With contributors from: Generali, Swiss Re, Liverpool Victoria
It is evident that the way insurance products are marketed and distributed to the consumers is changing. The days of single-point interactions are coming to an end as customers are getting used to the multi-channel engagement they receive from other industries. Insurers need to enhance their traditional distribution and market¬ing strategies with new digital tools to keep up to speed with consumer trends and deter new entrants from entering the space.
The distribution channel mix of the future may look completely different from the one we see today: there may be new types of partnerships being formed, as well as new ways to work with intermediaries that desperately need to evolve if they wish to remain relevant.
Furthermore, as the Internet of Things is moving from the R&D phase into reality, insurers are re-defining their offerings to keep up to speed with today’s connected world and more importantly – the connected consumer.
This whitepaper will share the views of the leaders of today on the insurance marketing of tomorrow, including their thoughts on customer preferences, distri¬bution channels, new entrants, and technology.
Understanding the Customer of the Future
Customers of today have already fully embraced the world of online shopping, product reviews, price comparisons, m-commerce and sharing economies. The way people buy their groceries, clothes, utilities and all services has changed drasti¬cally in the last 10 years and customers are now requesting the same seamless experience from their insurance providers. The ‘digital natives,’ the generation who have grown up in the technological age, typify the connected customer of the future.
Digital natives will be expecting insurers to service them with smooth interactions and if this will not be provided they will continue seeing insurance as “grudge purchase,” and the longer insurance companies wait to cater to customers digital needs, the longer this stigma will follow insurance products.
Customer demand was identified as one of the key factors that will be driving transformation in the future by insurance executives surveyed by KPMG.All three of our contributors stressed the importance of embracing the digital revolution in order to service the tech-savvy customer of today.
David Stevens, Head of Life Direct Distribution at LV=, highlights the importance of customer engagement in this digital age: “I think that’s really where the distri¬bution opportunity through innovation and technology lies: how can you engage or re-engage customers in financial services through using technology to make advice and products convenient, make it affordable and engaging, but recognise that you also have responsibility to ensure that customers get good outcomes at the end of it and you meet your long term regulatory responsibilities.”
Isabelle Conner, the Group Chief Marketing Officer of Generali Insurance, empha¬sises the importance of creating a seamless experience across touch-points: “The industry must continue its shift from a traditional product-centric model to a more contemporary client-centric approach. This shift takes on greater importance as technology makes it easier to change from one insurer to another, undermining customer loyalty. Hence, attracting and retaining customers will be about the quality of customer service. Today’s successful retail companies are obsessive about delighting clients and providing seamless customer experiences. Insurers must take inspiration from these consumer-friendly brands and revisit their key client interac¬tions, from researching insurance to buying a policy, filing a claim or renewing. The winners will be those players that manage to personalize and simplify the consum¬er’s experience at every touch point, for each product, and across every channel.”
Marc Davis, the Country Head, UK & Ireland at Swiss Re Corporate Solutions, under¬lines the importance of the whole organisation being innovative when it comes to enhancing customer experience: “We are currently running an internal campaign looking at innovation: what can we do to join up our organisation to be ever-more customer centric, more focused on the needs of business and how can we drive efficiencies.”
Our contributors were talking about two main areas where insurers need to focus on when it comes to better servicing the customer of the future: offering a more personalised experience through segmentation, and improving engagement through better customer education.
Effective Customer Segmentation
Insurers are fully aware of heterogeneity of their client base, not only in terms of their risk profiles, but also in their preferred methods of interacting and engaging with insurance companies.
Conner at Generali identifies four main customer segments: “Today’s customers are evolving. In the past, we segmented them by demographics (age, income, etc.). Today we observe different behaviours even within the same demographic group. In insurance, we’ve identified four primary customer segments: Delegators, people who rely on traditional agents to manage their insurance needs; Validators, those who prefer to compare and contrast complex offers like life insurance with someone knowledgeable; Self-Directed, people who want to handle their insurance on their own, mostly by going online; and Avoiders, who postpone the inevitable as long as they can.”
