As regular readers of my blogs already know, I am curious person by nature and thus passionate about innovation in insurance. I was recently reading an interview in a German insurance journal with three experts who had recently completed some research into innovation in the German insurance industry.
Their conclusion, broadly speaking: German insurers need to take a much more far-reaching approach to innovation. It’s an extremely interesting article and it confirmed my more general thinking about the extent to which insurers need to innovate, and what sort of business case there actually is for innovation.
Insurance, I believe, finds itself at a point where radical innovation is becoming more and more of a necessity. I say this because it’s becoming increasingly clear that the traditional value chain is being disrupted as new entrants from other industries enter the market as fearsome competitors. These new entrants, who might be aggregators, search engines, retailers, car manufacturers, telecommunications providers and so on, are seeing insurance as a useful value-add to their existing product lines. And the fact that insurance distribution has become so digitized makes it easy for them to integrate insurance products and services into their offerings.
It’s worth stressing that these new entrants are primarily focused not on gaining the insurance business per se, but on appropriating the insurer’s customer relationship—they understand very well that the real long-term value lies here, and not in the product sale as such. And, as the 2012 Accenture Global Consumer Pulse research study shows, customers, at least, are not very engaged with their life-insurance providers, and customer satisfaction, loyalty and advocacy are already low. In other words, these relationships are already vulnerable.
These new entrants are thus fearsome competitors because they are highly practiced in—and successful at—customer relationship management. They are more geared to providing the kind of personalized, mass market of one that today’s customers want—delivered across multiple devices.
I do not fear that this type of competition will cut insurers out of the value chain altogether. Their expertise and capital both represent high thresholds to entry. What I do fear is that insurers will simply become product factories, making what the customer-facing principal tells them to make. This separation from the customer will rob them of the customer insights that inspire innovation.
To prevent this happening, I repeat, insurers will have to look outside their industry to develop compelling new value propositions that deliver solutions that improve customers’ lives—not just better insurance. And that will require some radical innovation.
In my next blog, I’ll start looking at some emerging areas where radical innovation is going to be required.