Insurance @ Digital–20X by 2020 the Boston Consulting Group (BCG) Is a Global Management Consulting Firm and the World’S Leading Advisor on Business Strategy

Insurance @ Digital–20x by 2020 The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for- profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customised approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organisation. This ensures that our clients achieve sustainable competitive advantage, build more capable organisations, and secure lasting results. Founded in 1963, BCG is a private company with to 81 offices in 45 countries. For more information, please visit bcg.com.

Google’s innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google’s targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. For more information, visit www.google.com. INSURANCE @ DIGITAL– 20X BY 2020

ALPESH SHAH

BURJOR DADACHANJI

March 2014 | The Boston Consulting Group CONTENTS

3 PREFACE

4 “DIGITAL”: A GLOBAL MEGATREND The ‘Digital Economy’ is Large and Growing Exponentially Digital Economy is Shaped by the Convergence of Four Mega Trends India is No Different–Digital Already Well Underway Digital Already Influences Insurance Deeply

14 “DIGITAL” IS DISRUPTIVE—WILL DRIVE DISCONTINUITIES Five Disruptive Themes Challenging Business Models Today

21 “DIGITAL” TO HAVE MASSIVE IMPACT ON INDIAN INSURANCE Online Insurance in India Set to Grow Significantly Larger ‘Digital’ has Deep Impact on more than Just Sales

31 “DIGITAL” CALL TO ACTION: TIME TO ACT IS NOW Set Digital Goal Posts Rewire for a Digital Mindset Infuse the Right Digital Reflexes within the Organisation Accelerate the Transformation Partner—Smart Make a Beginning

39 FOR FURTHER READING

40 NOTE TO THE READER

2 | Insurance @ Digital–20x by 2020 PREFACE

he exploding popularity and reach of mobile devices, internet Tand social media has made ‘digital’ a core part of life for many consumers across the globe. This megatrend is only growing bigger, and exponentially, at that. Digital has been disrupting one sector after another—from travel, to publishing, to music, the list is long. Digital disruption is no longer a possibility, it is a certainty. The Insurance industry is not immune to this megatrend, and digital driven changes are taking place across its value chain. This transformation is both an opportunity and a threat for insurers. As insurers search for ways to grow profitably, they have a unique opportunity to embrace and benefit from the digital wave, which offers a chance to address a lot of the key issues that plague the offline world today. However, it also requires insurers to be agile enough to cope with rapid changes and newer challengers.

When applied to the context of India, it is clear that India is on the threshold of a digital revolution. Though online purchases represent a small component of commercial activity today, it is growing rapidly. How- ever, and more importantly, the internet’s influence on purchase decisions is significantly higher. In some categories, digital influence is already comparable to more mature markets. In Insurance, online term life plans and travel insurance have already picked up substantially in the last few years. Though better pricing is a key reason for buying online, convenience and increased transparency are critical factors as well. Insur- ers need to realise that just like many other industries, they will need to undergo extensive changes in the way business will be carried out in the digital age. The impact of digital will be felt well beyond just online sales. It is estimated that by 2020, three in every four insurance policies would be influenced by digital channels during either the pre–purchase stage, purchase or renewal stages. It is therefore essential that Indian insurers carefully consider the impact that digital can have on their business and take appropriate measures immediately. The time to act is now.

This report identifies the opportunity and the threat and makes the case that Indian insurers need to act now. It proposes a clear action agenda for insurers and lists specific imperatives for each of its elements. It suggests that insurers should define digital a digital goal post, adapt to a digital mindset, inculcate the right capabilities within their organisations and accelerate their current digital efforts to benefit from this digital opportunity.

This report leverages insights from wide array of BCG India and global initiatives, and BCG’s Centre for Consumer and Customer Insights (CCCI). It also captures insights gleaned from Google commissioned research, proprietary data, and select third party sources.

The Boston Consulting Group • Google | 3 “DIGITAL”: A GLOBAL MEGATREND

he ‘digital economy’ is here to stay. gy adoption and the way information is being TAlthough digital distribution began in the consumed are changing rapidly. Each new 1990s with the advent of the Internet, it is technology sees faster adoption at a mind only in the latter part of the last decade that boggling pace; in 2013, smart–phone sales the earlier predictions on its impact and surpassed basic phone sales for the first time. explosive growth are coming into being. Of the 1.8 billion mobile phones that were sold in 2013 alone, 968 million were smart– phones. (Source: eMarketer). The ‘Digital Economy’ is Large and Growing Exponentially Technology adoption curves are becoming ‘Digital’ is now a way of life. Today, the highly accelerated. For example, if one was to world has 6.7 billion mobile phone connec- take as benchmark a 1 billion usage populations, 2.7 billion internet users and 1.7 bil- tion, the time to achieve that has been nearly lion social media users (as shown in Exhibit halving with each new technology. What took 1.1). What this means is that there are more 110 years for fixed line telephones, took only mobile phone connections in the world than 49 years for televisions (as shown in Exhibit humans, nearly 2 out of 5 humans are al- 1.2). And as one looks at more recent technol- ready online and 1 in 4 is using social media. ogy dispersions, mobile phones took 22 years If one fast forwards a few years, it is expect- while internet achieved the same in 14 years. ed, that by 2017, the world will have 8 billion Even more recently, app–based smart–phones mobile connections (1.2 for every human), and Facebook have both hit the billion mark 3.3 billion internet users (1 in every 2 hu- in just 8 years. It looks like the “next big one” mans), enabled by the fact that the smart– will be called ‘big’ only if it hits the billion phone population will be 3 billion (2 of ev- mark in 5 years or less. ery 3 phones sold in the future will be a smart–phone). This connected online population forms a brand new market that cuts Digital Economy is Shaped by across borders—a market in which the pow- the Convergence of Four er of choice, information access, convenience Mega Trends and a feeling of community are taken for The rapidly accelerated technology adoption granted. which is shaping the digital economy is due to the convergence of four mega trends: Digital is rapidly becoming a layer in the lives of customers across the globe. Both technolo- •• The world is going mobile

4 | Insurance @ Digital–20x by 2020 Exhibit 1.1 | “Digital” BIG, Getting BIGGER

Users (billion) 10

8.0 8

6.7

4 3.3 3.0 2.7 2.7 2.5

2 1.6 1.7 1.1 0.7 0.4 0.0 0.03 0 Mobile phone subscribers Internet users Smart–phones Social media users

2000 2006 2013 2017

Source: Euromonitor; Ovum; eMarketer; IDC; EIU; Analyst reports.

