and capital to existing and new
technicalities and, most likely, beyond       strategies, primarily focused on B2C          distributors.
current companies’ boundaries. They           distribution models, in favour of
should acquire the ability to engage          production-driven strategies, which are

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Figure 3. The dilemma facing the insurance C-suite.

                 Become a Utility                                                                  Reinvent the Model
       Low cost - Industrial - Ultra-efficient                                                    Reinvented differentiation

                                                                    ?

   • Narrow focus on specific insurance products                                        • Everyday life (insurance but also other
   • Specialized / standardized approach                                                  financial and non-financial products and
   • Underwriting excellence and capital efficiency                                       services), through differentiation on customer
   • Low cost / low price                                                                 experience, while optimizing cost-to-serve
   • Process industrialization and optimization                                         • Multiply interactions with customers, and
     (“digitization”)                                                                     tailored solutions to charge a premium when
                                                                                          applicable
                                                                                        • Real-time analytics
                                                                                        • Open to third parties, start-ups and new talent
                                                                                          across industries

This is the C-suite dilemma, although            As mentioned, the pace of change
we would argue that the underwriting             demands decisive action. Early innovators
capabilities needed for the utility option       are quickly seizing market share from
are prerequisites also for those players         the laggards. The transition from analog
that aim to compete in the “reinvent the         to digital may entail a redistribution of
model” arena.                                    market share, the emergence of new
                                                 value chains and the development of new
The choice is especially stark for those         business models. Large incumbent insurers
players that are incumbent, that have            may also be affected by the scale of the
significant legacy costs in distribution,        transformation.
production, IT and operations, that are
mono-liners with an undifferentiated and         In the following sections we will focus on
limited product suite, and that have an          the journey to build a customer-centric
unexceptional reputation for providing           insurer.
meaningful customer experiences.
Whatever their strategic choice, they will
have to prepare themselves for a significant
amount of change, to say the least.

                                                                                                                                            10
2. Customer-centricity

What is customer-centricity? While               This took place prior to the advent of           But what does it take to become
difficult to describe, it is very evident        online social networks, which meant the          customer-centric?
when it is lacking.                              retailer had the leeway to survive, learn
                                                 from its lesson and recover. Today it might      Digital technologies are a prerequisite,
Until recently large corporations,               not be so fortunate.                             but are not sufficient on their own. The
especially in regulated and quasi-                                                                real challenge of customer-centricity
monopolistic industries, could overlook          Insurers were among the group of large           is to develop the corporate ability
their customers, who had few choices,            corporations in regulated industries,            to truly understand the customer’s
little influence on the success of the           together with telecommunication                  stated and tacit needs, and to address
corporation, and no united voice.                providers, utilities and banks. While most       them by providing highly personalized
Executives tended to devote their                of their peers have adapted to the new           and remarkable experiences that are
attention to internal issues such as             reality, the majority of insurers still have a   relevant to each individual’s preferences,
production and costs, rather than                predominantly internal focus.                    circumstances and point in time.
look outwards at customer needs and
preferences.                                     Why? Among the reasons are their                 In today’s world, Digital + Customer
                                                 embedded enterprise-centricity, their            Experience = Customer centricity.
There is no shortage of anecdotes that           love-hate relationship with risk27, the
typify the bias. A memorable one tells of a      myth that being in a regulated industry          A customer-centric insurer should
large retailer that installed revolving doors    protects them from external threats,             think and build its strategy, products,
at the entrance to its stores to reduce          the argument that insurance is a                 distribution channels and operations
heating costs. When shoppers (many               complex business that customers cannot           around its customers. It should clearly
with carts or pushchairs) complained,            understand, the notion that customer-            define its vision and develop new
the solution was to install loudspeakers         related matters pertain to brokers and           business and operating models capable
instructing customers on how to use the          agents, and the belief that, in any case,        of delivering these kinds of experiences,
revolving doors. The view was that since         customers have few requests, little choice,      and of significantly increasing the value
the engineers and accountants liked the          and no effective voice.                          of every targeted customer and of the
solution, shoppers would just have to                                                             company as a whole.
accept it.                                       As we have seen in the section above, in
                                                 the digital era customers do indeed have         At its best, customer-centricity means
Needless to say, customer traffic and            choices, and they have many different ways       having each current and prospective
revenues declined, forcing the retailer          to combine their voices and make them            customer at the center of the business and
to acknowledge its series of mistakes,           heard. This has forced consumer firms in         operating models.
apologize, and re-install the larger doors       all industries to rethink the role of the
which its customers preferred.                   customer. Even, eventually, insurers.

