During two days of intensive presentation and debate chaired by PwC, there was argument, interesting information and engaging speakers. Promoted as ‘addressing the latest strategic and operational affairs shaping the global insurance market’, the event offered a wide remit, but five notable themes emerged across the discussions:
- The need for change
- Big Data
- Challenge of shareholders
1. The need for change in the Insurance world
To start with an interesting question and the responses from one of the panel discussions:
- Persuade shareholders and the ‘City’ to take a long term view for long term value
- Instil a culture and infrastructure to become customer focused rather than product focused
- Change the attitude of the UK customers who do not appreciate the value of insurance products
The first two points became a recurring topic of discussion and, despite the Insurance Sector talking about putting the customer first, it is obvious we are a long way off at the moment.
What statement most closely fits the approach to change with respect to your business model?
|We have undertaken most of our change||4.1%|
|We are part way through a programme of transformation||33.3%|
|We are assessing what changes to make||16.7%|
|We are always making transformational change||43.8%|
|We do not need to change||2.1%|
What is your most significant driver for change?
|Capturing new growth opportunities||46%|
|Cost reduction to reduce margins||10%|
|Managing capital and risk||22%|
Key discussion points:
- This is not an easy economy to work in – and actually could be ‘the calm before the storm’. There is a huge avalanche of debt on the horizon which will increase public austerity in the UK – need to question how we can create new markets and better engage with both new and existing customers in the UK and globally
- The insurance Industry is by nature traditional and conservative – but has to meet changing needs:
- Potential customers are living for today and are not generally thinking for the ‘long term’ – but they are working and living longer, so should be planning for the long term – so there is a paradox that Insurers need to bridge
- The majority of consumers still believe that they can depend on the welfare state, which is blatantly not the case – education not regulation is the key here
- The industry needs to drive better collaboration between Insurance and the Welfare state so they complement each other – ridiculous that having income protection reduces your welfare benefits for example
- There is a ‘human resource’ gap in the Insurance Industry driving a real need to encourage new and diverse people into the industry
A great quote from one of the speakers underlines importance placed on technology:
- Challenge – What is it that I can do differently and better in terms of technology.
- The IT infrastructure is often so heavy to lift it becomes a real barrier for change.
- The most effective way to introduce technology change is to make small, not radical changes – ‘test, learn and improve’ approach.
- Need to deliver fully integrated ‘omni-channels’. Hard evidence that customers are using multiple channels for the purchase of complex products was provided with permission from a Distributor (who did not want to be named) using some real statistics for one particular line of business.
- Customers want relationships, not products – Insurers can use technology to change the way they engage. Customers want personalisation, they have different needs and Insurance solutions have to ‘stay relevant’.
- Generally Insurers as a breed are a long way away from their customers – and Intermediaries are making the gap still larger. Real success will come from changing the focus away from the product – and truly putting the focus on the customer. ALL Insurers are talking about taking a customer centric approach – in reality only a few have the technology that can actually help them make the transition.
Consensus that ‘compliance’ is a big burden, but general agreement that the FCA is more collaborative and constructive than its predecessors:
- General relief that the implementation date for Solvency ll has now been set – and that the agreed date of January 2016 is realistic.
- Imperative of regulatory ‘spend’ and resource allocation outweighs any other business consideration – so this undoubtedly has an adverse effect on new business development.
- New Financial Conduct Authority has increased the regulatory scrutiny in the UK:
- focused on limiting the risk of poor product design and mis-selling
- Objective “To promote effective competition in the interests of the consumer”
- Remove any conflict of interest (spotlight on remuneration continues after RDR!)
- Scrutiny of the reliance on 3rd parties – Insurer still carries responsibility
- Regulator will always support the customer first – ‘Does the customer understand?’ – the Industry have to take the approach that the customer has NO prior knowledge. ‘Execution-only’ models and platforms are increasingly coming under review by the FCA
4. Big Data
Big Data is transformational:
Interesting case study from PwC:
Methodology of using data to gain insight is the key to success. Traditionally masses of data is analysed to try and draw insightful conclusions to inform the strategy of the business.
PwC alternative method – targeted approach:
- Predetermine hypothesis
- Determine necessary insight to prove the hypothesis
- Determine data needed to get the insight
- Collect and manage only the data that has been pre-determined
In the case study the hypothesis to prove was:
Identified and quantified an approach for customers that would deliver the desired result:
- Offer a tailored service
- Ensure staff have specialist knowledge
- Show active management for the customers
- Customers need perceived access to the ‘whole of market’
- Important to target the right level of risk for the customer by appropriate risk profiling
How important is ‘Big Data’ in informing and shaping strategy?
|At the heart of our strategy||44%|
|Important but not crucial||56%|
|Not at all important||0%|
Do you think ‘Big Data’ (analytics) is and will be a main source of competitive differentiation?
Where do you think ‘Big Data’ can create the greatest impact going forward?
Key discussion points:
- So much data from so many sources – challenge to manage the volume and the increased risk of privacy and security.
- Getting the right insight is essential to quantify any business model change
- Question often asked ‘who owns the data’
- How much resistance will there be from consumers to allow firms to share their information. General agreement that it will depend on ‘what’s in it for them’ – consumers must feel secure and see value from sharing their details.
- Having the right data is essential for making the move to greater efficiency
5. The challenge of shareholders
The consensus was that there is a real challenge of balancing the needs of shareholder and customer.
Which of the following best summarises your view of the ultimate impact of the business model change you are currently making?
|Our customers benefit not our shareholders||12.5%|
|Our shareholders benefit not our customers||14.9%|
Interestingly – the majority agreed that if there is a choice between shareholder and customer, the shareholder would win, which does lead to ‘short-termism’
- Insurers have the constant challenge to satisfy the triumvirate:
- Customers want good deals
- Shareholders want high returns
- Regulators want to be confident
- Low investment returns means there has to be a much stronger focus on underwriting returns and cost cutting to satisfy shareholders
- Short term gains are more important for share-holders which limits the capacity for Insurers to invest in re-engineering infrastructure as that often has a longer term ‘pay-back’
- The industry can no longer carry on under-charging for insurance premiums and be ‘carried’ by their investments
- Insurers need to make money from pricing not ‘add-on’ but stakeholders have got used to the high returns generated by ‘add-ons’ and customers have got used to the lower pricing – challenge to satisfy both in the new regulatory environment
- Insurers traditionally have been making profit for shareholders at the expense of customers. An example quoted is initial lower price annual insurance in year one, which increases in year two if unchallenged although risk remains the same. Penalise inertia – unfair but drives profit.
The one big ‘take’ from two days of discussion is the need for the insurance industry to become truly customer centric. Easy to say, but obviously a huge challenge to deliver.
An example to me of how far off we still are came from one of the speakers who works for a global brand offering a wide portfolio of products from life and pensions through to GI. His particular responsibility was motor insurance and he talked about putting the customer first. When asked about investing in ‘Big Data’ he replied that his challenge was funding such projects as the margins in his product are ‘softening’ and he is under pressure to return profits for the shareholder. To me that is a real example of ‘product thinking’ not ‘customer thinking’.
It seems obvious that the first Company to get really joined up thinking and customer centric strategy across the whole organisation will have a great advantage.
To finish with another great quote from PwC: