Many have asked us about the creatures on the cover of our latest book, Reinventing Customer Engagement. The next level of digital transformation for banks and insurers. It’s actually an imaginary species depicted in a lithograph print by the famous graphic artist MC Escher, called ‘pedalternorotandomovens centroculatus articulosus’, better known as ‘curl-up’. The curl-up has a long, sectioned body and three sets of legs. In the stretched-out position, with the use of his six legs, the animal can slowly and cautiously move forward. However, when it must cover a great distance, he pushes his head to the ground and rolls himself up. By pushing off alternately with one of his three pairs of legs, he can achieve great speeds and easily make turns in any direction. Curl-ups that extend their body to return to their slow-walking position end up lying on their back with their legs in the air.
For the record: we are definitely proponents of digitising the existing business for operational excellence. In the consulting work we’ve done, this is always an important component. It not only is a critical condition to remain viable in the future, there are also appealing short-term cost reductions to be found. At several banks and insurers, we were able to identify and realise tens to hundreds of millions of euros worth of cost reductions by digitising products, changing the customer contact mix, introducing automatic claims handling and by making better use of data.
Yet, we also notice that many financial institutions see the digitisation of processes as the end results of current digital transformation efforts, when all these efforts are just really about bringing the very basics up to date. What they do is restore the past; they are not creating the future. At the end of the day, delivering digitised processes and a lower cost base are table stakes. The financial industry is in a new phase. Digital technologies are changing customer behaviour, and combined they are changing the fundamentals of the industry in a way comparable to shifting tectonic plates: too fundamental to be solved by cost focus alone.
It’s simply not enough to stay in sync with fast-changing customer behaviour, new entrants that create new levels of customer expectations, new market dynamics and increasing competitiveness. No insurer or bank ever succeeded in turning operational excellence into a competitive advantage that’s sustainable over the long-term, and that’s something really differentiating.
Old conventions vs new expectations
In the last few years, we have interviewed more than 75 executives across the globe. More and more carriers realise that engagement innovation is the next level of digital transformation. From a customer point of view, this isn’t about providing another ‘lipstick on a pig’ -type job, but delivering a real makeover. Engagement innovation not only includes a more convenient customer experience, but customer-centric products, new added-value services and new business models too.
Because of digital technologies and changing customer behaviour, a vast number of conventions on how financial institutions should serve customers have become obsolete. Yet, many insurers are still working with these. The gap between the old conventions financial institutions work with and the new expectations customers have is becoming wider at an increasing pace. This causes insurers to lose relevance, and leads them to create less value for customers than they could have.
In this article, we introduce three guiding principles for customer engagement to help insurers close the gap between “digital transformation to restore the past” and “digital transformation to create a future”. Each guiding principle is fuelled by changing customer behaviour and informed by new digital technologies. The next level of digital transformation is about reinventing customer engagement to create more (and new) value for customers as well as for financial institutions according to these three design principles. And the future of insurtech is about enabling customer engagement innovation in particular with regard to these three design principles.
Become part of people’s lives – give more than you take
Changing cultural techniques. Fundamental changes take place in how people gather, interpret and disseminate information. Dating app Tinder registers no less than 1.6 billion swipes every day, and 26 million matches! This illustrates that people are changing their cultural references, how they interact and what they expect. For instance, they’re now used to having active control. But we experience that many insurers regard mobile as just another channel. Quite a few are proud when they’ve introduced a claims app, which is basically old wine in new bottles. It seems as if the implications of new technologies on customer behaviour are missed, underestimated or at least not always understood.
Unprecedented entry in the daily life of customers. In a few years, connected devices will become mainstream. Many insurers are seeking opportunities to use the extra data made available, but mostly to improve underwriting and pricing sophistication, to reduce fraud and claims, and to develop usage-based products. In our view, this is just another means to improve insurance as we know it, similar to how insurers apply mobile to the channel mix. Such initiatives are conceived inside-out. They focus on reducing risk and improving cost efficiency and short-term profit margins. There is little or no added value for the customer. Moreover, they decrease rather than increase information symmetry. The customer has given data, but gets practically nothing in return. And last but not least, they’re not creating significant points of differentiation. Everyone is developing the same kind of pay-as-you-drive insurances, for instance.
