Thought Leadership

COVID-19 has dramatically changed the way customer’s view, buy and assess the products they buy and insurance is no exception.  Companies in all industries have had to change the way they operate to manage the critical processes that impact the customer’s experience and purchase decision.

Home is now the center of the universe for both consumers and the companies that provide products to consumers. This critical link between home and the outside world is now paramount. Whether or not this will remain true post Covid is difficult to say. Perhaps Yogi Berra said it best: “It’s tough to make predictions, especially about the future.”

This pandemic however will likely have a permanent impact on the way companies operate. Industries whose high-flying growth helped create the modern global city have necessarily abandoned ritzy downtown offices for on-line alternatives and companies are seeing the benefits.

According to McKinsey & Company, “Many companies have been forced to accelerate investment in e-commerce and expand their capabilities such as in regards to customer delivery. The ramifications of these shifts will be felt for some time and continue to shape consumer choices long after the pandemic is over.”

Remote Work

For most companies remote work has lowered costs and increased productivity per employee.  An on-site worker for example costs an employer an average of $10,000 per year in real estate expenses and in a recent FlexJobs survey 51% of respondents said they were more productive when working from home. In another survey, company’s report seeing productivity of remote workers increasing by as much as twenty five percent compared to when they worked on-site.

Additionally, companies are also no longer confined by geography when recruiting key employees and remote work has fostered an improvement with employee loyalty. Eighty one percent of respondents from the FlexJob survey said that having remote work options would increase their loyalty to their employer.

Not only are companies understanding the benefits of remote work so are their employees. Many have taken this opportunity to move to areas more affordable leading to significantly improved living conditions. According to the same FlexJobs survey, 73% said that since COVID-19, working from home improved their work-life balance. This allowed them to spend more time with their partner, family or pets. More than one third of respondents in the FlexJobs survey indicated they spent two or more hours each workday commuting to and from the office.

Eliminating the commute is one of the many reasons remote workers have been more productive. Remote work has fostered happier, healthier and more productive employees who have less commuting stress, greater location autonomy and a better work-life balance. It will be extremely difficult, even foolish to’ buck this trend.’ Companies will have to embrace a new agile, digital, remote workforce.

For insurance companies, several have come to the realization that many operations can be effectively undertaken away from the office with employees working virtually while maintaining productivity and a streamlined service. In fact, COVID-19 is accelerating the digitization of back-office processes. Critical processes like pricing, underwriting and case install must and can be made accessible and manageable to a new distributed, on-line workforce.

The pandemic is powering a permanent shift away from office-based teams which will have a dramatic impact on company culture. Insurers must adopt tools that foster collaboration and keep workers engaged. Consequently, control and security frameworks must be hardened to keep up with increased cyber threats.

A New Customer Engagement Model

Home is the new primary access point for customer interactions. As a result, insurers will have to embrace a new on-line consumer engagement model.

The shift away from face-to-face distribution will gain momentum and self-service will increasingly dominate customer interactions. Indeed, regulatory supervisors have been proactive in encouraging the use of digital channels with initiatives such as encouraging digital service delivery and relaxing previous face-to-face requirements.

As consumers have grown accustomed to buying more and more products and services online, expectations for fast delivery times continue to rise. On-line consumers of insurance will therefore expect real time feedback during the insurance purchasing process. Insurance companies will be forced to integrate front-end consumer facing applications to back-end systems in order to facilitate automated workflow and instantaneous product recommendations and coverage approvals.

Highlights and Recommendations

Remote work has fostered a familiarity and trust with on-line services. This has removed many of the barriers to information sharing on-line. Policyholders and prospects are likely more willing to have their personal data used to provide them a more personalized product or granular premium.

Integrating consumer facing applications to back-end systems will better enable tools like AI and machine learning. By engaging the customer in an on-line session, insurance companies will be able to ascertain consumer needs in real-time and make offers based on the customer’s unique situation. Insurance generally follows life.

As we begin to emerge from this crisis, a new on-line engagement model will facilitate a clearer and more holistic view of how customer’s lives will have shifted and how an insurance company can best meet the customers’ newly discovered needs.

