Setting the Context
When was the last time your broker or life agent assisted you in getting your service issues addressed or your claims paid out? Unless you are an HNI (high net-worth individual) client, chances are high that your answer will be, “I don’t remember”. While on paper these agents and brokers owe it to their clients, in spirit, to serve them in times of crisis, is seldom the case. Part of the problem is that historically, insurance was largely seen as a mix of 3 core functions – Sales, Underwriting and Claims, with Sales being the only revenue generating function, and the other two being cost heads. To penetrate deep into the markets, organisations required high number of ‘feet-on-street (FOS)’ – people who had the necessary skills to sell insurance products. But managing such a large sales force would push the fixed costs too high without the comfort of any MBG (minimum business guarantee). Most companies liked the idea of a variable costing model in sales – higher pay-outs for higher sales, lesser pay-outs for lesser sales and no pay-out for no sales. In order to mitigate the risk of incurring high fixed cost and yet maintain a high number of FOS, insurers relied heavily on non-proprietary sales force (non-proprietary sales force include career agents, brokers, direct sales associates, bancassurance and corporate agents). Customer service, barring a few companies, became an integral part of leadership focus much later and people rarely talked about the relevance of persistency.
Further, the need for insurance, though real, has always been latent. The absence of any visible near term or immediate benefit made insurance products less attractive. The only way insurance companies could sell more was to literally push it down the customer’s throat; “insurance is sold, not bought…” some would reason. While the market remained the same, the number of companies steadily grew and competition became cut-throat! Around 15-20 insurance companies were reaching out to the same customer at around the same time, making it difficult for the customer to understand which product suits his/her requirements the best. And all this led to further dominance of the Sales function.
The aggressive sales pitch and ‘push-it-down-their-throat’ sales efforts resulted in magnificent numbers for the first 6-8 years. Companies were growing at 20-25 percent annually and everything seemed perfect. The equity markets were soaring as well, and the insurance companies identified a huge opportunity to sell a new kind of product – the ULIPs (Unit Linked Insurance Plans) – a unique market linked plan that offered the advantages of investment along with an opportunity to mitigate risk. ULIPs became so popular that suddenly they were being seen as a direct threat to the booming mutual fund industry in India. ULIPs were best-sellers and in a short span of time traditional life insurers became the country’s largest asset management companies! But this run was short-lived. The first and major setback for insurance companies came in after the global markets crashed in 2008. The stock exchanges in India – Nifty and Sensex nose-dived almost overnight and there was a general sense of panic amongst customers. In order to save themselves from further downside, investors in ULIPs started surrendering policies. And this, led to a general sense of panic amongst the insurance companies as well.
The 2008 global meltdown was an eye opener for life insurance companies in more ways than one. First and foremost, they realised that their product mix cannot be skewed towards market linked products – they needed to find the right balance. Secondly, they realised that investment in customer engagement programmes were few and far between resulting in absence of customer confidence in the company when markets crashed. Thirdly, the meltdown brought to surface the high numbers of mis-selling, especially, in the market linked products. And lastly, they realised that the sales commission process required a restructuring, and that commission should get paid out to agents and/or brokers over a longer period of time. For the uninitiated, life insurance companies do not typically make any profit from the customers in the first 5 years, as the costs of sourcing these customers are all front-loaded. The Indian Generally Accepted Accounting Principles (GAAP) does not allow insurance companies to amortise the sales related costs over the term of the policy; consequently, the cost of new business is higher than the premium income earned between the first 3-5 years.
The Regulator and the think-tank had to jump in to salvage the situation. Most insurance companies started setting up a dedicated customer retention team that was aimed to promote persistency. Service delivery paradigms were reviewed. Marketing teams launched customer engagement programmes aimed at educating the customers and help them understand the significance of staying invested over the long term. One can presume that most insurance companies also reviewed their product mix as some fresh traditional products were introduced in the market to reduce the risk of higher customer pay-outs in anticipation of a similar crisis. The Regulator also motivated the insurance companies to constantly track customer persistency (policy lapsation and policy surrender) and deal mis-selling with high handedness. Overnight, ‘customer centricity’ became the new buzz word, it was not just ‘another back-office function’ anymore. Customer service and customer centricity was now central to the very existence of the company.
The New Paradigm
Since 2008, both, the life insurance companies and the customers have come a long way. One would like to think that customers are far wiser today. Having seen the markets crash and then bounce back eventually, they are far more confident about their investments in ULIPs and the equity markets at large. The educated customers also realise that insurance should be seen as a tool to mitigate risk and in the process of doing so, earn rewards. But most importantly, customers realised that insurance is about staying committed over the longer term.
iInsurance companies have become far more proactive as well. I know for certain that insurance companies are tracking customer behaviour more closely than ever before. They are constantly seeking newer ways to engage with their customers and drive their behaviour. They have realised the bigger importance of service delivery, which they see as the single most important driving force for higher sales. In spite of knowing that the agents and brokers must continue to service the customers, life insurance companies are leading the efforts in owning the customers. While the rules of debit and credit will perhaps never change, the rules of customer engagement changes every day. The insurance companies have to be receptive to these changes and evolve as they go.