The real challenge is to develop the corporate ability to truly understand the
customer’s needs, and to address them with personalized experiences relevant to
each individual’s preferences, circumstances and point in time.

2.1 The foundations of customer-centricity
According to our experience, each                Customer-centric insurers listen to              preferences regarding the utilization of
customer-centricity journey is grounded          customers. They organize their data by           distribution channels based on access
on five “pillars” and five “digital enablers”.   customer and not by product. They detail         data, geo-location data, telematics data,
The five pillars (see Figure 4) are:             and enrich their management information          family members, friends and professional
                                                 systems with customers’ metrics and              networks, likes and dislikes as expressed
Customer listening and understanding.            key performance indicators (KPIs). They          on social networks, etc.).
This represents the first step and the           provide relevant views of the customer
cornerstone of the journey. It is key            based on traditionally held data (e.g.           This data is collected across all
to intensifying the relationship with            age, address, family status, products,           distribution channels and across the entire
existing and prospective customers, to           premiums, transactions, contact history,         organization. In fact it is acquired from all
establishing a dialogue with them, and           claims, queries, complaints, etc.) as well       possible sources, including internal and
to responding to their needs and their           as new available data (e.g. price elasticity     external databases, customer listening,
preferences.                                     of individual product components,                social networks, connected devices in cars,