Exhibit 1.2 | Digital Technology Adoption Faster

Users (million) 1,500

8 22 8 110 14 49 1 billion 1,000 users

500

0 0 5 10 15 20 25 30 35 40 45 70 75 80 85 90 95 100 105 110

Number of years since introduction

Smartphones1 Facebook Internet Mobile Television Telephone

## Number of years to reach 1 billion Source: ITU; Secondary Research; BCG analysis Note: Data shown on the graph is only up to the year when user base touched one billion. 1App based smart-phones.

The Boston Consulting Group • Google | 5 •• Micro–transactions are the new norm Smart–phones are by design Internet–consumption devices. It is hence not surprising •• Man is a social animal that as per the Cisco VNI 2014 study, while smart–phones constituted only 27 percent of •• Big data leverage the total global handsets in use in 2013, these contributed 95 percent of the total The world is going mobile global handset traffic. In 2013, the typical Mobility ensures that customers have porta- smart–phone generated nearly 50 times ble multi–media devices with Internet ac- more mobile data traffic (529 MB per cess and the ability to make instant deci- month) than the typical basic–feature cell sions anywhere and anytime. phone (11 MB per month). Mobile devices contributed 53 percent of video traffic in Today, there are more people in the world 2013, largely driven by smart gadgets. who own a mobile phone than who have a bank account. Mobile phone subscriptions Thus we see that there already is and there have grown beyond six billion in a span of will be an even more rapid shift in terms of about 20 years. In 2013 alone, 1.8 billion the number of people having access to the mobile phones were shipped globally. It is Internet on their phones. Mobile technolo- expected that by 2017 over 70 percent of the gies are a particularly good fit with the digi- forecasted 2.3 billion mobile phone sales tal economy, as they bypass the constraints will be smart–phones. Overall, it means that of deficient physical infrastructure and are the total mobile connections are expected to always in the ‘on’ mode. In fact, Cisco esti- increase from 6.7 billion today to 8 billion in mates that the global mobile data traffic will 2017 and smart–phones from an estimated increase eleven fold, up from 1.4 exabytes / 1.5 billion today to nearly 3 billion by 2017. month in 2013 to 15.9 exabytes / month by (Source: Euromonitor, eMarketer) 2018 (as shown in Exhibit 1.3)

Exhibit 1.3 | Mobile Traffic Set to Grow 11 Times by 2018

Exabytes / month 16 15.1 7% 9%

12 18% 10.3 11 x 6% 10%

8 17% 6.7 5% 13% 66% 4.2 15% 4 5% 16% 67% 2.5 13% 5% 19% 67% 1.4 11% 25% 5% 66% 9% 65% 62% 0 2013 2014 2015 2016 2017 2018

Non smartphones and others Laptops Tablets Smartphones

Source: Cisco VNI forecasts.

6 | Insurance @ Digital–20x by 2020 Micro transactions are the new norm •• Belonging: Social networks like Facebook, Falling technology costs have radically low- Twitter, Google+ and Instagram enable ered break even requirements in terms of the human need to connect with people transaction size. This has allowed companies socially. to conduct all kinds of transactions online, allowing them to sell a wider range of products •• Esteem: Social platforms allow users to and services through the Internet than was share information, show–off and connect feasible only through physical platforms. To with a wide professional and personal take an example, in India, one in every two network. Overall, this adds to their mobile phone top–ups is a ‘chhotta recharge’ confidence, self–respect and sense of (< $1), with more than two out of three re- achievement. charges being less than $2. This is stark even for India, but reaffirms the need and value •• Self actualisation: Blogs, Tumblr, Word- for smaller transaction sizes. What this also Press and other platforms contribute to demonstrates is the need for businesses to the highest need to demonstrate exper- constantly innovate to be able to serve small- tise, creativity and moral views, thus er transactions profitably. Banks have shown aiding self realisation. that this can be done successfully by moving customers onto more technologically enabled As digital media gets embedded into the lower cost channels for servicing. Internet day–to–day life of consumers, there is a pro- and mobile transaction costs less than 1 / liferation of information and participation 200th of physical branch transaction costs (as on social media networks. When Facebook shown in Exhibit 1.4). crossed one billion users in 2012, it had 219 billion photos uploaded, 17 billion location– Man is a social animal tagged posts including check–ins, and 62.6 Social media is an important social trend; it million songs that were played. YouTube satisfies a variety of human psychological each month sees more than 1 billion unique needs, almost in line with Maslow’s hierarchy users, 100 hours of video are uploaded to beyond safety and physiological needs: YouTube every minute and over 6 billion

Exhibit 1.4 | Digital Lowers Transaction Costs—India Banking Example

Transaction channel Typical cost (INR / transaction)

Branch 40–50

ATM 13–17

Call Center 8–10

Offline BC model 4–6

Online BC model 2–4

Internet 0.2–0.5

Mobile <0.2

Source: BCG analysis and case experience.

The Boston Consulting Group • Google | 7 hours of video watched each month—that’s Nothing influences people more than a recom- almost an hour for every person on Earth. mendation from a trusted friend. A trusted refer- Today there are 1.7 billion social media us- ral influences people more than the best broad- ers globally, and they are in all corners of cast message.” And social media offers that. the world as shown in Exhibit 1.5. Customer recommendations and reviews from These networks and connections enable cus- friends and family are increasingly becoming tomers in particular to: more trusted sources. Interaction on social networks offers companies a unique opportunity •• Make use of powerful feedback, rating to engage individual customers in product de- and recommendation mechanisms velopment or brand building, and use the social context to predict behaviour. •• Participate in opinion–sharing about companies, their products and employees Big data leverage Big data technology has made it increasingly •• Spread positive or adverse information easy to acquire granular level data. Granulari- quickly ty of data allows micro–segmentation, custo- misation of offers, de–averaged pricing, and Social media allows companies to create op- risk diversification. All of this has been made portunities for advocacy marketing through possible in recent times due to four enablers: digital channels. It enables a company or product to interact with customers on a per- Lower data storage costs: In conjunction with sonal level to create socially embedded trust the ability to undertake and centralise data col- and reputation. As customers increasingly lection across multiple heterogeneous sources, gain access to information from digital sourc- supports improved Big data management. es, the effectiveness of traditional media has declined. Social networks allow for faster and Increased data processing capability: Open better word of mouth publicity. In the words source frameworks like Apache Hadoop for of Mark Zuckerberg—“People influence people. storage and processing on commodity hard-

Exhibit 1.5 | Social Media Gaining Ground Around the World

Sweden Netherlands Finland Russia Canada United Kingdom Norway Denmark Germany China France United States 164 Italy Japan Spain 366 South Korea 128 Mexico India Indonesia

Brazil Australia Argentina

Size of the bubble represents 50 million number of social media users Source: eMarketer.

