This article was written by Robert McEvoy who is the head of Allianz Ireland’s Direct business.
In mid-March of this year, Oliver Bäte the Allianz Group CEO addressed the attendees of the global digital and innovation forum CeBIT. A global insurance CEO presenting a keynote presentation at a technology forum is unique in itself but what was most refreshing for me was when he spoke about the need for industries to transform their business models in order to survive over the next decade.
Large global insurers are not renowned for admitting the need to transform their business models so as someone who has been fortunate enough to have worked in the online retailing, digital, and direct sales side of the insurance industry this is great to hear.
The insurance industry has been quite circumspect when it comes to boarding this train so it's important to see leaders such as Oliver Bäte stating quite plainly that such change is not merely elective, but that the very future of the insurance industry is dependant on it.
So why has the insurance industry been slower to transform than other sectors? It’s probably worth reminding ourselves from the outset where insurers have come from.
The historical ties that bind
Our history defines us, and the evolution of the insurance industry is no different. As Oliver Bäte put it during his address, the history reveals that insurance products were originally designed and produced to meet the needs of regulators, not customers. Historically insurance policies were designed as legal instruments which simply transferred risk from one party to another.
A calculation on a page. A bloodless transaction. The customer never came into it.
It’s also important to consider that insurance companies have historically not been customer facing and distributed products via intermediaries. This supplier mentality adopted for decades has been very successful but it also meant that while other parts of the retail financial services sector started to look toward satisfying customer needs, improving customer experience and increasing customer engagement, insurers continued to focus in large part on the technical elements of their products (namely policy terms, underwriting, and pricing). Intermediation has been and remains a very important channel of business for most players but by and large it has also in my opinion allowed insurers to absolve themselves of their responsibility towards understanding consumers, slowed any sort of transformative movement towards customer-centricity, and not facilitated product innovation.
There is no doubt that this situation has compromised how insurers are viewed in the eyes of consumers, and in many markets reduced what we sell as mere portfolio-managed commodities. In some markets insurers have also sabotaged their fundamental place in their own value chains by allowing third parties to position themselves as operating in the best interests of consumers. A strong reference point here is the UK motor insurance market which is dominated by price comparison websites and claims-farming practices, and which interestingly also hasn’t made an underwriting profit since 1994*.
Products, not Propositions
But apart from distribution, insurance companies haven’t really focussed on convincing consumers of the essential and valuable role insurance plays in people’s lives. In my view there are a number of major reasons for this.
First of all, most insurers have generally not sought to design insurance propositions which customers genuinely value, admire, or want ahead of their competitors. This lack of thoughtfulness in proposition design has made it very difficult for them to communicate the value their products provide to customers in any meaningful way (apart from price-related messaging, or some technical product feature. Insurers have allowed their products to be treated as grudge-purchase commodities, and forgone the simple marketing philosophy of impacting the customers ‘willingness to pay’ via differentiation is the most important lever of competitiveness.
Guess what happens when you treat the products you sell as commodities where the only value proposition is price? Don’t be surprised when your customers loyalty ebbs and flows on the waves of the insurance cycle. It amazes me how my industry has accepted this paradigm and how so many players have allowed themselves to become vulnerable to external market forces.
The deference to price as being the only appropriate competitive lever has also meant unbalanced technocracies have emerged across all major insurance businesses. This is not a healthy scenario. From a talent perspective and in the same way retail banks have improved their customer insights and analytics functions, insurers need to build genuine capability and technical expertise in this space too. A business culture founded on technical excellence is essential for insurers, however if we are genuine about improving customer experience, technical expertise in understanding our customers behaviours and needs must emerge and complement the existing competencies around pricing and underwriting.
As part of a large global group, Allianz Ireland is a small player in the Allianz world but one which continues to punch well above its weight. We were the first in the Irish market to provide online quote and buy facilities to customers in 2000 and we continue to try and meet the changing demands of our customers. What has become clear over the last few years is the vast amount of customer information – transactional, behavioural, and attitudinal - we now have at our disposal. We have the means, as does every other insurer, to analyse and interpret such information for the betterment of our customers and to design propositions which they really value, desire, and benefit from.
So if we look over the next decade, who are the winners going to be? Technology undoubtedly gives insurers a huge opportunity to add value to what they can offer customers as well as the ability to improve the frequency of engagement with clients.
The proliferation of digital technology will on the flip side enable greater levels of competition and makes the industry ripe for disruption from other non-insurance players. For example, self-driving vehicles will be a serious game-changer and insurers need to consider the effect autonomous driving will have on their revenue streams, their proposition design, their pricing and ultimately their profitability. They should also be prepared for the very concept of mandatory private motor insurance being challenged. Of course, customer preferences and the reliability of driverless technology will dictate the speed of adoption on our roads but it is something insurers need to be strategizing about now.
Insurance is by its very nature a ‘low-interest’ product category. Customers only need to deal with their insurer once, perhaps twice a year and as a result there are limited opportunities for us to build trust, affinity, and loyalty with customers.
In Allianz Ireland, we believe that our online self-service platform launched in 2015, MyAllianz, will play a transformative role in how we engage with our customers in the future. But this isn’t just an online banking type of service. It can’t be. Providing transactional functionality online for insurance customers is simply not going to have a transformative effect on its own. Customers simply won’t use an insurance self-service platform frequently enough for it to make any meaningful impact.
Insurers must recognise that they have a new responsibility to customers where apart from being there when they need us, we should also seek to add value by helping them to confidently manage the risk in their daily lives. There are some really interesting digital services and technologies that we are exploring at the moment which over time we hope will allow us to supplement and improve our overall offering to customers. The Internet of Things, as just a small example, could provide very interesting opportunities for us to enhance our current propositions and support customers in protecting their assets as well as their families.
Ultimately though, it is the need of our customers which will dictate how we will serve them. We’re listening. It’s a little later than expected but we are listening.