895 Thesis: How Web 2.0 impacts Business Models of Insurance and Financial Services Companies A research project submitted to the faculty of San Francisco State University in partial fulfilment of the requirements for the degree. Master of Business Administration by Audrey Gruman San Francisco, California May, 2009
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How Web 2.0 impacts Business Models of Insurance and Financial Services Companies
The purpose of this project is to study which Web 2.0 features and functionalities could be adopted by insurance and financial services providers and how they could help those companies reinvent their business models.
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895 Thesis: How Web 2.0 impacts Business Models of Insurance and Financial Services Companies
A research project submitted to the faculty of San Francisco State University in partial fulfilment of the requirements for the degree.
Master of Business Administration
by
Audrey Gruman
San Francisco, California
May, 2009
ii
CERTIFICATION OF APPROVAL
I certify that I have read: “How Web 2.0 Impacts Business Models of Insurance and Financial Services Companies” by Audrey Gruman, and that in my opinion this work meets the criteria for approving a research project submitted in partial fulfilment of requirements for the Master of Business Administration degree at San Francisco State University.
_______________________________________ Paul Beckman, Ph.D.
Associate Professor, Information Systems
_______________________________________ Sally A. Baack, Ph.D Associate Professor, Management
iii
ABSTRACT
How Web 2.0 impacts Business Models of Insurance and Financial Services Companies
The purpose of this project is to study which Web 2.0 features and functionalities
could be adopted by insurance and financial services providers and how they could
help those companies reinvent their business models. The research method used was a
literature review through professional journals such as wired.com,
informationtechnology.com, group-edited blogs such as techcrunch.com, different
business organizations’ web sites, and analysis gathered from Research Centers such
as Pew. The research also includes interviews of 2 experts in the field. The outcome
of this project will be a recommendation of what Web 2.0 technologies to implement
in the insurance and financial services businesses to ensure a positive impact on their
results.
I certify that the abstract is a correct representation of the contents of this research
Table of contents List of Tables …………………………………………………………………..……vi List of Figures……………………………………………………………..….…..…vii Introduction…………………………………….…………………………….……….1 1. Business Technology trends………………..........…………………....…….…..….3 1.1 Exploration of Web 2.0 technologies………………………………….…….....…3
1.2 Focus on the popularity of web 2.0 technologies………………………….……...9
1.3 Focus on the use of web 2.0 technologies…………………………….….......….11
o 1.3.1 Interface with customers…………………………….....….…...…..11
o 1.3.2 Interface with suppliers/partners…………………..….…….….…..12
o 1.3.3 Manage collaboration internally……………………..…..…..…….12
1.4 The two levels of impacts on the organization……………….….…...….....……13
1.5 Key success factors to implement Web 2.0 technologies………….…….....……14
1.6 Barriers to adoption to Web 2.0………………………………...……....….……16 2. Exploration of the Insurance Value Chain…………………………….………….17 2.1 Insurance Value Chain analysis………………………………….…….......……29 2.2 Overview of insurance distribution channel challenges…………....….…..……30
o 2.2.1 The insurance market is driving by “three Ds” trends..….....…….30
o 2.2.2 Too many processes lead to a lack of personalized services…...…32
o 2.2.3 Information and paperwork overload……………..….….………..33
2.3 Overview of state-of-the-art and interactive processes.…………………….......33 3. Recommendations …………………………………………………...…….…….35 3.1 Outbound and Inbound Communication..............................................................35
3.2 Knowledge and data management.......................................................................39
v
3.3 Alternative Business Models...............................................................................42
Table 1 – Top hurdles facing agents…………………………………………………31
vii
List of Figures Figure 1 – Popular bets……………………………………………………………..10 Figure 2 – Use of Web 2.0 technologies……………………………………………11 Figure 3 – Interface with customers………………………………………..………12 Figure 4 – Interface with suppliers/partners……………………………..…………12 Figure 5 – Manage collaboration internally………………………………………...13 Figure 6 – Insurance Value Chain……………………………………………….…18 Figure 7 – Insurance Web Communication and Collaboration Landscape………...36
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Introduction The concept of web 2.0: The age of collaboration "The web has created a paradigm shift: Web 2.0 is now changing the very way we live,
the ways in which we communicate and even how we work together. There's no going
back. This paradigm shift is insistent, and doesn't simply stop at the company's
reception desk. Quite the opposite is true: the capability to work better and faster
together as a collective, and to learn from one another, is becoming a decisive
competitive advantage.”[1]
Technologies known collectively as Web 2.0 have spread widely among consumers
over the past five years. Social-networking Web sites, such as Facebook and MySpace,
now attract more than 100 million visitors a month. From entertainment to
communications to e-commerce, consumers are increasingly taking charge of the
creation, distribution and consumption of digital content. [2] According to a Research
and Markets Institute study, by 2013, 155 million US Internet users will consume
some form of user-created content, up from 116 million in 2008. The number of user-
generated content creators will grow by similar proportions, reaching 115 million in
2013, up from 83 million in 2008. [3]
As the popularity of Web 2.0 has grown, companies have noted the intense consumer
engagement and creativity surrounding these technologies. Many organizations, keen
to harness Web 2.0 internally, are experimenting with related tools or are deploying
them on a trial basis. [2]
2
Web 2.0 is the use of lightweight, intuitive, Web- level tools of social interaction and
networking. For financial services firms, it might mean taking some of Web-based
services that rely on user participation and user-contributed data, and generally
involve some philosophies that have made similar sites so popular in the consumer
realm and applying them to business software and client portals. [4]
The insurance industry has been particularly slow to leverage collaborative
technologies such as blogs, wikis and podcasts. While these communications tools
offer an opportunity to involve customers, partners and shareholders in a direct and
often more-personalized conversation, they can be perceived as a challenge to existing
corporate communication controls and processes. [4]
The value added of Web 2.0 technologies is the ability to understand the strength of
the new technology and its alignment to the ‘real’ business need. If the tool does not
make companies nimble, increase productivity or reduce cost, not matter how ’sexy’ it
is, the new tool is not going to be worth implementing.
