Understanding Customers’ Mindset Through the Six Dimensions of the ‘Insurance Cube’
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Like other industries, insurance industry is feeling the pressure to evolve in the face of changing customer demands, compliance requirements, and the proliferation of digital devices. Insurance companies are also feeling the heat from InsurTech disruptors who are more agile and innovative and can offer new services that are tailor-made to consumer demands. At the same time, the abundance of new technologies, including IoT, cognitive computing and blockchain has created unprecedented opportunities for insurance companies to serve their customers better. The current COVID-19 global health crisis has also led to a new set of challenges for insurance customers whether it is with respect to customer retention, employee productivity, or ensuring smooth operations. As insurers try to transform themselves and stay competitive amid this dynamic environment, there are six distinct levers that determine the success of these efforts. These six levers constitute the six dimensions of what we might call the Insurance Cube, to understand the buyers’ mindset. The first three faces of the cube are trends in technology, regulations, and business models. The other three are factors such as speed, efficiency and risk.
Let’s explore these in greater detail:
Insurance industry regulations change often, and compliance is mandatory. For instance, there are regulations such as CCPA and GDPR for data privacy and security; accounting standards such as IFRS and GAAP. There are also certain market conduct regulations such as New York’s Regulation 187 that places certain responsibilities on insurers. Insurance providers need to be extremely vigilant in adhering to the strict guidelines imposed by these regulations in order to be compliant.
The right technology can put an organization ahead by enabling it to derive distinct competitive advantage. An organization that uses an Open Source API or microservices can potentially be more flexible, robust, and agile with more autonomous teams that can deliver change quickly. Technologies such as cloud, IoT, and Blockchain can greatly enhance operations and enable the organization to provide highly differentiated customer experiences with sophisticated digital capabilities.
Given changing consumer demands as well as an evolving technology landscape, insurance companies need to constantly re-invent themselves by exploring new business models. Whether it is adoption of a new value chain or delivering new-age “phygital” (physical + digital) experiences, companies need to think like disruptors. The disruption may not be just in the immediate industry but could also be a cross-industry disruption. For example, lot of the insurance carriers are moving away from agent-based physical selling to phigital selling.
Every business has to deal with a certain number of risks such as location risks, market risks, concentration risks etc., and insurance is no different. Given the fast pace of change, companies might also face certain talent risks or the risk of technology debt. Each of the risks listed above has the potential to snowball into a major issue that could threaten the organization’s survival. Given this, the ability to mitigate risks and prepare back-up plans is key to survival for insurance players.
Running a highly efficient business is a huge operational advantage for insurance companies. Efficiency, whether it is cost efficiency or operational efficiency, can be achieved in a number of ways such as through cost takeout by rebadging existing deals. Automation is an important tool to increase operational efficiency. On the people front, building a futuristic workforce by enabling people with the right tools, data, and training can help to greatly increase productivity and efficiency. Leveraging ecosystem partnerships can help streamline processes and make the organization more efficient. For instance, a leading international reinsurance and insurance group was keen to bring in efficiencies through new age technologies to help achieve cost optimization. The results were achieved through a core/flex model, with core having fixed capacity and the “flex” taking care of monthly variance in demand. The company achieved savings of $2.5 million, a 64 percent increase in productivity, and 16% decrease in cost per unit.
In a competitive environment, the speed at which a company responds to change matters. Quick product introductions provide a first mover advantage. Similarly, it is important that timeline-based market commitments are honored. Distributed agile adoption can help greatly speed up response times for insurance companies.
While each of these factors are definitely interconnected, evaluating a company on each of these separately can provide a useful framework to determine competitive readiness. It can also be a useful guide to help determine strategies for the future.
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