The real value comes from a different level. Connected devices offer unprecedented entry points in the lives of customers. They give carriers the opportunity to develop new engagement strategies and deliver added-value services. Here’s an example showing how simple this may be:
Philips Sonicare connected toothbrush. Philips introduced a connected toothbrush for kids that stimulates healthy brushing habits in a playful way. The toothbrush connects to an app on a smartphone or tablet. Here, kids can adopt their own cartoon character and help it brush its teeth so it can be happy. Sensors detect if all teeth are given proper attention and alerts the child to move to the next quadrant of the mouth. Kids love it. Some don’t want to stop brushing. Now, imagine similar sensors that detect early signs of cavities and advise users to go to a dentist immediately rather than wait for their regular half-year check-up and run the risk of root canal treatment. This could really empower consumers. It would furthermore improve the information symmetry between dentist and patient. Many people would visit their dentist with more confidence if they knew what to expect.
Customer empowerment and closer relationships. Philips already partners with large dental insurance providers. Of course, it will only be a matter of time before the sensors that we described are reality. The financial benefits for insurers are significant. Think of the reduction in claims costs. But on top of that, leveraging connected devices, even a simple toothbrush, would take customer engagement to a totally different level: far more frequent and positive compared to just paying out a claim once in a while. It would allow insurers to build an ongoing dialogue and new patterns of meaningful interaction. The contact frequency will become an essential part of the economic engine, similar to what we see in banking and ecommerce. It will add to trust, loyalty and advocacy. The right application of data empowers consumers, which in turn leads to closer customer relationships.
Privacy and reciprocity. Obviously, financial institutions need to manage concerns that many consumers have. Financial institutions will have to let their customers become acquainted with the fact that they’re using their data, and moreover with the advantages of data use. They never made this clear. And they have to be patient, familiarising customers little by little. By having customers actually experience a new added-value, a financial institution can nurture trust in the use of data while at the same time creating value for the customer.
Putting customers in control of their data is essential, and reciprocity is the key to solve privacy issues. Most of the data collected by insurers in the course of the relationship with customers isn’t given back in terms of information in a symmetric way. Consumers’ perceptions about the use of data by insurers will flip if these institutions use the data to put customers in control and offer something meaningful in return. The added value insurers deliver based on consumer data should be bigger than the cost of handing over privacy. Insurers should give more than they take.
Create contextual ecosystems – solve the real problem
From push to pull. Virtually everyone agrees that push strategies are becoming less and less effective; the future is about pull, and new technologies offer all sorts of new possibilities. But very few are really putting this into practice. Pull isn’t easy. Pull is, in every aspect, the opposite of push – a totally different approach that requires new competences.
We analysed 30 pull platforms, from Google and Airbnb, and non-tech companies such as Nike, Unilever and Danone, to these first financial institutions, including fintechs and insurtechs that have established successful pull initiatives. These pull initiatives all have their own mix of eight key characteristics:
- they solve real problems
- leveraging content, tools and connections
- building communities
- thinking beyond customers
- looking beyond data
- fostering beyond their traditional vertical
- using network effects
- to create unconventional value.
For the purposes of this article, we shall highlight just the one called “solve the real problem”.
Solve the real problem. Solving the real problem is less trivial than it may sound. Let’s take Alipay, for instance, the successful payment system of Alibaba, used by millions of shop owners and other merchants throughout China (and beyond). Sabrina Peng, president Alipay International, shared this with us: “Alipay isn’t just about payments – it’s about customer relationships. The whole idea is to bring more value to the merchants and to the users. Payment is nothing more than just a part of the purchase cycle. Merchants don’t want a new payment system. They want more customers.”
This insight is Alipay’s starting point to assist retailers in connecting with Alipay users in all sorts of ways. Merchants can use Alipay to market their services, including special offers, coupons or vouchers. Alipay users can see all the merchants nearby, see pictures, use unique discount codes and post reviews, resulting in more traffic, customers and revenues for merchants. The payment system plays a key role in the model, but resides in the background.
Alipay shows that it’s essential to really understand the context to provide real added value and to play an active role in the ecosystem of that context. People aren’t interested in a mortgage, but in a house. The context of a nice house and easy living offers more opportunities to add value to customers than just the mortgage, or the home insurance, and more opportunities for new revenue streams.