In this research project, we will capture a snapshot of current practices and attitudes
towards various Web 2.0 areas, with a focus on their application to key insurance and
financial services areas such as customer communication, distribution, underwriting,
claims, and especially the challenge of internal communication and knowledge
management.
3
1. Business Technology trends
Web 2.0 technology acceptance is growing in the insurance and financial services
businesses. These new participative tools have a far more important organizational
impact, and also involves a stronger bottom-up element than previous technologies
adopted in the business world, such as enterprise resource planning (ERP), customer
relationship management (CRM), and supply chain management (SCM). Also,
compared to earlier technologies, web 2.0 disruptive tools are less technically
complex to implement. According to a survey from McKinsey, Building the Web 2.0
Enterprise: McKinsey Global Survey Results,” a growing number of businesses are
substantially committed to investing in Web 2.0 technologies. The investments in
Web 2.0 technologies are estimated at $1 billion but the level of investment is
expected to grow at a rate of 15% per year over the next 5 years. [2]
1.1 Exploration of Web 2.0 technologies
Web 2.0 tools cover a wide range of participative technologies including blogs, wikis,
podcasts, information tagging, prediction markets, and social networks. [2] These
interactive technologies require users to generate and exchange new information and
content, and make comments on other participants work.
4
Wikis, commenting, and shared workspaces are systems for collaborative publishing.
They allow many authors to contribute to an online document or discussion. They
facilitate the co-creation of content and applications among a broad base of
participants. [2]
Blogs, podcasts, videocasts, and peer to peer tools allow web users to communicate
and share information among a broad base of individuals. [2]
Blogs (short for Web logs) are online journals or diaries hosted on a Web site
and often distributed to other sites or readers using RSS (Really Simple
Syndication will be explained later).
Business value of Enterprise Microblogging: Example of Twitter
Embracing disruptive technologies such as Twitter or other kinds of microblogging
tools is a new trend at the enterprise level. Ed Cone, at CIO Insight in his blog
5
“Enterprise twittering comes of age”, cited Twitter as an invaluable sales/promotional
tool for small companies.
Twitter is a service for friends, family, and co–workers to communicate and stay
connected through the exchange of quick, frequent answers to one simple question:
What are you doing? [5] Right now, messages are limited to 140 characters. Twitter
is an aggregation tool available for short snippets of content along with links to rest of
the content. It is a phenomenal tool for blog promotion, and for finding and sharing
content with others. Twitter is the ultimate portal to all content.
Following is an exploration of business benefits of using twitter.
Large companies are taking advantage of this tool:
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To update customers of the company deals and coupon codes.
Dell, for instance, started experimenting with Twitter in March of 2007 at an annual
tech/music festival in Texas. Dell says Twitter has generated $1 million in revenue
over the past year and a half though sale alerts. People who sign up to follow Dell on
Twitter receive messages when discounted products are available at the company’s
Home Outlet Store. They can click over to purchase the product or forward the
information to others. [6]
To offer an alternative customer support option:
JetBlue, for instance, offers Twitter-based customer service, even providing the name
of the customer support employee on duty. [6]
To get closer to customers:
Via their Twitter profile Southwest Airlines runs unofficial, entertaining discussions
with their customers. HRBlock runs ask-and-answer sessions with their customers. [6]
To react to customers’ feedback:
Popeyes, which is a chicken fast food restaurant answers their clients’ feedback in an
entertaining tone and also updates their Twitter listeners of current deals and
discounts. [6]
To offer an alternative subscription option:
ATTNews updates their Twitter-followers of the news published at the website.
Forrester Research posts updates of their recent site discussions. [6]
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To post company news:
BreakingPoint, which is a content-aware testing systems company that is reinventing
application, performance and security testing, posts updates of company and industry
news and also discusses it with their Twitter-listeners. [6]
To promote the corporate blog:
Kodak Chief Blogger both posts the company blog updates and discusses them with
the company customers. [6]
Podcasts are audio or video recordings—a multimedia form of a blog or other
content. They are often distributed through an aggregator, such as iTunes.
Peer-to-peer networking (sometimes called P2P) is a technique for
efficiently sharing files (music, videos, or text) either over the Internet or
within a closed set of users. Unlike the traditional method of storing a file on
one machine—which can become a bottleneck if many people try to access it
at once—P2P distributes files across many machines, often those of the users
themselves. Some systems retrieve files by gathering and assembling pieces of
them from many machines. [2]
Prediction markets, information markets, and polling use the collective power of the
web community and generate collective answers. Collective intelligence refers to any
system that attempts to tap the expertise of a group rather than an individual to make
decisions. Technologies that contribute to collective intelligence include collaborative
publishing and common databases for sharing knowledge. [2]
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Tagging, social bookmarking/filtering, user tracking, ratings and RSS (Really
Simple Syndication) add additional information to primary content to prioritize
information or make it more valuable.
RSS (Really Simple Syndication) allows people to subscribe to online
distributions of news, blogs, podcasts, or other information. [2]
Social networking and network mapping leverage connections between people to
offer new applications.
Social networking refers to systems that allow members of a specific site to
learn about other members’ skills, talents, knowledge, or preferences.
