As I’ve argued in earlier posts in this series, new consumer behavior and the digital revolution demand that insurance carriers rethink their competitive position and corporate strategy. Yet traditional insurers are usually too preoccupied with the constraints and costs of their legacy systems to focus on making their customers happy and loyal.

The very nature of many a retail insurer makes it hard for it to meet the needs of the new insurance customer. Retail insurers are often:

  • 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 change.

Against this backdrop, I would argue that insurers are at a cross-road. Each must decide if it wants to reinvent itself to compete in the new distribution arena for the new insurance customer, or if it prefers to specialize as a utility, providing superior underwriting skills and capital to existing and new distributors.

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This is the dilemma facing the insurance C-suite, although it is worth noting that those players that aim to compete in the “reinvent the model” arena will also need excellent underwriting capabilities.

The choice is especially stark for incumbent players that:

  • Have significant legacy costs in distribution, production, IT and operations.
  • Are mono-liners with an undifferentiated and limited product suite.
  • Have an unexceptional reputation for customer experience.

Whatever their strategic choice, they will have to prepare themselves for a significant amount of change. But those that grab the opportunity will be able to seize market share from the laggards. In my next post, I’ll discuss in more detail what it means to pursue the customer-centricity opportunity.

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