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Contents
Indian Insurance sector poised for its next stage of growth The puzzle of untapped potential Redefining Customer Value Proposition Improving Operational Performance Key challenges in leveraging Innovation Improving the Innovation Quotient Conclusion Contacts 1 2 3 6 7 8 12 13
The insurance sector in India has grown at a fast rate post-liberalization in 1999. In the last decade, total premium grew at a CAGR of 25% and reached a total of $67 billion in 2010. Indian Life insurance industry (which contributes 88% of total Life and General insurance premium in India) has emerged as the 9th largest life insurance market in the world. Yet, Insurance penetration (measured as ratio of premium underwritten to GDP) was only at 5.2 % in 2010 significantly lower than Asian peers like South Korea, Taiwan, Japan and Hong Kong which boast an insurance density greater than 10%. 1 With low insurance penetration levels, growth potential remains promising. More importantly, the pace and nature of growth will likely see a change where new behaviours and dynamics of demand and supply will apply. On the demand side, growth is being fuelled by the growing population base, rising purchasing power, increased insurance awareness, increased domestic savings and rising financial literacy. The suppliers are correspondingly playing a market making role as competition heightens and differentiation become necessary for profitable growth. In the new order, innovating across the business lifecycle has become a necessity.
Positioning
Positioning the product is equally important to improve the perceived core proposition of the product. Positioning involves communicating key highlights or proposition of the product through messages which the target segment easily appreciates and connects with. Insurers have positioned their products as ones which provide prevention of disease, education for child, complete car solutions, with you for life to position their products utility or establish an emotional connect. Innovative positioning will require understanding the potential and existing customers stated and unstated needs and responding to changing socio-economic scenarios across the target geographies. With changing lifestyles and increasingly demanding customer segments, the players will have to position their products around concepts like lifestyle products, quick & easy or chose your coverage.
Customer Segmentation
Understanding customers and inherent customer behavior is a vital element in developing a value proposition which resonates with the customers unmet needs. However, there is a need to look beyond the traditional segmentation strategies around income, wealth, geographies and life stage. Segmenting the customers according to their insurance needs and behavior characteristics provides better customer insights which are more likely to create a satisfied customer. Developing that level of a refined understanding of the customer will enable insurers to adapt their product offerings, marketing campaigns and sales force alignment to suit their niche segments.
The unconvinced segment is the informed segment which does not perceive the need to buy insurance or had bad experiences in past. Addressing this segment requires innovative product design, aligned pricing and customized servicing. Players will need to assess the possible reasons for this segment being unconvinced to refine the pricing, alter the product ticket-size upward or downward and change the rigor of service levels and available channels. The future opportunity segment should be monitored for future potential and revisited periodically depending on the untapped potential available in the other quadrants. The population under future opportunity could also move towards the other quadrants by itself as product awareness and perceived need for insurance improves due to external parameters like larger media exposure, improvement in quality of life, word-of-mouth and large natural / human-made disasters. The challenge in undertaking the above however is the ability to map the population along the four quadrants. This could be achieved by primary research, focused group interactions and stakeholder (e.g. healthcare providers in case of health insurance) feedback. On-going industry-wide research on consumer behavior and perception towards insurance products sponsored by the insurance players, councils or the regulator could also provide significant insights. Insurers who invest in incremental innovation across the insurance value chain and not just in disruptive innovation are more likely to benefit as the market stabilizes. Incremental innovation is not likely to cost a lot (compared to existing cost structures of players), as it involves rejigging existing business and operating model to deliver better and is easier to implement. Insurers investing in redesigning products and processes, smarter marketing, finer customer segmentation are more likely to gain a disproportionately high share of market growth and market share.
While there have been instances of innovative products and business models deployed by insurers in India, there are challenges internal and external to the insurers organization s which inhibit greater innovation. Firstly, in the first decade of privatization, the focus was more on expanding and stabilizing the business applying the prevailing business models rather than on innovation. With a decade of learning about the consumer behavior and channel economics, the players may now be better equipped to implement successful innovations relevant in India. The imperatives for innovation too are now higher than in the early years of privatization. Secondly, the management teams have so far been more oriented to design, deploy and maintain systems and processes rather than bring in innovation. The ability to innovate which involves taking risks may also have been hindered by the fact that the players are constrained by low margins of error on account of lower profitability and high capital requirements. Lastly, some of the product and distribution innovations prevailing in other markets (e.g. Insurers offering insurance along with other services like health programs) are not permitted in the Indian regulatory environment. While the regulator has supported insurers to implement innovative practices through steps like product de-tariffing in general insurance and permitting Health plus life combo products, regulator has been cognizant of prevailing challenges. With realization of mis-selling instances and low consumer awareness, the regulator has avoided propagating drastic variations in core product parameters or the distribution channels.
Analytics
Technology
powerful analytical software tool is modelling software to support underwriters in making competitive pricing decisions, while improving efficiency by facilitation straight through processing. Companies developing more granular customer segmentation approach based on non-traditional factors will be better positioned to promote some products to select customer segments, e.g. by developing transparent / advisory based selling to an Active customer, price-based selling to a informed customer, etc. Redesigning products that meet specific customer requirements may assist in repositioning the customer value proposition. Several insurers are investing in developing affordable products geared to specific customer segments or reverse engineering the existing products for a specific price point. Developing alternate channels may provide a distinct advantage in the light of changing market behavior. There are customers with various coverage requirements that are buying online. Insurers developing multiple channels and managing inherent channel conflicts are likely to be better placed to face competition in the future.
Customer Segmentation
Is there is need to introduce a Customer Insight function to hear the Voice of the Customer?
Product Innovation
Is the Product development aligned to customer need? Does it give a sustainable competitive advantage?
Channel Management
Is there a need to align channel management as per customer and product matrix rather than traditional silos?
Innovation process
Innovation process begins with generation of ideas by the identified stakeholders. Organizations need to put in place, process which enables collation of ideas through modes like formal meetings and workshops, suggestions boxes or technology enabled idea banks.
The desired stakeholders and the modes of seeking ideas depend on the scope of innovation (e.g. product innovation or operational improvement) and frequency of innovation (one time vs ongoing). The goals for seeking ideas and scope of idea generation should be defined when inviting the ideas (refer figure 3). The generated ideas need to be selected for implementation using a matrix which accommodates imaginative exploration but also evaluates expected returns and risks involved through critical judgment. The ideas need to be further elaborated and converted into products and services definitions in the context of the organizations business and socio -economic environment. In the final stage, the selected products and services need to be defined and delivered as projects by engaging the stakeholders and closely monitoring the benefit realization. The process of innovation can take two forms Incremental or Breakthrough (refer figure 4). Breakthrough innovation is generally less frequent, disruptive, more strategic with high revenue potential and initiated at organization level with close involvement of the top management.
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Breakthrough strategy enables creation of growth strategies, new product categories, services or business models that change the game and generate significant new value customers and the corporation. Breakthrough innovations are often managed as one-off large projects in the organizations. Incremental Innovation involves successfully utilizing a new technology, undertaking small process improvements or launching product variants, which bring incremental improvement. In the short term, Incremental innovation has relatively low to medium impact on the revenues or the expenses incurred by the organization. They may not bring large, dramatic or game changing improvements in short span, but often lead to long term growth of the organization. Incremental innovation is often managed through imbibing idea generation, selection, conversion and diffusion steps in the regular responsibilities of the functional leaders of the organization.
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Conclusion
Insurance industry in India has now been through a cycle involving high growth and more recent moderation. The next wave of growth will be of different nature and complexity, led by players who change the market dynamics through innovation. With a decade of experience and learning about customer behavior and business economics, Indian insurers are well-placed to select and diffuse innovative ideas. However, this would require that insurers bring about fundamental difference in mindset on how they perceive the role of innovation in achieving profitable growth. The insurers will need to align the people strategies to create a culture of generating new ideas and implementing those using optimal resources. Insurers have the choice of adopting innovation and leap ahead or lag behind.
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Contacts
Sachin Sondhi
Tel: +91 22 6619 8710 Email: sacsondhi@deloitte.com
Monish Shah
Tel: +91 22 6619 8692 Email: monishshah@deloitte.com
Alpesh Patel
Tel: +91 22 6619 8803 Email: alpeshpatel@deloitte.com
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