June 24, 2011

The future winners in property and casualty insurance industry will understand how to relate to their target customers across a rapidly expanding array of channels -- whether that means reviewing coverage with agents, generating "likes" on Facebook, augmenting catastrophe response on Twitter, or accepting claims via iPhone. They will seek integrated solutions that seamlessly meet customer needs across all channels. To succeed, the industry will have to undergo a fundamental transformation from channel- to customer-centric. By better understanding customer needs, defining channel roles and realigning resources and incentives, companies can create an effective, customer-centric operating model that will improve customer acquisition, engagement and satisfaction.

Consumer expectations are changing rapidly, thanks to innovations inside and outside the industry -- from name your own price to tweeting to rebook flights in the middle of a snow storm. Customers today regularly use multiple channels to shop for everything, including insurance. J.D. Power's 2009 Insurance Shopping Study found that while two-thirds of customers request at least one quote online, more than half purchase their policies from an agent. Tweeting and blogging agents and car-buying apps that offer instant insurance quotes have enabled technology-savvy insurers to reach consumers earlier and educate them more efficiently than ever.

Multi-channel consumers represent the highest-value prospects for insurers. Studies from the retail industry show that multi-channel shoppers spend up to 50 percent more, even when they were initially lured to shop by a great deal. Multi-channel models allow consumers more flexibility in their insurer interactions -- they can now choose how and when to deepen their interactions, a higher level of personalization that drives loyalty. Integrated channel models enable insurers to take advantage of each channel's unique capabilities and create more efficient interactions -- proactively, as well as where and how the customer wants.

The industry economics are dependent on the continued performance of a few channels -- so it is not surprising that insurers are wary about making changes. Yet to capture the full benefits of this changing environment, insurers must create customer-focused models that shift away from their traditional channel or product focus. The task is not impossible. There are several simple ways for insurers to succeed:

Understand customer needs. The highest-value customers are rarely in the market for insurance, so when they are it is vital to know what they want. Leading insurers dig deeper than customer satisfaction surveys -- they aim to understand customers' needs in varied situations and touchpoints and refine their value propositions accordingly.

Make channel roles complementary. While one channel may have once dominated, today's range of channels offer unique yet complementary capabilities and economics. Future leaders will integrate channels into a strong, seamless customer experience. For highly mobile military personnel, USAA's integrated call center, website and mobile app combine for broad access. The Hartford's "click to call" capabilities offer personal access to its older audience and encourages web-to-phone transactions to make the sale.

Reassess incentive systems. A winning approach guarantees that everyone -- from agents to the enterprise and customers -- is getting value and that incentives are aligned to driving all parties' expectations. American Family, for example, requires agents to participate in a comprehensive customer satisfaction survey (operated by J. D. Power), and a top score to qualify for the maximum bonus, while Allstate tied its level of 401(k) employee match to its improvement in customer loyalty scores.

Reevaluate your organization. A successful transformation ensures end-to-end consistency from the customer's perspective. Processes, technologies and channels must cut across organizational silos to support and focus on the customer. Leaders will break down the channel and functional barriers. Agency customers and direct customers will simply become customers who can obtain service at their own convenience. Likewise technology will make knowledge of that customer seamless -- from sales to claims, and the entire organization will serve the customer in a consistent way.

Few multi-channel players in the U.S. market have achieved full channel integration, but players from divergent channel backgrounds are inching closer together. The mass-market pure-play models are fading -- even commodity-oriented web aggregators offer "people when you want them" -- while leading agency players expand their reach to other channels. State Farm's call center acts as an agency extension, with agents still completing transactions. Farmers provides its agents leads from the 21st Century website and allows them to cross-sell to 21st Century auto customers. Direct giant GEICO has opened local agencies and promotes them to customers who go through the online quote process.

There are indeed great challenges. Internal resistance will be strong, especially in agent-based models, where agents may feel threatened by new approaches. Adding a new channel is one thing, doing it well another, and integrating it with existing channels yet another hurdle. A transition to a cross-channel sales and service model will expose outdated and inconsistent business systems, which will have to be replaced. Improving lagging channel capabilities is also important to ensure a consistent experience. And of course, investment costs and added complexity from building new infrastructure will be difficult, particularly for longer-established insurers.

Despite the challenges, the decades-old property and casualty insurance model is rapidly evolving -- and there are no signs it will let up. A customer-oriented business model will be necessary to force insurers to harmonize their channels, offer wider consumer choice and drive greater impact. This customer focus reinforces a common channel experience and consumer value proposition while building a consistent brand. Future winners will capture and serve their target customers with an integrated, actively managed experience across all channels, from the agent's office to Facebook. And they will be better positioned to meet customer expectations and channel trends in the future.

About the Author:Joseph Reifel is a partner in the Financial Institutions Practice of A.T. Kearney. He can be reached at joseph.reifel@atkearney.com