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Preparing for the future Meeting changing customer expectations in life insurance

How customer expectations are driving the need for a new operating model capable of fully leveraging information and analytics

Table of contents

Introduction by Deloitte’s Vice Chairman, Oil & Gas Executive summary Industry Overview Meet rising customer expectations Exploration & Production Leverage information management and analytics Midstream Align the operating model Oilfield Equipment & Services Conclusion Refining & Marketing Acknowledgements and contacts Summary

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As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 2

Executive summary

The life insurance industry is experiencing change on multiple fronts, with most of the attention on new regulation, increased competition, and advances in technology. Often overlooked — and probably the most fundamental change — is the challenge from rising customer expectations and a more risk-adverse environment. Influenced by their interactions with companies in other industries, insurance customers today have higher expectations than ever before. In addition, the insurance industry is facing a new reality of lower margins and intense pressure to do more with less. Meeting these rising customer expectations and operating pressures will likely require insurers to better leverage information and analytics from isolated uses to a central role in organizational decision making. To be effective, insurance companies will likely also need an organizational structure that allows them to rapidly leverage the analytic insights to improve operations and address customer needs. Insurers that move quickly can capitalize on these challenges to build a competitive advantage. Companies in other industries that have successfully confronted and overcome similar challenges provide a useful guide. Insurers can learn how to deepen their understanding of customers, improve focus on their customer experience, and strengthen their analytics-based decision making by emulating and building on what others have done.

To meet the opportunities presented in the new environment, most insurance companies should consider substantially enhancing their capabilities in three areas (Figure 1): • Meet rising customer expectations. Meeting expectations will require insurers to provide responsive, immediate service and the ability for customers to engage using a variety of channels. In addition, it will require interactions and product offers that are personalized to a consumer’s needs, combined with transparent pricing and features. • Leverage information management and analytics. Advanced analytical tools offer insurers the ability to achieve deeper knowledge of customer needs and internal cost drivers, make more accurate underwriting decisions, improve product development, and increase operational efficiency. • Align the operating model. Taking full advantage of analytics will require organizational capabilities that most insurers do not currently possess. These include creating a more efficient operational structure; analyzing operational data to gain early warning of changes in consumer sentiment; and designing a new organizational architecture that is based on customers, rather than channels or products, and that redefines the front and back-office functions.

Figure 1. Elements of a successful life insurance carrier Make it easy Product development Make it relevant Make it right

Meet customer expectations

Leverage information management and analytics

Marketing

Sales

Servicing

Operations

Align the operating model

Front office

Middle office

Back office

Preparing for the future Meeting changing customer expectations in life insurance

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Meet rising customer expectations

Having experienced the superior customer service provided by leading companies in other industries, insurance customers today have little tolerance for poor customer service, invasive underwriting, burdensome forms, and delays. Insurers have an opportunity to better leverage technology and data analytics to provide customers with improved service, more transparent products and pricing, and a customer experience that builds trust. In tackling this challenge, insurers can learn from the experience of the cable industry, which has often been criticized for a poor customer experience. Customers often had to wait hours for a cable technician (who might never arrive), schedule multiple visits before outages were corrected, and accept unresponsive customer service. As new disruptive content providers, such as Netflix and Hulu, grew in popularity,1 customers began to switch service providers in search of better customer care and content delivery that met their changing expectations. While the cable industry overall still receives low ratings on customer experience, Cox Communications has managed to improve its reputation. The company began by continuously reinforcing with its frontline employees the importance of listening to customer needs and delivering outstanding service by providing regular training, coaching, and employee development. Second, they enabled call center agents to resolve more problems over the phone without having to send out a technician. Third, they installed new technology to allow subscribers to watch shows on demand without the need to wait for scheduled airing times.2 While there is still significant room for improvement, the company’s Forrester Customer Experience survey score increased by 12% from 2010 to 2011. Cox Communications is proving that changing the customer experience is possible, even for mature companies.

