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Mini Case: Enterprise Transformation at Trustworthy Insurance CIO…
Mini Case: Enterprise Transformation at Trustworthy Insurance
CIO Sheila Lee had every reason to be pleased with herself on this crisp winter day. She smiled at her image in the washroom mirror as she checked her suit jacket. A petite Asian who dressed with flair, she had recently been recognized as one of the country’s top 100 most powerful women. A newcomer to Trustworthy Insurance’s executive leadership team, she had successfully delivered a huge new enterprise initiative that was central to her company’s transformation strategy – on time and on budget.
Concerto Insurance was North America’s first fully online direct insurance business – and a new brand of its parent company, Trustworthy Insurance. For the first time, customers could obtain a fully binding quote for their car or home insurance directly online and purchase it without the need to go through a customer service representative or insurance broker to finalize the deal. Although it was entirely IT-based, Concerto had been a significant undertaking for the whole company, Sheila reflected as she walked down the hall to the boardroom. She couldn’t have done it without the CEO’s support and that of the entire business leadership team.
When Sheila had joined Trustworthy Insurance two years ago it was a midsized multichannel insurance company founded in 1871 with premiums of over $2 billion annually and $6 billion in assets. Over the years it had experienced considerable growth and change through the acquisition of a number of different brands, including a pet insurance division and a commercial insurance division. Until Concerto, however, its business model had essentially remained the same. It relied on its network of independent brokers who worked in agencies across the country to recommend Trustworthy products. But as CEO Kelly Mason noted in a shareholders’ meeting at that time, the insurance industry was changing rapidly and companies that didn’t keep pace would be left behind.
“We have a vision of becoming a top property and casualty insurer,” she had said. “Our executive leadership team is committed to growing our business and we want to deliver the best possible products and service to our customers. We can’t make this simply by doing business in the same old way. We have a great broker network and we’re fully supportive of it but our research shows that there are many customers we are not reaching. These are the millennials and more mature individuals who find insurance products needlessly complicated and not designed with their needs in mind. We have found that there are many customers who prefer online transactions rather than working through a broker. These customers are generally younger and have simpler insurance needs and don’t need or want to speak with someone to make a purchase. We are going after this demographic with our new Concerto project.”
Sheila pushed open the door to the boardroom and nodded at her executive leadership team colleagues. There were smiles all around. Concerto had launched a year ago, first with home insurance and then with car insurance. The early signs were all good – personal line premiums were rising, and Concerto had already made a splash within the industry by winning numerous innovation awards.
“It really makes a difference when the whole team works together,” she thought as she took her seat. Together with the chief underwriter, Jim Jenkins, and the chief marketing officer, Kristen Stewart, she had been part of a transformation leadership team that had set out to redesign the insurance customer experience by combining best-in-class digital standards with deep industry expertise.
The CEO cleared her throat and tapped her pen on the elegant boardroom table calling the meeting to order. “Good morning. As you know I called this meeting to review our enterprise transformation strategy – what we’ve accomplished and how we’ll go forward. We have made considerable progress and I’m proud of our success. But we’re in a very competitive business and we cannot afford to rest on our laurels. It’s important that we continually assess our business strategy because what we’re doing has never been done before. I’d like to give each of you the opportunity to speak to the strengths and challenges of what we’ve done with Concerto and where you think we need to go as an enterprise. Please be frank as our future depends on your insights and ideas. I’ve asked Ron to start us off with a financial perspective.”
Ron Shostak, Trustworthy’s CFO, smiled at the small group of his peers. “I’m going to make this short and informal,” he said. “I’ve just got a few slides.” Everyone in the room groaned inwardly knowing his propensity for making long-winded presentations with detailed slides. Nevertheless, the numbers were worth knowing.
“As you know, we have seen strong premium growth from Concerto,” he said showing a dense, multi-colored line chart. “Premiums grew 18.8% in this past quarter due to our new direct channel. Over the past year, we have continued to make significant investments in Concerto and also in replacing our personal lines’ policy administration systems in the back office to support it. However, this cost is reflected in our increased annual combined ratio of 114.4%.1 Even excluding the impact of our investment in Concerto, our adjusted combined ratio is still 104.6%, which is too high. And we expect our strategic investments will continue to increase operating expenses over the next few years. However we hope these investments will begin to improve our operational efficiency over the next few quarters and expect to see profitable growth in the longer term as a result. A key challenge in addressing these numbers has been our underwriting performance that has been poorer than expected. As you know our goal with Concerto was to rewrite underwriting to make it fully automated for our customers. We will need to continue to tweak this component in order to make it more cost beneficial. And finally, while the market has given us a bit of a break this past year, we can expect it to be tougher on us going forward.”