8 | Insurance @ Digital–20x by 2020 ware (i.e. on already available computing •• 900 million mobiles (Globally #2) components for parallel computing), allow for scalability to get maximum useful computa- •• 200 million Internet users (Globally #3) tion at a low cost. •• 92 million Facebook users (Globally #2) Enhanced abilities to integrate company and public data: LexisNexis is a service provid- We see that India is also following the same er that has collected data from across multiple pattern as the rest of the world, with social public data sources including credit bureaus, media platforms like Facebook alone already hospitals, auto OEMs, police records, etc. Insur- about to reach 100 million users. India’s tech- ers such as Allstate, in the US, connect their nology adoption curve has been accelerating. own data with of LexisNexis as well as with the If one was to recreate Exhibit 1.2 for India, claims data of all insurers. This results in inte- taking the benchmark of a 100 million usage gration of nearly all claims from US insurers population, what took 25 years for colour with public data and criminal records for fraud televisions, took 20 years for the internet and detection. This revealed that for specific health more recently mobile phones achieved the care providers, almost 20 percent of claims same in 11 years (as shown in Exhibit 1.6). were fraudulent or wasteful; fraud detection Even in the smart–phones market, India is al- improved by approximately 30 percent, and ready third largest in the world (behind only claim expenses reduced by 2–3 percent. Besides US and China). Forty four million smart– enhancing access to an increased stock of infor- phones were shipped to India in 2013 as mation, this has also created opportunities for against 16.2 million in 2012. using newer tools and applications for marketing, promotion and pricing in three ways: A research conducted by The Internet and Mobile Association of India (IAMAI) and •• Targeted offers based on online, loyalty IMRB International indicates that Internet and transaction data users in India has reached 200 million by Oc- tober 2013, with 130 million urban users. Mo- •• Location–based customer offers bile Internet has more than 110 million users, of which 85 million are urban. Additionally, •• Real–time monitoring of product usage the survey reveals that over 45 million urban and associated schemes and 26 million rural customers are active users, with more than one in two active urban Augmented capabilities for pattern recog- users engaging in online shopping. nition: Big data access and analytical tools allow for analysis of data points not as dispa- “Digital influence” in India almost rate entities, but in context. They make it pos- three times digital sales in India sible to bring together various sources of data A 2013 digital influence study for India by to identify patterns and create stories that BCG’s Centre for Consumer Insight (CCCI) can be commercially useful. Search engines shows that one in two urban Indian Internet us- like Google are also quickly becoming key ers acknowledge ‘digital influence’ in their over- tools to provide insights into people’s inter- all purchase basket (as shown in Exhibit 1.7). ests, intentions, and future actions. Needless to say, such insights can be very useful to While digital footprint represents how many businesses. Search engine tools now enable customers of the product category have in- one to understand the customer’s intentions ternet access, digital influence represents and follow consumer behaviour in real–time. what fraction of the category buyers use the Internet for any pre–purchase, purchase, post purchase or service activity. Digital buy- India is No Different–Digital ers are those who eventually make online Already Well Underway purchases of the product category. India is no different when it comes to digital and already has one of the largest digital user While digital footprint and digital buyers are populations in the world: easy to understand, digital influence has

The Boston Consulting Group • Google | 9 Exhibit 1.6 | Digital Technology Adoption in India Faster

Users (Million) 11 ## Number of years to reach 100 million 350

20 200 25

150

100 million 100 users

0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50

Number of years since introduction

Facebook Mobile Smart phones Internet Colour TV Telephone Source: Euromonitor; ISR; ITU; Press search.

Exhibit 1.7 | Digital Influence in India 2.5 Times Digital Sales

Of all buyers indulge in actual Digital 6% digital sales—just the tip of sales the iceberg

Of all buyers engage in at least one of ten activities amongst 15% pre–purchase, purchase or Urban Digital influence post–purchase activities online customers

28% Of all buyers are internet users

Digital footprint

Source: BCG CCCI digital influence study 2013.

10 | Insurance @ Digital–20x by 2020 been identified as consumers doing any of compared to other product categories. The the 10 “commercial related activities” on- BCG Global Digital Consumer Sentiment Sur- line. The 10 activities are: vey showed that insurance was amongst the top five product and service categories where •• Pre–purchase: (i) Info search on prices, (ii) respondents had shopped via the Internet (as Info search on products, (iii) Search for shown in Exhibit 1.8). store locations and (iv) Search for discounts / coupons In the US, in the case of motor insurance, digital influence has already reached 75 percent, •• Purchase: (v) Online ordering and (vi) with over 25 percent of motor insurance sales Online payment coming through digital channels. In the UK consumer research (BCG analysis, Datamoni- •• Post–purchase: (vii) Troubleshooting, (viii) tor) reveals that 51 percent of consumers sur- After sales service, (ix) Buying accessories veyed bought their most recent policy and (x) Comments / reviews through the Internet. Life insurance digital channel sales in terms of annualised new business premium is already around $2 bil- Digital Already Influences lion (4 percent) in the US and around $500 Insurance Deeply million (4 percent) in Germany. Internationally, insurance has one of the highest percentages of consumers using the As per the BCG CCCI research in India, in Internet to buy and / or research insurance as the case of insurance, digital influence is six

Exhibit 1.8 | Insurance a Top 5 Product Category in Internet Usage

Europe North America

Travel and vacation 92 86 Media 84 74 Out of home entertainment 84 74 Books, newspapers and magazines 84 79 Insurance products and services 83 66 Televisions, DVD players 83 77 Restaurants 79 77 Financial products and services 79 69 Mobile phone contract and services 78 69 Mobile phones 76 70 Home decor 73 59 Shoes 72 64 Groceries and beverages 71 68 Drugs and medicine and vitamins 71 71 Pet food and pet care products 68 55 Luxury products 68 61 Jewellery and accessories 64 59 Household products 59 51

0 25 50 75 100 0 25 50 75 100

Respondents who have used the Respondents who have used the internet in shopping process (%) internet in shopping process (%)

Source: BCG global consumer sentiment survey.