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homes and workplaces, and even wearable        Multi-modal interaction management.            There is never room for complacency.
devices associated with an insurance           The third pillar is about allowing             Customers quickly become accustomed
offering.                                      the customer to use traditional and            to higher standards of service, and so
                                               innovative channels according to his           continuous improvement is essential.
Big data and advanced analytics are            preferences. Consumers have no interest        The higher the levels achieved, the
used to extract the greatest value from        in the organization model chosen by the        greater the disappointment when it is
customer data, to deeply understand            insurer to govern its distribution channels    not sustained, and the more severe the
and dynamically adjust all relevant            (e.g. full integration, coordination,          impact on customer experience, loyalty
dimensions which describe the                  or competition), nor in the financial          and advocacy.
customer’s preferences and expectations        arrangements it uses to govern them (e.g.
over time, and to make every interaction       pay-out levels, cost allocation, etc.). They   This is a complex challenge for insurers. In
with the insurer a memorable                   are only interested in transparent pricing     the digital era, in which people and things
experience. Internal and external              and seamless multi-modal interaction           are more connected than ever, customer-
data-rich micro-segmentation, built on         experiences, and in being able to choose       experience management embraces not
behavioral factors and customer-specific       the channel which best serves their            only all of the points of contact within
preferences associated with traditional        purposes given their circumstances at          the extended enterprise, but also the
transactional and socio-demographic            that point in time. The same applies if        ecosystems to which the insurer belongs.
dimensions, have proved to be extremely        it is the insurer that wants to reach the
productive in helping to generate an           customer: even the best proposition at         Organization redesign and change
authentic customer understanding as            the wrong time or through the wrong            management.
well as the predictive models to best          channel is likely to fail.                     This pillar includes the soft components of
engage with them.                                                                             the journey towards customer-centricity.
                                               Multi-modal interaction management             The development of a customer-centric
Customer-oriented offering.                    may consider different pricing for             business model is likely to require that
Insurers need to devise value propositions     products and services, depending               incumbent players undergo painful
which are as tailored as possible to meet      on the channel used and the micro-             organizational changes.
each customer’s needs and preferences.         segmentation of customers28. Whatever
This includes when (in real-time) they         the channel mix chosen by the insurer, by      Without losing their core technical and
are needed and the way in which they           now it has to include mobile interaction       actuarial skills, they will also need to
can best be delivered. In the case of          through smartphones and tablets.               evolve their culture, embracing and
unexpressed needs, insurers’ offers                                                           sustaining a prioritization of the customer.
should reach the customer through the
most appropriate channel at the moment         Even the best proposition                      In a truly and wholly customer-centric
in time when acceptance is most likely.        at the wrong time or                           organization, all employees and partners
These are often emotional moments in                                                          are obsessed with what they can do for
the life of the customer, such as a new        through the wrong                              their customers. They strive relentlessly to
birth, an anniversary or a wedding. It                                                        find new or better ways to contribute to
could also coincide with the purchase
                                               channel is likely to fail.                     this overriding cause.
of real estate, white goods or travel. It
may often entail the development of            Customer-experience management.                Customer-centricity is first and foremost a
partnerships and ecosystems.                   This pillar is itself a journey within the     matter of corporate culture, which is why
                                               customer-centricity journey. The most          the most important change agents are the
Customer-oriented offerings can be             successful insurers truly know their           board of directors, the CEO, the CMOs and
developed by means of modular elements         customers, are sensitive to changes            the members of the executive committee.
(e.g. types of protection, payment             over time in their needs, behavior and         They need to visibly, effectively and
schedules, contract durations, pricing         preferences, and adjust their offerings and    continuously support the journey, and
structures and indemnity levels) which         interactions accordingly.                      they need to inspire, nurture and develop
can be combined to shape the solution                                                         an indispensable customer-service culture
in whatever way best fits the specific         Customer experience entails a ceaseless        throughout the organization.
needs and preferences of the customer          search for new and better solutions to
or his micro-segment. The more freedom         delight customers. This requires that the      On an operational level, a successful
and control a customer is given over the       insurer develop capabilities and tools to      customer-centricity journey involves all the
purchase, by physically or digitally helping   continuously improve value propositions        various functions which face customers
him to shape the coverage which best fits      and service levels for each customer and/      or have an impact on them. Each of these
his needs, the more likely he is to buy the    or micro-segment.                              must intensify its co-operation within the
solution, to value the insurer, and to stay                                                   organization and open itself to external
and grow his account.                                                                         inputs and contributions.

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Figure 4. The customer-centricity journey.

Customer          1. Customer understanding        2. Customer-oriented
Knowledge          - Organizing data per              offering
                     customer, not per product      - Developing modular
                   - Detailing view of customers      products based on real
                     for interactions                 customer needs
                                                    - Optimizing products/
                                                      channel pricing

                                                                           3. Multi-model                    4. Customer experience
                                                                              interaction management            management
                                                                               - Using all channels, in an    - Ensuring a superior,
                                                                                 intergrated way                consistent experience
                                                                               - Offering products/             at all stages of the
                                                                                 services on the basis          insurance cycle
                                                                                 of effective needs using       irrespective of the channel
                                                                                 different channels           - Controlling the “moments
                                                                                                                of truth”

  -                                                                                                                                +
                                                                                                               Customer Satisfaction

                                                                               5. Organization redesign and change management

2.2 The digital enablers
Each pillar of the customer-centric            (e.g. by allowing a deeper understanding
journey can be strengthened by new             of customers, enabling new ways of
capabilities and the introduction and          interaction, and more customized products
orchestration of “digital enablers”. These     and services).
are analytics, digital marketing, mobility,
social media, and the digital foundations:     The digital enablers can be exploited at
network, unified communication and             each step of the customer-centric journey,
collaboration tools, and multi-channel         although their relevance varies from step
contact centers.                               to step (see Figure 5).

