Are insurers ready to meet the new customer requirements on time?
Author: Koen Klokgieters
Co-author: Herman-Jan Carmiggelt
Stagnation means decline. But there are many external factors that make change
essential. In the case of insurers, law and regulations are important external factors.
The external influence factor that is rapidly gaining ground is the behaviour of the
The behaviour of customers and the way in which they experience products and
services is liable to change constantly. Products which the insurer brings to the market
and which perform outstandingly are becoming obsolete ever more rapidly in the eyes
of the customer. The quality of the product or service is no longer the only aspect
which the customer considers. Aspects such as service, price, accessibility and the
reputation of the organisation and the experience of the customer when purchasing
and using the product are becoming increasingly important. SNS-Reaal, for example,
has taken an innovative approach to its distribution channel and opened up a new
access route through a retailer outside the sector, namely Kruidvat.
This total set of characteristics is a company‟s value proposition. The changes in the
customer‟s behaviour and experience require organisations to adapt this value
proposition constantly. But adaptation of the value proposition to the customer‟s new
requirements is not sufficient. In order to become the customer‟s preferred supplier,
organisations must offer a distinctive value proposition compared to the competition.
A customer ultimately chooses those products and services whose total set of
characteristics best matches his or her requirement at that time. The creed is therefore
a continuous quest to renew the value proposition. For the company this means
constant innovation in business. In this connection, Business Innovation concerns the
development and implementation of a unique added value which customers adopt.
This article shows clearly that Business Innovation is not only an “internal party”
within the organisation. Success is determined to an ever greater extent by the active
involvement of customers. The big question is whether insurers are able to adapt their
existing organisation in such a way that the customer can also participate actively in
Increasing unpredictability in consumer behaviour
If consumers show stable purchasing behaviour and allow themselves to be readily
divided into customer segments, the company can clearly demarcate the segment on
which innovation must be focused. For example, Volvo and Saab were able to address
a clear target group with a safe luxury car. Nationale Nederlanden has for a long time
been able to develop a strong brand in the insurance market. Customers have therefore
remained faithful to these brands over the long term.
From now on, however, consumer behaviour will be characterised by fickleness. New
forms of coexistence, communication, consumption and experience are clearly having
an impact. The modern consumer wants to be addressed in terms of his DNA, the
“genetic blueprint” of his behaviour. The company must be able to understand this
DNA and translate it into a new value proposition. The company‟s chances of survival
are determined by two crucial factors: insight into the specific customer and speed of
reaction to the constant changes within the target groups. The Capgemini Trends in
Retail (2006) survey shows that only a few companies have proved successful in this
New-generation customers are the beacons of the new requirements of existing
In their book “Generatie Einstein” [The Einstein Generation], Jeroen Boschma and
Inez Groen describe a new generation of customers. Whereas the previous generation
was focused on the individual: Enjoyment (including in my retirement), Convenience
(home financial adviser) and Gain (investment mortgage), the new generation
operates mainly on the basis of Smarter (I am my own financial adviser), Faster
(everything through the internet) and More social (no investments in “bad”
companies). For insurers too, this means an enormous change in the relationship with
Communication changes from one-way traffic to two-way traffic (customer
wants to discuss the type of policy to be taken out);
(Marketing) communication cannot be a palliative for errors or deficiencies
but must be based on concrete proof. Progressive Insurance, for example,
offers complete transparency by placing products from competing insurers on
its own site, including price information, even though its own products are less
The „smarter‟ customers demand equality and punish arrogance mercilessly
(customers work out for themselves whether you can offer the best personal
Intertwining of interests and companies‟ poor reputations must make way for
entirely logical and transparent messages (linking of different financial
services must not only deliver more profit for the insurer).
This new generation of customers wants to be actively involved in change, renewal
and innovation. They will no longer accept the company pushing new products onto
the market without their participation. The new generation will confront the insurer
with a new division of roles between the consumer and the producer: the
PROSUMER (the consumer has also become a producer). An international example is
„co-creation‟ at Lego. Children (in other words the new generation of customers) are
actively involved in the development of new Lego kits. The children work with R&D,
Marketing & Sales and Operations via the internet. That is how the three best-selling
LEGO kits came into being. We do not see such far-reaching forms of co-creation in
the Dutch insurance market. Why is that?
Large mature organisations experience great difficulty with changes in their
customers and look at their own role
In many cases insurers are large companies which change relatively slowly and adapt
gradually to external factors. This type of organisation is based on a number of clear
Certainty by means of procedures and regulation (standardised and
Political stability by establishing clear duties, powers and responsibilities,
(clearly demarcated organisational boundaries, internal „silos‟);
Strong historical corporate culture with little room for free-thinkers;
Conventional (legacy) back-office information systems focused on
Innovation within a company requires organisational capability in order to bring about
renewal across internal boundaries (from Product Development through to Marketing
and Customer Service). In view of the characteristics referred to above, that in itself is
an enormous challenge, let alone co-operating outside the boundaries of the company.
In spite of all these challenges, innovation ambitions are devised which require
intensive co-operation on innovation with partners outside the organisation, so-called
Open Innovation (for a more detailed explanation see www.openinnovatie.nl ).
