There’s one strategic issue that insurers should consider carefully as they begin to look at how to make the necessary transformation of their operating models and digital capabilities to become truly customer-centric. It’s the difference between simple and complex customer needs.
Simple customer needs—for cell phone insurance, or extra cover for some furniture being transported on the back of a pickup—can be met using simple products. These products are very suited to being sold through digital channels, and it’s easy to compare like with like using the proliferating online tools.
But more complex customer needs, it follows, can only be fulfilled using complex products. Something like retirement planning or wealth protection, and household insurance, all require greater (though differing) degrees of thought, with more complex balances to be struck between cost and long-term goals. Meeting such complex needs will mean understanding the customer’s risk profile and the long-term economic outlook.
It will also be dependent on a relationship of trust.
These types of transaction, I would argue, offer insurers a chance to play to their strengths and differentiate themselves from new competitors. They already have the experience in giving such advice, and it makes use of their existing, traditional distribution channels. Even customers who are digitally savvy retain a preference for dealing with an agent or broker when looking for advice. However, they will also need to concentrate in removing unnecessary complexity from the sales and advice process—the complexity of the product must not be reflected in a customer-facing process that is unwieldy.
One glimpses this desire for a more comprehensive solution in the Customer-Driven Innovation survey, which strongly indicates that while respondents consider their risk profiles to be average or low (92 percent), the same percentage wanted their insurer to do more than just insure their risk—they wanted help in reducing risk too. Most significant, nearly half of this 92 percent—44 percent—said that this capability was critical.
All of this shows, the researchers rightly conclude, that insurers are being asked to play a more complex role as risk managers or consultants.
Linked to this is the finding that very high percentages of customers would be comfortable sharing usage information in order to help their carriers fulfill this wider role more effectively (as indicated in my previous blog in the bullet point “Know me”).
These are very significant findings because I believe they show us how the industry is likely to evolve over the next few years, becoming much more integrated into the lives of its customers. To do this will probably be beyond the powers of one company, so I am predicting that the winners will be those carriers that build strong ecosystems with other companies to provide the highly personalized experiences wanted by customers.
Usage-based insurance is one example of this emerging trend, for which South Africa’s Discovery is one of the poster children. It has built a significant business by helping its life clients manage their health risks via an elaborate loyalty system that rewards healthy lifestyle choices (gym membership, purchase of certain types of foods at supermarkets and so on). This approach has spread into P&C using telematics, with good driving habits rewarded by fuel discounts. The company has a wide ecosystem of partners who are used either to provide products/ services to members, or to reward them. It’s on its way to becoming a major financial services company with the launch of a credit card and related services.
Perhaps the real conclusion is that the days of the “pure” insurance carrier are numbered. To conclude this series of blogs, next time I’d like to touch on how to build the necessary capabilities.