In my last post on Behavioral Finance in Retirement Planning I ended with the question ‘Are you on the bandwagon yet?’. If you are not, then may-be you are infected by the ‘procrastination’ virus that most of your consumers are infected with. One of the biggest barriers to consumers saving more for retirement is procrastination. While most people would agree that stashing away a little money into a nest egg every month is a good idea, few would really get around to doing it. Why? The primary reason is PROCRASTINATION. One has to find out more about how much to save for tomorrow vs. spend today, where (i.e., financial institution) to save, select amongst hundreds of alternative product choices and asset classes, contend with a complex array of forms and processes, and many more such barriers. Yet – the alternative of not saving for retirement, or postponing that decision by just another day, is a no-brainer.
Insurance carriers over the years have experimented with innovative ways of educating consumers about saving for retirement and buying life insurance. We look at three great examples of thinking out-of-the-box and imparting serious messages in a fun way through ‘Games.’
New York Life’s Game of Life
New York Life Insurance Company, in collaboration with Hasbro, has created a customized version of the popular Game of Life, calling it the ‘New York Life’s Game of Life,’ which simulates key financial decisions that people make. Skillfully combining the ‘choice’ that one needs to make (e.g., “Return to School and pay $50,000 or Continue on Path of Life”) at various life stages and the ‘chance’ events that occur during one’s life (e.g., “Hit by a bus. Need Surgery. Pay $10,000″) the Game illustrates the importance of saving for retirement, purchasing life insurance and long-term care insurance. The game is also branded with New York Life’s brand message – ‘The Game you Keep, from the Company you Keep’. Ken Hittel, Vice President Corporate Internet, says that the “overriding purpose of the game is teaching the basics of financial prudence and responsibility to children and adults alike.” Darryl Speach, human resources corporate vice president innovation, goes on to add that:
“Ted [Mathas] (CEO of New York Life Insurance) challenged us to attract the ‘disinterested consumer’ in a new way. These are people who aren’t quite ready to buy life insurance today but who will be at some point. We want to make sure our brand is top of mind for them when they are ready”.
MassMutual’s Right on the Money and Save! The Game
MassMutual’s Right on the Money focuses on teaching kids the importance of earning, saving, budgeting, and charitable giving. A key pillar of this education campaign is the differentiation between wants and needs. A major part of this campaign is the iphone 3-D adventure game called Save! The Game. In this free iphone app the player runs, jumps, and dodges obstacles to collect virtual money before time runs out. The 3-D world is filled with iWannas! - impulse items candy, sodas, etc. that drain cash. The player has to continuously get the collected money to the Bank before one collides with the iWannas! to lose the money. As Nick Fyntrilakis, assistant vice president, corporate responsibility, says:
“Interactive games can be a powerful educational platform for engaging kids on serious topics, and Save! The Game harnesses that potential to bring the concept of wants versus needs to life”. “Our research and experience show that parents are actively looking for new ways to educate their children about the importance of properly managing their finances.”
Visa’s Practical Money Skills for Life and Countdown to Retirement
Visa as part of its Practical Money Skills for Life has an interesting game called Countdown to Retirement. This game has a rich set of chance events that occur through different stages of life (e.g., meeting with an accident or medical emergency) and players make choices that fall under three major categories – spending money now for immediate gratification (e.g., going on a holiday), retiring debt or saving money for the future (e.g., transferring the entire bonus into a 401k plan). The player goes through different life stages and based on the choices made and arrives at a point at the end of his or her working life where they have enough for retirement or not. This fun game is a great way of illustrating the trade-offs between current consumption and saving for the future – a key behavioral finance principle called hyperbolic discounting where people prefer rewards that can be enjoyed sooner, rather than latter.
[youtube]http://www.youtube.com/watch?v=_abOHpJS9lM[/youtube]
All these three examples illustrate how to take complex and serious concepts and bring them to life by way of concrete examples in a fun way. The first example educates users on complex products such as life insurance, long-term care insurance etc., while the second and third get to the heart of trade-offs between spending and saving.
While these games are interesting they barely scratch the surface of what is needed to educate as well as motivate consumers to stop procrastinating and start acting. What other techniques have you considered in addressing some of the behavioral barriers to retirement savings? Do you plan to launch similar interactive and fun ways of educating consumers?
Tags: BE, behavioral economics, behavioral finance, Countdown to retirement, Game of Life, games, procrastination, retirement, Save! The Game, Visa
[Co-authored with Mudit Mathur, Nidhi Rustagi, Sundeep Thakkar, and Amaresh Tripathy]
Recently we posted a story around the future of commercial insurance segments and how the dynamics of small commercial segment is playing out differently from that of mid-market commercial segments.
To put it succinctly, the pitch around small commercial segment is that of efficiency and effectiveness which is about getting more policies through automated/semi-automated underwriting while focusing the underwriter’s efforts on high-value cases. As one moves to mid-market and high-end commercial segments the story is around promising and delivering the right ‘value proposition’ with high-touch, tailored offerings. Being able to identify the right markets at a granular level (i.e. zip codes) with the right customer segments (i.e., business size, underwriter appetite) and the right agents to reach them becomes critical.
One of the key challenges is to identify the high-value agents as well as reduce the cost-to-serve. Add to this the complexity that more and more customers understand the basic insurance products (e.g. auto, term life) and do not rely on agent expertise as much as they used to do in the past. The customers are also empowered by online channels where they can get comparative quotes in a matter of minutes and can avoid agent interactions.
These trends have put a lot of pressure on insurance companies which continue to see reduced returns from their agent channel.