Figure 2. Components required to meet customer expectations
Make it easy Make it right

Meet customer expectations

Make it relevant

Leverage information Market- Product developmanagement ing ment and analytics Align the operating model Front office

Sales

Servicing

Operations

Middle office

Back office

For insurers to similarly improve the customer experience, they need to make it easy by giving customers responsive service and the choice of how they want to interact; make it relevant by leveraging data analytics to gain insight into customer’s life events and changing financial needs; and make it right by building trust among customers that they can depend on the insurer to treat them fairly (Figure 2). Make it easy Customers appreciate companies that make their lives easier. Researching and purchasing insurance policies and other products should be a straightforward process. It is no longer enough for a customer to have an agent who can provide guidance and service. Customers now want the ability to find the same information online or be able to call the customer service line and have their detailed questions answered, even if outside of normal business hours. Customers expect to be able to use multiple channels to research and purchase products, access their accounts, ask questions, and resolve problems. Activities completed online by a customer should be tracked and visible to associates in the call center should the customer choose to continue the interaction through a different channel.

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The Convergence Consulting Group Limited, The Battle for the North American (US/Canada) Couch Potato: Online and Traditional TV, and Movie Distribution Commentary, Toronto, Ontario, Canada, April 2011. Megan Burns, How Companies Raised Their Customer Experience Index Scores, Forrester Research, Inc., Cambridge, MA, April 18, 2011.

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Technology capabilities will enable improved quality of service. Customers are less tolerant of long hold times when calling or having difficulty in resolving errors. Upgrading customer service will require insurance companies to reconsider their hiring practices, training programs, and information management. Make it relevant Consumers are bombarded with irrelevant spam email, telemarketing calls, and online advertisements. Insurers can improve their ability to segment customers and prospects and to greatly improve service by only offering the products and services that are appropriate to each segment. This will require a deeper understanding of their customers so insurers can better target each offering, and then the organizational discipline to make contact at the right time and through the right channel.

Make it right Trust in many industries has been damaged in recent years from a variety of causes, including the financial crisis, Internet scams, hidden fees, and more. But eroding trust also provides companies with an opportunity to build customer loyalty by doing what is right. For example, Orbitz, an online travel company, introduced a Price Assurance Program that automatically refunds the difference to customers if they book a flight and another customer subsequently books the same class seat on the same flight for a lower price.3 Companies now, more than ever, need to be up-front about their products. For insurance companies, this may include more transparent pricing — such as clarity on the price difference on certain riders or coverage types — or offering product packages with options that can be added or removed based on a customer’s needs.

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“Orbitz Price Assurance Program”, accessed September 18, 2011 <http://www.orbitz.com/App/ Preparing for the future Meeting changing customer expectations in life insurance 3

Leverage information management and analytics

Making the customer experience easy, relevant, and right will likely require insurers to fully leverage external and internal information across functions and employ sophisticated data analytics (Figure 3). Improved information management and analytics can provide a deeper understanding of elements across the life cycle as well as those internal to the organization — ultimately helping to ensure that product development meets customer needs. Marketing Companies in other industries have successfully used customer information to provide more responsive offers and service. In the retail industry, online retail web sites now commonly use a customer’s browsing history to offer more targeted product suggestions. Insurance companies can similarly take advantage of analytics to segment their customers by perceptions of value, preferences, lifestyle, or stage of life. Product offers can then be targeted to the appropriate customers. Having the capability to offer products that are appropriate to a customer’s situation is not only more likely to result in a sale, but can also build customer loyalty. There is also an opportunity to analyze operational data to identify early warning signs of changes in consumer sentiments. Insurance companies can increase their awareness of subtle changes in sentiment, link these to root causes, and then use these insights to meet customer expectations. For example, by using data collected by the call center as a source of insight into the customer experience, insurers can identify issues to address in the marketing process. Analytics can help insurers understand how different customer segments value features and service, allowing companies to better tailor their service and messages to the appropriate customers.

Figure 3. Information drives all functions and increases efficiency
Make it easy Make it right Operations

Meet customer expectations

Make it relevant

Leverage information Market- Product developmanagement ing ment and analytics Align the operating model Front office

Sales

Servicing

Middle office

Back office

Product development Product expectations are also changing. In the personal computer industry, Dell opened its product development process directly to customers. Dell introduced a mass customization approach that offered preselected packages, as well as the opportunity for customers to customize them. The result was an improved perception of the buying process, with customers feeling more in control of their decision making without being overwhelmed with choices.4 Life insurance carriers could similarly offer more transparently-priced packages designed for different types of customers, such as those with a new baby, a new house, or planning for retirement. Less sophisticated consumers would be able to simply select a package designed to meet their needs. More sophisticated consumers would have the option to customize a package to their individual situation by adding or removing individual components.