Commercial examples include Facebook and LinkedIn. Some companies use
these systems internally to help identify experts. [2]
Web services are software systems that make it easier for different systems to
communicate with one another automatically in order to pass information or conduct
transactions. For example, a retailer and supplier might use Web services to
communicate over the Internet and automatically update each other’s inventory
systems. [2]
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Mash-ups are aggregations of content from different online sources to create a new
service. [2] The term mash-up comes from the hip-hop music practice of mixing two
or more songs. This capability to mix and match data and applications from multiple
sources into one dynamic entity is considered by many to represent the promise of the
Web service standard, also referred to as on-demand computing. [7] An example
would be a program that pulls apartment listings from one site and displays them on a
Google map to show where the apartments are located.
Digg, for instance, is a mashup of various news Web sites controlled almost entirely
by the users of the Web site. According to a report conducted by Comscore
worldwide in February 2009, Digg has 19 million unique visitors and nearly 85
million page views.
1.2 Focus on the popularity of web 2.0 technologies
According to a McKinsey Global Survey about how businesses are using Web 2.0
conducted in March 2007, organizations focus their investment in trends that promote
automation and networking online. 80% of the respondents of the survey are investing
primarily in web services development; peer- to- peer networking seems to be very
popular among 47% of the respondents. [8]
10
Popular betsIs your company investing in any of the following web 2.0
technologies or tools?
80
48
47
37
35
35
33
32
21
6
26
28
39
42
40
39
43
54
0 10 20 30 40 50 60 70 80 90
web services
collective intelligence
Peer-to-Peer networking
Social networking
RSS
Podcasts
Wikis
Blogs
Mash-ups
Not under consideration
Using or planning to use
Source: 2007 Mc Kinsey Survey on Internet Technologies conducted among 2,847 executives
worldwide, 44 percent of whom hold C-level positions.
63% of the respondents in the financial services sector are planning to increase
investment in web 2.0 technologies over the next 3 years.
The study suggests that 2/3 of the organizations that invest in web 2.0 technologies
pursue specific strategic goals:
- Maintain a market position
- Gain a competitive edge
- Match competition
- Address customer needs
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1.3 Focus on the use of web 2.0 technologies
According to the McKinsey survey, executives use web 2.0 technologies to
communicate and share information with customers and business partners and to
reinforce collaboration between the business units of the organization. [8]
70
51
75
0
10
20
30
40
50
60
70
80
Use of web 2.0 technologies (%)
Interface with customers
Interface withsuppliers/partners
Manage collaborationinternally
Source: 2007 Mc Kinsey Survey on Internet Technologies conducted among 2,847 executives
worldwide, 44 percent of whom hold C-level positions.
Organizations use Web 2.0 technologies more often for internal purposes than for
external communication. However, a growing numbers of companies use web 2.0
tools to get into new markets and are focusing their efforts on increasing interactions
with customers, suppliers and outside experts. For instance, companies involve
customers in product-development efforts, which is the process of co-creation.
o 1.3.1 Interface with customers
Organizations intensify their efforts to increase interaction with their customers. They
use web 2.0 tools to get customer participation in product development, to improve
customer service, to acquire new customers in existing markets, and to let customers
interact with each other. [8]
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19%
34%
47%
Customer-to-business feedback
Customer services
New customers,new markets
Source: 2007 Mc Kinsey Survey on Internet Technologies
o 1.3.2 Interface with suppliers/partners
Companies use web 2.0 tools to build networks outside the organization. These tools
help companies tapping networks of experts, getting supplier participation, lowering
purchasing costs, achieving better integration with suppliers, and carrying out other
partner/supplier processes. [8]
17%
83%
Purchasing
Better interfaceintegration, bettercommunication
Source: 2007 Mc Kinsey Survey on Internet Technologies
o 1.3.3 Manage collaboration internally
Organizations use web 2.0 tools to manage collaboration internally. According to a
MacKinsey survey conducted in 2008, companies successfully use web 2.0 tools for
13
internal recruiting, developing products and services, enhancing company culture,
managing knowledge, training, and fostering collaboration across the company. [9]
49%51%
Product DesignDevelopment
Know ledge Management
Source: 2007 Mc Kinsey Survey on Internet Technologies
1.4 The two levels of impacts on the organization
Web 2.0 tools substantially raise the productivity of transactional processes. Indeed,
web 2.0 intervenes at two levels:
- Internal to the enterprise including employees and contractors: content
generation technologies allow employees across the organization to
collaborate on knowledge management, sharing best practices, communicating,
and coordinating activities. Web 2.0 tools also allow experts to share
knowledge, and ideas among business units of the organization.
- External to the enterprise including customers, partners, and suppliers:
collaborative contribution technologies enable third parties to participate in
product development, exchange data through EDI (electronic data interface)
which is an easy mechanism for companies to buy, sell, and trade information,
and that enables the transfer of data between different companies using
networks such as the Internet, provide feedback, and aid in customer support.
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It also enables the organization to spread marketing messages in a more
efficient way.
1.5 Key success factors to implement web 2.0 technologies
Web 2.0 tools at the internal and external levels enable the aggregation of opinions
from many individuals and provide strategic decision support, help generate new
ideas across the organization, and find solutions to problems. According to a
McKinsey survey, businesses leverage these technologies and seem generally
optimistic about their benefits, especially in how Web 2.0 tools help a company refine
its strategy. A successful implementation of web 2.0 tools involves six key factors of
success [2]:
1) Getting popularity through top management’s influence
The top management has a role model within the company and should focus its
efforts to promote participative tools across the company. The CIO, for instance,
could help increase faster the adoption of web 2.0 technologies within the
organization through the substantial use of these tools.
