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Finding a New Collaborative Insurance Model in a Commoditized Market

Mark Foster Collier, Consulting Partner, Anshu Sachdev, Consulting Manager, and Puneet Singh, Senior Consultant, Consulting Services, Wipro talk about the need and benefits for a collaborative insurance model in the industry from a consultant’s perspective
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A decade ago, buying an insurance policy meant having to call your family’s insurance agent who would pitch various policies and explain their main features. He or she was much like your CA or family doctor trusted over the generations with unwavering loyalty. After all, how else would you understand the complicated clauses of each product in this crowded sector?

Those days are gone. Consumers now want the most value for their investment and are no longer intimidated by choice as all the information they need is available online. They don’t need to interact with providers, let alone an insurance agent, to compare services. All they have to do is log on to an insurance aggregator site or app, and compare various policies. Once their research is done, they can even buy the policy online. As a result, customers tend to switch both policies and policy providers with ease. Unfortunately for providers, with greater choice comes lower customer stickiness. Insurance companies are largely in the same boat when it comes to pricing, as they all leverage the same social media and demographic data to compete with one another. Add to this the fact that returns from investments are currently at an all-time low and the writing on the wall is clear: profit making via personal insurance products seems bleak.

POLARIZED INDUSTRY

Today, the insurance industry stands polarized. At one end you have profitable, specialized and bespoke business products that are priced at a premium. At the other, are commoditized products, driven by numbers and trying to appeal to everyone.

This is happening across insurance segments – from property and casualty to life and pension. As a result, these commodity markets are operating with low margins, and even those are hard won and require efficient operations and economies of scale.

Things have come to such a state that insurers may soon have to take a page from the high-tech, telecom and automotive industries. The answer lies in cutting costs and trimming the fat in big-expense verticals such as infrastructure, labor and R&D. The best way to do that and still maintain a competitive advantage is via ‘industry-wide collaboration’.

COLLABORATION

Collaboration can free up valuable resources, reduce costs and allow companies to compete at other levels. We have seen this in the past with the automotive industry where leading car manufacturers came together to pool resources,and in the newspaper business, which collaborated to combat falling circulation, smaller teams and declining print advertising. An example of this is the recent announcement by the Boston Globe that it would take over all the printing for its long-time rival, the Boston Herald.

In the global telecom industry, competitors have been forced by rising infrastructure costs to partner with rivals to share sites, antennae and base stations.

Collaboration is not new for insurers either. In fact, the industry was born through collaboration in the original coffee houses of early 17th century London. To this day, Lloyds’ syndicates share their infrastructure and services.

However, it was in 2006 that the industry collaborated in a focused manner, by starting the Insurance Fraud Bureau in the U.K. This non-profit organization tracked and prosecuted criminals trafficking illegal motor accident claims. It now also looks at fraudulent property and life claims. This benefits both insurers by reducing their risk and policy holders by reducing premium costs.

CANDIDATES

So where does one begin collaborating? Administration and management of policy and content are a good place to start. Both are non-core processes, and can be standardized using cloud-based services. Input management is also a non-core process that sucks up revenue on regulatory communications, forms and contractual documents. These can be standardized and regulated using industry-wide templates for all communication between insurers and customers.

It’s not going to be a cake walk. For many insurers, collaborating with competition is anathema, but they have to grapple with the fact that their old models no longer work.

Not all parts of the industry are critical to success or impede on profits. Insurers need to realize this if they want to survive.

As a first step, insurers must ask themselves:

  • Is the process a key source of differentiation and competitive advantage? Would there be a loss if a third party ran this aspect of your business?
  • Is the process a source of strategic flexibility? Would transferring the activity to a thirdparty block strategic plans like divestment/restructuring?
  • Is the process a material source of tactical flexibility? Would bringing in a third party reduce your business agility and performance?
  • Is the process a potential source of unacceptable risk? Would involving a third party bring in a material risk to your business that cannot be undone?

IMPERATIVE

The insurance industry is going through a paradigm shift – and to survive collectively, insurers need to identify non-proprietary processes that they can outsource or share. The trick is to collaborate on non-core practices and use social media and digitalization to deliver better pricing and customer experiences. After all, insurance is about taking on risk – at the right price. It’s time insurers measured the risk of the status quo with the advantages of collaboration and took the right call.

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