The Boston Consulting Group • Google | 11 times digital sales in India. While digital desktops / tablets have grown 4-6x; queries sales is 2 percent, the underlying digital in- on smart–phones have gone through the fluence is 12 percent (10 percent for motor; roof, nearly 100x albeit from a smaller base. 12 percent for life; 14 percent for health and 19 percent for travel) and the digital foot- The BCG India CCCI 2013 study also shows print is 31 percent for insurance. the already high digital influence across all aspects of the insurance purchase cycle in Customer insights indicate India. Commensurate with the overall devel- momentum towards digitalisation of opment of the market, usage is higher for insurance in India simpler products like travel and term life, According to the Google Consumer Barome- predominantly for pre–purchase activities ter 2013, search engines are the most popu- (for example, product research or price com- lar touch point for customers seeking infor- parisons); the overall digital impact is also mation. Growth in Google search queries significant (as shown in Exhibit 1.10). related to insurance in India has been expo- nential since 2008 (as shown in Exhibit 1.9), For example, in health insurance, 14 percent of 6x in the case of motor, 4.5x in the case of the insurance buyers were digitally influenced health and 4.5x in the case of life insurance. (while 32 percent searched for information about the product, 45 percent were involved in If one looks at the growth in search queries, price discovery and 19 percent made an order over the last 4-5 years, while queries on and payment). All of these activities for digitally

Exhibit 1.9 | Multifold Increase in Insurance Search Queries

Life Health

# search queries (indexed) # search queries (indexed) 60 60

40 40 4.5x growth 20 4.5x growth 20

0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

Motor Travel

# search queries (indexed) # search queries (indexed) 100 80

50 40 6.0x growth 3.7x growth 20

0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

Source: Google search data.

12 | Insurance @ Digital–20x by 2020 Exhibit 1.10 | Customer Research Shows High Influence Across Value Chain

Pre-purchase Purchase Post purchase

% category Info Info To Post Search Posting buyers Digital search search access / Actual purchase for store reviews / digital influence for for purchase purchase manage- locations comments footprint product price coupons ment

% buyers with digital influence

Travel 33% 32% 23% 20% insurance 19% 15% (42%) 9% 7%

Motor 50% insurance 10% 34% 25% 21% 16% 17% (43%) 4%

Health 46% 32% 30% insurance 14% 19% 19% (57%) 12% 5%

Life 53% 36% insurance 12% 18% 21% 17% 18% (38%) 3%

Figures in boxes represent internet access among the category buyers

Source: BCG CCCI digital influence study 2013. influenced customers in each insurance segment Summary have seen an increase in comparison to the 2012 The digital economy is here to stay. The internet study. The percentage of these customers pur- has gone from being a technical wonder to being chasing online has gone up steadily with health a business imperative. Digital is already very big insurance buyers increasing from 13 percent and is getting even bigger, exponentially. Adop- (2012) to 19 percent (2013) and motor also see- tion of every newer technology is faster than being a corresponding jump from 13 percent to 16 fore. India is no different. The digital wave has percent. hit and is expanding in leaps and bounds. India is already the second or third largest economy In a short period of time, the Internet has suc- on all digital dimensions—mobiles; social media; ceeded in becoming the second largest contribu- internet customers etc. Within digital, insurance tor to brand selection, after friends and family. is a top 5 product category in internet usage About 52 percent of all polled respondents in globally. Even in India, BCG research and Google the BCG survey claimed that the Internet was experience shows large momentum in the im- instrumental in introducing them to the brand pact of digital on insurance, 5-6x growth in insur- they finally ended up purchasing. This is already ance queries over the past 5 years and influence higher than the 49 percent who learned about a nearly 6 times sales. Digital is no longer an al- brand or insurance company related to their pur- ternative, it is core and is the new way of life. chase category through an agent. What is important to note is that the level of internet influence on higher income categories is even greater.

The Boston Consulting Group • Google | 13 “DIGITAL” IS DISRUPTIVE—WILL DRIVE DISCONTINUITIES

he old ways of selling insurance are, tar stores. The modern consumer values con- Tover time, becoming less sustainable. venience and value for money above every- Digital tools give insurers the chance to thing else; she / he is comfortable address key customer issues in the industry purchasing products without always being to help improve (i) sales, (ii) customer able to interact physically with the product / engagement and (iii) efficiency (as shown in channel. In other industries, some compa- Exhibit 2.1) as well as to improve internal nies already try to serve clients without in- efficiency. creasing their physical footprint. Success on the digital platform is conditional to a well thought out strategy and a business model Five Disruptive Themes specific to the medium. Challenging Business Models Today Take the example of Tesco in Korea, who Business models are changing with the ad- understood the lives of Korean customers vent of digital technologies. Experience is who work hard and have little time for gro- quickly becoming less important than it has cery shopping. Google studies showed that been traditionally; customers have become 60 percent of Korean consumers use their more empowered and there is a distinct shift phones while walking, communicating and in the balance of power. While insurance waiting. By using digital technology, Tesco needs may have remained the same, custom- placed ‘virtual’ shopping markets in sub- ers have become more demanding, wanting ways. Products were arranged as in a super- to use the channel that is most convenient market, with each product having a ma- to them at the moment, leveraging disinter- chine–readable QR code. Customers can mediation and advocacy to select the best now add products to their cart by scanning options. the code with their smart–phones, enabling purchases via phone (at work, on the sub- Five main themes are causing serious dis- way) and home delivery after work. A cus- continuities throwing up opportunities for tomer on her / his way home can place or- both incumbents and new players: ders at the station while waiting for her / his train to arrive, and have the products deliv- Physical footprint much less ered home by the time she / he reaches relevant today home. Convenience at its very best. Low cap- Retail success no longer depends exclusively ital expenditure allowed Tesco to gain a on an established network of brick and mor- large reach, resulting in a 130 percent in-

14 | Insurance @ Digital–20x by 2020 Exhibit 2.1 | Digital can be Harnessed Across the Value Chain

Product Marketing / Claim / benefit Sales Operations development branding management

Newer platforms for Quality customer servicing for improving New digital product awareness customer experience and service offering (for example,

(positive "moments of truth") social media) Sales through recommendations (for example., from Customer education friends, aggregators) Customer Optimized self-service applications and to improve engagement on online portals to integrate customers in consideration / product co-creation service processes with

Customer facing Customer decision-making

Deep customer insights

Fully supported Increased sales / agent productivity by integrating sales force and Broad Internal knowledge agents in service processes with optimized self-service applications talent search management and online portals Internal

