Insurers can adapt to survive the unprecedented changes ahead by looking at other sectors, such as the automotive industry, which have already suffered the twin stresses of global competition and enhanced customer expectations, claims Keith Aylwin.
Insurers are continually looking for new ways to improve efficiencies — especially as traditional operational efficiency measures are no longer viable. Chief executives and their chief operating officers know that, without this change, they risk losing market share or, ultimately, business failure.
Attempts to improve efficiencies are often based on short-term cost saving measures. But history has shown that changes purely motivated by saving money might solve one problem, only to create another — such as delivering a poor customer experience. Using this approach to tackle persistent issues like indemnity spend, therefore, is wholly inadequate. It's like putting a sticking plaster on a broken leg.
If insurers want to maintain profit, boost revenues, reduce costs, keep customers, attract new ones and satisfy an increasingly sophisticated and fragmented demographic, this has to be addressed. They are already having to cope with an unprecedented rate of change; poor investment returns; increasing fraud; greater competition, especially from non-traditional players; and customers that demand more when purchasing cover or making a claim.
A new approach to business transformation is required — from managing operational costs, through to managing customer interactions and sales. Whether a business operates in one region or globally, effective strategies are essential to create the right business architecture to support operations. These areas need standardised processes, where efficient processes cascade throughout the organisation, continuously and holistically.
One potential solution could be found in what has worked well in the automotive sector. It too has had its fair share of daunting challenges: highly regulated, heavily process driven and subject to increasing global competition as well as rising customer expectations. And yet, the industry has revolutionised its business model to accommodate these challenges while, at the same time, retaining customers.
Introducing systemic industrialised processes has enabled it to evolve so that its processes are efficient and replicable while simultaneously being able to offer highly customised products. In fact, BMW manufactures only a small number of cars to the same specification each year — out of 350 million possible combinations. Despite this, the customer experience always appears efficient and consistent because of its industrialised processes.
The automotive industry made mistakes along the way. One leading car manufacturer in the 1990s lost market share by failing to invest in new products and services; while another paid a high price to reinstate its reputation after losing sales, when it announced its manufacturing quality was 'too high' and subsequently lowered the quality of its materials.
Volkswagen Audi Group is a good example of successful business transformation. After buying brands, including Seat, Skoda and Bentley, it inherited production lines across the globe, with different components, produced to varying standards, using different suppliers. It took the best of each element to improve processes — from best practice, to standardised components and improving production line and supply chain efficiencies. Increased quality and controlled costs has equalled soaring profits.
At the same time, the group has nurtured its brands, to ensure each is unique and tailored to its specific market. Different marques can even have the same engines and yet attract hugely varied price tags.
Lessons to learn
If the insurance industry could maintain the brand and customer experience with standardised processes throughout different interactions — such as new business, via the web; or a change of address, via the phone; or claims processing, via paper — it too could control its costs and provide consistent service levels and greater efficiency.
Remember, a failure to evolve leaves its legacy. Take the travel industry. In just 10 years, its products, particularly insurance, have gone from being sold via high street agents to a commoditised product, widely available as a self-serve option, on the web or via smart phones. Meanwhile, the high street retailer offers a niche product and has a much reduced market share.
Insurers need to pay particular heed to their next generation of customers, many of whom will have little or no experience of insurance and who, according to one study, confused contraception with insurance when asked about products offering protection. A failure to engage with this group, across its chosen channels, will see it drift elsewhere to engage with brands that do speak their language.
Insurers that silo different lines of business and communicate in a medium that suits them or their IT architecture — rather than their customer — are hereby warned. Only by having holistic processes that provide meaningful and valuable customer insight to the business can an insurer build long-term customer relationships and a high volume of business.
Self-serve plus points
Tapping into the trend for customers to self-serve financial products is vital. Banks that enable customers the opportunity to bring different products into a single place, such as a special internet portal, are actually getting the customer to do work for them. By leaving it with the customer to update the information — new address, change of marital status and so on — it's one less job for the insurer and serves as a trigger to remind the customer about new products.
Work with one insurer, where operational processes were standardised, achieved a 41% reduction in the time taken to launch a new product — a critical success factor in entering a new market. It led to a 30% reduction in IT spend and a 40% improvement in overall operational efficiency. Cross-selling campaigns achieved a 56% sales boost as a by-product of management information and analytics improvements because they enabled the campaign to be more targeted.
Insurance industry trailblazers will appreciate the far-reaching benefits that can be achieved by the business innovations discussed here. They'll realise too, that the travel and retail industries focused on small operational improvements, until the likes of Amazon and Expedia entered the market and forced them to completely overhaul their model.
Those brave enough to change wholesale, throughout the organisation, will leave their legacy intact and could also ensure their organisation exists for many years from now.
Keith Aylwin, a consultant at CSC financial services EMEA, will be participating at the British Insurance Summit on Wednesday 22 September when he will be addressing the subject of extending the reach of operational efficiency to transform customer engagement and retention. Among the areas he will seek to cover will be the best path to cost reduction and customer motivation; how to maintain excellence through existing methods and technology; and how to embed customer retention throughout an organisation.
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