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Insuring themselves for the future

Insuring themselves for the future

By John Lunn, Partner and Financial Services Lead, Moorhouse

New technologies are forcing businesses to change and adapt at a rate not seen since the dawn of industrialisation, in fact some are calling it the new industrial revolution. The deployment of new technology – and changing customer expectations – is rapidly transforming business models across nearly every industry and those that fail to adapt to this changing landscape will be left behind.

The financial services (FS) sector has seen the rise of the so called ‘challenger banks’ who are providing an alternative to the existing financial institutions; in the legal profession there are lower cost models being developed which attack the cosy world of high hourly rates. The pharmaceutical market has shifted away from high cost, high risk in-house research and development, through to acquiring and exploiting recently formed start-ups. And finally in retail there has been a massive shift towards developing an ‘omni-channel’ approach to provide a seamless buying experience, so whether people are shopping online, on mobile, via social media or in store, they have the same smooth and consistent experience with a brand.

At the heart of these transformations is the common goal of enhancing the customer experience. After all, happy customers are more likely to become repeat customers.  FS is far more focused on this than it has been in the past – spurred on both by encouragement from regulators seeking to safeguard consumers, as well as competitors, such as fintechs, picking off customer segments by focusing on doing niche services or products extremely well. However one area of the sector stands out as a laggard, the insurance sector.

Developing greater customer centricity and improving their experience will be essential for insurance companies wishing to keep control of distribution and pricing. Presently, many life and general insurers have – at best – only a once yearly interaction with their customers. Intimacy levels are very low. The digital age and new technologies provide the option for a far greater level of intimacy and frequency of interaction. We can see this with companies like Trov who allow customers to insure their personal items on a per day basis.

Insurers with an eye on the future should be preparing for a big shakeout of the industry. There will be those that will offer customer-only facing options (like comparison sites), those that get relegated to being wholesale volume underwriters (likely to result in mass consolidation) and those that offer front-to-back services aligned to individual market segments and verticals – personal, life, travel, commercial and so on. History shows it’s the ones that vertically integrate that will have the greatest chance of success in the medium term.

One of the key elements within FS is the role of regulation and how this constrains or supports innovation. The regulator is often seen as the big bad wolf. However, despite the complaints of the incumbents, regulation is in many ways a friend as it provides a barrier to protect them from the new entrants. It’s also forgotten that it is the regulator’s job to stimulate and encourage competition and innovation in the market as long as it is in the interests of the consumer.

The smart incumbents will make friends with the regulator and seek their advice in the process of creating and taking new products to market. Unbalanced regulation is only of interest to those who have no intention of playing fairly or putting the consumer at the heart of their purpose for being, never a good combination for long-term, sustainable business success.

Transformation of the operations and other back office functions of big insurers to become more customer focused is a massive yet worthwhile task. For decades, they have valued risk aversion, cautious behaviour and prudence in the workforce. Most have never met a customer unless they are a policy holder themselves. Whilst these qualities shouldn’t be abandoned, there is a requirement for greater risk taking and a more agile approach to support the innovation at the front office.

The push to deliver a better customer experience is driving organisations across the financial sector to rethink how they build a more intimate relationship with their clients. To be successful, they must rethink their operating models to have the customer at the heart of everything they do, which will impact the culture, processes and agility of the business. The insurance sector has traditionally operated in transactional, one-off ways with clients, but to ensure they don’t see their services picked off by niche customer-focused competitors, they must change now to meet the challenges ahead.

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