McKinsey 2012 Auto Insurance Research expands the segmentation into 9 groups: independent advice seekers; uninvolved; low-price experts; active shoppers; self-servicers; price-conscious advice hunters, high-touch protection seekers, affini¬ty-oriented brand buyers and branded agent loyalists. Customer segmentation creates a way for insurers to deliver a more personalised offering. Yet, insurers should understand the true cost of personalisation.
Swiss Re’s Davis claims that personalisation of experience should not only be the responsibility of the insurers, but also the intermediaries: “Clearly we need to make sure that we’re not driving up costs by having everything personalised, but actually for what your needs are, I think it’s going to be more relevant. And actually this is the role that brokers should be playing at the moment; it is all about trying to understand the customer’s business priorities. On a small account it’s very difficult to expend sufficient time and remain lean, but actually if you have a lot of data points and you have the right algorithms to do that, there’s no reason why you can’t have something that’s increasingly specific to even small risks.”
Generali’s Conner highlights the importance of connecting to customer’s lifestyle: “Today it’s about emphasizing tailored customer solutions, not products. Insurers need to build a strong, mutually beneficial relationship with consumers, one that extends beyond insurance policies and has a positive impact on peoples’ lives. This is a shared value proposition, characterized by giving some of the value we create through this positive impact back to customers. If someone is interested in a healthier lifestyle, can we provide discounts as an incentive for him to take better care of himself and keep track of diet and exercise through connected devices? Can we provide tools that will help alert a customer when there’s danger of a water leak, or help identify energy-saving solutions in the home? Can we use telematics to reward customers for good driving behaviours?”
It seems that insurance consumer of the future will be experiencing more person¬alised product and interaction offerings. In order to ensure that this is delivered, insurers are increasing their investment into consumer trend research, as well as using data and analytics beyond their basic descriptive application.
LV=’s Stevens says that organisations are spending more on customer research: “there is a lot more effort and investment going into research now and that’s changed quite significantly in just the last 3 years. Organisations are now invest¬ing in consumer trends and technology trends and thinking directly about how technology from a different area could translate into being useful and connecting with people in the financial services industry.”
Conner emphasises how proper use of data could be used for customisation: “Insurance is all about protecting and assisting people. Insurers have a wealth of information about consumers’ lives – not as individuals, but as groups. Applying that knowledge in a way that is relevant to clients’ lifestyles is essential. Everything in a consumer’s world is increasingly customised to the individual, why should insurance be any different? Insurers should use the data they have to connect the dots in peoples’ lives.”
Davis also discusses the role that effective data analytics plays in personalised customer experience: “The ever increasing amount of data that is being captured will mean that products are going to be more tailored, more relevant to the risk and costed similarly. As information becomes better and better at finding patterns, segmentation will be more effective, because it will be driven off a broader set of data points. “
Stevens highlights the importance of customers being able to participate in the customisation process: “The ability of customers to conveniently create their own facts, their own data store that pulls the information for them, in a really secure way, enables them to use that to fire up knowledge based artificial intelligence solutions, I think it could be transformational in terms of what the technology can do to help consumers to make decisions about the right financial products easier.”
Enabling Customer Education
According to the survey conducted by FC Business Intelligence on millennial inter¬action with financial services, 27% of millennials don’t even know how an insurance company works. Given this, it is unsurprising that health, travel and car insurance policies were amongst the least popular financial services products amongst people surveyed: people cannot buy things they don’t understand.All of our contributors stressed the importance of better customer education.
Stevens explains how LV= is achieving gradual customer education: “What we have to do as an industry and what we try to do at LV= is to create propositions that have a strong gravitational pull. So when a customer starts to engage with us, we give them lots of information that aims to engage and educate them with the proposition and draws them in rather than customers feeling they are being sold to. Hopefully through this we draw consumers in and show them they are empow¬ered to go through and buy the advice and products that suit them and feel good that they have achieved that.”