As on-line users reveal profile, usage and expectation data, insurance companies will be able to more effectively:

• Tailor product and service offerings to customers’ needs
• Increase credibility and boost consumers’ trust in the company
• Increase customer engagement
• Facilitate the attraction of new customers

The recent technical innovations triggered by the pandemic have been accelerating in response to the challenges of life under lockdown.  Many of these innovations have been introduced incredibly quickly, demonstrating just how fast things can change. A return to ‘business as usual’ would be a monumental failure of imagination. We’ve learned just how vulnerable business can be to disruption and now industry has the opportunity to make sure we remain resilient. This could be the most hopeful legacy of these most challenging times. The insurance companies who embrace these new realities will be the winners in this post COVID-19, changed world.

Addressing Radical Change

Today the insurance sector is undergoing radical change driven by digital transformation, cost reduction, increased competition, and the need for better engagement tools to drive a superior customer experience.

COVID-19 has only accelerated the rate of this radical change.

FJA delivers technology solutions to help carriers profitably combat current and future challenges, no matter how big or small, and that facilitate a competitive edge. Our end-to-end or modular solutions allow carriers to profitably build, sell, manage and distribute products that meet their customers’ needs. They are designed to address the specific needs of insurance carriers and their customers by automating the critical processes that facilitate an insurance company’s ability to improve profit and deliver superior customer experiences.

As a former management consultant I was often faced with the question: Build or buy? I would always first frame the discussion with whether the activity, in this case building software is “core” to the company or “context”. This framework illuminates whether value is being created or destroyed by the decision to insource or outsource.

Core activities are those that generate shareholder value, where the firm can differentiate on any variable that impacts the customer purchase decision.  Context tasks are everything else. The goal of context activities is to execute them as efficiently in as standardized manner as possible. A firm should always insource core activities and outsource context activities.

The interaction between core and context determines how much value gets through to the marketplace.  Without careful management, context interferes with core. Bearing the total cost of context activities destroys value.  Creating value from enterprise activities is about disengaging the company from context – recapturing scarce resources to refocus on core activities.  When making these decisions companies should consider:

• If resources were freed from context activities what could they do to create shareholder value?
• What work that resources perform would they be willing to surrender provided they were assured it would be handled correctly?

For insurance companies, their core competency is underwriting risk – building software is therefore not a core activity but rather a context one.  The only time it would make sense for a company to stray from core is where there is a process or workflow that is so unique to the company that it requires internal development because there is not a commercial solution available.

When there is a commercial solution available any company would be better off buying.  In the case of software companies they bear only marginal costs (i.e. product built for many) whereas if an insurance company builds the software, they bear the total cost. Some of the major issues insurance companies would face building their own software include:

• Time to market delays. Lots of time is required to determine the exact business needs, write the code, integrate with other business systems, and adapt to user requests after deployment. Lost revenue and / or a reputational hit could occur as the carrier prolongs a bad process until they can deploy the fix.
• An insurance companies IT or HR staff will be required to train users and support the application indefinitely.
• Staying current is challenging when business needs rapidly change. When applications that are integrated with homegrown software release new versions, adaptations of the insurance carriers own software will be required.  This leaves too much room for error particularly when software is not a core competency.
• Typically, homegrown applications have lower and oftentimes incomplete functionality compared with a vendor’s product.

The pace of technology innovation is accelerating at an exponential rate, making it difficult for the average internal IT group to cope with this pace of change. The struggle commonly lies in the fact that they not only have to create the software internally, but they must also maintain and upgrade it indefinitely.  The advantages of buying are clear:

• Ready-made solutions, available when you need them.
• Greater flexibility and adaptability.
• Thousands of hours have already gone into developing the application and working out the kinks.
• Expert support and training are available to existing and future staff with no additional burden on your IT or HR teams.
• Typically, functionality is enhanced through customer feedback, anticipating your changing business needs rather than reacting to them.

Group Insurance companies find themselves surrounded by a rapidly evolving competitive playing field shaped by new market entrants using technology to radically change the industry and healthcare companies seeking to combat margin compression by looking toward securing revenue from more profitable lines of business.

