In the past three years, Compass Insure has been implementing several similar strategic pillars to those outlined by global consulting firm CapGemini in a recent article, which predicts the possible future of insurance models worldwide. The analysis outlines: Six Characteristics Successful Insurers Will Share in The Future. (See infographic inserted below). As a specialist short-term insurer in South Africa, we’ve been operationalising each of these streams in real-time. In some instances, we’ve dipped our toes into the water and with others, we’ve had time to explore more extensively.
This article and two more articles, to be published over the next few weeks offers nuggets of our learning in operationalising these strategic pillars. We hope you will find some value from what is shared here.
The relevance of an eco-system and niche specialisation in disrupting the sector:
Let's start with the eco-system model outlined in the infographic. Specialist insurance models are defined by the successful creation and management of an eco-system of insurers, underwriting agencies and brokers.
For us - our extensive experience with the specialist insurance model - has been useful in coming to terms with the disintegrating and until-now, fixed insurance value chain and in exploring new ways of doing insurance - including seeding and incubating Insuretechs, but also establishing different distribution models and other shape-shifting strategies.
This is not an easy learning curve - for Insuretechs, traditional direct insurance companies or the eco-system of specialist insurance partners going forward.
The impact of tech, shifting consumer drivers to buy differently and changing macro-economic/regulatory factors demands more flexibility in every aspect of the insurance model from the licensing vehicle through to the distribution chain.
In this respect, CapGemini’s commentary on niche specialisation, housed in an eco-system business model is valid. It does allow for:
|•||quick and flexible product customisation,|
|•||offer a spectrum of structural vehicles for product design and distribution,|
|•||facilitate the convergence of new partners from other sectors into the insurance value chain.|
|•||It is also possibly the best vehicle to meet the market requirement for such high levels of flexibility that it requires an almost-fluid value chain going forward. This case for niche specialisation is true - not just for insurance - but for many business sectors including financial services and retail.|
Unlocking the Value in 'Value-Chain Differentiation'
But there are challenges. One of the biggest learnings for us has been in understanding how to make 'value-chain differentiation' work in the marketplace. Differentiated channels for customer distribution are an exceptionally tough nut to crack. The dilemma - an insurance offering tagged onto an existing product doesn't offer rich profits for the product owner or the insurer. Yet, we know that in most sectors and in all aspects of the purchase decision – customers are driving the buying value proposition towards access and convenience. Buying insurance alongside a product or service with a 'tick' next to a box will be the future.
The key learning here, which is often overlooked in the initial business strategy, is that the value for the product owner and insurer is in the volumes of products sold - at this stage. Therefore: the business strategy, marketing and sales strategy and distribution strategy must be configured to meet the 'volume' metric.
The product or channel owner must also be educated on the purchase of the product and on where and how the insurer adds value, ultimately, to their client - so that they actively pass this knowledge onto the client. Likewise, the marketing strategy must educate the consumer on the value-add of the insurance product. Lastly, and this is critical to the sustainability of this model, is the ability of the insurer to service the policyholder and maintain the integrity of the claims process, which is essential to market trust in the purchase.
Given the small margins in differentiated distribution chains, it is also most likely that we will see product suites developed in new configurations in the next product evolution cycle. For example, a retailer may offer a single policy for insurance of electronic goods when a customer purchases any electronic goods using loyalty points, over any period of time.
The idea will be to click a box and simply add to an existing policy or to buy insurance for a suite of products or services in a single interface.
In other words, purchase of insurance will aggregate in ways that are specific to how the user consumes products and not a linear sector-based offering.
Aggregating Channels and Product Offerings?
Product suites could be one key to unlocking the challenges of the current forays into 'value-chain differentiation' and meeting the volume metric requirement. The establishment of new, more robust eco-systems with well-designed value propositions are also necessary. In this way, we will continue to meet the customer at the point-of-purchase. We will offer a value-add service. But it will also balance the business viability for the product owner and insurer by driving customer retention (an increasingly critical need) and extracting equitable value from the new customer interface. The current defraction of the distribution model through an array of new channels whilst exciting – does not unlock value at scale, in most instances.
The traditional insurance value-chain is disintegrating (as widely predicted in the early 2000's). And insurance is widely exploring new distribution models in the context of a changing eco-system. The next step must be the development of re-aggregated value chains, configured in new ways - that extract value for the insurer, product owner and consumer - whilst still holding the underlying principles of innovation and flexible modelling.
Whilst the product suite model is more complex for specialist and business insurance, it could easily apply to SME’s or ancillary services on a major project.
For the full original article by CapGemini, click here: https://www.capgemini.com/2019/02/what-characteristics-will-successful-insurers-share-in-the-future/.
Next week, we'll look at 'Collaboration with Insuretechs' as a strategic pillar for the insurance sector going forward. Compass Insure has incubated or partnered in the start-up four InsureTechs in the past three years and we'll explore some of the learnings to enable a more robust insurance eco-system into the future.