With that, Ron sat down and Kelly nodded at Jim Jenkins. Jim, who looked every bit of the actuary he was in a pinstripe suit and horn-rimmed glasses, glanced around the room somewhat nervously. “Well,” he said. “I guess that puts us in Underwriting on the hot seat. As you all know, automating underwriting has been a significant component of Concerto. We invested heavily in big data so we could access both structured and unstructured data about an individual’s home and car without them having to answer numerous questions. This required developing real-time access to a variety of third-party data providers through external interfaces. We can now get comprehensive information about properties in a particular postal area from a variety of service providers and details about an individual’s claims and driving history from the insurance bureau and Ministry of Transportation information simply by asking a customer a few key questions. We had to put a lot of work into these questions to get this right. We then developed advanced analytics so we could make a binding quote for an online buyer in real-time. We wanted to keep things simple and straightforward but know enough to be able to offer a customer a unique product tailored to their needs. This has been an instrumental factor in providing our customers a unique insurance experience.”
Jim gazed at the ceiling as if seeking inspiration to continue. After a long pause he said, “As you all know, Concerto suggests three levels of coverage for each customer request: economy, recommended, and premium. However, as you have seen from the financials, there is still work to be done in our underwriting processes. We are constantly working to improve our ability together and use information and tweaking our underwriting algorithms is our number one priority. Our use of big data and real-time analytics has captured global attention in the insurance industry and already sets it apart. Our full attention in Underwriting will now be on making the necessary adjustments to remain price competitive while reducing our combined ratios.”
Kristen Stewart then took the floor. Although much younger than everyone else in the room, she had won their respect through her social media acumen and intuitive grasp of customer needs. “Marketing’s research played a significant role in the development of the Concerto strategy,” she said. “You all know that a key value of our company is our commitment to an exceptional customer experience. That is why we value our brokers so highly and why we invested significantly in customer research before making the decision to develop an online channel. We believe these investments have helped us make a highly customer-centric product with Concerto. We, in Marketing, began this process several years ago with an initiative to explore shifting customer expectations and identify unmet customer needs.
“We found that almost one-half of all personal insurance policies were sold online, and that number was growing annually. But most players in the industry tap into rational marketing drivers such as price. We felt there was also some whitespace there around an emotional connection. In fact, our research revealed that when it comes to buying insurance 56% of purchasing drivers are actually emotional. Combining this with the needs of potential millennial customers, we realized that we could win the hearts and minds of these customers by changing everything about their experience with buying insurance not just putting a traditional insurance experience online. Our goal was to be known as ‘not your typical insurance company.’ In short, Concerto has been designed to be a parallel digital experience. It doesn’t take away from our brokerage offerings but expands our market significantly.”
Warming to her topic, Kristen held up three fingers. “When we began work on Concerto, we based it on three pillars: make it simple; make it available at their fingertips; and offer a customized product that best meets customer needs. To this end the Concerto team first mapped the end-to-end customer journey through the discovery, quoting, purchasing, servicing, and claims processes and then ensured these three pillars were addressed at every touch point. Concerto products are also written in everyday language – like we speak – and clean modem design is used in both our print and online materials to help customers easily understand complex topics. They provide an engaging experience for customers that informs and creates connections for them.
“This new approach at Concerto was complemented by a broader shift to an even more customer-centric focus at Trustworthy that positions us as a forward-looking partner in the industry as well as a trusted one. We’ve simplified our overall image to make a more modem look that better reflects our ambitions as a company, refreshed our brand, and redesigned our website to more accurately tell our company story. Our biggest challenge now is to bring what we’ve learned with Concerto to our broker community to help them offer a best-in-class experience combining advice and digital support. But, we aren’t sure what this will look like yet.”
“Thank you, Kristen,” said Kelly. “I think we all agree that our new look-and-feel is impressive. I’ll now ask Sheila to summarize IT’s perspective on Concerto and our ongoing transformation needs.”
“Thanks, Kelly,” said Sheila, walking to the front of the room. “As the newest member of our leadership team, who missed participating in the strategy development process, I deeply appreciate all the support you’ve given me since I joined Trustworthy. Although Concerto looks like an IT product what we’ve just heard reinforces the fact that it’s a business strategy and its success required full business participation. From a technology point of view, this was an ideal project. Not only did we have a fully committed business team, we also had Kelly’s support at every single steering committee meeting.” Gesturing to the room, she bowed briefly to each of them. “It is thanks to each of you that we’ve come so far so fast.”
Smiling broadly, she continued. “When I joined Trustworthy as its CIO frankly, I was uncertain we could pull this off, but I was very impressed with the discipline I found at all levels. In addition to full business support, I believe a critical success factor for this project was the fact that we were supported in taking a green field approach. By creating a separate office and team we were freed from having to deal with a lot of legacy technology baggage. Although there was some back-end systems integration to contend with, we got knowledgeable people moved over to the Concerto office to help us. Creating a separate Concerto team enabled us to adopt a collaborative working model that facilitated problem-solving.”