Conner from Generali brings up convenience, and ease of use, as additional attri¬butes that insurance products may be lacking: “Customers are often frustrated by our industry. They find insurance complex, hard to understand and full of jargon. That’s the opposite of the simplicity and convenience today’s leading retail brands provide. Insurers need to contemporize their approach to consumers during research, purchase, claims and renewal, simplifying the customer’s experience at every touch point. Giving clients a 30-page paper document and asking them to sign it five times is just antiquated.”
On top of increasing their efforts to understand their customers, insurers must also not forget how the customer can understand them. Making the language simpler, providing advice at any point of the journey, as well as really getting to know your customer will be paramount to the insurers who want to succeed.
Exploring the Distribution Channels of the Future
Today’s customer may research their insurance needs online, then go to an aggre¬gator page to find the cheapest price, then they may call a broker or an agent, or they may find out that their retail bank is offering them a better deal on that same insurance product. An insurance company might know exactly how many differ¬ent channels the customer has touched upon, however customers may not even realise that they’re purchasing insurance through a different channel than they originally intended to.
However, even though most commentators in the press are predicting that the direct channel will be increasing in the next five years, full disintermediation in the future is unlikely. For example, according to PWC report, 45% of insurers expect ‘distribution destruction’ where customers buy direct and even form groups to negotiate bulk purchases direct.
According to Swiss Re, digital transformation does not spell the end of intermediar¬ies.5 And Eric Anderson, the CEO of Aon Benfield, is predicting a process of vertical integration. “The traditional broker chain which places business from primary insur¬ance through to retro could collapse predicting a process of vertical integration”.
What remains clear is the need for traditional brokers and intermediaries to adapt to the changing environment and ensure that their value proposition remains visible. Swiss Re, in their report on the digital revolution in insurance, says that technological innovations are breaking up the traditional insurance distribution process and re-configuring standard intermediary functions. Distribution has progressively broadened from an own-sales force versus agent/broker paradigm to a wide variety of direct and indirect channels between insurers and their existing and potential customers.
Swiss Re’s Davis points out that the intermediaries are impacted differently by various client segments: “Certainly I think that landscape is going to have to change. And I think it’s going to be driven by the cost as much as anything else. However at the upper end, and I mean the large corporate accounts, there will still be more complex risk issues, there will be a continued need for expert advice. At the lower end it’s really pile it high sell it cheap, make sure the model and proposi¬tion is good, and negotiate on a portfolio basis to get the best terms. And anyone who can do that, has expertise in segments and has a particular expertise in pulling things together on a portfolio basis will be a survivor, but I do see offerings becom¬ing more and more niche.”
Davis also agrees that intermediaries must demonstrate value in order to remain relevant: “The role of intermediary has moved on from being a gateway into the marketplace, and they will really have to look to show value to customers in the way they improve the market proposition and cost that perhaps they haven’t needed to before.”
Generali’s Conner also agrees that agents who want to survive will need to evolve: “The role of the traditional agent is changing. It’s important to emphasize that this change constitutes a genuine opportunity for distributors. In the past, insurance agents evaluated their customer’s needs, then sold the client the most appropriate product available. Today’s agents have an opportunity to leverage software and data analysis that can evaluate those needs more quickly and effectively, freeing agents and enabling them to deepen their relationships with customers by provid¬ing value-added insights, knowledge and services. Agents who take advantage of these new digital mobile technologies and connect with their local communi¬ties via social media will flourish. They will be empowered to engage with clients whenever and wherever is most convenient for the customer.”
Conner also stresses how important it is that insurers work alongside agents to help them navigate this shifting landscape: “For many this is mind set shift. Insurers need to educate, train and empower their distributors, providing their agents with attractive platforms and engaging content they can repurpose to increase their visibility and expand their commercial reach.”
Therefore, there still is a need for intermediary services, in the form of advice or discounts, but agents, brokers and other distributors will need to evolve if they want to remain relevant in an environment where purchasing through direct channels is easier than ever, and there is a threat from new entrants coming in and changing the current model completely.