2) Matching employee’s needs and web 2.0 functionalities
Participatory tools are driving a high business value when management is able to
determine the best application that fits employees’ needs and scale up within the
organization. AGF which is a French insurance company, for example, provides
several collaborative tools to its employees so that new employees can faster learn
best practices of the company. However, human resource staff uses these tools for
sharing recruiting tips and information about potential candidates.
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3) Encouraging regular use across the organization
Also, web 2.0 technologies need to be used on a regular basis to ensure a
successful implementation. Some companies, for instance, introduce a wiki-based
knowledge management tool that employees are expected to use on a daily basis
but the level of participation falls in the long run. Google is a great example of a
successful implementation of participatory technologies. Engineers use wikis and
blogs as a main way to communicate about their work progress. Thereby,
managers can provide feedback and guidance in a real-time manner. Also, web 2.0
technologies allow engineers to communicate and share information more easily
with other business units, provide backup help when needed, and coordinate
projects more efficiently. Pixar is another example of a successful implementation
of web 2.0 tools. Indeed, the company built video into wikis that allows animators,
software engineers, managers, and directors to analyze and discuss real clips and
frames from a movie. Therefore, more relevant critiques arose and animators were
able to work in a more effective way.
4) Stimulating the use of web 2.0 through employees’ rewards
In order to encourage employees to use web 2.0 technologies, management should
promote it as a way to gain public work recognition through blogs or wikis.
Arcelor Mittal [2], for instance, offered prizes to employees during prominent
meetings for valuable contribution and thus stimulated creative ideas for business
improvement.
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5) Encouraging experts participation
Participative tools are more effective when targeted users actually use them. P&G
[2], for instance, introduced wikis and blogs to encourage collaboration among its
workgroups and targeted opinion leaders and technology-savvy users within the
organization to get the most rich and valuable content possible. Best Buy’s [2]
employees also experienced web 2.0 tools through internal information markets in
order to produce more accurate sales forecasts. Forecasting experts, participants
with broad operational background, were involved in the process of sales
forecasting and helped to produce more valuable business outcomes.
6) Anticipating and managing legal, and IT issues
Web 2.0 tools involve legal and IT security issues/challenges and organizations
should be able to handle them to find the right equilibrium between laissez-faire
and “big brother policy”. To mitigate risks, management should prohibit
anonymous posting, make participants active in blog management by integrating a
“flag as inappropriate” button, which temporarily removes suspect postings until
they can be reviewed. Also, participatory technologies should involve a
contribution tracking system to assess the degree of involvement of authors.
1.6 Barriers to adoption to Web 2.0
One of the most important barriers to adoption of Web 2.0 in companies is the lack of
potential financial return of investment (ROI). According to a survey conducted by
Forrester Research, 28 percent of respondents do not understand the potential
financial return of Web 2.0. In addition, corporate culture does not encourage Web
2.0 use cited by 22 percent of respondents, and companies do not provide enough
17
incentives to adopt or experiment with Web 2.0 technologies cited by 20% of
respondents. [10]
2. Exploration of the Insurance Value Chain The insurance industry is facing enormous challenges as well as opportunities. Factors
including globalization, product commoditization, industry consolidation, regulatory
changes, innovative distribution channels, and shrinking margins have presented the
insurance industry with a new reality: securing a new competitive advantage is more
difficult than ever. Today’s insurers must streamline their operations and make them
cost effective in an environment of overcapacity. Insurance companies need to
differentiate their products and focus on customer satisfaction and retention, while
maintaining a competitive cost structure, in order to secure market share from an
increasingly demanding customer base. [11]
From client prospecting to settling claims, business processes within the insurance
value chain are oriented to build customer satisfaction. The insurance value chain is a
means for companies to achieve a sustainable competitive advantage through a focus
on the customer experience. To achieve a long-term competitive advantage,
insurance companies must align technologies and business processes. Maroney,
managing director for the insurance industry within Microsoft’s Financial Services
Group, says that “the insurers that have achieved a significant measure of success on
today’s competitive market have brought together their business and technology
efforts in order to create transformational business processes”. [12]
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Insurance value chain
Product development and configuration
Insurance products are complex and insurers have difficulty providing product
benefits in simple terms. Also, insurance is a touchy subject for customers who are
reluctant to think about the circumstances in which insurance becomes critical. In
addition, purchasing an insurance product is a more intensive experience than buying
other types of financial products, ranging from moderate (auto insurance) to intensive
(medical testing for disability income or life insurance).
Insurance carriers need to envision better customer service and be able to deliver
more relevant products. Indeed, because customers expect immediate responses to
their questions, insurance companies need to leverage their wealth of available
information to provide targeted answers and offer personalized, value-added products
and services. Thus, insurers need to provide product information in a clear,
educational and compelling manner that would help potential clients to quickly
understand the risks they face and the solutions available to them.
diverse, and socially mindful. [14] To better capture this new opportunity, insurers
should identify the key characteristics of Gen Yers as consumers of financial services,
and understand how this new category of customers will purchase insurance products.
22
Thus, insurers would be able to adopt a customer-centric business approach and
improve the quality of the customer experience for all generations, including older
customers that are more immediately profitable clients. In addition, insurers that will
be able to align their customer experience strategies with changing customer
preferences and expectations, will better differentiate themselves from competitors in
the mature and challenging insurance business. [15]
Clearly, Gen Yers represent a tremendous opportunity for insurance companies.
Indeed, Gen Yers are expected to become the wealthiest generation ever, with an
annual income of up to $200 billion.[16] In addition, Gen Yers represent about 10
percent of the U.S. labor force and their economic influence is expected to grow (see
Figure 4). In the short term, Gen Yers represent a huge opportunity for auto and home
insurers since they are expected to buy about 25 percent of new cars and trucks sold in
the U.S by 2010, and up to 40 percent by 2020. [17] In addition, Gen Yers are
expected to buy their homes earlier than older generations such as baby boomers.
