Preparing for the future Meeting changing customer expectations in life insurance How customer expectations are driving the need for a new operating model capable of fully leveraging information and analytics Table of contents Introduction by Deloitte’s Vice Chairman, Oil & Gas 1 Executive summary 1 Industry Overview 2 Meet rising customer expectations 2 Exploration & Production 4 Leverage information management and analytics 4 Midstream 6 Align the operating model 6 Oilfield Equipment & Services 8 Conclusion 7 Refining & Marketing 10 Acknowledgements and contacts 8 Summary 13 As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 2 Executive summary The life insurance industry is experiencing change on To meet the opportunities presented in the new multiple fronts, with most of the attention on new environment, most insurance companies should consider regulation, increased competition, and advances in substantially enhancing their capabilities in three areas technology. Often overlooked — and probably the (Figure 1): most fundamental change — is the challenge from rising customer expectations and a more risk-adverse • Meet rising customer expectations. Meeting environment. Influenced by their interactions with expectations will require insurers to provide responsive, companies in other industries, insurance customers today immediate service and the ability for customers to have higher expectations than ever before. In addition, the engage using a variety of channels. In addition, it insurance industry is facing a new reality of lower margins will require interactions and product offers that are and intense pressure to do more with less. personalized to a consumer’s needs, combined with transparent pricing and features. Meeting these rising customer expectations and operating pressures will likely require insurers to better leverage • Leverage information management and analytics. information and analytics from isolated uses to a central Advanced analytical tools offer insurers the ability to role in organizational decision making. To be effective, achieve deeper knowledge of customer needs and insurance companies will likely also need an organizational internal cost drivers, make more accurate underwriting structure that allows them to rapidly leverage the analytic decisions, improve product development, and increase insights to improve operations and address customer operational efficiency. needs. Insurers that move quickly can capitalize on these challenges to build a competitive advantage. • Align the operating model. Taking full advantage of analytics will require organizational capabilities Companies in other industries that have successfully that most insurers do not currently possess. These confronted and overcome similar challenges provide include creating a more efficient operational structure; a useful guide. Insurers can learn how to deepen their analyzing operational data to gain early warning of understanding of customers, improve focus on their changes in consumer sentiment; and designing a new customer experience, and strengthen their analytics-based organizational architecture that is based on customers, decision making by emulating and building on what others rather than channels or products, and that redefines the have done. front and back-office functions. Figure 1. Elements of a successful life insurance carrier Make it Make it Make it Meet customer expectations easy relevant right Leverage information Product Market- Oper- management and analytics develop- Sales Servicing ing ations ment Align the Front office Middle office Back office operating model Preparing for the future Meeting changing customer expectations in life insurance 1 Meet rising customer expectations Having experienced the superior customer service provided Figure 2. Components required to meet customer expectations by leading companies in other industries, insurance customers today have little tolerance for poor customer Meet customer Make it Make it Make it service, invasive underwriting, burdensome forms, and expectations easy relevant right delays. Insurers have an opportunity to better leverage Leverage technology and data analytics to provide customers with information Market- Product Oper- improved service, more transparent products and pricing, management develop- Sales Servicing ing ations and analytics ment and a customer experience that builds trust. Align the operating Front office Middle office Back office In tackling this challenge, insurers can learn from the model experience of the cable industry, which has often been criticized for a poor customer experience. Customers often had to wait hours for a cable technician (who might For insurers to similarly improve the customer experience, never arrive), schedule multiple visits before outages were they need to make it easy by giving customers responsive corrected, and accept unresponsive customer service. As service and the choice of how they want to interact; make new disruptive content providers, such as Netflix and Hulu, it relevant by leveraging data analytics to gain insight into grew in popularity,1 customers began to switch service customer’s life events and changing financial needs; and providers in search of better customer care and content make it right by building trust among customers that they delivery that met their changing expectations. can depend on the insurer to treat them fairly (Figure 2). While the cable industry overall still receives low ratings Make it easy on customer experience, Cox Communications has Customers appreciate companies that make