Ping An. China’s leading personal financial service provider Ping An is the poster child of a company tapping into this opportunity. Ping An adopted the strategy of the synergistic development of traditional and non-traditional businesses by creating all sorts of portals in non-traditional domains such as home, health, car, but also food and entertainment. All these platforms have large numbers of users and interactions, and advanced data mining and precision marketing capabilities. Each and every one of them are new business lines that create new value for themselves, as well as for Ping An. Only when relevant and timely, customers are brought into contact with Ping An’s traditional banking and insurance activities.
The new business lines are not only increasing their own value, but by moving upstream they are increasing relevancy and enlarging the total customer base. And by allowing new synergies, they also increase the value of the entire ecosystem of Ping An enterprises.
Be modest about what you can do yourself. Taking part in an ecosystem requires being modest about what you can do yourself. With tens of thousands of fintechs and insurtechs around, and many more innovative tech firms in the adjacencies of financial services, there’s a good chance that there are better ideas and faster solutions available than you would be able to develop yourself.
Understand the real problem, take part in the ecosystem of parties that play a role in the context of that problem, team up with new and innovative tech players that will help provide new added value, and increase relevancy.
Act human – secure the feelings side
Personal isn’t personal. Social isn’t social. The past decade has taught us that insurers need to manage the feelings side of their relationship with customers much better. But with new technologies primarily being used to digitise processes, insurers are in danger of becoming even less human. Advanced algorithms generate a lot of headlines because they can replace humans and save costs. What is increasingly meant by the word ‘personal’ is personalisation – ‘personal offers’ based on personal data. And when we speak of ‘social’, we immediately think of the use of social media, but this isn’t social by definition. It should be about being social in everyday interactions. A social person is kind, honest, friendly, generous and giving; someone who makes time for me, listens to me, keeps promises and goes the extra mile.
Humans inject emotion, empathy, passion and creativity, and they’re able to smile and surprise, and can deviate from the procedure if needed, which algorithmic systems are unlikely to do at this stage. These talents are essential parts of successful customer engagement.
Best of both worlds. We believe there are ample opportunities to leverage technology to enhance being ‘simply human’. By creating a hybrid model, the best of both worlds, insurers can deploy technology to empower human front-liners even more in order to produce an even better experience and performance. For instance, by combining and integrating robo-advisor systems with human brokers or customer contact agents, insurers can deliver better conversations and higher customer satisfaction, which result in better advice and higher conversion rates.
Allianz1. With Allianz1, a concept of Allianz Italy, consumers can go online to combine 13 individual building blocks from property and casualty, life and health insurance lines to create a single tailor-made lifetime policy for the whole family. This may sound complex, but thanks to algorithms and advanced customer profiling, customers are only required to answer three simple questions (age, profession, place of living) to get a fast offer in seconds – and they can run ‘what if’ experiments instead of having to fill out the traditional array of more than 20 questions per types of risk.
The details customers submit are made available for use by a selected agent, who can seamlessly provide additional advice and optimise the offer without having to complete or review lengthy forms solely for administrative purposes. The concept, actually Allianz Italy’s most successful innovation of all time, creates value at various levels: from an increase in cross-sell and average premium, to an increase in sales productivity of agents and brokers, and almost zero churn at renewal.
The future is now
Applying technology for operational excellence is easy. Leveraging technology to develop new forms of customer engagement is a lot harder. It requires guts and imagination. Yet, financial institutions have little choice. Ready or not, the future is now. Betting on operational excellence is only likely to result in a dead end. Shaping this new future begins with reinventing the way insurers engage with customers. The three guiding principles combined don’t offer an instant recipe for success, but can help insurers identify their own flavour of customer engagement.
Creating new customer engagement strategies requires talents that many banks and insurers still need to develop. A new ecosystem emerges with fintechs and insurtechs that help insurers in speeding up innovation. Insurers will have to cooperate more with other companies that are part of the ecosystem. Innovation is about understanding new technologies and determining how best they should interact with consumer behaviour. The three guiding principles – become part of your customers’ lives, create contextual ecosystem and simply keep your human spirit – will help to create that next level of customer engagement.