They facilitate both efficiency (e.g. by
introducing digital business processes and
optimizing business models) and growth

                                                                                                                                              14
Figure 5. Digital enablers of the customer-centricity journey.                                              Customer experience
                                                                                                            management
                                                                               Multi-modal interaction
                                                                               management                     Social Media
      Customer                                                                                                Mobility
                                                                                  Social Media                Digital Marketing
      Knowledge                                                                   Mobility
                                                  Customer-oriented                                           Analytics
                                                  offering                        Digital Marketing
                                                                                  Analytics
                          Customer                    Social Media
                          understanding               Mobility
                                                      Digital Marketing
                             Social Media
                                                      Analytics
                             Mobility
                             Digital Marketing
                             Analytics

                                                                                                                      Customer Satisfaction
                                                                      Digital Foundation

                        -                                                                                                              +
                                      (Global network, unified communication and collaboration, multi-channel contact center)

                                                                                        Organization redesign and change management

The definitions and borders of the digital       Insurers have always had good skills             Digital Marketing.
enablers are subtle, and in most cases           for analyzing data. Now they should              The use of digital tools and channels,
they interoperate to a level which makes         deploy these skills to the larger pools          together with customer insights gained
it difficult to draw clear distinctions          of available data, exploiting computing          through analytics, can provide tremendous
between them. Bearing this caveat in             power and artificial intelligence to             support to commercial offerings. Digital
mind, here are brief descriptions of the         refine their strategies and further drive        marketing helps to deliver customized
digital enablers:                                business results. Their entire value chain       offerings across channels, and to reverse
                                                 (e.g. personalization of marketing and           the traditional “push” approach of
Analytics.                                       offerings, management of sales forces            insurers in favor of a more effective
This refers to business intelligence             and other distribution channels, pricing         “pull” proposition that is tailored to meet
techniques based on predictive statistical       and underwriting, fraud detection and            customers’ needs and preferences. An
models and self-learning processes.              prevention, claims handling, customer            example is the motor insurance product
They are at the core of the first pillar of      service, and client-value-based                  Name Your Price, launched by US insurer
the customer-centric journey, customer           management) is set to benefit from a             Progressive. By adjusting factors such as
understanding, and are essential                 more advanced and integrated approach            duration, coverage options and payment
throughout the customer-centricity               to analytics.                                    schedules in an easy and intuitive manner,
journey. Analytics helps provide insights                                                         and in a single session, customers can
from enormous amounts of diverse data            Other industries have paved the way.             design and buy the policies which fit their
from different sources (combined in big          In banking for instance, by applying             needs and budgets.
data) and, when deployed effectively,            advanced analytics, Spain’s Bankinter
it represents a key digital enabler of           recently developed a personalized
customer-centric journeys and business           recommendation system for personal
improvements. The power of analytics is          and commercial banking products and
immense. Amazon recently announced               services. It doubled its retail cross-selling
(and patented) what it calls “anticipatory       ratios and tripled them in the small- and
shipping”, which is the capability to ship       medium-enterprise segment.
today what the customer will decide to
buy tomorrow.29

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Insurers should deploy their good analytics skills
to the larger pools of available data, exploiting
computing power and artificial intelligence to refine
their strategies and drive business results.