their lives managed to improve its reputation. The company began easier. Researching and purchasing insurance policies and by continuously reinforcing with its frontline employees the other products should be a straightforward process. It is no importance of listening to customer needs and delivering longer enough for a customer to have an agent who can outstanding service by providing regular training, coaching, provide guidance and service. Customers now want the and employee development. Second, they enabled call ability to find the same information online or be able to call center agents to resolve more problems over the phone the customer service line and have their detailed questions without having to send out a technician. Third, they answered, even if outside of normal business hours. installed new technology to allow subscribers to watch Customers expect to be able to use multiple channels to shows on demand without the need to wait for scheduled research and purchase products, access their accounts, airing times.2 While there is still significant room for ask questions, and resolve problems. Activities completed improvement, the company’s Forrester Customer Experience online by a customer should be tracked and visible to survey score increased by 12% from 2010 to 2011. Cox associates in the call center should the customer choose to Communications is proving that changing the customer continue the interaction through a different channel. experience is possible, even for mature companies. 1 The Convergence Consulting Group Limited, The Battle for the North American (US/Canada) Couch Potato: Online and Traditional TV, and Movie Distribution Commentary, Toronto, Ontario, Canada, April 2011. 2 Megan Burns, How Companies Raised Their Customer Experience Index Scores, Forrester Research, Inc., Cambridge, MA, April 18, 2011. 2 Technology capabilities will enable improved quality of Make it right service. Customers are less tolerant of long hold times when Trust in many industries has been damaged in recent calling or having difficulty in resolving errors. Upgrading years from a variety of causes, including the financial customer service will require insurance companies to crisis, Internet scams, hidden fees, and more. But eroding reconsider their hiring practices, training programs, and trust also provides companies with an opportunity information management. to build customer loyalty by doing what is right. For example, Orbitz, an online travel company, introduced a Make it relevant Price Assurance Program that automatically refunds the Consumers are bombarded with irrelevant spam email, difference to customers if they book a flight and another telemarketing calls, and online advertisements. Insurers can customer subsequently books the same class seat on the improve their ability to segment customers and prospects same flight for a lower price.3 Companies now, more and to greatly improve service by only offering the products than ever, need to be up-front about their products. For and services that are appropriate to each segment. This insurance companies, this may include more transparent will require a deeper understanding of their customers pricing — such as clarity on the price difference on certain so insurers can better target each offering, and then the riders or coverage types — or offering product packages organizational discipline to make contact at the right time with options that can be added or removed based on a and through the right channel. customer’s needs. 3 “Orbitz Price Assurance Program”, accessed September 18, 2011 <http://www.orbitz.com/App/ Preparing for the future Meeting changing customer expectations in life insurance 3 Leverage information management and analytics Making the customer experience easy, relevant, and Figure 3. Information drives all functions and increases efficiency right will likely require insurers to fully leverage external and internal information across functions and employ Meet customer Make it Make it Make it sophisticated data analytics (Figure 3). Improved information expectations easy relevant right management and analytics can provide a deeper Leverage understanding of elements across the life cycle as well as information Market- Product Oper- develop- Sales Servicing those internal to the organization — ultimately helping to management ing ations and analytics ment ensure that product development meets customer needs. Align the operating Front office Middle office Back office Marketing model Companies in other industries have successfully used customer information to provide more responsive offers and service. In the retail industry, online retail web sites now commonly use a customer’s browsing history to offer more targeted product suggestions. Insurance companies Product development can similarly take advantage of analytics to segment their Product expectations are also changing. In the personal customers by perceptions of value, preferences, lifestyle, computer industry, Dell opened its product development or stage of life. Product offers can then be targeted to process directly to customers. Dell introduced a mass the appropriate customers. Having the capability to offer customization approach that offered preselected packages, products that are appropriate to a customer’s situation is as well as the opportunity for customers to customize not only more likely to result in a sale, but can also build them. The result was an improved perception of the buying customer loyalty. process, with customers feeling more in control of their decision making without being