At Diamond, we have been helping our Insurance clients to adjust their agent strategies for a long time, and with the recent launch of our ‘agent performance’ toolset we can not only significantly reduce the analysis time, but also showcase the results with simple yet visually-appealing result sets and gain quicker buy-in of the recommended changes. Some of the typical questions that executives struggle to answer in regard to their agent force:
- Which markets have the highest headroom for growth?
- How profitable are existing agents?
- How to improve agent profitability?
- How can we identify high performing agents
We deployed the agent profitability toolset for one of our insurance clients, which helped the client identify ~55% agents that could not meet the 15% hurdle rate (ROI). With the visual interface we were able to dive deep into agent locations, prevalent market demand and current profitability.
We believe that DemandEstimator’s Agent Profitability Toolset goes a long way in helping executives take strategic and tactical decisions in order to improve overall agent performance and impact business performance.
View the demo here and let us have your feedback. Can you estimate demand for your product at the zip code level? Do you know who your most profitable agents are relative to the market potential?
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Tags: Agency analysis, agency profitability, Broker analysis, Demand Estimator, DemandEstimator, Insurance Analytics, Market Prioritization
[Co-authored with Nirav Bhagat and Punita Gandhi]
With close to 9 million views, the YouTube video “United Breaks Guitars” was one of the more significant internet memes of 2009 (1). United Airlines severely damaged the neck of David Carroll’s Taylor guitar while unloading his baggage. After a fruitless attempt to obtain compensation from United Airlines, David unleashed a 4-minute song to the public via YouTube. The resulting public relations fiasco offered a textbook example of how social media’s network effect can impact a consumer’s perception of a brand – in this case, David Carroll’s song suggested, right or wrong, that United fails to deliver on its promise to its customers.
Unlike United, the insurance industry delivers largely invisible products on a daily basis. One of the few times a customer can determine whether or not their insurance policy was ‘worth it’ is when they file a claim. Diamond’s research confirms how important the claims experience is to customer retention and brand loyalty. For example, a recent Diamond survey of homeowners policyholders shows that a perception of a poor claims experience influences switching to a new insurer more for those who have had a claim in their past than those who have not. Additionally, the same survey found that customers with positive claims experiences tend to stay with the same carrier, while those with negative or no claims experiences are much less likely to remain loyal (2).
Social media tools offer a great way to “sense, share and serve” your customers, especially as it relates to the claims experience. As a way to sense public sentiment and to estimate the likely damage to your reputation from poor claims experiences, several insurers are already using Twitter to communicate with the broader public on issues both significant and mundane. State Farm’s twitter feed provides updates about an upcoming home run derby, banters with its customers regarding State Farm placements in movies, and provides links to catastrophe-related information. The majority of customer service-oriented tweets, however, are responses to grievances arising from (seemingly) mishandled claims.
SENSE
Using social media to “sense” customers can also include the use of tools to mine the vast amount of information being publicly shared by customers. Tools such as TweetDeck and and OpenBook allows you to search Twitter feeds and Facebook status updates, respectively. A recent anecdote describes how an insurer used Facebook information to deny long-term disability income payments when it discovered pictures of the claimant frolicking on a beach. The insurer, Manulife, confirmed that it uses Facebook information to supplement the adjudication process. Though the details of this case do not suggest flat-out fraud on behalf of the claimant, it does provide evidence of how social media data can be useful to your claims manager or adjuster – a decidedly different user than the typical communications or public relations manager monitoring your company’s public mentions.
SHARE
Liberty Mutual’s recently relaunched Responsibility Project is one of the most high-profile examples of using social media to “share” information with a customer. Liberty Mutual provides an interactive forum to share instances of ‘doing the right thing’. Earlier TV and web videos placed on the site focused on broad instances of moral dilemmas faced by protagonists. More recently, the content has shifted towards content more directly related to the insurance industry: a video on the dangers of texting and driving, and an article about New York State’s anti-smoking legislation. These efforts attempt to create a positive association in the public’s mind with respect to actions the company might take towards its policyholders.
SERVE
Using social media to “serve” customers can be challenging: both you and your customers hope that a claim is a rare occurrence, which makes an ROI difficult to justify. A simple and powerful example of the use of social media to serve customers is Esurance’s capability for users to monitor their repairs online – with links to images of the repair in process that may be emailed to a Facebook account. This capability dovetails nicely with its latest media campaign – which highlights Esurance’s service (“People when you want them, Technology when you don’t”). Though Esurance has highlighted its online repair monitoring with less fanfare than the Responsibility Project, it is no less significant a tool for reinforcing the value the consumer receives for an Esurance policy.
Do you use Social Media to sense-share-serve your customers? If not, why not? What are your challenges in using Social Media? We would love to hear from you.
- (Fletcher, Dan (December 8, 2009). “Top 10 Viral Videos – 7. United Breaks Guitars”. TIME. ”Fuming about mishandled baggage? Singing’s the best revenge.”)
- Diamond Claims Survey 2009
Tags: David Carroll, esurance, Facebook, Liberty Mutual, OpenBook, sense, serve, share, social media, social mining, tweetdeck, Twitter, united airlines, United breaks guitars
On June 29th Allianz Global Investors announced the creation of a Behavioral Finance Center appointing Professor Shlomo Benartzi as the Chief Behavioral Economist of the Center. The press release claimed that
“… the Center is an extension of Allianz Global Investors’ continued commitment to provide financial advisors, investors and plan sponsors with helpful information and resources that enable them to make better financial decisions.”