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Adrian Mello, “Mass customization won't come easy”, ZDNet, accessed September 18, 2011 <http://www.zdnet.com/news/

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Servicing Improved control over information can allow carriers to go much farther in providing a seamless customer experience across channels. If customers switch among an agent, a call center, the Web site, or other channels, the insurance company can ensure that each customer service point has access to the same interaction history. Insurance companies can leverage customer information on preferences to communicate how and when each customer wants. Information and analytics can also help carriers anticipate customer issues and provide proactive resolution. Operations Analytics is also effective in assessing an organization’s cost drivers and processes. Employing analytics can allow carriers to make more practically focused decisions around profitability, while pursuing an improved customer experience. Today, most insurance companies do not know their internal and external costs in sufficient detail to conduct such an analysis. Without this level of insight, companies can easily incur losses on providing underpriced product features or service to specific customer segments without realizing it until after the fact. This level of knowledge will become even more important as insurers move to allow customers to customize their coverage by choosing among product components. Rather than simply pursuing the lowest cost, insurers need to choose the “battlegrounds” where value can be delivered at the optimal cost-benefit trade-off.

Sales and underwriting Insurance companies have the opportunity to improve the sales process — in the case of insurance, the customer’s experience in the underwriting process — and underwriting decisions through data analytics. The medical data traditionally used in underwriting is both expensive and invasive to collect. Predictive analytics go beyond medical data to use publicly available marketing information to predict the likelihood of mortality factors. These models have demonstrated particular usefulness in identifying the best risks. Predictive analytics can not only deliver faster underwriting decisions, it can also reduce costs by simplifying or automating portions of the underwriting process.

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Align the operating model

Fully leveraging the power of sophisticated analytics will likely require insurers to realign their operating model. For insurance carriers this includes how the front, middle, and back office are defined, and the connectivity between each. In addition to analyzing customer data, companies need the ability to analyze their operational experience, e.g., in call centers or underwriting, to flag potential problems and to identify changes in customer sentiment. Achieving operational excellence will also require fundamental changes to an insurer’s organization to ensure it reflects the greater importance of data analyzed in the back and middle offices (Figure 4). Rethink the organizational architecture Many insurers struggle to act upon the insights gained from analytics. The increasing importance of information and analytics suggests that insurers should reconsider the organizational structure, business processes, and governance, including the roles of the front office (sales and product development), middle office (risk monitoring and results tracking), and back office (customer service and controls) similar to the structure shown (Figure 5). Functions that have traditionally been responsibilities of the back office are now seen to create more value and need to assume a larger role in developing strategy. Some of these activities — such as customer service — may move to the front office. At the same time, carriers will need the ability to measure the value provided by these functions to better understand the role they play in driving improved customer experience and to identify functions that can be outsourced or offshored. In the new construct, the organizational architecture would

Figure 4. Harnessing analytics requires reevaluating responsibilities Meet customer expectations Leverage information management and analytics Align the operating model Make it easy Product development Make it relevant Make it right

Marketing

Sales

Servicing

Operations

Front office

Middle office

Back office

be redefined, particularly the middle and back office. To do this, data and analytics would be leveraged to provide nimbleness and flexibility to the front and back offices. In the new architecture, the middle office becomes much more important. Owning and analyzing information, it becomes the “nerve center” of the organization, adding significant value rather than simply being the “control point” in the traditional sense. To make more effective decisions, a product manager must have good data on customers as well as on products. The middle office will play a more prominent role as the source of the information needed to support customer management. Insurers that can realign their organizational structure to allow information and analytics to drive decisions have the opportunity to provide an enhanced customer experience and fuel growth.

Figure 5. The aligned organizational operating model

Front

Sales & marketing

Claims

Service

Middle

Information & analytics

Back

Internal audit & controls

Operations

Policy admin

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Conclusion

Life insurance companies are at a critical juncture from a number of dimensions — not only increased pressure on operating margins, but also from rising customer expectations. Customers have higher expectations than ever before. Delivering a highly effective customer experience that meets these expectations will likely require insurers to leverage information management and analytics to better understand both customer requirements and internal costs. The critical role of analytics can help insurers in their efforts to create a more efficient operating model that is focused on information and incorporates stronger decision making processes, around both customers and efficient operations. This ability should be combined with the discipline and flexibility to adjust interactions and operations in a costeffective way.

