Having looked at Customer 3.0 and what s/he wants, and the threats those expectations pose for insurers, let’s consider some solutions.

If, as I’ve argued, the insurance value chain is under threat as customers raise their expectations, then what is to be done? As I suggested last time, insurers will have to rethink what they actually do—calling for a robust innovation process (not to mention robust nerves).

As is so often the case, the nature of the change required is broadly determined by the threat. And the threat, as I’ve already said, is twofold: Customer 3.0’s heightened expectations for an “experience” that meets his/her needs; and the competition from non-insurers.

These non-insurers could be companies like Google, Amazon, Apple or even the big retailers and fashion brands like REWE and Migros. These companies have close customer relationships—and lots of information about them and the skills to use it. (You should just see how well Burberry treats my wife in any of their stores worldwide!). In other words, companies that are well positioned to understand what the nature of the desired experience is, and to integrate insurance products into it.

Here’s the important point to understand: These companies do not make their money from creating the various elements (products) that underpin the experience. They are ringmasters, own the customer relationship and will soon start to charge commission-based fees.

The danger for insurers is not that they will disappear, but rather that they will be reduced to pure manufacturers of product—a difficult business to be in, with margins under pressure and growing regulatory scrutiny.

Two possible solutions suggest themselves:

  • Play to complexity. The use of an aggregator to act as the portal for a range of products and services works very well for simple products and services, but less so for complex products. Insurance is about coping with the unknown and it’s endlessly complex—customers need expert help, and insurers should position themselves to give it. Such an approach would also keep the insurer being supplanted by “the crowd” as described in my previous blog.
  • Become customer-centric. In other words, adopt the new model and weave your insurance products and services into something much bigger: an experience. One great example from the insurance world is USAA, which has morphed from providing insurance to the US military to a full financial services firm—and more. Because it knows its clients so well, it has become a vendor of engagement rings and bunches of flowers. Not so crazy: it’s hard to buy either in Afghanistan or other military outposts, so what makes better sense than turning to a trusted supplier to source the best products for you?

Once you understand, it’s so obvious… just like any good innovation should be. But it’s dependent on the ability to rethink the business model, and not the product, and that’s why the current focus on product innovation in insurance is so worrying. Not that it’s all doom and gloom: some insurers are showing the way. One is Mobilar Insurance, which recently won an innovation in insurance aware in Switzerland for its innovation process—we need more of that type of long-term thinking in the industry.

The answers are there: do you have the innovation process in place to find them?

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