More broadly, digital marketing is used         • Customer service improvement: enabling      For example, the insurance company
for the following purposes:                       24/7 customer service and remote advice     USAA takes advantage of social networks
                                                  via videoconferencing, messaging tools      to interact with its members – and
• Web presence and sales optimization:            and e-advisors (i.e. a nicer and more       to learn more about them. Through
  improving the company’s Web presence            sophisticated version of fully automated    Twitter (http://twitter.com/USAA), USAA
  and conversion rate with fact-based             call-center solutions).                     provides its members with information
  technology-driven solutions (including        • Customer oriented services and              and tools for managing their personal
  digital advertising).                           offerings: real-time offers of insurance    spending, surviving storms, becoming
• Remote advice and selling: increasing           coverage based on geo-location (e.g.        better at discussing financial matters, and
  sales opportunities by exploiting new           travel and health insurance offered to      preparing their children to go to college or
  digital opportunities (e.g. electronic          customers who arrive at international       university.
  signatures) and new digital points of           airports).
  contact (e.g. apps and online tutorials,                                                    On another note, insurers can benefit
  the latter likely in the form of videos).     Migdal, Israel’s leading life and pensions    greatly from listening to the voice of
• Service fulfilment: offering new              company, was one of the first insurers to     customers on social media, either learning
  interactions and customer experiences         introduce a complete online and mobile        how they can improve their products
  to current customers and prospects (e.g.      suite of tools to help its independent        and services or promptly detecting and
  virtual processes and gaming).                agents link more effectively to their         addressing issues that can seriously affect
• Marketing interaction: providing              customers’ multi-channel journeys. Almost     their brand and reputation.
  differentiated answers based on               all of Migdal’s agents now use at least one
  customers’ needs and segments.                of the new remote digital tools: the online   The consumer-products giant P&G
                                                customer database, the iPhone apps, and       has developed a social-media system
While experiencing sustained double-digit       the agent website31.                          called Consumer Pulse which gathers all
growth, Nespresso in 2012 had to develop                                                      comments by all stakeholders and feeds
new digital marketing capabilities and a        The importance of mobility in the             them back to the computer screens of the
scalable, global, multi-channel solution that   insurance business is set to grow             relevant P&G employees who are able to
included e-commerce, point of sale, call        exponentially, as connected devices           respond appropriately32.
centers and back-office functions in order to   become more popular and enable
ensure proper services to its growing digital   more personalized and convenient              Last but not least, insurers can meet
customer base. A nice issue to have!            insurance solutions (e.g. for motor,          customers on social media by providing
                                                home and health insurance coupled with        secure and easy access to their agents or
Mobility.                                       telematics devices).                          their direct-on-line services. The Australian
This refers to those services that are                                                        bank ASB is one of the first financial
accessible everywhere through mobile            Social Media.                                 players to have introduced a virtual
devices such as laptops, smartphones and        This set of technology platforms and          branch on Facebook33. Aegon, the largest
tablets.                                        online tools allow individuals, groups and    insurer in the Netherlands, has developed
                                                companies to interact and share text,         a separate brand called Kroodle, which
Almost 70 percent of consumers                  images, videos and audio files.               offers its digital-generation customers
worldwide are interested in mobile-                                                           an online insurance platform with access
based insurance services. It is therefore       More and more people spend the vast           through social networks34. And AXA, which
expected that many more mobile apps             majority of their “connected” time            reached 1 million AXA People Protectors on
and enhancements to existing services will      on social networks, dialoguing with           Facebook at the beginning of 2014 - in just
emerge in the near future30. The primary        friends and colleagues and posting their      2½ years35 - went the social networking
applications of mobility are:                   opinions on a wide variety of topics. By      route and recently announced a strategic
                                                using social media, insurers can access       partnership with Facebook to “further
• Interaction on the move: enabling a           an immense amount of customer data            develop its digital, social and mobile
  new way of customer interaction, such         which, coupled with data they already         footprint in France and globally”36.
  as front-end apps, mobile advisory            possess, can provide rich customer
  services, and mobile purchases that take      insights and enable the development of
  advantage of electronic signatures.           superior customer propositions.