“The Center, providing insight into the intersection of behavioral finance and investing will focus on the following three areas: Behavioral Finance Research and Education, Investing and Risk Management, and Retirement and Post-Retirement Products and Solutions.”
What is Behavioral Finance? Why is Allianz interested in Behavioral Finance and what does it have to do with retirement planning? Is this a ‘bandwagon’ that other carriers will or should jump into? In this and a series of future blog posts I and my colleagues will look at behavioral finance (or behavioral economics), the key principles that underlie this field and how it is currently being applied as well as how it can be applied across the entire spectrum of retirement planning and retirement income generation.
Behavioral Finance can be viewed as a branch of behavioral economics that tries to understand how humans really make decisions as opposed to how they think they make decisions. The underlying premise of behavioral economics, as opposed to classical economics, is that humans (sometimes) act irrationally; they take decision short-cuts, are influenced by how the problem is framed for them, and are often influenced by their emotions and social norms. The use of these principles as it applies to investing, saving, spending, and managing your money is often referred to as Behavioral Finance.
The field burst into the business vocabulary when Prof. Daniel Kahneman and Prof. Amos Tversky won the Nobel prize in 2002 for their work in this field (download the lecture from here). Since then there has been a growing number of books, papers, and centers that focus on the application of the field to individual decision making as well as public policy issues. Within the Insurance and Retirement sector, AARP, Northwestern Mutual, MassMutual and many others have explored the application of these issues to saving, investing, and retirement planning.
Northwestern Mutual has conducted behavioral finance studies since 2000 (see press release here) and has used these principles in training their financial representatives as well as educating their customers. The Longevity Game from Northwestern Mutual (see below) is an entertaining way of educating consumers bringing their visceral emotions into play. Based on a study of professionals – doctors, lawyers, and certified public accountants, Deanna Tillisch concluded way back in 2003 that
“It appears that no one is immune from these specific ‘blind spots’. But, we also know that when people are aware of their ‘blind spots,’ they are much better equipped to build a financially secure future for themselves.”
MassMutual launched its Center for Behavioral Research as a creative laboratory for testing and experimenting with regard to emerging education and communication techniques using Behavioral Finance. A number of Behavioral Finance experiments were conducted within its Retirement Services Division that were documented and released for public consumption. These results showed the use of behavioral interventions to change consumer behavior – specifically to increasing participation in 401k plans and to increase contributions (Download the report here).
Behavioral Finance has also played a key role in shaping public policy. AARP sponsored Prof. Richard Thaler and Prof. Shlomo Benartzi to understand The Behavioral Economics of Retirement Savings Behavior. This comprehensive study discusses the role of behavioral economics in enrollment decisions, asset allocation, and contribution rates. Behavioral interventions that address some of the core barriers to savings (procrastination, loss of control etc.) can be used to fundamentally change the behavior of retirement savings (See Behavioral Economics comes to the rescue of Retirement Savings). At a company level, MassMutual, Northwestern Mutual, Vanguard, and T. Rowe Price are just some of the early adopters of behavioral finance. At a public policy level, The Pension Protection Act (PPA) of 2006 and some of its key provisions have been heavily influenced by these behavioral finance studies.
In subsequent blog posts we explore this subject of Behavioral Finance in Retirement Planning through multiple lenses:
- Behavioral Lens: What are the different behavioral finance principles? How can we exploit these principles in changing the behavior of different constituents in the retirement sector?
- Constituent Lens: Who are the different constituents – consumers, employees, employers, advisors – who stand to benefit from behavioral interventions? How can the behavioral finance principles be applied to each of them?
- Value Chain Lens: Where can behavioral finance principles be applied within the industry value chain – awareness and education, advice, product development, service etc?
- Execution Lens: How does a company institutionalize the behavioral finance principles within the organization?
- Policy Lens: What public policy changes would assist in ‘nudging’ the different constituents towards saving more for retirement? What role do industry bodies such as RIIA (Retirement Income Industry Association) have in changing the industry mindset?
Are you one of the early adopters of Behavioral Finance? Have you conducted behavioral intervention experiments and did you get the results that you were hoping for? Or alternatively, are you one of those who is intrigued by the prospects of behavioral finance but don’t know how to put use them in your organization? Whether you are an early adopter or a curious bystander we would love to hear from you.
Tags: 401k, AARP, Allianz, Amos Tversky, behavioral economics, behavioral finance, Benartzi, Daniel Kahneman, longevity game, MassMutual, Northwestern Mutual, retirement planning, T. Rowe Price, Thaler, Vanguard
[Co-authored with Marie Carr]
Case Study: Legacy Insurance International
Eight months ago, Debra Regnis, President of Legacy Insurance International, completed a four-month business strategy to revamp the company’s strategic direction. It was the first initiative of its kind for the company since she could remember, and she had been at the company for 25 years. Yes Legacy Insurance had their ‘annual strategic planning’ cycle. But the truth was, over the years, this had become little more than an annual wish list filtering process. Each year, business unit leaders submitted their “wish list” of everything they “needed” and inflated business case numbers. They were padded from both sides. IT padded the costs, so they would not get caught running “over time” and “over budget”. Business Unit leaders then added even more to ensure that after the cutting that occurred during the planning cycle, they would still have the funds they desired. Debra and her senior management initiated a strategic study to define and set the vision for the future.
The new strategy effort had gone very well, in fact exceptionally well. People were “chomping at the bit” to finally be able to share their ideas about how Legacy could be different in five years and what it would take to get there. Even the announcement of the new strategy at the annual company meeting was met with overwhelming enthusiasm. It had been a long time since Debra had seen everyone so energized.