Internal communication, training and information

Source: BCG analysis. crease in online sales and growth in its market •• Existing customers converted to sellers: A position—with a considerably lesser physical unique and highly successful affiliate presence than E–mart, the leading player. programme where customers earn commissions by bringing in leads. In the insurance sector, companies such as GEICO and Progressive, with their direct Even in India we see that digital allows for models with limited physical presence, have more profitable models. The ‘Life Insurance consistently been more profitable than the Benchmarking Survey Report’ undertaken by overall market and traditional rivals like BCG along with Federation of Indian Cham- State Farm (as shown in Exhibit 2.2). bers of Commerce and Industry (FICCI) reveals that for participating life insurers, direct GEICO in the US is an excellent example of sales through online channels result in higher a highly successful direct sales insurance ticket sizes of policies, with greater persisten- model with 12 million automobile policies in cy and lower sales costs compared to other force and 18 million vehicles insured. Their channels. As seen in Exhibit 2.3, persistency is sales come from three different channels: decisively higher for the digital channel across the 13th, 25th, 37th and 49th month, com- •• Online and phone: These are the primary pared to any other distribution channel. Addi- channels for sales, combined with a large tionally, the direct cost of each channel as a advertising spend to ensure customer pull percentage of annualised new business premi- in the absence of a large agent channel. um is lowest for the digital channel at 11 percent compared to the agency channel which is •• A thin network of local agents: Only three close to 62 percent. agents service a city like New York, with only 14 offices all across the US compared Online aggregator portals like Policybazaar. to over 450 for a player like Progressive. com, started in 2008, have seen tremendous

The Boston Consulting Group • Google | 15 Exhibit 2.2 | Direct Players Like GEICO and Progressive in the US Have Higher Profitability

Combined ratio (%) 120

110

100

80 2005 2006 2007 2008 2009 2010 2011 2012

Market Progressive GEICO State Farm

Source: AXCO; SNL; Annual reports; Analyst reports.

Exhibit 2.3 | Digital Life Policies More Cost Efficient with Higher Persistency

Highest persistency amongst channels Lowest direct sales cost amongst current channels

% by premium Direct sales cost/ANBP (%) 90 80

80 62 60 70

60 40 39 50 28

40 20 13 11 30

20 0 13th 25th 37th 49th 61st Digital Banc– Brokers Corporate Agency assurance agents

Digital Physical channels1

Source: BCG FICCI Life Insurance benchmarking survey report 2013. 1Physical channels include agency, bancassurance, brokers, corporate agents and direct sales force.

16 | Insurance @ Digital–20x by 2020 growth in volumes in the recent past. In the daily basis, for granular pricing of its poli- last three years it has seen a 4x growth in cies. Climate Corporation also predicts fu- the value of life insurance premiums and a ture claims and provides cover for weather 7x growth in the value of health insurance. events irrespective of crop loss—thus opti- Motor insurance sales that were relatively mising automated underwriting and claim small in 2011-12 have gone up four times management. It was sold in October 2013 within the last year itself. This has been for $930 million to Monsanto, who in its achieved not only by building awareness press release at the acquisition mentioned about high utility insurance products, but that data science could be a $20 billion rev- because online platforms offer a unique op- enue opportunity beyond its core business portunity for efficient low cost distribution. of seeds and chemicals.

Big data and analytics break entry Telematics revolutionising underwriting ‘one barriers drive at a time’. The main aim of telematic The relatively lower cost of leveraging digi- automobile insurance is to monitor real time tal technology compared to physical pres- driving behaviour through telematics technol- ence, combined with customer acceptance of ogy, allowing for better risk assessment and new products and brands, is breaking down pricing. Insurers are already leveraging the barriers to entry across industries. driving behaviour data to personalise pay– as–you–drive underwriting. It is already a Big data replacing experience as competitive useful niche product for certain segments advantage. Insurers have long believed that such as young drivers, where the benefits of the four parts of the value chain in the clearly outweigh the cost of installation and insurance industry i.e. risk management, operation of the technology ‘black box’. With sales, investments and operations, their greater commoditisation of motor policies, competitive advantage in risk management is there is a need for ways of retaining custom- a strong barrier to entry. However, with the ers and telematics offers rich data to enable advent of big data, challengers have been segmentation. For example, Aviva targets able to enter and leapfrog years of claim younger drivers who pay higher premiums experience accumulated by traditional with an Android app that monitors the insurers. driver’s first 200 miles to determine individual premiums based on driving behaviour, by Take for example, the case of Climate Cor- recording data on acceleration, braking and poration in the US, founded in 2006 by two cornering. Safe drivers are offered discounts ex–Google employees, which solves one of up to 20 percent. the most complex insurance problems in the US, namely crop insurance. Its main value Car manufacturers clearly have the advan- proposition is risk mitigation through im- tage of rich and cheap data. For them, proved farm operations based on real time telematics originated out of providing ‘con- monitoring and advisory services. It pro- nected car’ type services (for example, navi- vides a self–service approach for a product gator, entertainment services, and monitor- previously sold in over–the–counter negotia- ing of the mechanical health of the vehicle). tions. Clients can log into the site and input Now, they are using telematics to direct cars the range of temperature or rainfall they involved in accidents into their branded ga- want protection from for a specified time. rage network, and also to sell tailored insur- By harnessing big–data and cloud comput- ance and other products (for example, breaking, the company estimates the risk related down cover) to their clients. Many car to weather events and crop yield at a local- manufacturers are beginning to partner with ised level to provide an online real time insurers, both directly and through brokers quotation. To do this, Climate Corporation and panels. A few are teaming up with data analysed 60 years of crop yield and 14 tera- aggregators to analyse and sell the informa- bytes of soil type data for every two square tion coming from the telematics boxes. miles in the US, along with weather mea- Telematics penetration within insurance is surements from 2.5 million locations on a still low (<3 percent) to date in Europe and

The Boston Consulting Group • Google | 17 the US. However, fifty insurance brands Clinical visits are reduced by 50 percent, across Europe and the US have entered the resulting in reduced costs. In addition, early telematics market in the last several years. detections result in faster treatment, ulti- This is further set to change as car manufac- mately reducing claim costs. turers increasingly incorporate telematics devices into their vehicles. Initiatives like Access to captive customers and deep- the European Government’s ‘eCall’ that er insights leveraged by new chal- aims to equip all vehicles with a device that lengers will automatically dial an emergency num- A new breed of entrants into the insurance ber in the event of a serious road accident, industry like Air Asia (an airline) are com- and wirelessly send impact sensor informa- bining low touch digital presence and cus- tion as well as GPS coordinates to local tomer understanding to offer relevant prod- emergency agencies, are set to make ucts at the right time. After revamping the telematics devices cheap and ubiquitous. low–cost carrier industry, Air Asia is now selling insurance online during ticket sales. Better health care at lower costs through It is using access to the airline‘s already ex- connectivity. Humana and other health care isting huge customer base and brand to sell insurers have incorporated the concept of these low–premium policies on a per–trip remote monitoring into interactive health basis. More than a quarter of Air Asia flyers care devices. These devices monitor their purchase its insurance. The premium for its Medicare members who are living with travel insurance has been increasing at congestive heart failure, allowing for remote about 36 percent per annum since 2009. Air detection of issues and remote advisory to Asia had approximately 6 million customers the patient. This enables faster reaction to (as shown in Exhibit 2.4) insured in 2011 emergencies, easy sharing of information and and is already the largest travel insurer in remote follow–ups instead of clinical visits. South East Asia (SEA). Clearly a competitor

