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Are insurers ready to meet the new customer requirements on time?
Author: Koen Klokgieters
Co-author: Herman-Jan Carmiggel...
are determined by two crucial factors: insight into the specific customer and speed of
reaction to the constant changes wi...
   Conventional (legacy) back-office information systems focused on

Innovation within a company req...
with the insurers. As a result, they will force the insurer to take part in their adaptive
and self-organising communities...
6. A new form of leadership: these are not conventional corporate chief
      executives but leaders with characteristics ...
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Ss Doc Insurance Trends


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Trends and Innovation in Insurance

Published in: Business, Economy & Finance
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Ss Doc Insurance Trends

  1. 1. Are insurers ready to meet the new customer requirements on time? Author: Koen Klokgieters Co-author: Herman-Jan Carmiggelt Published: 2007 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 customer! 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 the innovation. 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
  2. 2. 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 regard. New-generation customers are the beacons of the new requirements of existing customers 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 the customer:  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 economical;  The „smarter‟ customers demand equality and punish arrogance mercilessly (customers work out for themselves whether you can offer the best personal services);  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 characteristics:  Certainty by means of procedures and regulation (standardised and bureaucratic);  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;
  3. 3.  Conventional (legacy) back-office information systems focused on productivity. 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 ). 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 customer role 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 ). 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
  4. 4. 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 concept: 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 player. 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.
  5. 5. 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 itself. 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.