Legacy Insurance’s new strategy was to double in size and profitability in the next five years. It was going to become more customer- centric, “easier to do business with” for its channel partners. And, with its commitment to streamlined processes, Legacy was going to expand into new markets very different than their traditional middle market. This included small markets where they believed they could use their broad portfolio to win over small businesses and individual; as well as large markets where they believed they could use their superior customer services to win over large accounts like state institutions and multi-national businesses.
Now five months after the new strategy was announced, Debra had a different problem. Now the problem was that after all of the initial enthusiasm, little to no progress had been made. In fact, she was spending more time putting out fires related to rogue “strategic” initiatives that were more tactical than strategic, fielding scathing emails from frustrated managers in the field looking for Legacy to be “easier to do business with”, or having meetings assuaging the egos of members of her leadership team who could not do what they wanted to do.
Where did she go wrong? And more importantly, how could she quickly right the ship before people completely lose faith?
In our earlier blog post on Hindering Success: Six Roadblocks to Putting Business Strategy into Action, we had looked at why insurers and other organizations fail to operationalize their strategies. The first of these roadblocks is the failure to articulate the strategy at a sufficient level of clarity and detail. In this post, we examine the first of these roadblocks further.
When a company makes the decision to move in a new strategic direction, leadership often commits a great deal of time and resources to ensure that this new strategic plan is the best plan possible. Whether it is done by internal employees, external consultants, or both — the teams work numerous hours conducting interviews and work sessions with the firm’s foremost strategic thinkers and assessors of market direction to elicit the best ideas possible. This is then followed by countless hours of reviewing interview output, analyzing data, synthesizing recommendations, and debating/iterating the results. At the end of this process the firm has a wonderful new business strategy that leadership then rallies the troops and commits them to almost certain success.
However, while these strategies embody wonderful visions and aspirations for the future, there is one problem that we see time and time again with these strategies — a problem which has the ability to envenom even the most “motivated troops,” eventually leading to their widespread disillusionment and cynicism. If we could channel our best Cool Hand Luke, we describe this problem by saying “… what we have here is a Failure to Articulate!” Creators of business strategy all too often fail to articulate the strategy at a low enough level of detail to allow it be immediately actionable by the entire organization. In fact, it may take many organizations severally additional months, or even the better part of a year, before each part of the organization understands exactly what decisions and actions they should and should not make to deliver on the new strategy.
Genesis of the Problem
We believe that the reasons for why organizations fall into this trap are two-fold:
Mistake #1 : Abstractness Fallacy: Most business leaders wait until it is too late in the process to answer critical questions. They postpone providing detailed answers to questions in key areas until subsequences, opting instead to give general statements that are so high level and abstract, they can mean whatever people want them to mean, and thus no one can disagree with them. Instead, we believe that organizations must iteratively provide greater level of detail on how the strategy impacts the different dimensions of the business including, customers and prospects, products and services, marketing, distribution channels, operational processes, information technology, and finance (See figure below for some illustrative questions)
Mistake #2: Modularity Fallacy: For companies that do an excellent job of exploring the key areas, they often do not focus on the bigger issue, which is the intersection between the areas. It is great to have a ‘modular’ strategy to identify implications for each functional unit, but it is the cross-functional implications where we see companies fail to articulate their strategy adequately. It is great to say we will have new products or capabilities, but can the IT investment be done at a level and timing that meets the required ROI for the given customer segments? Will rate of channel adoption be consistent with the customer penetration targets? Have the brand considerations for new channels been fully understood to ensure that the new channels are appropriate and effective? These are tough questions, but they have to be answered in order for you to consider your new business strategy complete. We outline some of the cross-functional alignment questions below (Click on image below to enlarge the table).
The Challenge
Most companies face tremendous time constraints when creating a business strategy. It is not as though they can stop doing business, sequester themselves in a room for 6 months, and create the perfect strategy. The world in which they compete continues and becomes increasingly competitive every day. They also have the added burden of needing the exact same talent to create the strategy as they do to continue competing in the marketplace. So how does one change two tires while traveling at 180 miles per hour? Even the best NASCAR drivers make a pit stop!
When a race car driver continues to race at 180 mph he does not have time to wait until subsequent phases to address issues. They cannot wait until later to find out that the car they are driving has a major mechanical flaw. The driver also needs to understand how to maneuver the course that is in front of them now.
In a similar fashion, the organization cannot wait until subsequent phases to find out that the strategy is flawed. Leaders need to understand the weaknesses of their strategy up front so that they can change them or create the necessary contingency plans. And “the troops”, which are running the business, need to understand the critical decisions that they must make which support the strategy, or at least ‘not hinder’ them.
Realizing the full value of your strategy means that companies must reshape their views of what a completed strategy looks like. It also means that they must reshape their views and capacity regarding the number of things that can be done in parallel. It is possible to shape your business strategy and your technology strategy at the same time. It is also possible to build your customer experience strategy at the same time you are build your channel strategy. These are not sequential processes they need to be iteratively and successively refined. We recommend two key processes during the strategy development phase of an organization:
- Strategy Articulation: Developing the details of your strategy or articulate the multi-dimensional facets of your strategy as outlined earlier in terms of customers and prospects, products and services, etc.
- Iterative Successive Refinement: Refine your strategy in parallel across all functional units, iteratively understanding the cross-functional implications. This requires a great deal of collaborative discipline as well as comfort with ambiguity as different dimensions of your strategy get more detailed and refined.
These two key processes of strategy development needs to be accompanied by a detailed and precise understanding of you customers and customer segments. This will be our topic for the next blog.