Indeed, the average age of a first-time home buyer from Gen Y was 26, three years
younger than for Gen X or baby boomers. [18]
Since life events typically trigger financial decisions, insurance companies should get
ready to reach out this new target. According to a survey, about one out of every three
people who moved, got married, or changed jobs, were between 18 and 28 years old.
[19] As Gen Yers face life events such as purchasing a first home, a first car, or
having a first child, they tend to see insurance products as pricy, confusing, and
unnecessary. Therefore, insurance companies should focus their efforts on educating
23
and helping Gen Yers to choose and understand the value of financial and insurance
products to overcome unexpected risks that can occur in their life.
Because insurers need to investigate the characteristics of Gen Yers to capture the
enormous opportunity of this new target, Deloitte conducted a study in 2008 to
understand the attitudes and beliefs of Gen Yers.
As Gen Yers have easy access to a large amount of information about financials
products and services through the Internet, they are overwhelmed by the different
options offered to them and they are not confident in their financial decision (cited by
57 percent of people surveyed). [20] In addition, Gen Yers cited that insurance
products were too complex and were confused when they had to choose an insurance
product. [21] Therefore, insurers have an opportunity to educate Gen Yers about the
value of financial protection.
Despite the fact that Gen Yers are very independent to do research on financial
products and services, they often seek recommendations and validation from family,
friends, and financial advisors (43 percent of Gen Yers surveyed cited parents as a
source of recommendation for choosing financial products and services).[22] In
addition, a study by Life Insurance and Market Research Association (LIMRA) found
that “references from friends, relatives, and co-workers are the most influential” when
selecting a life insurance company.[23] Accordingly, insurers inherit Gen Y customers
through their own or agent relationships with baby boomers parents. Furthermore,
professional financial advisor are very involved in the decision-making process of
Gen Y. A study by Life Insurance and Market Research Association found that
24
insurance professionals are the most used sources of information for life insurance. It
is also important to mention that Gen Yers often use the Internet to find a suitable
combination of price and service, then validate their research, and buy the policy
through an independent agent or over the phone. [24] Thus, insurers have an
opportunity to improve the delivery of professional advice and use existing customers
as advocate and influential advertisers for their brand.
As Gen Yers are naturally looking for financial products and services at an affordable
price, and given the fact they easily access information and recommendations on
competing products and services, insurers need to focus their effort on cultivating Gen
Y’s loyalty more directly. One study of auto, health, home and life insurance found
that Gen Yers rate price as the most important attributes when choosing a policy. [25]
In addition, one survey found that “Gen Y is the least loyal generation: only 49
percent of Gen Yers are reluctant to switch from their existing insurance company to
another, compared to 67 percent of Gen Xers (27-43 years old, see appendix 4 for
details), 71 percent of young baby boomers (44-62 years old, see appendix 4 for
details), and 75 percent of older baby boomers (63-83 years old, see appendix 4 for
details)”. [26]
As Gen Yers are tech-savvy and are actively engaged with a variety of digital and
social media, insurers should intensify their interactions with these customers through
those new channels of communication. A Deloitte study found that Gen Yers’ use of
social networking sites, chat rooms, blogs, and virtual worlds is substantially greater
than older generations. [27]
25
In addition, Gen Yers expect that they could access online functionality through their
mobile phone whenever and wherever they want. Over time, all generations will see
web technologies as a new way to interact with their insurance company. For example,
a Deloitte study found that 86 percent of Gen Yers, 73 percent of Gen Xers (27-43
years old, see appendix 4 for details), 64 of baby boomers (44-62 years old, see
appendix 4 for details), and 40 percent of veterans (63-83 years old, see appendix 4
for details) are watching or listening to content created by others, including Web Sites
and blogs. [27]
Gen Yers are more driven by an entrepreneurial spirit than previous generations. A
survey conducted by Inc.com found that 59 percent of Gen Y company owners
describe themselves as “serial entrepreneurs” who plan to start more than one
company in their lifetime, compared to only 33 percent of baby boomers. [28]
Moreover, according to the same survey, as entrepreneurship programs are rising in
business school, 18 to 24 years old people in the U.S are starting businesses at a faster
rate than 35 to 44 years old people. The survey concludes that Gen Yers’ intention to
start a business at an earlier stage than older generation is reflecting Gen Y’s
confidence, independence, impatience and enthusiasm. Thus, there is a tremendous
opportunity for commercial insurers to match this new category of business owners’
needs with specific financial products and services, and to explore Gen Y’s
expectations of B2B relationships.
As Gen Yers represent a multi-faceted group, insurers should better adapt the
customer experience to their diversified needs. Gen Yers are more racially and
26
ethnically diversified than older generations (one-third of Gen Yers in the U.S
identify themselves as “non-white”) [29], they come from diversified household
compositions (non-traditional or single-parent), and they are shaped by diverse
professional experiences from part-time jobs or internships to full-time jobs and their
own business.
Given that Gen Yers are more environmentally and socially conscious than older
generations, insurers should take the opportunity to create innovative and appealing
products that demonstrates the commitment of the brand to the community and the
environment. According to a survey conducted in 2006, Gen Yers are “the most
socially conscious consumers to date”, and 83 percent “will trust a company more if it
is socially/environmentally responsible”. In addition, the survey found that many of
Gen Y’ customers value eco-friendly services, and 46 percent of them would “shop at
a retailer more if the retailer were to go green”. [30] Also, 47 percent said they would
“pay more for environmentally friendly services, products, and brands.” [31] Thus,
insurers should be able to improve the customer experience by building relationships
on green and social values.
