Is the Insurance Industry Going to the Origami Dogs

An unhappy customer arrives at the office of an insurance company executive by limousine to discuss concerns about the company’s service.

The scenario may not seem typical unless you’re the CEO of an innovative London-based life insurer who actually summons the limo to bring in complaining policyholders.

Laura Hay, insurance practice leader, presented this example of first-class customer treatment during the opening session of KPMG’s Insurance Industry Conference last Thursday, as she focused on two themes impacting the life and property/casualty sides of the industry: the growing recognition that insurers need to embrace customer-centric business models and the industry’s struggle to be innovative.

For more information on the KPMG report, see related article, “Insurance Execs Struggle to Kindle Innovation Spark.”

The example of Beagle Street, a U.K. life insurer with a customer focus and an innovative marketing campaign that involved positioning origami beagle dogs made of £10 notes throughout the streets of London earlier this year, is also featured in a new KPMG report titled “A new world of opportunity: The insurance innovation imperative,” released in conjunction with the meeting.

The “Release the Pounds” campaign with the novel origami dogs (video here) was meant to underscore the point that Beagle Street puts pounds back in the pockets of its customers—charging them 30 percent less than competitors.

In a section of KPMG’s innovation report written by Beagle Street CEO Matthew Gledhill, the executive said, “We don’t just want to disrupt the life insurance industry. We want to utterly transform it.” The traditional life insurance process “is fat, poorly aligned to customer needs and overly complicated,” he said, explaining that online quotes delivered within 10 minutes at 30 percent less than traditional players, along with free value-added services such as will writing and family counseling, are part of the secret to a 93 percent retention rate.

In addition, “when we receive a serious complaint from a policyholder, we often bring them (first class) to our offices to design and manage those products so that we can learn—firsthand—how to improve and redesign that product to better meet customer needs in the future,” he said in the report.

“Customer-centricity is being discussed right now” at the executive levels of both life and property/casualty companies, Hay said at the conference. Customer focus “is at the heart of many of the transformations that companies are looking at today.”

The theme resonated throughout the KPMG Insurance Innovation report as well.

“There has been a clear shift in mindset over the past few years. Insurance providers increasingly recognize that they need to be customer-centric rather than product-centric. They are realizing that customers don’t come to them for a specific product; they come to them to help manage the risks they face. But you can’t respond to that shift with a product-centric structure,” Mary Trussell, global insurance innovation lead partner at KPMG International, said in the report.

More Examples of Innovation

“Beagle Street did not exist three years ago. Three years later, it’s the eighth-largest life insurer in the U.K.,” Hay told attendees at last week’s conference themed “Driving Momentum Through Transformation.”

She also highlighted two other insurers that are “disrupting the insurance landscape”: an Australian life insurer and an auto insurer in China.

The Chinese company is offering auto insurance for free, Hay said, without revealing the name of the company. “You sign up online. They give you auto insurance for free and then they sell you 10 other services,” she said, noting that the CEO told her personally that the company is making money on these services. They also offer protection insurance on iPhones for free, she said.

Back in the life insurance arena, a company called Life Insurance Made Easy (LIME) uses gamification—”a social-marketing tactic leveraging gaming mechanics and data-driven motivations to boost customer loyalty,” Hay said. Gamification is “disruption at a new level,” she said. “You get user points or rewards for video-style games to use for product discounts”—in LIME’s case, discounts for life insurance. “They have a gamification front end, and they put this forward and got tremendous sales and customer satisfaction—so much so that they started to sell their front end to other insurers. It’s highly disruptive in the Australian market, in particular,” she reported.

Shaun Williams, CEO of LIME, confirms this in the KPMG Innovation report. “Many see us as an upstart, a potential disrupter to the sector…But it’s not LIME that you will be competing against. Instead, it will most likely be your traditional competitors using a LIME platform.

“[We] partner with other insurers and financial institutions to help them become disrupters. And, in doing so, we are helping the insurance sector innovate, evolve and ultimately become more customer-centric,” Williams said.

LIME set out to “completely reimagine” the insurance life cycle, Williams said, noting that others “saddled with legacy systems [and] compliance processes” were not well-suited to disruptive innovation.

What are other insurers doing to think outside the box?

At the conference, Hay shared responses to a question in a KPMG global survey, asking insurers to select three initiatives that their organizations have undertaken to improve innovation in the last five years. More than half said they had embarked on “cultural change programs.”

Other results are set forth below:

Cultural change programs, 51 percent
Partnerships with academics and other third parties, 43 percent
Training on innovation idea generation, process skills, 36 percent
Developing innovation hubs or labs, 36 percent
Employee competitions, share forums/internal crowdsourcing, 35 percent
Hiring outside firm or outsourcing innovation function, 34 percent

Transformation and the Customer

Laura Hay is one of 16 insurance industry executives who participated in Carrier Management’s “Inside the Minds of Insurance Innovators” series earlier this year. See related article, “KPMG’s Hay on Innovation.“

During the conference, Hay reviewed recent financial results on the life and P/C side to explain why insurers need to embark on transformations within their organizations. Citing results from SNL, she said the P/C industry return on average equity was 11.4 percent in 2013, dropping almost 200 basis points to 9.6 in 2014. “For me, this is a call that says we need to start this transformation…There are several indicators that say we need to do ‘something different, something thorough, something dramatic’ in order to start to reverse some of these trends,” she said, invoking the dictionary definition of “transformation” (a thorough or dramatic change in form or appearance). Pointing to double-digit ROEs of the mid-2000s, she said getting back anywhere close to that in the low-interest-rate environment requires transformative thinking.

In fact, more than half of the insurers surveyed by KPMG for the soon-to-be-published “KPMG 2015 Insurance Outlook Survey” said they are assessing or planning a transformation in some area of the business, and 34 percent have transformations already underway.

KPMG believes that keys to transformative growth include the following items, Hay said, stressing that the first three are focused on customers:

A product mix based on customer needs.
Making meaningful connections with broader segments of the population.
Improving customer loyalty.
Using data and analytics to make strategy/product/pricing decisions.
Exploring M&A/joint venture opportunities.
Operational transformation/excellence.
Creative management of investments.
Hiring talent that can accelerate innovation.

Beyond sagging ROEs, KPMG’s Outlook survey reveals that the top transformation drivers cited by P/C executives are customer demand—changes in customer focus, buying patterns and preferences—and industry consolidation, both of which were selected by 42 percent of P/C CEOs surveyed.

Thirty-three percent said “coping with the change in technology” and “domestic competition” were driving transformations; and 28 percent said regulatory and legislative pressures.

Despite citing customer demand as a key driver of transformation, however, when asked to identify the most important focus areas in their efforts to transform, only 12 percent of P/C insurers said customer connectivity. Nearly half (49 percent) said data and analytics; 37 percent said IT infrastructure.

At one point, however, Hay offered a link between the focus on data and analytics and the power of customers in driving transformations.

Referring to results of a 2014 KPMG study, “Finding the Company Through Data and Analytics,” she noted that 79 percent of customers surveyed said they are put off by insurers that redundantly market the same offers. “They demand that insurers use insights [from data and analytics] to engage them in relevant interactions and offers.”

She asserted that customers are telling insurers: “Understand me…Don’t just try to sell me something…You’ve got all the data on me…Give me insights.”

“Customers want personalized user experiences,” she added, drawing from other results of the survey, insisting that this is not only true for millennials.

“Technology is transparent to age,” she said. If you think about the demand changes and changes in customer loyalties that technology creates, you need to be thinking about these areas as they relate to all your customers, not just the younger generation, she said.