Exhibit 2.4 | Access to Captive Customers Open Up Opportunities

More than a quarter of Air Asia flyers Search query growth for Maruti related purchase its insurance (2011) insurance greater than other branded cars

Smart–phones # Million % growth 29.8 30 400 290% 214% 200 21.7 0 20 Other branded car related Maruti related insurance search queries Insurance queries

% growth Desktops and Tablets 10 100 5.6 49% 50 18% 0 0 Total customers Customers in Number of Other branded car related Maruti related markets where policies insurance search queries Insurance queries Air Asia underwritten insurance is sold

Source: Tune insurance analyst reports; Google search data.

18 | Insurance @ Digital–20x by 2020 insurers had not foreseen. Air Asia plans to fraud and better risk selection, lower pro- enter not only the travel, but also the acci- cessing costs, lower cost of sales and lower dental and personal insurance space in In- premium for customers. dia. GiffGaff, a Mobile Virtual Network Operator Similarly, Maruti Suzuki has recently (MVNO) owned by Telefonica, has used social changed its insurance model from being a cor- media forums to completely eliminate its call porate agent to a broker. Every month over centres and customer service centres. GiffGaff 90,000 Maruti cars are sold in India, and a has set up user forums where customers are large majority of its customers purchase rewarded for answering the queries of other Maruti insurance along with their car. The customers. Contributors to the GiffGaff com- policy buying and selling process is hassle munity forum are awarded monthly points in free, as policy documents are provided along proportion to the effort spent. Even this com- with the car. Claims are directly handled by munity based customer assistance, the compa- dealers in a cashless transaction; customers ny manages to maintain an impressive 90 sec- do not need to pay and file claims later as ond average waiting time for customer with other insurance companies. Search query complaints. This not only leads to greater in- growth for Maruti related insurance far out- volvement of customers, but allows for sub- strips insurance related search queries for oth- stantially reduced support costs. er brands (as shown in Exhibit 2.4). Can Maru- ti be the next challenger? Will it consider Mobile Internet driving customer moving from being just a distributor to a full engagement fledged insurer like Air Asia? A large number of insurers have created mobile applications to improve customer ser- New platforms making company vices and / or increase sales. Below are three interactions more ‘social’ examples. Insurers are using both mobile and social media to respond to and engage with cus- Tokio Marine has seen its insurance sales in- tomers in unique ways. These platforms not crease substantially post the introduction of only improve sales but also increase custom- short–term easy–to–purchase insurance via er engagement and improve operational effi- mobile in partnership with telecom operator ciency. Some interesting examples include: NTT. Tokio Marine has introduced small insurance policies that can be purchased for pe- Direct line presented a new concept to en- riods as little as a day or a few weeks to pro- gage existing and potential customers in the tect the customer against smaller and development process of a new app through infrequent activities. Their mobile app uses its IdeaLab. A four–week campaign on a new GPS to determine the customer’s location and iPhone app encouraged Facebook users to proactively prompts them with relevant prod- help determine its features and functional- ucts (for example, travel insurance prompts at ity. Several hundred users participated to the airport, or accident insurance at a ski recreate a new “On the Road” app, including a sort) for “One Time Insurance”. Customers can route planner, live traffic updates and a then instantaneously complete the purchase “Help for Accidents and Claims” tool. of the policy on their mobile devices.

Friendsurance, a German insurer, is a Insurers like AXA & Zurich are already push- unique aggregator leveraging social media to ing the boundaries in popularising self–ser- offer a peer to peer insurance offering. vice in automobile insurance by developing Groups of friends are allowed to create apps that substantially reduce policy admin- groups online, pooling funds to share limited istration and claims costs. risk. While small damages can be covered by the ‘friend group’ as a deductable, large The Zurich app functionalities include: damages are covered by the insurance companies. This model provides benefits to both •• Recording and collecting accident customers and insurers, enabling reduced information.

The Boston Consulting Group • Google | 19 Exhibit 2.5 | Digital Disruption Across Insurance Value Chain (Examples)

Product Marketing / Claim / benefit Sales Operations development branding management

GEICO—Direct insurance with limited physical presence and sales force

The Climate Corporation—Big data usage to estimate risk related to weather events/ crop yield, automated claims

Direct line Giffgaff Humana Engage existing and Air Asia User forums, to Remote Chronic potential customers in Simple and low-premium insurance policies integrate customers Disease Management the development sold during air ticket sales in service process to lower health costs process—IdeasLab

Allianz Online 360 customer Tokio Marine Aviva view, online self care- One-time insurance leveraging smart-phones and geolocalized Big Data usage to aggregated account information improve risk selection visibility and management

Liberty Mutual Friendsurance State Farm Claims outlier Unique aggregator leveraging social media to offer peer to peer Social media identification using big insurance offering enablement of agents data

Source: Secondary research; BCG analysis.

•• Locating the nearest certified repairers for These apps have not only been whole–heart- claims. edly accepted by customers, but also allow for more direct interaction with them. •• Filing and tracking claims; safe driving tips. Summary A similar app by AXA helps: Thus, we see that digital disruption will hap- pen across the value chain. It not only leads to •• Changing cars or adding named drivers. significant opportunities for growth but also raises important questions for existing play- •• Updating your contact details. ers. Insurers need to be creative in leveraging this disruption and participate in the phenom- •• Reporting an emergency. enal value that is possible to create with digital (as shown in Exhibit 2.5). •• Calling a break down service.

•• Filing claims online.

•• Calling AXA partners—for example, for windshield replacement.