Marketing Approach: Insurers must develop new marketing strategies to
encourage customer intimacy
Because insurers need to attract and retain new customers, there is a great opportunity
to identify new ways of communication and develop powerful and effective outbound
communication strategies. Gen Yers principally rely on word-of-mouth and their
personal networks such as friends, and family to choose an insurance company. Thus,
insurers should identify parents of Gen Yers in their customer base and should
27
educate them to transfer information about potential risks and solutions available
proposed by insurance companies to their children. Additionally, insurers should
analyze in-depth the life events that trigger insurance needs.
There are several marketing techniques that insurers could use to reach out Gen Yers.
For instance, insurers could advertise their products in high schools, universities,
student clubs, and sporting events. Therefore, insurance companies could educate
their future potential customers at an early stage about risks, financial protection, and
help them with financial independence through seminars or informational sessions.
Another effective way to reach Gen Yers and older generations is through websites, as
they conduct online research about auto and life insurance products. According to a
study conducted by Forrester Research, “nearly half of all U.S. auto insurance
researchers using the Web, the Internet has become the most popular channel for
researching auto insurance and now yields the highest number of applicants.” [32]
Additionally, insurance companies’ websites attract high-income customers. A
research conducted by Forrester Research found that “those who research auto
insurance online have an average annual income greater than $70,000 and higher
average asset levels than the overall population (greater than $200,000 in investable
assets and greater than $100,000 in retirement assets).” [33] To attract new customers
more effectively, insurance companies should look at emerging technologies such as
Web 2.0 technologies including web-services, online social networks, products
reviews and ratings, and viral marketing strategies (marketing strategy based on word-
of-mouth). These new marketing strategies enable companies to gain visibility in a
fast and effective way and also present a positive brand image among young
customers.
28
Distribution approach: Insurers must develop cross-channel experiences to
reach Gen Yers
Gen Yers challenge the existing distribution channels in the insurance industry,
especially the Web channel, by requiring more efficiency and more personalized
experience throughout the value chain. One study found that 20 to 25 percent of
insurance customers across all generations do not consider themselves satisfied with
their Web interactions.[34] Another study found that many companies have poor
search capabilities, buried content, small front sizes with wasted spaces, frequent
crashes, missing information, and little integration with other channels. [35] Clearly,
the Web channel allows insurance companies to integrate their different distribution
channels and provide flexible options to their customers to interact with them and
purchase insurance products.
Experts of the insurance industry recommend more user-friendly and convenient Web
sites through features including easy-to-locate customer service numbers, online chat
with a representative. In addition, insurers’ websites should provide a customized
customer experience by developing enjoyable and educational content. Furthermore,
insurers should look at mobile-friendly functionalities such as iPhone applications to
reach Gen Yers.
Insurers should leverage the Web channel to support face-to-face or telephone
channels and then provide a better customer experience. Gen Yers are looking for
advice to validate their choice of insurance company through physical or virtual
networks. Therefore, insurers should develop online features such as “click to call”,
29
online chat with an advisor when making a decision to purchase insurance or financial
products. One study of European Net users found that 42 percent of those who did not
purchase auto insurance online did not because they wanted to speak to a customer
representative before purchasing a policy. [36]
In addition, Gen Yers will more likely use self-service features such as managing and
updating policies and viewing a statement online. To solve this issue in a timely and
more efficient manner, insurers should provide a 24/7 agent-assisted service.
Therefore, this new Web service could be very useful to handle renewal, add issues or
cancel policies online. As a result, insurance companies could analyse more
efficiently the reasons for dissatisfaction and why their customers cancel their policies.
It is important to mention that the integration of distribution channels through the
Web can be perceived as a threat by agents and brokers. However, experts of the
industry consider that the Web channel will increase the traffic in insurance agencies
and they will have more time to focus more on developing a personalized relationship
with the customers. As a result, insurers will need to support and educate their
distributors by providing them training opportunities, performance tracking tools,
technological decision-support tools, and better information quality. Because insurers
will need to provide the best quality tools to support their distribution partners,
insurers will be able to differentiate from their competitors.
2.1 Insurance value chain analysis
The complexities in the insurance industry are triggering the need for change and
improvement to business processes. Insurance carriers need to invest in long-term
strategic advantages and identify high-value activities that may be empowered by
30
cutting-edge programs and applications for tomorrow's mass market based on industry
insights and proven technology innovations in use by today's early adopters. The best
insurance companies and tomorrow’s highest performers are already gaining an early
perspective on how emerging technologies may help them lead the market. Early
innovators in the insurance industry will then be able to capture and capitalize on new
opportunities for growth, value creation and sustainable high performance.
Insurance companies of the future will be more agile and able to leverage automation
within business processes and knowledge management within the whole organization.
In addition, insurance companies that will be able to leverage cross-channel
distribution strategies will improve substantially the customer experience along the
customer life cycle.
2.2 Overview of insurance distribution channel challenges
The insurance market is increasingly complex, with a growing trend of diversification
and commoditization of insurance products.
2.2.1 The insurance market is driving by “three Ds” trends:
- The increasing diversification of insurance products. As carriers rapidly
diversify their insurance products, agents must be continuously made aware of
new insurance policies, processes and products. Since insurance agents sell
products and services from different carries, carriers need to provide easy and
effective ways to sell their services. Thereby, carriers can increase agents’
loyalty and market share.
31
- The insurance industry faces a decrease of differentiation between products.
Thereby, both agents and providers need to focus their efforts on gaining a
competitive advantage through investments in people, technology, branding,
advertising, and sales processes.