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2.3 Competition, value at stake and value creation
Becoming a customer-centric                      and outside the industry, involving the          saying that the profit at stake varies from
organization as defined above is a must          distribution as well as the production value     one insurer to another, depending on its
for insurers that want to compete in             components.                                      business and channel mixes as well as the
distribution in today’s digital era. The                                                          competitive and regulatory environments
cost of not doing so may include the             It is estimated that traditional multi-          in which they operate. However, few
decline of business volumes and even             liners and multi-channel insurers may            carriers could endure a reversal of this
exit from the market.                            lose approximately 35 percent of their           magnitude without questions being asked
                                                 economic profit in the next five years due       about their survival. “Wait and see” is not
As mentioned earlier, insurers today face        to distribution, production and regulatory       a viable strategy at this time.
increasing competition from both within          threats (see Figure 6). It goes without

Figure 6. Insurance economic profit at risk.

     Distribution threats
                            • First-mover insurers
                            • Retail banks
                            • Other large retailers & telcos
                            • Traditional aggregators and new digital entrants
                                                                                                                      -15%
                            • Web ‘dominators’ (eg. Google, Apple, Facebook, Amazon, Alibaba)

     Production threats
                            • Price comparison portals
                            • Scale (and capital) economies
                            • Telematics providers (auto, home & health)
                            • Auto manufacturers & telcos                                                             -10%

     Regulatory threats
                            • Consumer protection regulations (e.g. CPI sales)
                            • Product comparability & price/fee disclosure
                            • Capital adequacy requirements                                                           -10%

Distribution is likely to be crowded. In         Then there are the “Web dominators”, the         too. For example, what are the likely
addition to insurers and aggregators, a          Internet giants such as Google, Apple,           implications for the home and motor
diversity of new players have already            Facebook, Amazon and Alibaba, and the            insurance businesses of Google earlier
entered or are considering entering this         ones which will come after them. They            this year buying Nest, a manufacturer
competitive arena. The numbers are               can leverage their frequent and intimate         of smart home systems, and investing in
likely to grow.                                  interactions with customers to detect and        driverless cars? And what of Vodafone
                                                 satisfy their insurance needs. They are likely   buying Cobra, a motor insurance
Banks are back. Needing to increase              to start providing third-party products and      telematics provider? More broadly, what
their fee business, they are offering both       to act as aggregators (as Google, which          are the implications for the future of
life and P&C insurance. They consider            bought an aggregator site in the UK in           insurance in the connected world of the
insurance as a natural extension of their        2011, and Amazon already do37). However,         Internet of Things, a market to which
core financial product range and are             in the medium term, their superior ability       Cisco attaches a potential value of $14.4
giving it high priority. They can compete        to know their customers and deliver              trillion over the next decade?
with insurers by distributing the full range     personalized solutions at the right times
of retail and small-commercial insurance         could, in principle, result in them joining      Personal lines in motor, home, life and
products, manufactured by their own              forces with insurers or reinsurers to be         health insurance first, and commercial
carriers or by third parties (in joint           even more active in the insurance industry.      lines afterwards, seem all to have the
ventures or distribution agreements). And                                                         potential to be significantly impacted.
they represent a big challenge to insurers       Web dominators could even apply for              The key question is not if the Web
in the development of holistic client-           full licenses and enter the underwriting         dominators have the potential to enter
centric financial services propositions.         business. They could reinvent the industry,      and disrupt the insurance market, but if