20 | Insurance @ Digital–20x by 2020 “DIGITAL” TO HAVE MASSIVE IMPACT ON INDIAN INSURANCE

he online insurance market in India •• Digital ageing is far faster than physical Tis already in excess of Rs. 700 crore. Life ageing insurance sales contribute around Rs. 300 crore, motor insurance around Rs. 250 crore, Broadening of the digital influence while other insurance lines such as health in India and travel make up around Rs. 150 crore. The importance of digital in India can no longer be ignored. The fundamental contributor for this digital explosion is the rapidly in- Online Insurance in India Set to creasing Internet penetration in India, which Grow Significantly Larger already boasts of being the third largest In- The insurance industry is expected to main- ternet base in the world—surpassed only by tain its high growth trajectory over the next the US and China. Thanks to improving infra- few years. BCG projections predict that the structure, the spread of mobile phones to the life insurance Annualised New Business Pre- most far–flung rural areas and affordable In- mium (ANBP) is poised to grow by approxi- ternet facilities, the number of Internet users mately 2-2.5X by 2020 to Rs. 125-150k crore, in India is expected to grow from 200 million with renewals expected to grow to Rs. 550- today to nearly 330 million by 2016. Social 700k crore. The non–life insurance industry networks also are a large driver of Internet will grow by around 3-3.5X from its current usage. Emerging economies like India have size to Rs. 200-230k crore. Online sales are seen new Internet users quickly becoming fa- bound to grow even faster than this. miliar with social networking even when only partially acquainted with the Internet. Digital insurance in India is set to become massive, supported by two large develop- Mobility to drive Internet growth. The Indian ments: market demonstrates some unique character- istics. The BCG CCCI 2013 research shows •• Broadening of the digital influence in India: that nearly 52 percent of all Internet users in India access it only on their mobile phones, ǟǟ Mobility to drive Internet growth up from 45 percent in the 2012 survey. Overall, nearly 67 percent of Indian Internet ǟǟ Move over natives, the migrants are in users access the net on their mobiles along full force with other devices. This growth is bound to continue in the future with the increasing ǟǟ Move over metros, Bharat has arrived proliferation of smart–phones, faster access

The Boston Consulting Group • Google | 21 to the Internet on these phones and the access among age–specific demographic convenience of on–the–go Internet connectiv- groups. ity. Google experience has shown that the growth in mobile searches across multiple Move over metros, Bharat has arrived. As per insurance lines has increased dramatically IAMAI’s latest study in October 2013, greater since 2008 for smart–phones (as shown in than 50 percent of Internet users are now Exhibit 3.1). present in towns with less than 5 lakh population. Share of rural users has increased dramat- Move over natives, the migrants are in full ically, from only 9 percent of all users in 2009 force. A large part of the rapid expansion of to 33 percent in 2013. the Internet will be fueled by the increased number of younger users who are digital Similarly, although the metros contribute to a ‘natives’ i.e. individuals born in the late ’80s majority of Google search queries, there is a and ’90s who have had access to computing clear trend towards cities in lower tiers catch- devices practically all their lives. However, a ing up (as shown in Exhibit 3.2). Users in low- prominent trend is the arrival in full force of er tier cities actively seek out online avenues older users who are ‘migrants’ to digital as digitisation helps them gain access to bet- technologies. ter quality products and services that may not be available through offline channels in As might be expected the BCG CCCI study in their cities. 2013 shows that the under–25 urban demographic forms the major age–related group Digital ageing faster than physical with 43 percent having access to the Internet. ageing But penetration among the other age groups The second key driver that impacts insurance is also significant with users over the 25 years is the concept of digital ageing. Digital devel- of age constituting 57 percent, with almost 30 opments appear to follow the Mercury year percent of all users being over the age of 35 (88 days) vis–à–vis an Earth year. Every quar- years. As Internet penetration increases, we ter is more like a year. The online activity lev- anticipate a more uniform distribution of its el of a person is considerably impacted by

Exhibit 3.1 | Smart-phones Driving Growth in Search Queries

Life Health # search queries (indexed) # search queries (indexed) 2,000 2,000

+136% 1,000 1,000 +152%

0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

Motor Travel # search queries (indexed) # search queries (indexed) 10,000 10,000

+182% 5,000 5,000 +162%

0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

Source: Google search data.

22 | Insurance @ Digital–20x by 2020 Exhibit 3.2 | The Rise of Digital in Bharat

Break up of total life insurance queries Internet penetration by location across locations1 % % 69 206 100 100 2% 4% 9% 8% 1% 7% 33% 80 80 31% 34%

60 60 21% 16%

83% 40 11% 14% 40 7% 60% 20 20 33% 24%

0 0 2009 2013 2009 2013

Rural 5–10 lakh towns Top 8 metros < 5 lakh towns > 10 lakh non metros < 5 lakh towns > 10 lakh non metros 5–10 lakh towns Metros

1Non rural locations, top 500 cities only. Source: IAMAI Internet in India, 2013/12; Google search data. the amount of time spent in actively using ance product offline is a seeker of informa- digital media. BCG CCCI’s digital influence tion on the brand, product and pricing when study 2013 showed that customers with two online. Brands therefore have to look upon years online tend to be three to four times as an online customer from the perspective of active as customers in their first year on the “pulling” or drawing them to their brand with Internet (as shown in Exhibit 3.3) Two years offerings that best suit their needs. online are the equivalent of nearly eight to ten years in the physical world. Digital has a massive impact across four key areas (as shown in Exhibit 3.4):

‘Digital’ has Deep Impact on Sales: Digital has substantial impact on direct more than Just Sales sales both as a distinct channel and also by Digital can help address almost all the im- assisting in increased conversion of leads. It portant issues that plague the offline world allows for capture of new segments through today. Trust would be higher as the customer digital–only simplified products and greater interacts with the manufacturer directly. Mis– cross–sell from enriched digital services to ex- selling would be reduced as information be- isting customers. ing disseminated would be exactly what the manufacturer desires, and in accordance with Influence beyond sales: In addition to sales, regulatory guidelines. There would be com- digital also wields a large influence in terms plete transparency in the product construct of customer advocacy, information search, for customers, along with superior pricing as price discovery, renewals and offline sales. manufacturers pass back savings in acquisition and servicing costs. Furthermore, the Cost and operational efficiency levers: Digital critical differentiator would be the change in offers insurers an opportunity to substantial- customer mind set. The same customer who ly improve both front and back office process- gets ‘pushed’ or nudged into buying an insur- es. Front end costs can be substantially re-

The Boston Consulting Group • Google | 23 Exhibit 3.3 | Digital Ageing: Mature Users Engage in More Commercially Relevant Activities

How long have they been using the internet? Internet users (conducting these activities) <1 year 2 years+

Search for information 71% 85% 1.2x

Educational information search 17% 24% 1.4x

Discount search 7% 14% 2.0x

Shopping 6% 17% 2.8x

Online booking 5% 18% 3.6x

Online banking 4% 12% 3.0x

Source: BCG CCCI digital influence study 2013.

