If there’s a word to define the insurance industry today, it’s disruption. Tech-enabled startups are entering the market unburdened by legacy systems or mindsets, and challenging even the largest insurance companies with innovative strategies, products, processes, and customer experiences.
Much like what the financial world has experienced in recent years, new regulations are emerging to govern shifts in the market. The rapid emergence and convergence of new technologies is constantly changing the rules of the game – both for insurers and the regulators that govern them – making compliance an evolving challenge.
In addition to these external factors, a disruptive new type of customer is entering the marketplace: The modern consumer is tech-savvy, informed, and demanding. They want an omni-channel experience and a broader set of solutions beyond insurance – to enhance their life, not just protect against liability. They expect a seamless harmonization of digital and physical touchpoints, just as they experience in their other personal and professional contexts. These customers are looking for value – and they are willing to shop around to find it.
To remain competitive in a volatile market, insurers need to rethink their business models to optimize for delivering customer value.
In this series of posts, we’ll describe the trends disrupting the insurance industry – and how Lean can help incumbents survive and thrive amidst the disruption.
Trend #1: Digital Age of Information
As technology has changed the way we think, shop, learn, research, and connect, it has also changed the way we buy insurance. Customers today have more information available to them, from more sources, than ever before.
Due to the sheer volume of information available, customers have high expectations and far less loyalty, which has a direct impact on the bottom line: Churn rates are rising – up 13% in the last few years.¹
Modern customers are looking for a combination of value, service excellence, and data protection, customized to meet their unique needs. The traditional one-size-fits-all approach to marketing and communications, which has served the industry for decades, comes across as tone-deaf and disingenuous to a generation that has been raised in a world of personalized experiences.
To these customers, price is less important than value, integrity, and a personal touch. Lynn Kesterson-Townes, worldwide commerce marketing leader for IBM, says this creates a need for marketing and communications functions in insurers to “…be more nimble, more innovative, and better able to engage with their customers and help their entire ecosystem along as well,” she said.¹
In other words – insurers need to be agile: “Whether you’re responding to a customer in real time or anticipating a need that they didn’t even know they had, today’s insurance marketing and communications functions must exceed expectations to give their companies a competitive edge. It’s not just about speed. It’s about the experience. Every interaction is a moment of truth and moments matter. It’s about delivering relevant experiences at the right time and the right place,” she said.¹
The Lean Approach: Create Value
Insurers need to harness the ability to create valuable experiences for their customers. Here is how value is defined by the modern consumer, especially younger consumers, according to Kesterson-Townes of IBM:
“They want increased transparency. They want to really interact and have a relationship with you. They want an understanding of their personal needs. They want fast responses. They still want advice. But if their needs are not met, they’re even more likely to switch insurers than the rest of us. But they’re looking for value.”¹
In order to succeed amongst disruption, insurers need to learn how to meet the demands of their most demanding, tech-savvy customers: Millennials. Millennials have already surpassed Baby Boomers in sheer numbers, and are expected to spend $200 billion annually in coming years.² Since this influential group is almost always the first to embrace and promote new technologies – understanding how to create value for this influential group will enable organizations to gain and retain other customers more easily.
How to Get Started
Creating value for customers sounds great in theory, but how does it happen in practice? It starts by understanding and continuing to learn what customers value — and then eliminating anything that does not meet those their needs. Lean helps organizations align around and prioritize customer value – both by eliminating waste and actively creating more value in their activities and processes.
Here are three Lean concepts that can help insurers embrace agility and create more value for their customers.
Lean organizations are learning organizations – approaching every decision as an experiment, with a potential for valuable learning.
Why It’s Important
Led by millennials, customers are adopting new technologies, ideas, and trends as quickly as they are being produced – insurers need to have a system that allows them to keep up.
How It Works
To continuously deliver customer value for their most demanding customers, insurers must evolve into learning organizations: embracing new technologies and combining big data, telematics, user groups, customer interviews, and other rich sources of customer information. This enables them to continuously learn more about the people they are serving.
The power of knowledge is limited if not shared – insurers must also develop systems to distribute learning internally so the entire organization is strengthened by it.
In Lean terms, creating value requires understanding what the customer values – and then making decisions to support those values.
Why It’s Important
Customers want personalized experiences that contribute to their overall lifestyle. Insurers need to answer the call by optimizing to continuously increase customer value.
How It Works
Lean organizations operate as a collective of value streams – paths by which value flows through the organization and into the hands of the customer. The key to sustainable success is to align these value streams to create a system that enables a continuous flow of value.
In most companies, complexity, poor communication across teams, legacy systems, and unclear direction make continuous flow nearly impossible. To optimize for customer value, companies need to identify how value flows through their business functions — and then continue to optimize at every level for value delivery.
Lean thinking defines waste as anything that does not result in value for the customer. Waste can be any process, activity, or function that does not serve the customer’s current or future needs.
Why It’s Important
Insurance organizations are inherently complex – and complexity kills agility. In order to meet the evolving demands of modern consumers, insurers need to become skilled at identifying and eliminating waste.
How It Works
Insurers need to learn to reduce complexity by habitually identifying sources of waste. Waste can come in the form of inefficient/tedious processes, duplicate effort, rework, excessive planning , etc.
Waste can be targeted at every level of the organization, but the example has to come from the top. Executives and other stakeholders need to critically examine whether there are opportunities to focus efforts across the organization – to not try to be the leader in all types of insurance, but the expert in delivering one specific type of value.
To learn more about the topics discussed in this article, we recommend the following resources:
- Trends Disrupting the Insurance Industry Part 2
- Trends Disrupting the Insurance Industry Part 3
- Lean Principles 101
- 4 Reasons Business Flow is Critical for Speed
- 7 Wastes That Impact Business Growth
- Gibson, Andrew G. How to know what insurance customers want [Blog post]. Retrieved from http://www.insurancejournal.com/news/national/2015/08/25/379623.htm
- Nelson, Erin M. Millennials want to party with your brand but on their own terms [Blog post]. Retrieved from http://adage.com/article/digitalnext/millennials-party-brand-terms/236444/