Debra, embarks on a detailed strategy articulation and mobilization exercise to involve a core group of business and technology leaders across all functional areas to define the details of their growth strategy by different customer segments, product areas, and distribution channels. She also has a team working in parallel on evaluating the operational, IT, and organizational implications f the new strategy.
Do you often wonder why your organization has trouble ‘grasping’ your flawless strategy? Do you fail to see how your company’s ‘brand new strategy’ doesn’t really change the way you do your job? Share your thoughts with us.
Micro-insurance can offer insurers the potential to contribute significantly to their top and bottom lines. Below are perspectives on micro-insurance based on Diamond’s experience in emerging markets like India.
What is Micro-insurance?
Micro-insurance aims to protect the assets of low-income individuals and families from natural disasters, illness, death, accidents, crop failure, etc., enabling them to manage their risks better. By insuring the lives and means of livelihood of marginalized sections of society, the company extends benefits that are significantly greater than the tangible indemnity provided through the micro-insurance product itself.
Why is micro-insurance important and why should insurers care?
It is well accepted that for the development of any economy, there is a need for inclusion of marginalized and under-privileged sections of society. Micro-insurance allows such people to manage their risks better even though in the conventional sense, they may lack premium paying capacity and may also not satisfy insurability conditions. According to the Insurance Regulatory and Development Authority (IRDA) in India, life insurers sold 14.7 million micro-insurance policies (14% in volume terms) in FY2008-2009, representing new business premium of ~$53 million (0.3% in value terms).
Insurers should look at micro-insurance seriously not just to fulfill potential regulatory requirements but as a viable business opportunity. Micro-insurance follows the concept of group insurance: fulfilling a need that is common across a broader community. The individual ticket size may be small, but risk determination is easier at a group level and a large volume can more than compensate for the low individual premiums. Pricing the product at a group level rather than at an individual level will make it affordable for the customer while still being profitable for the insurer.
Micro-insurance needs a very different cost structure from standard products to be commercially viable. Low cost structure is only possible if the insurer is willing to think “out of the box” when it comes to building the business (marketing, sales, servicing, etc.). It cannot be treated as an extension of the standard operating model.
What are critical success factors for offering micro-insurance?
In order for insurers to get their micro-insurance strategy right, they need to keep several considerations in mind (see Figure 1):
Product Design:
Micro-insurance products need to be tailored to the unique needs of each customer segment (i.e. communities within a specific geography). The products need to be simple, easy to understand, and not constrained by a “one size fits all” mindset. One of the significant challenges faced by insurers is the lack of historical data while pricing the product. If a longer time horizon is taken to make profits, the insurer will build experience (as data becomes available) and be able to make better pricing and underwriting decisions. Below is an example of an innovative micro-insurance product launched by Max New York Life Company.
Customer Awareness and Purchase Considerations:
Many insurers realize that creating an attractively priced and tailored product, is not enough to create sufficient demand. As insurers and other organizations make efforts to increase awareness and literacy about insurance, customers themselves want complexity to be reduced. Trust plays an important factor in purchase decisions along with positive endorsements from local communities and organizations that work closely with customers. Simple things like creating marketing messages and policy documentation in local language can put the customer at ease while making a purchase decision.
Distribution:
Challenges related to reaching customers in remote geographies and lack of a traditional distribution infrastructure (versus what’s expected in cities and towns) can be overcome by working with intermediaries such as cooperatives, rural institutions, Non-Government Organizations (NGOs), Micro-Finance Institutions (MFIs), Self-Help Groups (SHGs) and rural banks. These intermediaries not only tend to have the necessary infrastructure in remote areas but also typically enjoy a high level of trust from local communities.
A relatively unknown insurance company selling difficult-to-understand products can be greatly helped if these intermediaries are involved in increasing awareness and aiding in product selection. Such intermediaries can also play a vital role in premium collections, claims verifications, and servicing. However, it is important to note that not all distribution partners will share the same focus as the insurer in growing the business.
Premium Collections:
Customers who buy micro-insurance typically have irregular cash flows (e.g., income linked to crop harvests) and need flexible payment schedules. Annual premiums rarely work whereas monthly (or even weekly) payment schedules are likely to be more successful in keeping the policy in-force. Insurers need to develop payment mechanisms that are flexible, low cost and able to deal with cash.
Claims Servicing:
Traditional insurance customers expect fast and fair claims processing, and buyers of micro-insurance are no different. If insurers can figure out a way to process claims accurately with quick turnaround times (while reducing fraud and asking for minimal documentation), it will go a long way in building trust and confidence. There are examples of insurers explaining the claims process at the time of policy issuance to build awareness and trust. The use of distribution intermediaries to double-up as loss assessors / surveyors can cut costs and processing times dramatically in addition to thwarting fraud.
Role of Technology in Micro-insurance:
Technology plays a critical role in all aspects of the micro-insurance value chain, as an enabler to simplify processes, reduce costs and improve customer experience:
- Hand-held devices capture customer information at policy issuance, during premium collection, and while servicing claims. Mobile applications can be used to transmit critical data from remote areas to insurer’s systems quickly.
- RFID tags are increasingly used for verification while processing cattle insurance claims. See cattle insurance initiative by ICICI Lombard.
- Compulsory use of bio-metric cards ensures customer data is captured, including thumb prints, which are then used for claims verification. The Indian government has launched a smart card based health insurance scheme for the poor in an attempt to provide access to healthcare (Click on the link to read the full article.)