The first step is to know your customers, gaining insight into their expectations and requirements around product, service, and interaction. The second is to understand costs in order to profitably meet those expectations. Finally, realigning the organization is needed in order to quickly analyze information, make decisions, and take action. All three of these actions can be beneficial to providing a highly effective customer experience. The scale of these challenges is daunting, but other industries have faced similar issues and succeeded. Insurance companies that can move beyond conventional alternatives to instead introduce fundamental changes in their organizations have the opportunity to distance themselves from the competition.

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Acknowledgements and contacts
Authors Anuj Maniar Senior Manager Deloitte Consulting LLP +1 312 486 3765 amaniar@deloitte.com Arun Prasad Principal Deloitte Consulting LLP +1 212 618 4561 aprasad@deloitte.com Doug Welch Director Deloitte Consulting LLP +1 312 486 3231 dougwelch@deloitte.com Emily Yoo Manager Deloitte Consulting LLP +1 212 313 2713 eyoo@deloitte.com Thomas Zipprich Principal Deloitte Consulting LLP +1 312 486 4690 tzipprich@deloitte.com Executive Sponsors Joe Guastella Principal U.S. Insurance Consulting Leader & Global Insurance Leader Deloitte Consulting LLP +1 212 618 4287 jguastella@deloitte.com Neal Baumann Principal Deloitte Consulting LLP +1 212 618 4105 nealbaumann@deloitte.com

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Insurance Industry Leadership
Industry Leader Rebecca C. Amoroso Vice Chairman U.S. Insurance Leader Deloitte LLP +1 212 436 2998 ramoroso@deloitte.com Leadership Team Robert Axelrod Director National Insurance Financial Advisory Services Leader Deloitte Financial Advisory Services LLP +1 212 436 2137 raxelrod@deloitte.com Richard Burness Partner National Insurance Tax Leader Deloitte Tax LLP +1 860 725 3034 rburness@deloitte.com Tom Carroll Partner Midwest & North Central Insurance Leader Deloitte Services LP +1 312 486 2123 tcarroll@deloitte.com Mark Charron Principal National Actuarial, Risk & Analytics Leader Deloitte Consulting LLP +1 860 725 3088 mcharron@deloitte.com Dave Foley Principal Bermuda Insurance Leader Deloitte Consulting LLP +1 860 725 3040 dfoley@deloitte.com Bertha Fortney Director Northeast Region Insurance Leader Deloitte Services LP + 1 203 905 2631 bfortney@deloitte.com Steven Foster Director National Insurance Risk & Regulatory Services Leader Deloitte & Touche LLP +1 804 697 1811 sfoster@deloitte.com Laura Hinthorn Senior Manager National Insurance Marketing Leader Deloitte Services LP +1 212 436 5324 lhinthorn@deloitte.com Mike McLaughlin Principal Global Actuarial Leader Deloitte Consulting LLP +1 312 486 4466 mikemclaughlin@deloitte.com Howard Mills Director Chief Advisor, Insurance Industry Deloitte LLP +1 212 436 6752 howmills@deloitte.com Francine O’Brien Senior Manager Assistant to Insurance Leader Deloitte Services LP +1 516 918 7073 frobrien@deloitte.com Mark Parkin Partner National Insurance Audit & Risk Leader Deloitte & Touche LLP +1 973 602 5396 mparkin@deloitte.com Donald Schwegman Partner National Insurance Professional Practice Leader Deloitte & Touche LLP +1 513 784 7307 dschwegman@deloitte.com Gary Shaw Partner National Insurance – SRM Leader Deloitte Services LP +1 973 602 6689 gashaw@deloitte.com Linda Sybrandt Partner West Region Insurance Leader Deloitte Services LP +1 213 688 4111 lsybrandt@deloitte.com Ed Wilkins Partner Deloitte & Touche LLP +1 402 444 1810 ewilkins@deloitte.com

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