overwhelmed with choices.4 There is also an opportunity to analyze operational data to identify early warning signs of changes in consumer Life insurance carriers could similarly offer more sentiments. Insurance companies can increase their transparently-priced packages designed for different types awareness of subtle changes in sentiment, link these to of customers, such as those with a new baby, a new house, root causes, and then use these insights to meet customer or planning for retirement. Less sophisticated consumers expectations. For example, by using data collected by would be able to simply select a package designed to meet the call center as a source of insight into the customer their needs. More sophisticated consumers would have the experience, insurers can identify issues to address in the option to customize a package to their individual situation marketing process. Analytics can help insurers understand by adding or removing individual components. how different customer segments value features and service, allowing companies to better tailor their service and messages to the appropriate customers. 4 Adrian Mello, “Mass customization won't come easy”, ZDNet, accessed September 18, 2011 <http://www.zdnet.com/news/ 4 Servicing Improved control over information can allow carriers to go much farther in providing a seamless customer experience across channels. If customers switch among an agent, a call center, the Web site, or other channels, the insurance company can ensure that each customer service point has access to the same interaction history. Insurance companies can leverage customer information on preferences to communicate how and when each customer wants. Information and analytics can also help carriers anticipate customer issues and provide proactive resolution. Operations Analytics is also effective in assessing an organization’s cost drivers and processes. Employing analytics can allow carriers to make more practically focused decisions around profitability, while pursuing an improved customer experience. Today, most insurance companies do not know their internal and external costs in sufficient detail to conduct such an Sales and underwriting analysis. Without this level of insight, companies can easily Insurance companies have the opportunity to improve incur losses on providing underpriced product features or the sales process — in the case of insurance, the service to specific customer segments without realizing it customer’s experience in the underwriting process — until after the fact. This level of knowledge will become and underwriting decisions through data analytics. The even more important as insurers move to allow customers medical data traditionally used in underwriting is both to customize their coverage by choosing among product expensive and invasive to collect. Predictive analytics go components. Rather than simply pursuing the lowest cost, beyond medical data to use publicly available marketing insurers need to choose the “battlegrounds” where value information to predict the likelihood of mortality factors. can be delivered at the optimal cost-benefit trade-off. These models have demonstrated particular usefulness in identifying the best risks. Predictive analytics can not only deliver faster underwriting decisions, it can also reduce costs by simplifying or automating portions of the underwriting process. Preparing for the future Meeting changing customer expectations in life insurance 5 Align the operating model Fully leveraging the power of sophisticated analytics will Figure 4. Harnessing analytics requires reevaluating responsibilities likely require insurers to realign their operating model. For insurance carriers this includes how the front, middle, and Meet customer Make it Make it Make it back office are defined, and the connectivity between each. expectations easy relevant right In addition to analyzing customer data, companies need the ability to analyze their operational experience, e.g., Leverage information Product in call centers or underwriting, to flag potential problems management Market- Oper- develop- Sales Servicing and to identify changes in customer sentiment. Achieving and analytics ing ations ment operational excellence will also require fundamental changes to an insurer’s organization to ensure it reflects the Align the greater importance of data analyzed in the back and middle operating model Front office Middle office Back office offices (Figure 4). Rethink the organizational architecture be redefined, particularly the middle and back office. To Many insurers struggle to act upon the insights gained do this, data and analytics would be leveraged to provide from analytics. The increasing importance of information nimbleness and flexibility to the front and back offices. and analytics suggests that insurers should reconsider the organizational structure, business processes, and In the new architecture, the middle office becomes much governance, including the roles of the front office (sales more important. Owning and analyzing information, it and product development), middle office (risk monitoring becomes the “nerve center” of the organization, adding and results tracking), and back office (customer service and significant value rather than simply being the “control controls) similar to the structure shown (Figure 5). Functions point” in the traditional sense. To make more effective that have traditionally been responsibilities of the back office decisions, a product manager must have good data on are now seen to create more value and need to assume a