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Adapting to a Customer-Centric World

Anand Rao
Insurance Experts' Forum, February 28, 2013

In PwC’s recent sixteenth annual global CEO survey, insurers indicated they are upbeat about their prospects. Nearly 90 percent of insurance CEOs are at least reasonably confident about their companies’ revenue growth over the next 12-to-36 months.

However, familiar problems in developed markets remain, including limited product differentiation and a low perception of value among customers. In response, many CEOs see greater potential in the still largely under-penetrated emerging markets of South America, Asia, Africa and the Middle East. Latin America in particular (88 percent) tops the list of the regions CEOs are eyeing for growth.

Despite their promise, the move to new and unfamiliar markets is opening up insurers to risks about which they have virtually no data. In order to not just respond to but proactively manage these risks, as well as those in mature markets, insurers will increasingly use big data analytics to better understand their customers and distributors as they go through different life stages, design products that meet the needs of the customers and facilitate a seamless interaction with customers across different channels.

Compounding these challenges is the fact that consumers the world over have become accustomed to the convenience of online shopping and mobile apps and increasingly expect this transparency and convenience from insurers. Most CEOs are aware of these developments and building the customer base and improving customer service are their top two priorities for investment. Nearly 60 percent of industry leaders are concerned about shifts in consumer spending and behaviour and nearly 90 percent of CEOs say their companies are planning to change their strategies for managing customer growth, loyalty and retention – in fact, nearly 40 percent are anticipating major changes to these strategies – and almost nine in ten are planning to strengthen their social media engagement.

Because of the vital role analytics plays in customer acquisition, retention and service, as well as risk and capital management, technology is at the heart of the competitive developments within the sector. Insurers are leading the way in funding, with 86 percent of industry leaders planning to increase investment in technology. However, most established players have to cope with legacy systems, while new entrants could develop automated underwriting and customer relationship management capabilities from scratch at a substantially lower cost structure. This would allow them to undercut established players, while offering the fast and responsive coverage people want.

Surprisingly, however, most insurance CEOs say they aren’t concerned about the speed of technological change or the threat from new entrants, but few insurers are comfortable with using new data sources and analytical techniques to shape how they make decisions. In addition, survey findings raise questions on how effectively insurers are keeping pace: only 16 percent anticipating the fundamental strategic shifts that they may need to make. Underlying all of this is an apparent preference for incremental change over radical innovation – in fact, only 15 percent of survey respondents are planning a major increase in their investments in innovation.

Ongoing success is likely to require a cultural shift, at the heart of which is an environment that encourages people to embrace innovation and engage more closely with customers to provide them with more effective risk solutions. Several insurers are already trying to do this, but many of them are finding it difficult to translate their objectives into discernible changes in how people think and behave in their everyday activities. Culture will only deliver the organisation’s key strategic goals (e.g. innovation and sharp customer focus) if it is second nature and firmly part of the habits and routines of staff at all levels.

While many insurance CEOs have fixed their sights on the immediate challenges of low interest rates, slowing demand in mature markets and the resulting pressure on share values, they cannot afford to ignore the transformational changes on the horizon that are putting existing business models at risk. The insurers that adapt effectively will focus keenly on the customer, build their analytical capability and have a superior capacity for innovation and reinvention. They’ll also be able to anticipate – not just react to – change and be nimble enough to quickly capitalize on emerging opportunities. Businesses that fail to respond could find themselves priced out of the market, falling short of customer expectations and under threat from aggressive new entrants.

PwC senior manager Eric Trowbridge contributed to this post.

Anand Rao is a partner at PwC's Diamond Advisory Services.

Readers are encouraged to respond to Anand using the “Add Your Comments” box below. 

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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