Design’s role in saving the insurance industry (from itself)

How can design help the industry continue to deliver on its promise of providing financial security to its customers whilst still returning value to shareholders?

Matteo Grand eating an ice cream

Matteo Grand

September 5, 2019 9:13 AM

Let’s face it, we live in a fast-paced and constantly evolving on-demand economy driven by customer needs and preferences. This has spurred plenty of exciting innovation, though has also caused many businesses to get left behind. With barriers to competition and switching costs lower than ever, the fight for customers is often seen as a race to the bottom.

The good news is, it doesn’t have to be this way.

There are countless examples of industries that have undergone change with the first mover in the space not necessarily holding the most significant market share. The one commonality, however, is that the highest performers in each industry are also the most focused on design. This article will make the case for design as a competitive advantage in the insurance industry.

I think a good place to start would be by defining exactly what I mean when I say ‘design focused companies’.

The word design has always been used to describe the final aesthetic output of a product, be it a website, app, building, or any other widget. Unfortunately, this has given people a myopic understanding of what design actually is.

Design is a process, not an output.

What I mean by this is that design is never really done -- there is no final output that continues to solve a customer or business problem into perpetuity. Design needs to constantly be fed with insights from the market in order to remain relevant. Businesses with a design focus develop feedback loops to constantly learn from their customers, test solutions, and push out better versions of their products or services over time.

One of the most effective frameworks for embedding design into any organisation is Design Thinking, which uses the iterative process illustrated below to evolve products and services over time. You can read more about Design Thinking here.

Design Thinking Methodology

Luckily, there are countless industry-leading design-focused companies out there to draw on for example. Let’s begin our analysis by looking at the music industry as it holds some similarities to the insurance industry in the sense that the incumbents (music labels) once managed everything from product development through to distribution, though weren’t the ones to drive innovation in their own industry.

Until the early 2000s, music was almost exclusively distributed through hard-format products such as vinyl records, tapes, CDs, and even mini discs (for a brief moment). The music labels controlled the quantities of tapes and CDs in circulation, where they were distributed, and the marketing spend that helped particular artists get to number 1.

Then came the MP3 player and things started to change. The need for hard-format distribution soon became superfluous, so more money could be invested towards marketing each artist. This was a great breakthrough, and though it led to piracy, it allowed the industry to adapt to changing consumer needs and preferences.

For years iTunes held the top spot of the industry’s distribution platform, but it never managed to address the issue of privacy. Artists and labels were missing out on huge earning potential as Pirate Bay and other torrent services meant people could download music and upload it to their iPod for free.

So, as the music industry bled money, opportunity grew to rethink how music could be distributed in a way that meant consumers would be happy to pay for their music. This is where Spotify comes in, with their innovative freemium pricing model that meant artists got paid regardless of whether people listened to the free ad-driven version or paid monthly for the ad-free experience. All of a sudden there became no need for an iPod and no need for music piracy.

Though Apple held onto the top spot for years and years and was able to shine the light down the path the industry should have taken years earlier, Spotify now holds 36% of the music streaming industry’s market share and Apple only holds 19%.  

Now, you’re probably thinking, ‘that’s great but you haven’t really spoken about how Apple or Spotify have used design to bring about this change’.

Don’t forget that design is a process, not an output. Both Apple and Spotify were able to incrementally improve the music listening experience by listening to their customers, understanding their pain points, and solving their problems over time. They understood that there was no silver bullet -- it was a process of building empathy and testing solutions in the wild.

In fact, McKinsey Design recently did a study that identified companies with strong design focuses generally performed 32% better in revenue growth and 56% better in total returns to shareholders over a 5 year period than their industry counterparts. A perfect example of this is Booking.com, a hotel booking website has implemented a very tight product testing cycle to earn themselves conversion rates 2-3 times higher than the industry average.

Now, if we take a look at the insurance industry, we can quickly identify a list of customer problems that persist globally:

  1. People are overexposed as they don’t know what insurance they need;
  2. People are overexposed as they can’t understand obfuscated policy wordings;
  3. People resist applying for policies as application processes are often probing and arduous;
  4. Claims often aren’t a straightforward process, leading to poor customer experiences and churn;
  5. Insurance is seen as a commodity product, meaning all car insurance policies are seen to do the same thing; and
  6. People expect insurance as a service, so when they buy their new car they are buying it fully covered as standard.

If we take a moment of introspection and look at the problems facing the industry itself, these issues quickly come to mind:

  1. The value chain is long;
  2. Startups are trying to dis-intermediate as many links of the value chain as possible;
  3. Technologies are rapidly changing, though the majority of the industry still runs off legacy systems;
  4. Distribution models are changing;
  5. Regulations are changing; and
  6. There is little standardisation of risk assessment around the world.

There are many more issues that persist that I didn’t mention, but even this quick brain dump makes one realise how many moving parts need to be considered when trying to grow a business in the insurance space.

So, how do we bring this back to the value design can add to the insurance space?

It’s simple. Design is a process, not an output. Design enables any organisation, whether an insurer, broker, or otherwise to look at any list of customer and industry problems and ask what they can do to alleviate them.

Let’s look at the problem of confusing or obfuscated policy wording leading to poor coverage. Lemonade, the industry’s poster-child for customer-centric insurance, uses design to help provide better products and services to homeowners and renters by simplifying the complex and speaking the customer’s language. By reducing jargon to human-speak, Lemonade invites urban dwellers to engage with a product that would otherwise be a grudge purchase.

Lemonade also knew that a lot of people lack trust in traditional insurance companies, so they created a transparent business model that charges a flat fee on premiums and a programme that distributes any un-claimed premiums to social causes. When this programme first launched, it was met with confusion, though as they developed greater empathy for their customers they were able to better refine their offering. This new approach to business earned them a huge amount of trust amongst Manhattan dwellers and as a result of their success, they’ve been able to expand well beyond.

To conclude, I’d like to remind you of a few key takeaways from this article:

  1. Design is a process, not an output;
  2. Companies that remain design focused out-perform their competitors;
  3. Design enables you to build trust with your customers by solving their problems; and
  4. Leverage design to turn industry problems into opportunities.

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