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and when insurance will become a top
priority on their agendas. Between now
                                                The key question is not whether the Web giants have
and then insurers should better prepare         the potential to disrupt the insurance market, but if
themselves. AXA and Facebook’s strategic
partnership (see above) is an interesting
                                                and when this will become a priority.
development worth monitoring closely.
                                                Internet of Things, where connectivity         selling, cross-selling, fraud prevention,
Mobile operators are exploring how              is king, it is not difficult to imagine a      as well as the re-engineering and
they can take advantage of their market         dramatic expansion in the generation of        digitalization of processes and the
position, client base and technical             useful data (e.g. through telematics from      related HR agenda such as organizational
capabilities to develop insurance products      private and commercial vehicles, buildings     structures and training.
and services around mobility and                and factories, appliances, wearable
connectivity. The fast growing markets of       devices, etc.). This has the potential to      Since “you get what you measure”,
micro- and small-ticket insurance through       impact the profitability of almost all         it is important to develop a robust,
mobile phones, and of motor insurance           insurers’ business lines, from motor,          comprehensive and consistent set of
telematics (see Vodafone above), are two        household and commercial insurance to          customer-related metrics and KPIs, both
illustrative examples.                          life and health coverage.                      at a macro enterprise-wide level and at
                                                                                               a micro level, involving single processes,
Large retailers are the natural distributors    The regulation of data privacy is moving       products, interactions and services.
of specific types of insurance coverage,        from the desks of legal specialists to
such as extended warranties and loss of         corporate boardrooms as it becomes a key       There is a vast amount of literature
the products they cover, pet insurance and      business issue.                                concerning customer-experience
micro-insurance, to name a few. Taking                                                         measures, and there are a number of
advantage of their customers’ fidelity and      Consumer groups, community insurance           metrics and KPIs used by companies. For
financial schemes (e.g. loyalty programs        and self-insurance (e.g. Friendsurance         example, the Customer Effort Score (CES)
and credit cards) they can scale up the         in Germany and Guevara in the UK),             is usually applied at a micro level and is
insurance product suite by extending it         new insurance ventures (e.g. Oscar and         extremely relevant for the organization
to life, pensions, credit, home and more.       CakeHealth in the US and Intrasurance          that needs to transform its processes
Internal production or distribution of third-   in the Netherlands) and regulators pose        and operating models to become more
party products may both be applicable.          additional threats to the industry and to      customer-centric. However, it is not much
                                                the levels of profit that incumbent insurers   help to those companies that have already
Auto manufacturers and dealers are              enjoyed in the past, and hope to return to     achieved effortless customer interaction
likely to continue their expansion into         when the economic recession is behind us.      and want to improve customers’ share
the distribution of auto insurance, with                                                       of wallet, loyalty and advocacy38. CES
telematics, usage-based insurance and           But to achieve this, they need to consider     is also considered to have an impact on
value-added services linked to mobility being   the likely competitive landscape under         Customer Satisfaction (CSAT), which is
likely developments. To the extent that more    different scenarios. And they need to          more suitable as a macro-level indicator
cars become safe, self-driven, and leased       decide if, where, and how they intend          alongside the Net Promoter Score (NPS)
vs. bought (including car sharing), motor       to compete. They need to do all this as a      from Satmetrix39 and Forrester’s Customer
insurance is likely to evolve into something    matter of urgency, for the pace of change      Experience Index (CXi)40, which are widely
different, still to be fully conceived.         is accelerating.                               used for comparison across industries.

Should any of these potential new               If insurers want to retain distribution        Insurers need to develop a set of robust,
insurance distributors own their                and prosper they need to address the           comprehensive and consistent customer
own carrier, the competition that               new digital and customer-centricity            metrics and KPIs which are derived from
traditional insurers face will extend           imperatives – not as a defensive strategy,     their vision and mission, from their
to products and pricing – referenced            but as a growth strategy to gain market        customer value propositions and from
above as production threats. It may             share and establish a superior competitive     their brand promises. Tightly linked to
also challenge the distinction between          positioning in terms of customer mix,          their business strategies, these metrics
insurance and reinsurance.                      product mix and channel mix.                   and KPIs should be an integral part of
                                                                                               the management information system,
Data monetization is another issue that         They should strive to deliver a sustainable    the appraisal system and the rewards
challenges insurers. Any entity that can        performance across all elements of the         system41, at all levels of the organization
acquire the information that carriers could     value chain, working hard on customer          from the boardroom to the call center.
use to predict and mitigate risks, could        acquisition and retention, product
potentially usurp a vital link in their value   innovation, mass-customization or 1:1
chain. Web portals already do this. In the      marketing, pricing optimization, up-

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