Health insurance companies pose a more immediate threat. They have access to the same distribution networks as group carriers and many have acquired non-health or group insurance companies. And while the integration of non-medical products in the form of bundling has not proven successful to date, when compared to group insurance companies, health insurance companies are investing significantly more in digital transformation and data and analytics – signaling that the clock is ticking for group carriers. Group insurance companies are particularly vulnerable because very little of their investments are allocated to grow or transform their data and analytics capabilities. Investment in data and analytics to date are primarily focused on running and maintaining existing, antiquated systems. Moreover, there is not much emphasis on integration (e.g. product consolidation) and limited agreement on what data assets mean. This is particularly true for midsize life and group companies.

When it comes to new market entrants, what makes these interlopers unique is they aren’t just technically savvy folks looking to build a better mousetrap. They are also marketing and sales organizations looking to crack a new market. They seek to offer customers what they want, through the channels they want, when they want at a lower price – they are not burdened by inefficient, unresponsive legacy environments, they are digital natives. According to a recent report, almost 30 percent of customers globally are willing to buy insurance products from tech companies such as Amazon and Google. This means that traditional providers must develop an operating model that can satisfy evolving customer preferences.

Many of these well-intentioned outsiders, however, don’t quite comprehend the inherent complexities of the insurance ecosystem. Things like the long tail of liability claims, state-by-state regulation, and the technical challenges of a data-heavy industry and their impact on product management and product development. Product development in the insurance industry is not a quick or easy proposition. There are many hindrances and so far these new entrants from outside the industry don’t appear to have the appetite for it – this is where traditional group insurance companies can have the advantage against this nascent threat.

Whether the threat to group carriers is from healthcare insurers or new market entrants, product proliferation can be used as a strategy to manage industry rivalry and deter entry. In a mature market such as insurance, most companies have a product in each market segment or niche and compete head-to-head for customers. If a new niche develops, the leader will get a first-mover advantage but soon all the other companies’ catch-up, and once again the competition is stabilized and industry rivalry reduced. Product proliferation thus allows the development of a stable industry based on product differentiation and not price – that is, non-price competition based on the development of new products. The non-price competition will also help group carriers overcome cutthroat pricing the digital natives hope to evoke. The battle lines would be drawn over a product’s perceived quality and uniqueness, not over its price.

Unfortunately for most group Insurance companies, they are hindered by a patchwork of applications. When it comes to product management they have applications, infrastructure, and employees as discrete, standalone entities and not as interconnected systems. They have built in-house legacy systems to meet their specific business needs but not necessarily the needs of their customers. Rather than focusing on developing an internal IT team to build a solution from the ground up, group insurer’s would be well-served integrating a commercially available platform that allows them to unlock the value currently trapped by these legacy systems and processes – one that consolidates all product data. That way group carriers can focus on their core competency and push these context activities (non-core such as software development and systems integration) off to those whose core competency it is.

Consolidating product data must be considered a strategic imperative for group insurance companies. Today upwards of seventy percent of insurance companies are exploring predictive modeling in the area of automated, simplified, or accelerated underwriting. A select few are leveraging data analytics and predictive modeling for new product development – particularly in the health and property & casualty segments. For example, in response to three states making it illegal to price products based on credit scores, some P & C insurers have used predictive modeling to develop new pricing models and products based on where consumers live or drive. When it comes to health insurers, some are using data analytics to identify customers who potentially have gaps in healthcare coverage (e.g. from high-deductible plans) to target for gap products like hospital indemnity and accident policies. For group carriers, product bundles, riders, add-ons could be developed similarly. Consolidating product data can help a group carrier:

• Determine which variables outside the rating plan are predictive of underwriting results
• Determine what is the most predictive rating variable
• Better understand which external data can help more clearly understand price risks
• Anticipate the needs of its insured’s and quickly answer those needs with relevant, useful products

Products for group carriers do not have to be confined to traditional indemnification or reimbursement contracts. Instead of writing a check when something bad happens, group insurance carriers can look to create a service that stops the bad thing from happening altogether, or at least mitigates the severity and/or cost. Services such as diet plans integrated with critical illness or life policies could reduce the severity of an illness or lengthen the life of an insured. Providing access to a network of urgent care centers integrated with a mobile application as part of an accident policy might reduce the cost of reimbursement and improve brand loyalty. Services if done right will lead to higher revenues and less volatile profits. Customers today do not want to buy a product; they want their problems to be solved. Having product data in a single data store will allow carries to collect and juxtapose additional data from disparate sources such as third-party apps (e.g. Social media) to determine customer preferences and customer behavior, allowing for the ability to synthesize that data into timely, granular recommendations – none of which can be done without first consolidating all product data.