Conclusion:
Micro-insurance can open up a whole new revenue stream by reaching out to typically un-insured customer segments in emerging markets like India. Insurers face numerous challenges in growing their micro-insurance business and in making it economical and efficient. Many insurers have launched micro-insurance through pilots, which are then scaled up based on lessons learnt. By being innovative in all aspects of the insurance value chain, insurers are realizing this can be a profitable business in addition to fulfilling social obligations.
- What lessons can insurers in developed markets like the U.S. adapt from emerging markets like India?
- What are the positive effects of micro-insurance on an insurer’s overall marketing and brand building efforts?
- Can micro-insurance sold primarily to low-income customers have higher persistency levels than traditional insurance products?
Marik Brockman and Dawn Boney contributed to this article.
Tags: Claims servicing, critical success factors, customer awareness, distribution, ICICI, India, insurance, IRDA, MFI, micro-insurance, NGO, product design, purchase, SHG, technology
[Co-authored with Hank Hillebrand, Tom Kavanaugh, and Jamie Yoder]
In April of 2009, Consumers performed 137.2 million financial need-based search queries compared to only 16.6 million product and brand based queries. What does this tell us? By looking into Consumers’ online search behavior, one can see that broader need-based searches capture significantly more attention than product-based and company-based searches. Need-based searches (e.g. “debt” and “financial advice”) dwarf product and company searches (e.g. “life insurance,” “annuities,” “MetLife,” and “Northwestern Mutual”) by nearly 8 to 1.
In just the last decade, the rapid proliferation of the internet and technological advances in communication have transformed the user experience from a static, ancillary business afterthought to a revolutionary commercial force that has redefined industries and fundamentally altered the marketplace. We see two fundamental changes in the way consumer interact with the online channel:
- Rich Interactivity: Consumer behavior has evolved as a result of growing connectivity and bandwidth, which has given rise to a new engagement model: rich, dynamic, and experiential interaction. The new paradigm is seamless, ubiquitous, and “always on” connectivity and rich, multi-media, interactive engagement;
- Social Interaction: Consumer behavior has also evolved from purely ‘search’ based interactions to ‘social’ interactions. From anonymous consumers visiting company and product sites the interactions have evolved to consumers participating in multiple professional and social networks and companies ‘visiting’ consumers to spread their message.
The rapid adoption and consumption of technology has empowered consumers to define the marketplace themselves, forcing companies to pay attention to the power of their communities and listen to their now Word of Mouth-magnified voices. Companies that have recognized this new paradigm have extracted significant value, capitalizing upon dis-intermediation opportunities, accelerating the dissolution of traditional barriers, and harnessing the power of data to drive impactful customer analytics.
The broader trend suggests that consumers are seeking experiential interaction online, which has shaped internet behavior and technology use. What does this all mean? Online consumer behavior is migrating toward intimate, intelligent, and immersive interaction and, as a result, the engagement model needs to evolve similarly. As the engagement model moves further into adjacencies it creates an opportunity to create awareness for your brand and products.
Companies now need to meet the Consumers where they are instead of relying on them to come to you. Insurers are finding ways to reach out to consumers via:
- Search Engine Marketing – Strategically purchasing keywords on engines like Google. 45%-50% of insurers’ online marketing budgets was spent on paid search in 20081
- Social Media – Insurers are capturing Consumers’ attention by engaging social media sites such as Facebook and even creating their own. For example, Liberty Mutual’s Responsibility Project has had over 300,000 monthly unique visitors in 20102
- Niche Content Sites – People concerned with financial security target sites that offer expert financial information and tips (e.g. Motley Fool)
- Niche Customer Segment Sites – For example, Baby Boomers or other people close to retirement look for advice on how to get the most out of their savings on retirement specific sites (e.g. AARP)
- Online Opinion Leaders –By reaching out to individual opinion makers or bloggers, insurers can tap into their ‘loyal followings of Consumers
By weaving your brand message into the fabric of Customers daily lives it allows for Companies to drive the conversation and anchor on their value proposition instead of the dialog becoming about price or more commoditized attributes.
As highlighted in recent post, Are You Catering to your Customers’ Anxieties?, New York Life is an excellent example of this with their recently launched Guarantees Matter micro-site. (Full disclosure: New York Life is a client, and we helped it with this initiative.) The site serves a different purpose that their Corporate website by delivering a targeted message around the need for Insurance related solutions in the wake of the recent Financial Crisis. The site has been the recipient of several awards, a Webby Awards Honoree, IMA’s Best in Class for Insurance and most recently awarded GOLD in the Consumer Retail Website category at the 16th Annual Financial Communications Society (FCS) Award ceremony.
For a company whose primary customer touchpoints are its field agents, the Guarantees Matter micro-site allows New York Life to directly engage consumers through animated videos, interactive tools and simplified textual content. By interacting directly with consumers, the site positions New York Life as a company Consumers can trust with a storied history helping consumers navigate through tough economic times.
Through a diverse set of digital channels, New York Life has adapted to Consumer’s changing online behavior as it becomes more broadened and evolved. The Guarantees Matter micro-site is one example of a larger digital strategy effort being led by New York Life. New York Life has also experimented in other Web 2.0 avenues, exhibited by their recent success with Facebook and LinkedIn pages which serve to attract recruiting prospects. The result is a richer more intelligent experience across all channels allowing New York Life to broaden and deepen their Customer relationships.
In closing, we are curious as to your opinions on this topic. How are you driving traffic to your site today? Are you aware of the broader customer needs that your product/service fulfills? Do you know where your consumers go today to talk about these needs? Please feel free to comment below.
