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4 Ways Insurers Beat Disruption

Research from IBM explores the tactics that keep leading insurers ahead as disruptive forces alter the economy.

Insurers’ traditional business strategies are under fire as emerging technologies cause economic, business and societal disruption. IBM found that the industry’s top insurers differentiate themselves across four dimensions: customers, interactions, services and structures.

The company, which recently announced plans that benefit its enterprise customers, interviewed executives from 80 insurers that represent the 73 largest insurance markets across the globe. Insurers defined as leaders are frontrunners in both profit and growth, with ROI in the top two quartiles over a 3-year period and CAGR at least five points higher than market CAGR over the same three years.

Results show that customer centricity and customer interactions are two areas of concern among non-leading insurers. Although many businesses claim that customer centricity is a top priority, only leaders have developed truly effective strategies in that space.

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“Leaders are actually focusing on [customer centricity] and others just say they’re focusing on it,” says Christian Bieck, report author and global insurance leader for the IBM Institute for Business Value. “They say they’re focusing on the customer – and they might want to – but they don’t really know how to go about that.”

The majority of industry leaders (88%) ranked changes in consumer behavior as important or very important, compared with just 35% of non-leaders. Almost three-quarters of leaders use social media to communicate with clients and 61% believe in a strong focus on multi-channel access.

It’s important for insurers to let go of their traditional strategies and learn from their customers, says Bieck. This causes cultural difficulties for non-leaders, many of which still consider communication as a one-way channel for delivering information to clients. Leaders listen, which makes a tremendous difference in accommodating the incoming consumer base.

“The customer of the future is open to new products and new ideas,” Bieck explains. “Millennials are less concerned about price and more about value. At the same time, they are looking for interaction with their providers and with each other.”

Bieck predicts that insurers’ product offerings will change along with communication techniques as consumer demands grow to include increasingly complex solutions and extended services such as security and mobility. About 90% of insurance leaders are investing in customer support and 94% are funding new products and services, compared with 79% and 76% of non-leaders, respectively.

Despite leaders’ progress, Bieck notes that product development is not an industry priority. “We’ve seen a fairly slow development towards value add in insurance products,” he notes, even among leaders. In order to make targeted higher-level services effective, Bieck recommends developing a greater sense of customer needs through analytics.

It’s important that non-leaders become more flexible and proactive – two characteristics that set top insurers apart. It’s tempting to be a fast follower in the insurance industry, says Bieck, but leaders are leaders because they anticipate, and respond to, industry shifts. For example, the insurers that are focusing on customer centricity are 4 to 5 years ahead of those that aren’t.

“The biggest challenge is the accelerating change tempo,” Bieck explains. Customers are rapidly adopting new technologies, he says, and more flexible insurers will be better prepared to accommodate them. “When we see change accelerating, non-leaders will not be able to catch up anymore.”

Kelly Sheridan is an associate editor for Insurance & Technology. Prior to joining InformationWeek Financial Services, she was a staff writer for InformationWeek and InformationWeek Education. Kelly has also written for trade publication Promo Marketing and a number of ... View Full Bio

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kristy.hughes
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kristy.hughes,
User Rank: Apprentice
7/23/2014 | 10:11:00 AM
re: 4 Ways Insurers Beat Disruption
Yea very good insights. Thanks :)
Kelly22
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Kelly22,
User Rank: Author
7/18/2014 | 2:29:09 PM
re: 4 Ways Insurers Beat Disruption
Good point, Kathy. Even top insurance leaders won't be able to keep up with non-traditional competitors if they neglect to utilize analytics for gaining customer insight and developing new services.
KBurger
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KBurger,
User Rank: Author
7/18/2014 | 12:37:45 AM
re: 4 Ways Insurers Beat Disruption
This analysis illustrates the power -- and danger -- of the buzzword. Insurance & Technology has been writing about the shift to customer-centricity for years, and as the study and Christian Bieck point out, no doubt many companies & their management are very sincere in their belief that customer-centricity is good and that they are addressing it. But that is not the same as achieving it. It's also worth noting that this is exactly where the future non-traditional competitors are likely to excel -- deploying analytics for deep customer insights that result in a rethinking of traditional insurance products.
Kelly22
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Kelly22,
User Rank: Author
7/17/2014 | 6:02:51 PM
re: 4 Ways Insurers Beat Disruption
Thanks for your comment. I don't think insurers' additional services should be added free of charge either, but I do think the industry needs to consider adding services that would increase revenue. Your airline example illustrates this well.

The report also states that insurance will be redefined as a service with flexible and proactive coverage at the point of risk, and there will be more focus on loss prevention than on adjusting claims - other factors that insurers should keep in mind.
janderson088
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janderson088,
User Rank: Apprentice
7/17/2014 | 4:56:13 PM
re: 4 Ways Insurers Beat Disruption
Very good insights. Adding to the thoughts about the customer of the future (GǣThe customer of the future is open to new products and new ideas,Gǥ), I find that insurers continue to think of their product as the insurance policy and paying claims. That is very short sighted for where the industry is actually heading.

The carrier of the future will understand that it is the services surrounding the risk transfer and claim paying that drive revenue.

I don't intend that these additional services are simply added (free) but should be considered for their own potential as revenue. I mean, who thought that an airline could turn my desire to not have the seat in front of me crush my knees into a revenue stream?

Christian is correct, analytics will help drive a greater sense of customer needs and from that, we will see some of the market leaders explode into a better customized experience for their policyholders..
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