There are immediate cost savings benefits too. Take policy amendments such as adding a rider for example – one that might apply to multiple products (e.g. Life Insurance, Long and Short-term Disability, Critical Illness). Every form typically goes through the same process for review – underwriting, claims, marketing, etc. Policy language must be agreed upon and in compliance with regulatory requirements. Having all product data consolidated into a single data store:

• Provides efficient access to product form filings to identify controversial or non-compliant provisions in order to modify or supplement them on a state by state basis, ensure compliance with state requirements and limit DOI interrogatories
• Facilitates the development of form libraries (e.g. policy forms, endorsements, applications, notices, etc.) for new insurance products
• Enables a speedy, globally coordinated product launch via a large group of partners (e.g. campaign vehicles, channel partners to pitch to employers, etc.
• Squeezes costs and delays out of the marketing value chain
• Allow carriers to compile pertinent information from insurance statutes and regulations and organize it for ease of review and reference.
• Allows the entire globally distributed enterprise to collaborate on the best use of product assets
• Can isolate policy/claim characteristics that point to fraud
• Provides the ability to Identify variables that provide insights to reduce litigation expense

Creating new or improved products and services to replace existing ones will play an important role in defending group insurance companies from existing or nascent market threats. Automating the product development and subsequent state filing process will be a critical component of success for group insurance companies in the future. It will become increasingly important for insurers to collect and analyze data in order to understand consumer behaviors and deliver products that match those needs. New product development requires a great deal of information from many stakeholders. As the speed of markets, technology, regulation, competition, and inputs increases and as more of these elements become critical to a particular product, the complexity, and speed with which a carrier acquires and analyzes information must also increase. In order for insurance companies to realize the many benefits of new product development as a first step, product data must be consolidated into a single data store. Once product data is in a central repository product development can be automated yielding increased speed-to-market and revenue, reduced costs, and improved accountability for compliance through a defined audit trail.

The question is not whether the data is available but rather is it accessible? Group insurance companies investing in new product development will be able to establish a fast mover advantage to differentiate with products and services in an increasingly competitive market.

Disrupt: to cause (something) to be unable to continue in the normal way to interrupt the normal progress or activity of (something)

I was Googling while Ubering on my last business trip. The first search hit brought me to Amazon, where I purchased toys for my young sons using Amazon’s Prime service. A few hours later when I arrived home, the package was already open and the boys were laughing in the living room.

Now imagine if insurance was like Amazon or Uber, complete with ease, convenience, and even a sense of enjoyment. Imagine you’re about to buy a house and the insurance company offers an inspection service. During the inspection, they see you have automobiles. They see you have a large yard and new appliances. And now, as they offer a quote on your homeowner’s policy, they also bundle in vehicle, property & casualty, and even go a step further to offer you warranty on your new washer and dryer. Now this an experience— bundling risk and non-risk based products to deliver an experience to the customer. The normally dreaded, overwhelming experience of purchasing a home and insurance is now made convenient and— gasp —enjoyable!

You see, most people think of insurance only when they have a scare or if they constantly worry. If we come up with a different way to calculate risk, manage data, and simplify processes, we can invoke an experience similar to tapping for a toy to be delivered or a ride to be accessed. But for this to happen there must be an enabler.

It was missing when Sandy Weil attempted to disrupt the insurance market in the 90s with Travelers. He did a few things right, like anticipating the consumer’s need for a retail approach to insurance products. But he failed to disrupt the industry because he was missing an intelligent platform that connected customer to product. Amazon or Uber are successful disruptors not just because they continue to evolve with the market, but because they do have a platform that enables them to connect one customer with multi-vendors, and even add on services like Prime Now or RUSH. These brand identities in our culture have become so synonymous with instant gratification, with an action responding to an action, that they are used as verbs.

