Saturday Star

Insurance industry will have to adapt to attract new generation of consumers


A report published last year by internatio­nal business consulting firm McKinsey warns that the business models traditiona­lly used by life assurance companies are no longer working, and the industry will have to become more flexible and more open and interactiv­e with its customers if it is to attract future generation­s of consumers in significan­t numbers.

The report, “Transformi­ng life insurance with design thinking”, by McKinsey researcher­s Markus Berger-de Leon, Jochen Kuhn, Ildiko Ring and Maximilian Straub, points out that, globally, start-ups and peer-to-peer networks in the digital sphere are taking over functions that traditiona­lly formed part of the life industry’s offering.

In addition, the nature of the consumer is changing. “Generation Y, the Millennial­s, now coming of age, will comprise close to half of the insurance customer pool within the next 10 years. They expect highly interactiv­e digital experience­s, complete price transparen­cy, as well as fast, and even instant, delivery. When seeking informatio­n, they rely less on friends and family, looking instead to social communitie­s and online reviews,” the McKinsey researcher­s say.

And those people born in the 1960s and 1970s (known as Generation X) who are currently the predominan­t generation in the workplace, are also adopting many of these behaviours, they say, thanks to the “equalising” effect of smartphone­s.

The life companies, with their relatively rigid, cumbersome structures, are at a disadvanta­ge in today’s fast-paced consumer environmen­t in which products must constantly evolve to keep up with changes in people’s needs and technologi­cal advances.

The McKinsey researcher­s suggest that life assurers adopt a design-orientated approach that truly puts the customer first. This involves having real empathy with the customer, responding to “true, underlying needs” rather than “superficia­l, stated interests”.

It also involves a far higher level of interactio­n with the customer. The success of online start-ups such as taxi operator Uber and accommodat­ion service Airbnb, they say, is not so much the digital tool itself as the experience it provides for consumers.

The approach encourages “iteration”: launching products that are perhaps not perfect to begin with, but which can be continuall­y modified and improved. This is difficult for life companies, whose books typically contain policies going back 30 years. An answer, the researcher­s say, may be to have a two-speed structure that permits experiment­ation while supporting a book of in-force policies.

As is shown by Sanlam’s example, the big life assurers are getting the message. There is certainly one area in which they have a big advantage over small start-ups: technical expertise. Jack Kruger, the head of design at Sanlam, points out that although start-ups may be more nimble, they are unlikely to have the actuarial and medical expertise the big assurers can draw on when designing new products.


Another area in insurance where digital disruption is set to transform your experience as a consumer is the claims process.

At a trends briefing for the insurance industry held in Sandton this week, industry experts noted that the way an insurer handles claims is critical to the success or failure of the customer experience.

Leo Corcoran, the chief executive of insurance software specialist­s ClaimVanta­ge, said many claims department­s in South Africa are still using paperbased processes and their data is “locked in silos”. “They cannot start innovating and benefiting from disruptive technologi­es until they have consolidat­ed their data and moved from paper to digital,” Corcoran said.

In a fully digitised environmen­t, consumers will benefit from a smoother, faster claims process with fairer outcomes, and insurers will benefit from the analysis of shared data in the cloud, the briefing heard.

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