The ultimate goal of insurance companies is to improve the customer
experience. One way carriers can offer the best service to their clients is to use
demographics. The key factor of success for carriers is to offer personalized
services to both their clients and their agents. Agents’ loyalty is threatened by
a high rate of turnover among agents, and policy cancellations or transfers.
Because costs of distribution and paper processing time are increasing, agents’
loyalty and customer satisfaction are declining.
Top hurdles facing agents
Paper forms Retyping information from paper forms inevitably introduces inaccuracies
Inefficient data input
Using multiple forms requires that important data be rekeyed multiple times, an unnecessary inefficiency that also offers more opportunity for error.
Delays in transaction processing
Every error or piece of missing or incomplete data brings transaction processing to a halt. Once the error is corrected, forms must be resubmitted, leading to further delays.
Compliance errors
Nothing is more frustrating for agents than being told that the correct certification is not in place to allow them to sell a particular product.
Poor display of product information
When clients and agents aren’t looking at identical data, charts, graphs, and other displays, the result is poor communication and wasted time. Agents must take extra time to present and explain policy and product information to clients. Otherwise customer frustration may lead to lost sales.
Inaccessible customer information
Not knowing key facts about clients’ personal situations and insurance goals presents a significant barrier to cross-selling and upselling.
[28] “The Making of an Entrepreneurial Generation: How new technologies, a
proliferation of resources, and a disenchantment with the corporate world are making
Generation Y the most entrepreneurial in history”. 2008. Inc.com.
[29] “Who are the Millenials: a.k.a. Generation Y” Deloitte Development LLC 2005. [30] “Gen Y gets involved” USA Today 24 Oct. 2006. [31] “Gen Y’s Echo Attitude” Chain Store Age Oct. 2007. [32] “The Web Dominates U.S. Auto Insurance Research” Forrester Research 11 Sept. 2008. [33] Ibid. [34] “Customer Relationship Snapshot: Insurers - How Relationships Differ Across
Generations Of US Consumers” Forrester Research 29 Apr. 2008.
[35] “How to Design Better Car Insurance Web Sites” Forrester Research 5 July 2005. [36] “The Web Dominates U.S. Auto Insurance Research”. Rep. 11 Sept. 2008. Forrester Research.
[42] : : Zinsure - mobile insurance software: :. 11 May 2009 <http://www.zinsure.net/>. [43] Yammer. 11 May 2009 <https://www.yammer.com/>.
[44] Present.ly. 11 May 2009 <https://presentlyapp.com/>.
[45] ADVISEN Ltd. 11 May 2009 <https://www.advisen.com>.
[46] "Aviva USA First to Launch Presence in Second Life Aimed at Life Insurance
and Annuity Agents. " Business Wire 6 June 2008 ***[insert pages]*** ProQuest
Newsstand. ProQuest. SFSU, San Francisco, CA. 28 Apr. 2009 http://0-
www.proquest.com.opac.sfsu.edu/
51
[47] Peer to Peer Insurance - discount insurance pool. 11 May 2009
<http://www.peertopeerinsurance.com/>.
[48] CURE Auto Insurance - Drive Well. 11 May 2009 <http://njcure.com/index.asp>.
[49] Kiva - Loans that change lives. 11 May 2009 <http://www.kiva.org/>.
[50] Invest wisely. End poverty. | microfinance at MicroPlace. 11 May 2009
<http://www.microplace.com>.
52
Interview with Hsan Htein, Account Representative at Alliant Insurance Services
Alliant Insurance Services is the premier specialty insurance broker and ranking
among the 15 largest insurance brokerage firms in the U.S. Alliant Insurance provides
property and casualty, workers compensation, employee benefits, surety, and financial
products and services to more than 20,000 specialized clients nationwide, including
public entities, tribal nations, healthcare, energy, law firms, real estate, construction,
and other industry groups.(http://www.alliantinsurance.com)
How does the concept of Web 2.0 apply to the insurance/financial services industry?
3rd File sharing, issuing certificate of insurance, updating calendar of events, program
manuals, policies, insurance summaries for our clients to be able to download. They
can also request certificate of insurance, foreign travel insurance and other necessary
document. They can also view the upcoming calendar and event and search the other
members. (Program website: www.csurma.org)
Do you see any opportunity for Web 2.0 in insurance/financial services
industry?
Yes definitely. More insurance companies are starting to use web-based services for
their products
According to your own experience, what is the business value of Web 2.0
technologies?
Definitely save paperwork -- means save money and time, more efficient, reliable,
better at record retention.
Does your company implement Web 2.0 technologies?
Yes
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If yes, how does your company implement Web 2.0 technologies?
In house IT department is responsible for our company website
www.alliantinsurance.com and some client could have an access to download
information. Potential clients can also browse through our products. There is an
intranet for employees use.
If not, what are the reasons for a lack of interest in Web 2.0 in your company?
We need to educate our own employees as well as our clients to use web based
services.
What kind of Web 2.0 technologies is your company implementing?
File sharing with underwriter (via extranet), issue Certificate of Insurance (via 3rd
party vendor: https://wwa.i-csr.net/Utilities/signon.asp), Property schedule (clients
could update their own property schedule – via our IT department). Each department
can decide whether they want to use their own IT department for web based services
or hire vendor according to their budget and services.
In which activities do you see opportunities to implement Web 2.0
technologies?
Instant insurance quote, Instant messaging between the customer service and clients
that prefer customized massager program, web-based forum for our members/clients
relating to insurance, risk management program and safety issue, similar to Facebook.
Do you see Web 2.0 as an effective mean for insurance/financial services
company to differentiate themselves from other companies in the same field?
I think it is very important for companies these days to keep up with the web-based
services in order to keep the competitive edge.
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What are the security, privacy and legal issues, if any, of Web 2.0?
