Preparing for the future:Meeting changing customer expectations in life insurance by DeloitteAnalytics


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									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

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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

                          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

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
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.

    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.
    Megan Burns, How Companies Raised Their Customer Experience Index Scores, Forrester Research, Inc., Cambridge, MA, April 18, 2011.

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.

    “Orbitz Price Assurance Program”, accessed September 18, 2011 <

                                                         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
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.

    Adrian Mello, “Mass customization won't come easy”, ZDNet, accessed September 18, 2011 <

                                                                  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.

                                                                  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

                                                                  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
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

                              Middle                               Information & analytics

                                              Internal audit
                                 Back                                    Operations             Policy admin
                                                & controls


       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      Deloitte Consulting LLP
                          +1 212 618 4287
Arun Prasad     
Deloitte Consulting LLP   Neal Baumann
+1 212 618 4561           Principal      Deloitte Consulting LLP
                          +1 212 618 4105
Doug Welch      
Deloitte Consulting LLP
+1 312 486 3231

Emily Yoo
Deloitte Consulting LLP
+1 212 313 2713

Thomas Zipprich
Deloitte Consulting LLP
+1 312 486 4690

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