Last year, KPMG published a groundbreaking report on global mega-trends and their impact on the future of insurance.1 This identified four dominant forces which will impact on the industry over the next 20 years – demographics, environment, technology, and social values and ethics. We mapped these mega-trends against the insurance business model, highlighting key opportunities and risks for insurance firms.
In our discussions with insurers around the world about the impact of these trends, we found that the firms which continue to be successful, even in a volatile, low- yield environment, exhibit specific attributes that set them apart from their competition. Above all, those firms that put their customers at the heart of their business are able to navigate through the storm and chart a new course for growth, while satisfying changing regulatory demands. Hence, putting the customer first must be the fundamental theme underpinning insurers’ strategic response to the current and emerging challenges.
However, genuinely focusing on the customer (rather than simply paying lip service to the concept) in most cases requires fundamental change. It means stripping back the value chain to its essentials and focusing consistently on satisfying customer needs. Achieving this involves putting the business under the microscope, defining specific strategic objectives and single-mindedly focusing on delivering them. Many insurers are aware of the scale of the challenge: during June 2013, KPMG surveyed a number of leading companies, and found that only 36 percent feel that they yet have an agile business structure adaptable to changing customer and market needs.2
With change comes challenge
There are a number of factors inhibiting insurers from actually achieving the necessary transformation. Despite the frequently very long timescales involved in insurance, especially in the life sector, investors and management tend to have a short-term performance focus. In addition, there are specific characteristics of the insurance industry which militate against radical action. Insurance is not an industry renowned for radical thinking: insurers are more used to incremental evolution.
Regulation is typically imposed country-by-country, and different countries have quite distinct regimes for taxes and for retirement savings. This means that life insurance products are in general country- and market-specific, which imposes particular challenges to standardization, of products and of operations. Where other industries have aggressively pursued standardization and globalization, insurers have had to adopt different attitudes and priorities – and so regulation has acted as a brake on innovation.
Further complications come from the widely varying approaches to distribution in different markets. Some customers still expect face-to-face interaction with insurance agents, for example in South-East Asia; others, such as those in the UK and US, are more comfortable with online or mobile purchases. Partly as a result of this variation, the KPMG survey noted above found that only 33 percent of insurers feel their distribution network generates a consistent positive customer experience across channels.
There is also some confusion and complication over who the customer actually is. Insurers have typically treated their intermediaries and distributors – independent financial advisers and tied agents – as their customers. However, consumers are becoming more demanding; regulators are focusing much more clearly on promoting good consumer outcomes and demanding greater transparency in how much is paid for intermediation. As a result, insurers are having to change their attitudes. Systems, processes and mind-sets for dealing with some hundreds or thousands of intermediaries are completely inappropriate for dealing with tens of millions of end-customers who may require contact at any hour of the day or night. All told, this makes achieving genuine customer focus increasingly challenging.
Transformation and profitable growth
In extending the argument developed in our earlier report, we have drawn three key conclusions about how insurance companies can successfully approach transforming themselves into genuinely customer-focused operations:3
- The current challenge is so great that doing nothing is not an option. The crisis has eroded consumer confidence in financial services institutions. Those companies which do not react, and pursue recovery strategies focused on putting the customer first, risk the loss of their franchise.
- Customer requirements and demands have changed dramatically, and under the influence of the global mega-trends will continue to change in the future. This places a premium on adaptability. A flexible corporate structure, ready to respond and evolve to maintain customer focus, will be critical to sustained success.
- Change has to be approached consciously, deliberately, and with a very clear understanding both of the objectives and of the environment in which they are being pursued. The greatest challenge is not identifying what needs to be done, difficult though this may be. The real key to fundamental transformation is strong leadership to ensure that the necessary action is taken.
Leadership is critical for sustainable transformation
This is because a genuine and determined focus on the customer often involves a radical reconfiguration of the business model:
- The insurance industry normally operates in terms of product silos, not customer needs, and companies tend to structure themselves accordingly. But customer needs cut across product silos, crossing underwriting and product lines.
- Business processes need fundamental overhaul to become genuinely customer-focused. In insurance, these aspects have traditionally been secondary to underwriting, and their significance under-played. But activities such as claims processing are at the heart of the customer’s experience of dealing with an insurer. They need to be prioritized.
- Performance management rewards volume and not long term value creation. Few insurers yet understand how to reward on the basis of customer satisfaction, and how to incentivize staff to focus on the customer view. Good customer outcomes must become the primary criterion.
Taking the necessary action involves innovative thinking alongside a concerted drive to action from the top. The resource allocation choices can be a major challenge. None of this can be achieved without strong leadership.
The successful insurer
Against the background of the global mega-trends discussed in The Intelligent Insurer, we believe that there are four key attributes – focus, efficiency, agility and trust – which will characterize a successful and valued insurer, today and in the future:
- Focus: Best-in-class insurers articulate a clear strategy that reflects their vision and focus. Top firms have charted a precise course focused on a long-term view of their customers’ needs.
- Efficiency: Successful insurers embrace a culture of continuous focus on efficiency that strips out unnecessary cost. They invest in scalable systems, processes and delivery channels to resolve legacy inefficiencies.
- Agility: Top insurers demonstrate the flexibility to adapt swiftly to a changing environment. An open mind-set characterizes their people from the boardroom to the front line.
- Trust: Top-performing insurers have built confidence and trust in the eyes of their customers, regulators, investors and the communities they serve.
In an environment where competition is becoming ever more intense, it will become increasingly important for insurers to:
- develop differentiated propositions targeted at particular market segments
- focus on building loyalty to reduce customer churn and pressure on business volumes
- differentiate brands through enhanced customer service
- deliver maximum value for customers.
We firmly believe that those insurers which successfully commit to these objectives, with the four key attributes of focus, efficiency, agility and trust, will be the ones to survive and thrive, now and in the face of further major change.
1The Intelligent Insurer: Creating value from opportunities in a changing world, KPMG International, 2012
2Source: KPMG International, Valued Insurer pulse survey conducted at industry events, June 2013
3cf The Valued Insurer: Leading the pursuit of sustainable growth, KPMG International 2013