Let the customer drive insurance innovation

For insurers to survive and thrive, they must pursue a program of continuous and customer-led innovation, writes Duncan West.

When Eastman Kodak filed for bankruptcy earlier this year, many people speculated that it was the legendary camera company’s failure to innovate that led to its demise.

Continuous, customer-focused innovation is crucial in fast-moving industries such as technology, as the Kodak experience shows.

It is equally important, however, for the insurance industry.

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Innovation is paramount in a world where the internet is diminishing the importance of traditional strategic pillars such as distribution and knowledge, and as we continue the inexorable drive towards commoditisation.

It’s a way of standing out from the crowd and getting our brands and products recognised by the market. But the most powerful innovations are those that are driven by the customer because they help us to deliver better solutions, which must always be a key priority for insurers.

Innovation can be daunting and the pressure of coming up with that great ‘light-bulb’ idea overwhelming.

But as renowned business strategist Gary Hamel explains in many of his books, it doesn’t have to be. The power is not in the theory behind the innovation and the talking about it – it is in actually doing it.

Some insurers have historically been good at innovating and that, to a certain extent, makes it easier for them to continue thinking of and implementing new ideas. Innovation pedigree isn’t enough, though.

Kodak’s bankruptcy was made more bitterly poignant given the company’s role in advancing photography in the 19th century.

It’s important to understand that what worked 100 years ago or even 10 years ago may not work today. Innovation and casting a critical eye on processes and products must be ongoing to ensure they’re still the best option for customers.

A particular area of challenge for insurers, and one that the industry would do well to focus on from an innovation standpoint, is the need to turn the intangible nature of insurance into a tangible outcome for clients.

Life insurance (all insurance, in fact), partly depends on the client taking something of a leap of faith and putting their money towards something that hasn’t happened and hopefully won’t happen.

The nature of insurance is intangible and its consequences are hard to grasp if you’re not in the industry and you do not see those consequences regularly.

There is no silver bullet to changing this way of thinking, because it’s not human nature to assume the worst and act to prevent it.

'It’ll never happen to me' is typically the default approach the average person takes to life. But there are things we can do, and there are things that are being done in the market at the moment, to address this issue through product innovation or by developing more sophisticated or intuitive support services to clients.

Success in this area is likely to also have the added effect of driving better client engagement for financial advisers, so it’s a win for everyone involved in the insurance process.

Technology innovation is more straightforward. The iRevolution has taken hold, with more than 1.5 million tablets in Australia (a number that’s predicted to double by the end of 2012) and 3.4 million iPhones.

In conjunction with this – or because of it – financial advisers are moving towards more flexible working arrangements.

They’re organising meetings when and where it suits their clients rather than themselves, and insurance companies need to make it easier for them to do their job from these mobile offices. 

Some insurers – us included – have entered the brave new world of mobile applications to support advisers to be able to do the same job while they’re on the go as when they’re in the traditional office.

Another benefit of these apps is that they can help the client feel like they’re part of the process. In many cases, they can see what the financial adviser does and, by making this process transparent, the adviser is able to show the client the value that they provide.

This is crucial in overcoming one of the biggest barriers financial advisers face, which is the intangible cost of insurance.

There is also ample opportunity to innovate in the group insurance space. The Federal Government is pushing for a simple, low-cost super environment through its draft Stronger Super proposals, and the implication for our industry is that it may lead to further commoditisation of group insurance.

This has prompted innovation in this area through initiatives such as rehabilitation and return-to-work strategies.

Superannuation members haven’t traditionally been particularly interested in group insurance. In the past, people have taken what they were given.

However, over time, trustees have looked to provide more options and flexibility for their members to tailor cover to match their needs.

Initial attempts at providing a new group insurance offer to a large group of members resulted in high costs, slow turnaround times for paper applications and low take-up rates.

This was exacerbated by the difficulty in articulating to each member what each insurance option cost for them, and allowing them to be in control of the process and decision. All in all, it was just too hard for everyone: insurer, employer and member.

But innovation (and persistence) has proven that it’s not impossible to get members engaged with group insurance.

For example, MLC looked at insurance selection by members in our group superannuation plans and transformed the process from one that was clunky, offline and largely unsuccessful to one that was paperless, automated, online and that finally achieved real results.

Where we’ve applied this new process to our group super funds, take-up of insurance cover is five times higher compared to traditional methods.

In a world of uncertainty where customers have lost trust in many financial institutions, people are searching for confidence in the future.

The opportunities abound for insurance companies to build that trust through customer-led innovation and to use that to develop solutions that help and protect our clients and ensure for ourselves an equally successful future.

Duncan West is executive general manager of insurance at MLC.