The change in the attitude of the brokers and agents, while was expected, have not really left people surprised. They continue to be sales focused, driven by hefty commissions. The agency or broking model works well with insurers – in spite of high commissions, at least the model helped to keep the fixed costs away. However, off late the insurers have begun to realise that it would work even better if they could reach out to the customers digitally, and avoid the middlemen at least for ‘off-the-shelf’ products, if not remove them completely. Thus, the rise of online sales platforms for life insurance we see today. Further, technology enabled companies like Policy Bazaar in India or Hippo in South Africing are thriving in wake of such opportunity and electronically engaging with the customers to educate them about various policies and products. Complex sale, however, would continue to require physical presence and interpersonal skills to achieve closure, and agents and brokers, therefore, will continue to be a part of this ecosystem.
One hopes that eventually, the thinking and rules of engagement between brokers/agents and customers will change. One good success story will push broking houses and corporate agents to think, contemplate and perhaps, change the way they operate to acquire and service customers. And some of these success stories are already available as an example for others.
Responses from the players in the Eco-system
Just the other day, I got the opportunity to discuss the insurance broking business with an insurance broking house that has chosen to differentiate on CSX (Customer Service & Experience) to drive sales. In fact, they claim, one does not even have to be their customer to seek their assistance in getting a sticky service issue resolved! I was casually speaking to my ex-colleague, who happens one of the founding member of this company, and he seemed convinced that their philosophy of sales being an “outcome” of extraordinary service can truly be a profitable differentiator. He was of the opinion that there are very few intelligent and educated customers who can negotiate well with the complex insurance practices, rules and norms; their services are not aimed at those. Their services are aimed at those set of customers, who do not really understand the terms and conditions, the products (having spent a good part of my donkeys years in insurance, let me tell you that perhaps, 8 out of 10 customers do not understand their product at all especially in countries in the Indian sub-continent or even Africa), it’s benefits and clauses; and help them squeeze the maximum out of the premium they have paid to their insurance companies. This broking house understand that service issues, renewals and claims settlement do get done between the customers and the insurers. However, what they claim to understand better are the challenges that a beneficiary or the customer has to go through to get these done by the insurance companies. Typically, for a claim to be settled, lot of paper work is involved. More often than not, beneficiaries are unaware of the processes and the documentation requirements, and consequently, get caught in constant to’s and fro’s with the insurer. He believes that if they can be with the beneficiary/customer and assist him/her during such times of crisis, the beneficiary/customer will return to them with the return of their good fortune. Having spent 13 years in the insurance industry, he knows how Sales always came before Service, but he confirms that, “…things are changing fast, at least with us…”
Technology is at the forefront of how they intend to manage their broking business. The company has invested heavily on technology and they are hoping that in the days to come, technology will drive their operating expenses down. Every interaction is logged and tracked. Every ‘sticky’ case gets converted into a case study for future use. And all this to ensure that the company is better prepared to deal with the insurance companies when the next ‘sticky’ case comes through. My ex-colleague says, “We cannot choose to shut our eyes to the struggles of our clients…we are here to struggle with them if it takes that…everything else is secondary”.
One cannot comment on the viability of such a business model just yet. But at least, they come across as a breath of fresh air in this otherwise complex ecosystem. Whether they will gain critical mass to remain sustainable and relevant in the next 20 years remains to be seen, but what impresses me is the shift in thinking and more importantly, the conviction of these two insurance veterans who left behind their traditional cushy jobs to start this company and invested their hard earned money to give customers an unique experience in service delivery. I genuinely want to see them become the flag bearers in this new order of broking business where the customer comes first – in letter and in spirits.
Given the ubiquity of technology, we believe that the service industry is truly at the cusp of moving up the customer servicing value chain. No matter the size of the business, customer centricity needs to be at the heart of every organisation’s business model. And with digital technologies around, there is a lot of hope. Take for instance the relevance of UBI (Usage Based Insurance). The South African short-term insurance companies were amongst the pioneers that tested this concept. Rather than creating generic premium rate tiers by looking at historic data, UBI allows the ability to create customised pricing segmentation and improve the pricing based on customer’s driving behaviour. While UBI comes with its own set of costs, technology dependency (telematics) and other challenges, this is a great step ahead in understanding and charging the customer based on actual behaviour and not anticipated risks.
What is your Story?
It has never been so promising to make the customer central to the evolutionary needs of an organisation; and also, never been so critical. The markets have witnessed dramatic changes since the early 90s. Today the customers have choices and therefore, preferences. The customer expects to be heard. If some of us choose to ignore, ‘some of them’ are willing to hear. Technology is becoming cheaper and accessible to all. There are enough case studies available on how technology has been exploited to make customer engagements more meaningful, rewarding, and profitable. Are you ready to take the next bold step? That’s the real question.