1 USDM.net Report: Taking the Mystery out of Search Engine Marketing for the Insurance Industry
2 Compete.com
Tags: FCS, Financial Crisis, Guarantrees Matter, micro-site, New York Life, online, SEO, traffic, Webee
[Co-authored with Marie Carr and Jamie Yoder]
A strategy can define a destination but it won’t get you where you need to go. It takes strong leadership with focused vision to effectively guide an organization along its journey toward profitable and sustainable growth. Unfortunately, most insurers are not prepared to overcome the roadblocks that stand between strategy and value.
Digital IQ
Diamond’s Digital IQ Study found that only 20 percent of companies have strong strategic planning, mobilization and execution skills. These companies are more likely to outperform their peers. The remaining 80% are not effectively putting their business strategies into action, something we call “operationalizing the strategy.”
After much analysis, we have identified six main reasons insurers and other organizations fail to successfully operationalize their strategies.
- The strategy developed contains an inadequate level of clarity or detail. Strategic objectives are too often high-level visionary statements that contain little detail and no over-arching guide path. In order for an organization to embrace and succeed in implementing a new strategy, the high-level mission must be translated into lower-level goals that can be measured and linked to financial targets.
- The strategy fails to identify and quantify customer experience and/or market need. Strategies are typically expressed in terms of growth and profitability targets. They do not often consider what customers want or analyze what is feasible from a market perspective. Strategies are only successful after review of the marketplace through a market validation process. This process helps organizations to identify market dynamics and appropriately link financial and operational targets.
- Corporate leaders have difficulty translating strategic objectives into operational processes and technology requirements. Concrete business objectives and required business and technology capabilities must be clearly defined at the outset. This can be further informed through market validation. Thereafter, organizations can prioritize for business value and operational and technical feasibility.
- Corporate leaders are too overwhelmed with ongoing initiatives across divisions to be able to implement an integrated plan. Incorporating new initiatives within ongoing operations will challenge even the most capable organization. Organizations that create manageable transformation plans do it in phases that are aligned with pre-existing roadmaps and other plans.
- Corporate leaders find it difficult to sequence projects, assign responsibilities and quantify benefits and costs. Organizations often do not follow through on the rigor of quantifying, assigning responsibility and measuring benefits and costs. Even if costs of a program are measured, benefits are rarely quantified. Creating a detailed business case can ensure that capabilities are translated, prioritized and sequenced to create an action-oriented roadmap.
- There is an inconsistent understanding of or lack of commitment to the strategy among different levels and/or divisions within the organization. Agreement at the 35,000-foot level does not necessarily translate into ground level action. Ongoing one-on-one sessions with leaders and managers of every division will surface issues. Providing decision options and facilitating workshops thereafter will resolve contentions and help to build consensus.
Putting a new strategy into action, or operationalizing it, is a process that is unique to every organization. It cannot be completed with a cookie-cutter approach. Even the best of strategies will end up on the boardroom floor if an organization – from leaders to staff – is not prepared for, doesn’t clearly understand or fails to see the vision of the strategy.
Organizations must frame their strategies, align them with business needs, identify and quantify the capabilities needed to implement and develop a clear roadmap for success. Employing a thoughtful and thorough approach will ensure operational alignment while maximizing value realization across strategy formulation and implementation.
Which of these six roadblocks have you experienced in your organization? Do you have ways of overcoming these roadblocks?
We’d love to hear from you on these issues. Stay tuned for upcoming blog posts that talk about the insights, frameworks, tools, and techniques that can be used to address these challenges and ‘operationalize’ your strategy.
If you enjoyed this blog, you may also enjoy reading these:
Are You Catering to your Customers’ Anxieties?
Tags: benefits, business case, costs, customer experience, Execution, executive commitment, IT, mobilization, operations, process, strategic planning, technology
[Co-authored with Chris Curran]
Is Claims Processing Getting Any Better?
How long does it take for your auto insurance carrier (or your own organization for the insurance professionals out there) to process a claim and how many people are involved in the process? Most insurance claims takes weeks, if not months to fully complete. In fact, the Bureau of Labor Statistics estimates that nearly 436,000 people were involved in 2008 in either processing insurance claims or as claims adjusters, examiners, and investigators.
In addition to the manual labor, the fraud associated with insurance claims is also a major issue in the industry. Research by the Insurance Research Council estimates that claim fraud and buildup (i.e., ‘padding up’ of legitimate claims) added between $4.8 billion and $6.8 billion in excess payments to auto insurance injury claims alone in the year 2007. This represented between 13% and 18% of total claims payments.
While the industry is getting better at processing claims and automating some of the back end activities, capturing and verifying the data at the ‘Point-of-Claim’ is still a major issue. Can innovative use of information technology come to the rescue of the claims industry?
Using the iPhone to Improve Claims
Think about all the people involved in reporting and processing a claim. First, the customer reports a claim by calling into the insurance company. The claim is first logged by the customer service representative – First Notice of Loss (FNOL) in industry jargon. Depending on whether the customer service representative is a generalist or a claims specialist, you might have a number of conversations to report the loss. Then an adjuster gets assigned to your claim. After a few hours (or days or weeks) the claims adjuster will assess the claim and file a report to their supervisor. Based on your policy, the amount of damage, and the amount of claims, you will receive either a denial or acceptance of your claim. The amount may be what you requested or something substantially lower. If you dispute the decision, the process goes on to another ‘exception process’ of reviews, investigations, and rulings – now spanning a larger group of people including the lawyers. Even if you accept the terms of the insurer, you still have to get the damage fixed and claim the amount. Needless to say a painful process adding to the original pain of the loss or damage to your auto or property.