The insurance sector is characterised by co-operation between the different parties in
the value chain. It is a network of financial intermediaries focused on extensive
automation (insurers shift work to the front office by means of a front-end system)
with the main aim being cost reduction. The renewal is focused on the development of
a fully-fledged technological solution, whereby independent intermediaries can work
with insurers and other parties in the insurance sector in a uniform way. However,
there is not yet any systematic open innovation.
Outside the insurance sector there are companies in the Netherlands that are
successfully dealing with open innovation in a systematic way. Philips is a good
Dutch example in which innovation is delivering the first successes with many
different parties outside the conventional organisation. At the new High Tech Campus
in Eindhoven, Philips has created the conditions in which existing and potential hi-
tech companies can easily meet each other and work together. Another good Dutch
example is the Food Valley, the innovation engine of the Dutch agrifood cluster. It is
time for the Netherlands to create an Insurance Valley, the innovation engine of the
Dutch insurance cluster…
The above cases are good examples of innovation outside the organisation. However,
the focus is predominantly on co-operation between different partners in the value
chain and still hardly if at all on co-operation with the consumer!
Mass Participation: a new way of organising Open Innovation with an active
Customers today are increasingly organising themselves into so-called communities,
networks which connect people via the internet around a specific theme or passion.
For example, there are communities for senior citizens who support each other with
various issues (see www.seniorweb.nl ).
An example in the insurance sector is Vegapolis, which has introduced the first group
healthcare insurance for vegetarians to the market in co-operation with Agis. The
policy has various benefits for vegetarians, including lower premiums as a result of
purchase discounts and cover tailored to the requirements of vegetarians, consistent
with a conscious lifestyle (health benefits of vegetarianism). A substantial share of the
income from the insurance also goes to appropriate good causes.
Such communities are set to grow in the future. The communities also operate as
purchasing organisations and thereby acquire a great deal of power in their dealings
with the insurers. As a result, they will force the insurer to take part in their adaptive
and self-organising communities.
The question then arises of how as a company you organise intensive co-ordination
with so many customers at the same time.
A possible answer is provided by Charles Leadbeater. In his new book he describes
the concept of Mass Participation. This concept is a means of innovating by having
people participate actively on a worldwide scale at extremely low cost. Just as Henry
Ford created a new logic for mass production, the new concept will create a new logic
for business innovation. Companies will consequently lose part of their control of
innovation, but will gain a whole army of very passionate innovators in return.
Examples of mass participation apart from Lego are Wikipedia, Linux, OhMyNews
and WaveMarket. As yet, there are scarcely any examples on a comparable scale in
the insurance sector.
Charles Leadbeater states a number of basic rules for the introduction of the new
1. Create a core basic idea: sufficient to work on but also with sufficient scope
for additions. For example, an insurer could introduce a new idea focused on a
specific community without already having worked out the idea in detail. This
idea does not have to be focused directly on an insurance product. It is about
delivering added value to the community and consequently becoming a joint
2. Motivate and entice participants: treat the participants as peers (insurance
experts) and not as employees, suppliers or customers. Participants see their
contribution as personal development and status. They are looking for concrete
and practical benefits. Low barriers to entry and user-friendly tools are also
required. The insurer can also be the party which supplies the tools and assists
the community with the self-organisation.
3. The need for meeting places: a place in which people can work interactively
with each other and clear rules of ownership (taking, using and returning) have
been drawn up. The insurer must not participate only in order to add the
participants‟ personal information to his CRM system. By bringing actual
added value into the community, the participants will automatically become
interested in the insurer as a party.
4. Self-distribution of work: an open working method based on a high
acceleration of the peer-to-peer review process (in which the customer is also
seen as an expert and is asked his opinion), which rapidly identifies the good
ideas and allows them to be elaborated further. When a new product is
developed, the insurer must enable everyone in the community to play a part
in the development and building work. To this end, web-based applications for
product development must be available to customers.
5. Think LEGO: innovations are divided into a series of compatible and
integratable modules. The integration is based on clear, simple and centrally
formulated design rules. These rules and protocols make it possible to allow
mass innovation. The total set of new insurance products must be integratable
with existing and future products. For example, extensively personalised
policies can be created which can evolve very flexibly with the customer‟s
various life phases.
6. A new form of leadership: these are not conventional corporate chief
executives but leaders with characteristics such as modesty, in the background,
self-confident, strong standards and values, passion and solidarity. Their
specific top-down leadership style enables bottom-up innovation initiatives to
be launched on a large scale and in a decentralised way. The conventional
financial grey-suit image of the insurers could use an „extreme makeover‟!
Today‟s customers, the new-generation customers, employees, suppliers, owners, etc.
will feel right at home in this new form of organisation. But it is quite a leap to go
from the current situation to full-scale mass participation. Perhaps too great a leap for
many. The insurer could start by adopting a community and shaping this new concept
jointly with its employees. A subsequent step could be creating a new community
Dutch companies such as KLM, DSM, Philips, Reaal and Achmea are already taking
substantial steps. The question is whether the existing conventional insurers will have
time to adapt their organisation and working methods. Those which are not able to
develop rapidly towards the new concept of mass participation will face very tough
continuity issues. After all, the customers will create and market the required products
and services themselves in their existing communities.