Once upon a time, there lived a woman. Her name was Jennifer. Jennifer was living in Singapore in her early 30s as a single mother of two and an aspiring entrepreneur. One fine day Jennifer met a nice insurance agent by the name of John who was a very friendly and trustworthy gentleman who wore a nice suit. He explained a lot in details of all the things that Jennifer and her family should be covered for and ended up selling her comprehensive set of insurance products.

Fast forward five years of paying dutifully for her insurance premiums, Jennifer gets into a health emergency and desperately tries to understand if her insurance covers it. The policy mumbo jumbo doesn’t make any sense when she tries to read it and worst of all, her trusted agent John is nowhere to be found. She then tries to call the insurance company directly…however to no avail and instead got into their automated voice mails each time.

Jennifer has no choice but to rush to emergency for a surgery… all the while keeping her fingers crossed that her family will not be dealt with a financial burden because of this unfortunate incident.

The story, while may have sounded like a slight stretch, is actually based on a real life situation that has happened to a friend of a friend recently. Fortunately, it did have a good ending in which the insurance policy did cover almost all of the expenses. The gist is that an experience like that left this customer— perhaps along like millions of others around the world— feeling uneasy about insurance. The real question that we’ll attempt at discussing today is whether such uncertainty that a customer experience is something that can be avoided today. It may have been “normal” 30 years ago however today is the day that you are plugged into the world through broadband and 4G, have in your pocket a supercomputer(your smartphone duh!) that is 10,000x faster than 30 years ago, and have a self-parking car.

The world has made such an amazing progress in most areas but so far, the insurance industry seems to be have left behind…

Hence Innovation Is Crucial For The Insurance Industry

Welcome back to this week’s post! Thanks for joining me on the journey through the #insuranceinnovation value stack, as we scope the opportunities for innovative changes. And hopefully we could rejuvenate the Insurance industry.

As I was re-reading the comments and messages after the last post on Trust & Insurance, I found it really exciting that we have a beginning of a broad dialog. A healthy variety of points were shared from people both within and outside the insurance industry. I encourage you to participate in the discussion and ask any questions, so that I can either directly answer or cover it in subsequent posts.

What’s The Operating Expenses Of An Insurance Company

I thought it would be good for us to venture in the next area of insurance by covering what’s considered back-office and constitutes general operating expenses of an insurance company.

Back-office and operating expenses accounts for roughly 20% of overall customer’s insurance payments. It encompasses all the costs associated with running an insurance company, both customer facing (customer service, policy operations, claims management, underwriting, distribution management) and those known as back-office (finance, HR, management, product design, etc.).

Below is an illustration of costs (first column) vs. customer perceived value (second column) as those relate to the back-office functions. The costs vary from company thus I’ve lumped it together into a range (13-20%). In summary, this is not meant to be an exact science and rather directionally illustrates the gaps and hence opportunities between cost and customer value.

We can see that while customers pay close to 20% of their money to fund insurance back-office, the perceived value is significantly lower; highlighting the need to re-balance the value and push those costs closer in line with customer expectations. The value mismatch is especially apparent in areas such as Claims management, Policy operation and Underwriting.

Let’s continue by taking a closer look at each of those elements by covering how one currently runs an insurance company in 8 “easy” steps. To give you some reference point, this also points out the team that carries the responsibility for the activity. I’ve also added a 2019 column as a conversation starter, highlighting some of the potential opportunities to bring up the area to “speed” by year 2019.  (Keen to hear your thoughts!)

If you walk into a typical insurance company office today, you would be excused if you think that you’ve fallen through a time-hole. Insurance industry has not changed much in the last 30 years and its processes largely stayed the same for the past 100 years…with a few exceptions. This has left industry in a current state of operational inefficiency, inflated back-office costs that are unnecessarily diluting customer value and service arrangements that are not consistently meeting the customer needs.

To state the obvious, there’s a critical need to start re-writing the insurance stories to make them customer-centric. More importantly, it has to match up to customer value expectation. Back to the story that we opened this post with, “Orphaned Customers” such as Jennifer(sold to and not actively serviced) are issues that the industry needs to address and make as a past.

InsurTech is clearly a big part of the solution; combine it with an infusion of fresh talent, passion and resources and we are talking about the beginning of a revolution in insurance. Exciting times ahead!

Till next time,

George

Originally posted in: https://www.linkedin.com/pulse/insurance-story-forgot-customer-its-time-rewrite-george-kesselman?trk=prof-post