By Jenny Sutton
In today’s era, when self-driving cars are no longer science fiction, attention has turned towards the implications of this technology for insurers. With fewer accidents, no drivers, and ownership concentrated in the hands of a few large companies who self-insure, predictions are that car insurance will become obsolete.
At the same time, the sharing economy has changed client behaviours and the risks that they need to insure their vehicles and possessions against. Insurers have responded with insurance for no-shows and damage/loss caused by peer users. Non-life products are evolving with customer needs.
It is a different story in life insurance. There have been no new significant product innovations since critical illness and universal life solutions were introduced decades ago. While people still want to protect against the risk of death or illness, life insurance products still look and feel like the obsolete gramophone player that customers bought from door-to-door salesmen in a bygone era.
Can life insurers do for insurance what Apple has done for music, and ultimately consumer technology?
Product development is not product management
For most insurers, product strategies are non-existent. There is no multi-year product roadmap, nor a clear target product line-up. Annual product development capacity is allocated on a first come/first served basis to the product with the best hypothetical business case.
Implementation lifecycles of six to nine months are the norm. Conventional wisdom is that this is too long. Therefore, a shorter product development cycle has been the most popular focus of innovation in the area of product. Yet shorter lifecycles are not equivalent to more innovative products.
Instead, a customer-centric product development process is required. And an over-arching product management strategy.
New insurance products are seldom new
Most insurers already have all the industry standard products on their shelves. New product launches are designed to re-invigorate the sales force, not to provide better solutions to existing customers or to reach a new segment.
When agents clamour for new products, what they are really asking for is a reason to call customers. A marketing campaign that they can leverage. And an attractive set of introductory incentives for themselves. Not new products. Certainly not innovative or disruptive products.
What makes a disruptive product?
At the most basic level, life insurance should meet a customer’s financial need. But meeting a financial need is just one aspect of product design. Disruption will occur as new industry participants take a much wider view of customer needs and therefore product design.
Function
Customers’ functional needs include a simple and easy to understand product, a straightforward purchase process, and a readily accessible support team for after sales service and support.
Interoperability
Products that inter-operate (eg iPad + Apple TV) deliver a better customer experience and engender greater customer loyalty. For example, claims experience on a health insurance policy could be used to lower the premium on an existing or a new term life policy.
Unbundled
Insurance products are too complicated today. Buyers do not know how to evaluate the many features offered to them, nor how to compare them with other products. Too many features are included that a buyer may not need. Giving customers the choice of simple basic products with a few optional features can also deliver the personalised experience that insurers all aspire to.
Flexibility
The prospect of one job for life, or living in the same house for 50 years does not exist for most people. Today, first-time life insurance buyers are overwhelmed by having to make a decision with a 25-year implication. Insurance cover needs to be able to continually adapt as the customer’s needs evolve. They may require more or less cover from year to year. Or want to add or change features. They should be allowed to do so.
Packaging
The name is part of the packaging – customers intuitively know what an iPhone 6 Plus is. The same cannot be said for insurance product names like Bonus Power Plan or Le Vie. Other aspects of the product packaging that are long overdue for redesign are application forms, policy documents and related material.
Upgrade Paths
Apple just released iOS10. Unfortunately, that makes the iPad2 a legacy system. No longer upgradable. Customers can live with this or go and buy a new one. But, if they do buy a new one, all their data and configurations will be transferred. Why can’t insurers follow this approach?
Expect that products will be sunset at some point, but provide an upgrade path to a new one, retaining all the relevant customer data, claims experience etc. The catch is that the new product has to be a better one – for the customer – than the old one. It cannot only be better for the insurer – with the upgrade designed to catch the customer out.
Innovating in product management
New entrants and start-ups, unconstrained by legacy systems and not beholden to a traditional sales force, can take fundamentally different approaches to product lifecycle management. Insurers need to take note and rethink their approaches.
Pipeline and filtering
A robust product pipeline has lots of ideas going in, with the viability of each being tested at each gating stage. Insurers have tried to short circuit this process and pre-pick winners, which are then backed through to implementation.
This approach: stifles innovation – only blockbuster products are proposed; prevents discovery – other ideas may develop and evolve over the course of the exploration phase into more innovative products; and, eliminates feedback – opportunities to market test a broader range of products with customers are foregone.
Customer input
Focus groups and market research should be a core competency of insurers, especially those that have delegated the customer relationship to agents and other third-party distributors.
A once-a-year customer satisfaction survey does not suffice. The voice of the customer should be an on-going and integral part of every new initiative that insurers take on, including at all stages of product development.
Market testing
Unlike consumer products or software, it is difficult for insurers to build a prototype to test with real customers. But this is no reason not to.
Customers should be involved in market testing the finished product, providing feedback on sales materials, pricing, application forms, policy documents and even the claims process. Insurers have to figure out how to put products into the real world to test customers’ reactions. This is an opportunity for real innovation.
Iteration
Most product development projects are a once and done set of activities with IT or regulatory approval generally being on the critical path. Time should be allowed to test and redo – iteration should be planned for. And agile development, a popular approach in the IT department, should be adopted within the product development team.
Product management, not just development
Coming up with one or two new innovative products is not going to be a game changer for insurers.
Insurers need to focus on devising and implementing a completely new product development process which is agile, responsive and capable of closing the gap between what customers need and what insurers deliver.
To do this, product development must move from an actuarial-led process to being owned and managed by marketing. And IT systems need to be designed to support better product management features and capabilities. Indeed, a consumer goods-like product management mindset would be an innovation for insurers!
Originally Published in Asia Insurance Review 1 Nov 2016
