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Can the Insurance Community Pull its Head out of the Sand?

By Pat Speer October 7, 2008

Orlando – Insurers that focus on operational efficiencies, cost reduction versus growth and risk management will find it especially difficult to experience success born of innovation. Such were the cautionary words issued by Kimberly Harris-Ferrante, research VP with Gartner, Stamford, Conn., who presented the topic “Overcoming Tradition to Innovate” at the Future Focus conference in Orlando last week. Hosted annually by Computer Sciences Corp. (CSC), Falls Church, Va., Future Focus invites key insurance executive clients, partners and analysts to network, learn and share information about the insurance industry and its future.

Harris-Ferrante told attendees that the recent financial market drama, combined with catastrophes, has sidetracked insurers looking to generate new revenue streams.

“Insurers are acting a bit like ostriches with their heads in the sand, waiting for the drama of the storm to pass,” she said. “The problem is: The storm may not ever be over.”

The move to innovation will comprise efforts around customer-centricity, according to Harris-Ferrante. “Insurers may be channel-centric, but our research shows that they are not customer-centric, which is a key determinate of success in the industry right now.”

And, while insurers have talked about customer-centricity for years, they have put a lot more effort in developing channels—channel-centric silos—instead, she added.

“Channel silos put insurers at risk for customer dissatisfaction and brand injury,” she said.

According to a Gartner distribution study conducted Q3 2007, only 40% of life and 16% of P&C insurers have created a channel management strategy focused on controlling interaction, information and transactions across all channels.

The study, along with a Gartner U.S. consumer study conducted during that same period, also revealed that most insurers still battle with “who owns the customer.” “Insurers know the distributors more than they know the policyholders,” pointed out Harris-Ferrante.

“We know that traditional channel-centric strategies, processes and technological architectures will challenge insurers in their ability to deliver customer interaction in the next five years, and this is the time when carriers should be thinking ‘customer is king,’” she said.

In laying out her argument that today’s payback on innovation will be experienced most by a customer-centric culture, Harris-Ferrante conducted a real-time polling session, during which attendees were asked to define the biggest area of innovation existing within their organizations. New IT architecture ranked highest individually at 19%, followed by new product development, which got 18% of the votes. Improved customer service received 16%, business process reengineering garnered 12%, new channels received 9% and customer relationship management was at the bottom with 4%.

When asked what the biggest obstacle faced in trying to innovate, attendees ranked the following:

  • The corporate culture (23%)
  • Legacy systems and IT issues (13%)
  • Funding and budgetary constraints (21%)
  • Inability to think futuristically and define what to innovate (13%)
  • All of the above obstacles (27%)
  • Have no obstacles (3%)
“A new approach is needed,” reflected Harris-Ferrante. “Insurers must encourage product innovation, based on heightened customer intelligence, and provide product managers with the tools and data to drive product profitability and customer retention.”

Instead of developing the "same old products" faster and more efficiently than before, Harris-Ferrante suggests carriers obtain a true understanding of the customer set being targeted, then create strategy around the development of new products that will reach that target. She offered a UK-based Web site called Diamond as an example, which offers insurance only to women. Other examples include a teen driving program that uses GPS that provides feedback to the parent policyholder, and “green” auto insurance using telematics that offers real-time data to the insurer on short journeys, excessive speed, etc.

“Innovation requires a lot more than the technology that will generate new products,” concluded Harris-Ferrante. “It also requires generating buy-in and incenting organizational change.” “It means driving mid-level management and front-office behavioral change, too.”



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