We’d like to offer an idea based on a concept called augmented reality (AR). An AR system overlays computer generated information on a live picture, like the heads up displays found in planes and automobiles and the yellow first down marker used in football broadcasts.
What is really interesting about the complex idea of overlaying data on a live image is that we now have a consumer level device that can do it – the iPhone 3GS. Whats really cool about the iPhone is that it is in the hands of over 20 million people, application development is pretty straight forward and the percentage of business apps is very low – a platform ready made for some prototyping. Add to that the GPS, compass, accelerometer, camera and wireless capabilities, and you also have a pretty powerful augmented reality platform.
One example of an AR app that’s already out there is the New York Nearest Subway. If you hold it up on a street corner in New York it will overlay information and directions for the closest subway stops. This might seem like a pretty complicated development chore – dealing with all of the sensor data. Well, there’s an app for that too. At least one firm has developed an iPhone software platform called Layar on which you can add layers of information on top of the live image shown on the iPhone. So they’ve done a lot of the lower level work for you and you can just add information – ATMs and bank branch locations, claims centers, retailers who carry your product, product information by aisle – you get the idea.
Insurers like Nationwide, Progressive and Geico all have iPhone Apps to take pictures and report claims from the scene of the accident. Taking some of these apps to the next level of the AR world could be the next step.
Claims iPhone AR App Example
We sat down and brainstormed how augmented reality style app could help a claims adjuster process an automobile accident. Nothing fancy but we came up with a few ideas like the ability to recognize car makes/models, show prior damage reported directly on the image of the car, the ability to mark damaged parts of the car to get repair quotes and to find the closest repair facilities. Getting all of this information at the ‘point-of-claim’, assessing and adjudicating the claim makes the process relatively painless for the consumer, avoids fraud and padding substantially, and streamlines the claims processing immensely.
Although, these apps are initially being used in the personal lines auto sector, there is no reason why this could not be expanded to other lines – fire and flood damages to property and content or industrial accidents in the commercial sector. The ubiquity of the iPhone and the information layering of AR apps will make such applications commonplace in the next couple of years.
Maybe this simple mockup will give you some ideas of your own?
Tags: augmented reality, claims, iPhone
[Co-authored with John Sviokla and Jamie Yoder]
One of the most important things that executives forget when they craft their service model is the need to address customers’ anxieties. In today’s grim environment, this is more important than ever for all companies but especially for financial services firms.
Since the financial crisis of September 2008, many people have been scared to invest. Between the end of September 2007 and early December 2008 retirement accounts alone lost nearly $2.8 trillion, or 32%, of their value. Although the recent rally has been accompanied by an improvement in investor sentiment, it has not reached the levels of 2007. Little wonder: Famous institutions disappeared overnight, had to merge abruptly with their competitors, or barely skirted bankruptcy.
Money is a feeling-laden, complex, and deeply social product related to people’s sense of power, risk, and self-worth, and emotional intensity about money is at an all-time high for understandable reasons. Consequently, when financial services firms think about their service offerings, they have to be especially careful to explicitly design the emotional message of their approach.
Whether the service offering in question is virtual or embodied in bricks and mortar, the key to creating emotionally satisfying experiences is to understand the core worry of your client and to craft a direct, simple, emotional message. As a wonderful essay in The Boston Globe recently pointed out, simple, easy messages are more likely to be believed.
OTIS Elevator Patent
One of the most famous historical examples of a business leader who understood this is Elisha Graves Otis. Back in mid-1800s, when Otis was introducing his new elevator, he was having a heck of a time convincing a skeptical public that his invention was any different from the dangerous grain hoists or home-made lifts they had seen before. He could have attempted to explain his clever new design (See the patented picture on the left), which included a patented safety. Instead, he had himself hoisted up an open shaft in front of a large audience at the Crystal Palace in New York. When he was far above the exposition floor, his assistant cut the rope supporting the elevator. The crowd gasped. But the car stopped after falling a few inches. Otis Elevator Company was on its way to becoming a phenomenal success. Otis dealt directly and simply with his audiences deepest emotion — their fear of plummeting to their deaths.
A good example of a current marketing program that directly addresses the emotional soft spot of clients is Liberty Mutual’s Responsibility Project (See our earlier post on this site). The theme of the website is individuals must take responsibility for their actions. It employs a combination of professional actors and user-generated content to create stories about individuals who act responsibly for the good of their families and communities. It creates a context that is broader than the individual investor. And by focusing on the selflessness, it creates a brand perception that the company is responsible in all its actions, including how it deals with policyholder money.
Bubble of Expectations
Another example is New York Life’s “Guarantees Matter” web site, which recently won the Best in Class Interactive Media Award. (Full disclosure: New York Life is a client, and we helped it with this initiative.) The purpose of this site is simple: to explain that because New York Life is owned by its policyholders it is more likely to keep its promises to them. The site delivers a simple message: through any financial disaster, New York Life is there.
The site plays to the emotions of ‘fear’, ‘anger’, and the quest for a ‘safety’ and ‘security’ amongst consumers today. The Retirement Maximizer and Guaranteed Solutions Explorer employ behavioral economic principles to make the tool relevant to individuals. New York Life expounds the virtues of a mutual company as opposed to a stockholder company helping consumers appreciate the need for long-term commitment and urging them to balance long-term steady and safe returns to near-term gains.
Our questions for you are:
- Do you know the core emotional trigger of your customers?
- If so, are you addressing it simply and directly?
(An abridged version of this post also appeared in Sviokla’s ‘Near Futurist’ HBR Blog.)