I am not sure about this one but as far as I concern relating to doing business with
vendors for web business both parties are responsible for security and privacy issue.
What are your recommendations for a successful implementation of Web 2.0
technologies in the insurance/financial services industry and/or your
company?
I would like to see more user friendly program – it is user friendly for our clients
(even though most of them want to call us directly) but not for us (employees) who
are responsible for the website. Third party vendors are sometimes pain in the neck to
deal with. Since we have partial control over the website, to be able to tweak around
in the website is a major headache. Sometimes vendors want more money for some
minor changes. The issue is they don’t want to give us full control of the program.
Any college kids these days can make those changes if they have full control over the
website it. There might be some underlying issue that only they know and we don’t.
This is just my opinion on third party vendor. I hear the same issue with our in house
IT department as well but since I don’t work with them much I don’t have an opinion
on this.
What kind of benefits do you think your customers get from web services?
Our clients get responses from us in timely manner, it is structure in a way that they
don’t have to get a hold off one of us in order to receive document or view calendar or
look contact info for other members, request certificate of insurance and travel
insurance. (www.csurma.org)
What kind of web services do you propose to your agents? What kind of
benefits do you think the agents get from web services?
File sharing program, secure instant messaging program with underwriters.
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Do the agents have an extranet / specific interface to get products information,
pricing, documents including best practices, e-learning?
Our Alliant intranet website provides mentioned services for our own brokers and
employees only.
What kind of new web services would be useful to streamline processes for
customers and agents/brokers?
We have basic foundation on web services to streamline process for customers
however we need to educate our client as well as our own employees who are still
using fax machine and USPS services. Also, I prefer web service vendors be more
flexible and understand their client’s business and its’ industry.
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Interview with Richard Best, End User Integration at City National Bank The primary focus of his position is application usability review, technology
education and communication. Areas of focus include liaison role with Application
Designers, Information Services Colleague Education, Colleague Technology
Awareness, Colleague Technology Training Aides, Application of appropriate E-
Learning Training Solutions.
City National provides entrepreneurs, professionals, their businesses and their
families with complete financial solutions on The way up®. Highly personalized
client relationships, combined with a full range of sophisticated financial products –
commercial lending, private banking and wealth management capabilities – plus the
best talent in the financial industry distinguish City National from its competition. No
bank is better able to serve all the financial needs of successful entrepreneurs.
(http://www.cnb.com)
What are you doing in your day-to-day activity?
My job is to explore the usability of emerging technologies including Web 2.0
technologies, social networking environment such as Facebook and Twitter that
enable companies to communicate with clients, employees and business partners. I am
doing market research about emerging technologies, traditional portals, competition
analysis, and I focus my effort to understand and match the specific client companies’
needs and communication technologies. My domain of expertise is online training for
employees. I report directly to the Strategic Technology Manager that manage
alliances with vendors, and the CIO of the company.
Who are your clients?
We mainly serve small and medium size company, the retail banking industry, the
entertainment industry, and international businesses.
I think that smart and forward looking companies that are willing to spend time and
invest money see the business value of using Web 2.0 technologies.
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What kind of Web 2.0 technologies is your company implementing?
We implement web based training and organize webinars. City National Bank uses
Microsoft Sharepoint for managing projects, setting up meetings,
uploading/downloading documents, storing files, managing calendars, blogging and
making comments.
In which activities do you see opportunities to implement Web 2.0
technologies?
I see a tremendous opportunity in inbound and outbound communication, especially
in the retail banking industry. For instance, twitter is a very powerful tool to spread
messages and provide useful information to our customers about product promotion,
and interest rate for example. Additionally, Iphone applications are very popular in
the retail baking industry.
Also, Web 2.0 technologies help colleagues to communicate through instant
messaging for example.
As Web 2.0 technologies allow companies to communicate with clients in a cheaper,
faster, and easier way, I think that Web 2.0 technologies have a real business value.
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Appendix1 Web 2.0 in Insurance: Finding real business value today and tomorrow
WEB 2.0 IN INSURANCE:
Finding Real Business Value Today and Tomorrow Research Report
July 2008
http://www.novarica.com/preview_web_20.pdf
Among the key findings of the report:
* 39% of US insurers currently use Wikis for internal communication
* 22% of US insurers currently use blogs for internal communication
* 13% of US insurers are currently using mash-ups of public or subscription services to enrich their underwriting or claims processing environments with elements like GoogleEarth.
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Appendix 2 Claims Value Chain
Streamlining Claims Processing Towards a Better Customer Experience. Rep. 2002. Wipro Technologies. <http://www.wipro.com/datadocs/whitepaper/Streamlining_Claims_Processing.pdf>.
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Appendix 3 A customer-Centric Approach for targeting Gen Y
Insuring the Catalyst-Customer: Generation Y and the Insurance Industry. Rep. 12 Aug. 2008. Deloitte. <http://www.deloitte.com/dtt/cda/doc/content/us_fsi_insuringcatalyst_customer_genYandInsurance081208.pdf>.
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Appendix 4 Work Force Generations
Insuring the Catalyst-Customer: Generation Y and the Insurance Industry. Rep. 12 Aug. 2008. Deloitte. <http://www.deloitte.com/dtt/cda/doc/content/us_fsi_insuringcatalyst_customer_genYandInsurance081208.pdf>.
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Appendix 5 Examples of Customer Experiences along the Customer Life Cycle
Insuring the Catalyst-Customer: Generation Y and the Insurance Industry. Rep. 12 Aug. 2008. Deloitte. <http://www.deloitte.com/dtt/cda/doc/content/us_fsi_insuringcatalyst_customer_genYandInsurance081208.pdf>.