Product innovation: Fundamentally changing the customer value proposition

10 July 2018

Meeting the Needs of the Customer

We stand to see an influx of new and updated products and services as insurers move beyond traditional boundaries. As we have seen, new products will begin to address systemic problems and target improvements in loss ratio and risk avoidance. Usage based products will start to become the norm, even though their current footprint is very small.

A significant number of innovations will come as insurers interact with insureds and third parties across acquisition, underwriting, placement, policy servicing and claims.

Improvements in the customer experience will be made possible by adapting automation and digital technologies prevalent in the consumer space and by re-engineering internal operations. Improvements in the underlying process, particularly those enabled by increased transparency and contextual insights, will reduce friction, and improve productivity.

As we are starting to see in personal lines, commercial programs will be accompanied by features that promote shared financial incentives to increase safety and decrease risk. This will create a win-win scenario that will unlock new opportunities founded on data insight and client relevance.

Enhancing Existing Products, Creating New Ones

New products and services will be accretive to insurers’ revenues. The impact of IoT and data on existing programs is less understood, however. On one hand, traditional insurance premiums will shrink with improved loss understanding and loss mitigation reducing the number and severity of incidents. Further, insureds may also change their buying behavior to only procure insurance for specific risks or usage based policies for a limited duration. Insureds will expect savings to be passed on. At the same time, the opportunity for insurers to improve margins by adopting automation and re-engineering operations should not be underestimated. The combination of lower premiums and improved customer experience may very well open a larger addressable market with a positive effect on overall production.

The opportunity for new service models is alluring. New insight-enabled solutions will expand the scope and reach of existing programs. Moreover, many insurers will answer clients’ needs by developing sophisticated understanding of how specific risks interact in complex value chains and “systems of systems”8. This will enable insurers to address real-world customer challenges by taking on complex and interconnected covers, such as combining cargo and trade credit for a holistic client solution.

New insurance products will be designed to manage unique IoT-based exposures. This will require insurers to build skills for engineering and consulting services in addition to deep expertise in operational AI and analytics.

Finally, insurers will find themselves in the unusual position of managing product lifecycles that span months rather than years. This will be a direct result of the increased frequency of customer interaction that comes with exposure to real-time operational data. Clients will come to expect new levels of engagement and relevancy from their partners, challenging the prevailing orthodoxy of insurers being top of mind only during the initial sale, renewal, and claims.

Insurers will need to respond by modeling their product organizations on those found in sophisticated professional service and software companies. With time, we expect a Cambrian explosion of innovation that will challenge current norms of what insurance is and is not.

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8 https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition