One strategy to combat disruptive industry change? Clarity

What's arguably the most successful and powerful growth strategy in insurance both personal and commercial?

It's clarity. And now, digital technology is making the clarification strategy more powerful and relevant than ever before.

Driving some of the most disruptive changes in the insurance industry during the past few decades, clarity has been shown to be a winning strategy, in such examples as auto insurers publishing competitor rates for quick comparison and catastrophe bonds creating a more transparent market for reinsurance. The combination of clear product offerings and purchasing experience is the winning strategy.

Why? Insurance is the most common financial product customers buy, yet few people fully understand the details of the products they are getting. However, with the advent of digital technology, access to big data and advances in real-time predictive analytics, the opportunities for insurers to clarify their product offerings and purchase experience even more dramatically are exploding.

Consider tech-savvy Oscar, the money-losing health insurance start-up that went from 45,000 to 150,000 insured lives in the past year with an estimated $750 million in premium volume. After an initial strategy that led to losses, Oscar pivoted to a new approach attracting $400 million in financing from conservative mutual fund Fidelity. Although by no means assured, Oscar's path to profitability has now become plausible.

But it's Oscar's consumer appeal that is most remarkable. According to Prophet's Brand Relevance Index (BRI) based on input from 10,000 U.S. consumers about what matters to them across 400 plus brands those familiar with Oscar experienced it as being far better at addressing preferences and needs than any of the major insurance incumbents. A further analysis of the results show that companies with higher BRI scores are far more likely to have greater revenue growth and much higher levels of profitability.

How did Oscar successfully clarify the process of buying health insurance? Take one look at the company's website and you'll understand the consumer appeal that's reflected in the BRI findings.

Clarity strategies for commercial insurance

Commercial is starting to catch on. For example, a carrier is exploring ways to offer real-time risk assessment and pricing to vehicle fleet owners.

The insurance industry is clearly facing a grand tsunami of disruption brought on by the rising expectations of its ever more digitally savvy brokers, agents and clients powered by massive data and more sophisticated predictive modeling. But here's the rub: Incumbents across almost all industries are notoriously slow in responding to disruptive change.

Related: Is insurers' shift to customer experience enough of a tech transformation?

Let's be clear. To keep up, insurance incumbents must improve the trust-based customer experience, develop a new marketing paradigm and create a digitally fluent organization.

Traditional strategies for creating a competitive customer experience are no longer enough. The very best disruptors across the board, such as Republic Wireless, have not only a clear customer experience and product offerings, but also explain the rationale behind them. And Republic has engaged with social networks to improve service and enhance innovation. In the BRI data, Oscar also substantially outperformed incumbents in terms of trust. Recognizing the increasing business risk of ignoring a lagging customer experience, one legacy insurer has begun using the Net Promoter Score customer loyalty index as a factor in determining executive bonuses.

A new marketing paradigm is emerging as well. The BRI data indicates that in terms of marketing Oscar and other newcomers are significantly outperforming incumbents. Consumers view Oscar's content as more interesting, are far more likely to engage with the company's social media, and recognize that content distribution is superior via the website and apps. In other words, Oscar's marketing efforts are more similar to a media company's such as Comcast than those of a traditional insurer.

Comcast has strong distribution via the cable network and streaming platforms, creates content with its NBC Universal Studios, and is intensely focused on engagement with a relentless commitment to subscriber renewals and programming that earns loyal viewers.

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Insurance companies need to change their focus from prodcuts to customer experiences (Photo: Shutterstock)

Shifting transformation perspective

Some insurers are getting the message and finally attempting to develop digital competency. According to the digital research firm Altimeter Group, organizations undergo six stages of digital transformation. Insurers as a group tend to be in the early to middle stages of this process, having already formed dedicated teams focused on digital or having advanced a step further by making significant financial investments in digital initiatives. But reaching the end stage requires convergence across functions to create coherent and integrated products and experiences while becoming continuously innovative and adaptive.

But the biggest obstacle to transformation is a shift in perspective. First, companies need to change their primary focus from products to customer experiences. Besides Oscar, Uber and Google are examples of creating better experiences in getting from point A to point B — Uber through its app experience and Google with self-driving vehicles — leaving transportation companies and automotive manufacturers scrambling to catch up.

Secondly, as a result of this shift, is to approach the development of products and services differently. Going forward not only do companies need to create new product offers, they must also create the predictive algorithms needed for recommending relevant solutions during the experience. Accomplishing the second step requires a more formalized development process and putting in place new competencies that most companies lack.

Digital is disrupting many industries from aircraft engines to banking. Like other industries in which customers face complex decisions, insurance is ripe for the transformational impact of digital. The promising news is that insurance, given its deep experience working with data to create predictive models and clarification strategies, is far better prepared than most sectors to embrace to opportunities of digital. The challenge is to embrace more relevant ways of developing the trust-based relationships that are now proven to drive revenue and profits.

Related: Insurance, data analytics and internal operations: untapped opportunities

Tom Agan is a partner at Prophet, a global brand, digital and growth consultancy. Opinions expressed are his own.