Can the same thing happen for insurance? Will our children call to say that they “[Insert your health carrier here]-ed today”? Let’s look at how this might be possible:

Monetize Data and Time

Most Americans have multiple types of insurances bought through multiple channels and companies. At the same time health payers already have a tremendous amount of information on their members; why can’t this information be used to offer more to the customer? As you can see, this is terribly inefficient for all parties. Can all this rich information be used to assess the underwriting risk for life insurance or P&C, without the customer having to go to a different source? Amazon didn’t just offer a way to buy goods online; they connected one consumer with many unrelated merchants at a single source, coordinating shipping and secure payment transactions between all parties for a seamless experience. In this case, insurance companies will need to either acquire or partner with other carriers, which requires an openness to change and willingness to think differently.

If we can automatically offer a level of coverage derived from existent customer data, from information gathered online, from claim trends and even search histories, we can bundle and sell more product. Consider the sick or the elderly who may be checking out of the hospital and won’t be able to keep up their house upon returning home. With partnered operations and aggregated data, additional coverages or services can be offered at point of need, such as lawn maintenance or cleaning services. This creates a compassionate, unique experience for the customer. The costs of underwriting and distribution will be reduced, along with the number of touch points and payments the consumer is required to make. Subsequently, buyer’s remorse will be eliminated through this immediacy of purchase, allowing the customer less time to seek advice from others and more time to live the lives they are insuring.

Use the Community

Everyone is required to carry some level of Healthcare coverage today. Many individuals and families often take the lowest cost with the highest out of pocket risk because they either can’t afford coverage or they don’t believe they will need it. An unexpected illness or accident can be financially catastrophic. Imagine if payers were able to provide member peer-to-peer lending services, like Lending-Tree, to help members finance their out of pocket expenses. This experience could provide a gateway to offering more services at the point of service, because the payer has earned the right to upsell due to the customer’s previous positive experience.
In effect, we create a financial ecosystem with insurance, similar to GoFundMe or Kickstarter. The benefits expand beyond initial crowdsourcing. Potentially a set of interconnected platforms or a partnership with transportation companies can bring about a peer-to-peer ride share program, we can get more individuals to their appointments or workplaces. The ecosystem can bring together all types of participants, building channels and connections needed for a sustained human experience.

Simplify Payments

Currently, the payment platforms allows the insured to pay their premiums, but in some cases multiple payments must be made throughout. There is the monthly premium, then the co-pay, then the additional bill that leads to multiple inquiries to the doctor’s office and insurance carrier in an attempt to understand the payments. There are many transactions for a singular event, creating dissatisfaction on all sides. If we can discover a simpler payment flow, instead of micro payments like deductibles and co-pays, then the insurance business would truly be disrupted.

So who will take the first step? Potentially, health payers are the most poised to lead us into the future due to disruptions in the healthcare industry itself. If they can converge around a platform that intelligently connects people, providers, and payers while simultaneously leveraging data, they have a better chance at creating change in the experience of insurance. And, once this competition begins, the question will no longer be how to disrupt, but how to evolve. Insurance companies will need to think of themselves as fulfillment organizations, evolving from a seller of risk-based products to a protector of peoples’ risks. Doing so will actually require the offering of bundled products and services to the customer, creating a positive, even convenient experience. This will turn you, the evolving disruptor, into the next adjective or verb.

PORTLAND, October 26, 2016 – I was working out at the gym doing my normal routine, when I overheard the trainer and his client.

“If you really want to see change,” the trainer said, “You’re going to have to redefine and reshape your core. That includes what kind of food you eat and what kind of exercises you do, because your core controls largely everything that you want to do. By reshaping your core, you truly achieve the change you’re looking for.”

Then it hit me.

The insurance industry has rarely seen what I would call radical or monumental shifts in change. We’ve seen only slight shifts or little tweaks. What would reshaping the core of healthcare look like? And really, what is core in healthcare plans today? Looking back ten or fifteen years ago, the core of insurance used to be: How efficient am I at paying claims? How strong am I at customer service? How quickly can I enroll?

These efficiencies in claims and billing are your blocking and tackling, but the challenge is that this a lot to consider your core. If everybody has these, then what do you have? The blocking and tackling become table stakes. You have to do them well. If you don’t do them well, they only hurt you. Blocking and tackling cause dissatisfaction if they aren’t done right; if they’re done well, it’s just expected

What happens then, when what you used to consider core is now only commodity? To differentiate yourself in a commoditized world and really start making changes in how you do business, you must first redefine, then reshape your core. In the future, the core of healthcare plans will be inextricably linked to product and data management. And the end of the day, that’s what you sell, that’s what you service, and that’s what your entire world is built around.