Sheila’s enthusiasm was infectious although the group had only a limited understanding of the technological details she was speaking about. “The Concerto project adopted Agile and DevOps practices from the start,” she said. “We divided our staff into small multidisciplinary teams so that each could work to continuously develop, integrate, and implement new functionality. We also developed a hybrid model of cloud and on-premise technology that has enabled an agile environment and which now helps us respond to new demands and opportunities extremely quickly. In addition, as Jim mentioned, we incorporated data analytics andaccessed big data through application programming interfaces to help us develop a sophisticated technological infrastructure to deliver our products. We are not an entirely standalone entity however. Concerto uses Trustworthy shared services such as IT, marketing, HR for many of its functions.
“Turning to the future, we have developed sophisticated management analytics to help us understand site traffic, such as those customers who buy on their first visit, those who decide to seek their quotes on site and buy later, or those who abandon the site midway through the purchasing process. We are using these metrics to continually assess the success and effectiveness of our online channel and make changes.
“In short, I am delighted with our progress to date,” Sheila concluded as she returned to her chair. “In fact, the main challenge I am dealing with right now is handling our other IT staff who want to know why the Concerto team is having so much fun! And we need to figure out how to bring what we’ve learned at Concerto back to our parent Trustworthy IT and business organizations.”
“Thank you, Sheila,” said Kelly warmly as she stood up and began a round of applause. “I think I speak for all of us when I say we couldn’t have done it without you! A business strategy is only as good as its execution and Concerto in my opinion has been superbly executed. Well done!
“Concerto has helped bring our growth strategy to life,” Kelly continued. “It started us on a journey of digital transformation but it’s just a start. Our next step will be to leverage our Concerto platform and experience for the rest of our business, especially our broker channel. From the beginning, we’ve been careful in how we managed our broker relationships, but now we have to redesign the rest of the insurance experience by combining digital transformation with deep industry expertise. As I said earlier we cannot afford to stand still. We either have to disrupt or be disrupted. Therefore, our challenges are twofold: to continue to improve the Concerto brand, and to apply what we’ve learned to our other Trustworthy brands and processes.
“I see this as part of our multichannel evolution. It will involve further research, new ways of using data, new delivery mechanisms, new digital services, education, and cultural change. Our focus must continue to be on providing a superb customer experience regardless of the process or channel used. You have all been an important part of our transformation to date. I believe we as a company are unique in that we have taken a multifaceted approach to change. Our competitors have tended to focus only on technology. Fundamentally, the key to our competitiveness has been the successful business-IT collaboration at multiple levels. For this reason, I have decided to make a new position on our executive team here at Trustworthy. Please congratulate Sheila Lee as our new Chief Transformation Officer. She will be working with each of you and our new CIO to lead our company-wide digital transformation forward.”
She paused, allowing Sheila to accept the congratulations of her peers. Then turning to Sheila she said, “The ball’s in your court Sheila. What’s our next move?”
“Thanks, Kelly,” Sheila said standing up and smoothing out her skirt. She had known about her new role for two days and had been thinking exclusively about the next move. She began. cautiously. “Each of you has touched on part of the challenge we have with Concerto. We need to find ways to manage our costs down. It’s not just new business we’ re after but profitable business and business efficiency. We must focus on how to use data to manage the risks of the business – like exposure to different markets and products, dependence on third-party data, and changing demographics – as well as simply improving underwriting. And we are re-positioning ourselves in the marketplace with our three-pronged approach to customer experience.
“But, our bigger challenge as an organization is how do we leverage what we have learned with Concerto? First, we have to consider our traditional business, which has been our bread-and-butter. Kelly has just underlined the strategic importance of our agents to the future success of the company. Our agents have been asking lots of questions about their role in our new business strategy and we have many customers who still need their expert advice. Second, we have gained first-mover advantage with Concerto but we already know our competition is creating similar offerings so we have to keep moving ahead with innovative offerings and excellent service. Third, we need to look much more broadly at the competitive forces affecting our industry. My worst nightmare is becoming disintermediated by a non-traditional company, in the same way Amazon cut out booksellers and Uber is undermining the taxi business.”
Seeing the faces in the room suddenly looking grim and distressed, it suddenly occurred to Sheila that she might. have gone too far by sharing her nightmare with the members of the executive team. With Kelly’s eyes locked on her, she waved her hands in front of her and said, “but let’s not get too far ahead of ourselves. We have problems but they are all good problems and I look forward to working closely with each of you to take us to the next level.”
Flesh out Sheila’s nightmare. Describe a scenario where Concerto becomes “disintermediated by a non-traditional company.” What impacts would this have on Trustworthy Insurance?