customers as well as on products. The middle office will larger role in developing strategy. Some of these activities — play a more prominent role as the source of the information such as customer service — may move to the front office. At needed to support customer management. the same time, carriers will need the ability to measure the value provided by these functions to better understand the Insurers that can realign their organizational structure to role they play in driving improved customer experience and allow information and analytics to drive decisions have the to identify functions that can be outsourced or offshored. opportunity to provide an enhanced customer experience In the new construct, the organizational architecture would and fuel growth. Figure 5. The aligned organizational operating model Sales & Front Claims Service marketing Middle Information & analytics Internal audit Back Operations Policy admin & controls 6 Conclusion Life insurance companies are at a critical juncture from The first step is to know your customers, gaining insight a number of dimensions — not only increased pressure into their expectations and requirements around product, on operating margins, but also from rising customer service, and interaction. The second is to understand costs expectations. Customers have higher expectations in order to profitably meet those expectations. Finally, than ever before. Delivering a highly effective customer realigning the organization is needed in order to quickly experience that meets these expectations will likely require analyze information, make decisions, and take action. All insurers to leverage information management and analytics three of these actions can be beneficial to providing a to better understand both customer requirements and highly effective customer experience. internal costs. The scale of these challenges is daunting, but other The critical role of analytics can help insurers in their efforts industries have faced similar issues and succeeded. to create a more efficient operating model that is focused Insurance companies that can move beyond conventional on information and incorporates stronger decision making alternatives to instead introduce fundamental changes processes, around both customers and efficient operations. in their organizations have the opportunity to distance This ability should be combined with the discipline and themselves from the competition. flexibility to adjust interactions and operations in a cost- effective way. Preparing for the future Meeting changing customer expectations in life insurance 7 Acknowledgements and contacts Authors Executive Sponsors Anuj Maniar Joe Guastella Senior Manager Principal Deloitte Consulting LLP U.S. Insurance Consulting Leader & +1 312 486 3765 Global Insurance Leader firstname.lastname@example.org Deloitte Consulting LLP +1 212 618 4287 Arun Prasad email@example.com Principal Deloitte Consulting LLP Neal Baumann +1 212 618 4561 Principal firstname.lastname@example.org Deloitte Consulting LLP +1 212 618 4105 Doug Welch email@example.com Director Deloitte Consulting LLP +1 312 486 3231 firstname.lastname@example.org Emily Yoo Manager Deloitte Consulting LLP +1 212 313 2713 email@example.com Thomas Zipprich Principal Deloitte Consulting LLP +1 312 486 4690 firstname.lastname@example.org 8 Insurance Industry Leadership Industry Leader Mark Charron Laura Hinthorn Mark Parkin Principal Senior Manager Partner Rebecca C. Amoroso National Actuarial, Risk & National Insurance Marketing Leader National Insurance Audit & Risk Vice Chairman Analytics Leader Deloitte Services LP Leader U.S. Insurance Leader Deloitte Consulting LLP +1 212 436 5324 Deloitte & Touche LLP Deloitte LLP +1 860 725 3088 email@example.com +1 973 602 5396 +1 212 436 2998 firstname.lastname@example.org email@example.com firstname.lastname@example.org Mike McLaughlin Dave Foley Principal Donald Schwegman Leadership Team Principal Global Actuarial Leader Partner Bermuda Insurance Leader Deloitte Consulting LLP National Insurance Professional Robert Axelrod Deloitte Consulting LLP +1 312 486 4466 Practice Leader Director +1 860 725 3040 email@example.com Deloitte & Touche LLP National Insurance Financial firstname.lastname@example.org +1 513 784 7307 Advisory Services Leader Howard Mills email@example.com Deloitte Financial Advisory Services LLP Bertha Fortney Director +1 212 436 2137 Director Chief Advisor, Insurance Industry Gary Shaw firstname.lastname@example.org Northeast Region Insurance Leader Deloitte LLP Partner Deloitte Services LP +1 212 436 6752 National Insurance – SRM Leader Richard Burness + 1 203 905 2631 email@example.com Deloitte Services LP Partner firstname.lastname@example.org +1 973 602 6689 National Insurance Tax Leader Francine O’Brien email@example.com Deloitte Tax LLP Steven Foster Senior Manager +1 860 725 3034 Director Assistant to Insurance Leader Linda Sybrandt firstname.lastname@example.org National Insurance Risk & Regulatory Deloitte Services LP Partner Services Leader +1 516 918 7073 West Region Insurance Leader Tom Carroll Deloitte & Touche LLP email@example.com Deloitte Services LP Partner +1 804 697 1811 +1 213 688 4111 Midwest & North Central Insurance firstname.lastname@example.org email@example.com Leader Deloitte Services LP Ed Wilkins +1 312 486 2123 Partner firstname.lastname@example.org Deloitte & Touche LLP +1 402 444 1810 email@example.com This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright © 2011 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited.
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