Here’s how we can begin to reshape the future core of healthcare and avoid those missed opportunities:

Be more than the prettiest pig in the sty

If you only compare yourself to those who you compete with on a daily basis, you’re missing the main point. Chances are, your customers are comparing you to the experience they have in other industries. And if that experience is really good—for example say, purchasing products on Amazon—then it doesn’t matter if you’re the prettiest pig in the sty. If you look at a net promoter score of Nike or Apple, and then compare it to a health insurance company, you’re going to see very stark differences.

Own your products

Your product is your core. Owning product means everything from how you understand what the market wants and desires, to how this product fits into your center, to how you then serve this product once it’s been purchased. If you don’t understand what your clients want, you’re missing a significant opportunity. If you can’t serve that product after it’s been sold and is now in production, then you’re missing a significant opportunity to really create and drive a net promoter score that rivals Nike or Apple.

The biggest challenge to owning your core is that you must control the entire chain surrounding it. And this is hard. Your business processes— your service model, your structure, your culture— must shift once you realize that everything outside your product could largely be outsourced. If you’re caught up in blocking and tackling mode, you remain like everyone else. Your business processes need to evolve around the product-core to truly drive change and deliver value to your customers. It’s just like the trainer’s advice to his client: if you focus solely on exercise, but don’t change your diet or spiritual mindset, you won’t get any results.

Leverage the data model

Now, you can’t drive product as your core without having the data management and modeling as leverage to support it. You can have all the data in the world, but if you don’t have any way to leverage and productize, you’re again missing a significant opportunity.

A health carrier needs to become more of a data company. We need to leverage this amazing asset called data to drive greater value into our customers. It shouldn’t be used against the consumer, but rather be used to help them become better, smarter, and more engaged.

Integrate— virtually

Integration on its own has a real negative connotation. In the past, integration was scary because it usually equated to massive costs and failed implementation. No one ever said, Boy I had the most amazing integration. And that’s because integration almost always had these hard wired systems trying to line up together from an architectural standpoint. It was a real challenge.
But now if you know your core, you’ve defined it, and you’ve owned it, you can virtually integrate to anything. How? Perception! You don’t have to truly integrate, only look integrated and seamless to your customer. What is visual to the customer— whether it’s the individual consumer, the large group, the hospital system— is a shield to the massive effort behind the scenes.

Consider Disney Corporation. They may not own a lot that happens inside the Disney experience— from the tickets, to the hotels to the airport shuttle, to the food, to the fast pass— but what you see when you get on the plane is an acknowledgement that you’re going to Disneyworld. Welcome to a great adventure.

When you get on the airport shuttle, that experience doesn’t change. When you get to the hotel, that experience doesn’t change. All that happens could all be owned— or none of it could be owned— by Disney Corporation. But at the end of the day, as a consumer, you really don’t care. Disney has virtually integrated so much of the experience that it doesn’t matter where it comes from. No one can own everything.

Virtual integration will be difficult in the health space because our blueprints— whether you’re a hospital company, an insurance company, or a consumer— are different. It will depend upon this trifecta of patient, payer, and doctor, coming together to drive the integration experience.

And it will be worth it. Virtual integration is a cost effective way, behind the scenes, to become a tangible product and experience to the customer. You don’t have to connect hard wires to make something look truly integrated because that’s where there’s cost. Instead, find opportunities to leverage your platform to feed to the desired downstream system. You can get information without hooking up or connecting—again, that’s where cost comes in—and find other ways to make this experience appear seamless to the customer.

When you begin to reshape your core, it takes amazing discipline. It takes focus. And it takes all those involved, who have skin in the game, to align. Just like the trainer brought up, we could do all the exercises to strengthen your core and reshape it, but if you’re not eating correctly, you’re not disciplined, then the effort is futile. As in healthcare, if your core changes to product and data management, how you feed it, and how disciplined you stay, is really what will determine the strength of your success. You can’t go into it half-heartedly.

We’re at a point now in our healthcare lifecycle where redefining your core is critical to staying on a sustainable path. In the future, if product is the only thing you own, and the services and culture behind it have reshaped to support that product, you can be sure that core is strong, healthy, and ready to compete.