Exhibit 3.4 | Digital Impact Greater than Just Sales

Branding

Costs and operational efficiency Sales Influence

Source: BCG analysis.

24 | Insurance @ Digital–20x by 2020 duced through elimination of sales force costs non–life insurance sales are expected to and enhanced efficiency of advisory process- grow to 15-20 percent of non–life retail busi- es with digital tools. Improved automation, ness. This means the online insurance sales Straight Through Processing (STP) and self market in India will be around Rs. 3,500- service options can create an impact on back 6,000 crore for life insurance and around Rs. office costs as well. In addition, Big data and 11,000-15,000 crore for non–life insurance: A other tools like telematics enable better risk total of Rs. 15,000-20,000 crore, up by over selection, outlier claim detection and overall 20 times. reduction in claim costs. Rs. 300-400k crore worth of sales will Branding: In today’s world where a new gen- be digitally influenced eration of customers, employees and distribu- In a Customer Sentiment Survey by BCG in tors are all digital ‘natives’, digital is no lon- eight countries (US, Japan, Germany, France, ger an ‘alternate’ channel; it is the main UK, Italy, Spain, and Australia), we already channel for many, providing an opportunity see that 70 percent of insurance owners ei- for deeper stakeholder engagement. ther prefer remote, mostly digital, interactions or a hybrid of both. Barely about 30 Online sales poised for greater than percent of insurance owners are relational 20X growth by 2020 and value only agent or physical interactions The online insurance sales market in India is (as shown in Exhibit 3.5). already is in excess of Rs. 700 crore today, and growing fast. Life insurance sales con- In India, the digital influence in insurance tribute approximately Rs. 300 crore, motor sales is already 12 percent for life insurance, insurance approximately Rs. 250 crore, while 14 percent for health insurance, 10 percent other insurance lines such as health and for motor insurance and 19 percent for trav- travel make up approximately Rs. 150 crore. el insurance as per the BCG CCCI digital in- Online life insurance sales are expected to fluence survey 2013. This amounts to Rs. grow to 3-5 percent of the individual annual- 7,000-8,000 crore of new insurance sales in- ised new business premium by 2020; and fluenced by digital today. BCG estimates the

Exhibit 3.5 | Only 30 percent of Insurance Buyers are Completely Non Digital Today

Indispensable interaction modes

Protection / Term life Health insurance Property & Casualty

% of owners % of owners % of owners 100 100 100 14% 13% 16%

80 80 80

60 60 60 54% 61% 54%

40 40 40

20 20 20 32% 26% 30%

0 0 0

Remote Hybrids Relational

Source: Consumer Sentiment Practice Area survey April and May 2012; BCG analysis.

The Boston Consulting Group • Google | 25 digital influence in insurance sales to grow Digital levers can save 20-25 percent of to 50 percent for life insurance and 75 per- costs—potentially the path to profit- cent for non–life insurance by 2020. This im- ability plies that Rs. 1,10,000 to 1,20,000 crore of While the primary direction of change driven new insurance premiums will be digitally in- by the new digital technologies will be custom- fluenced by 2020. er–facing, the digital wave also provides large opportunities for optimising insurance compa- Life insurers are trying to move more and nies operating models. more renewals to online channels. Currently online renewals are expected to be around Both life and non–life insurers can bring down 10-15 percent of overall individual business their cost ratios if they are able to embrace dig- renewals, which means around Rs. 15,000- ital whole heartedly, move 5-10 percent of their 25,000 crore worth of renewal premium is sales online, digitise operations and make bet- already coming through the online channel ter use of digital for customer advocacy and for the industry. By 2020, online renewals branding. Detailed analysis of cost structures are expected to be 35-50 percent of individu- reveals that there are multiple areas where dig- al renewal premiums, which will take online ital initiatives can result in cost benefits of 15- renewal premium to Rs. 1,75,000 to 3,00,000 20 percent of the total cost for life insurers and crore (as shown in Exhibit 3.6) of 20-30 percent for non–life insurers (as shown in Exhibit 3.7). Digital will be a critical builder of advocacy in the future. The extent of digital influence There are four main cost reduction levers: on both online and offline sales will be greatly influenced by the brand that compa- Reduced direct sales costs: Not only will digital nies create in the digital space and word–of– sales help in improving sales and productivity, mouth referrals by customers. Companies it will also help in bringing down sales costs that succeed will simultaneously target and and commission ratios. recruit effective advocates; use powerful messages with disruptive schemes; and en- Digitisation of front end operations: Enabling gage in a continuous relationship. the sales force with tablets and other digital

Exhibit 3.6 | Digital Impact on All Sales and Renewals to be Massive by 2020

Online sales Digitally influenced sales Online renewals (Life)

Rs' 000 Cr 12x + 300 growth

15x + 175–300 growth 200 20x + growth 110–120

100

15–20 15–25 0.7–0.8 7–8 0 2013 2020 2013 2020 2013 2020

10–15% 35–50%

Life Non-life ## % of retail renewals

Source: Investor presentations; annual reports; BCG CCCI India digital influence study 2013; BCG analysis.

26 | Insurance @ Digital–20x by 2020 Exhibit 3.7 | Potential Cost Savings of 15–20 percent for Life Insurers and 20–30 percent for Non- life Insurers

Life 3 Digitisation of back end operations

2 Digitisation of 3-4% front end operations

1 Reduced direct 8-10% sales cost 4-6%

20 – 30% 25 – 35% 5 – 10% 15 – 20% 5–10% 7–10%

Commissions Sales employees and HO and other Policy issuance, Advertisement, All other sales expenses non–sales Servicing, Marketing other employee cost Operations and IT and Admin costs

Non-life

3 Digitisation of 4 Risk management back end operations 2 Digitisation of 2–3% 5–10% front end operations 1 Reduced direct 7–9% sales cost 6–8%

3–5% 25–35% 20–30% 8–12% 10–20% 15–25%

Commissions Sales Non– IT & Advertisement, All Claims and business employees sales Ops Marketing, other (not to scale) development and other employee Admin & Business costs sales expenses cost development

Split of non claims expenses

Source: BCG analysis. tools can help a great deal in improving their Reduced direct sales costs. Almost 80 percent productivity. Reduced turnaround time and ef- of commissions paid by life insurers is towards fort due to digital tools will also improve the new business generated. This is almost 100 productivity of non–sales employees, leading percent for non–life insurers. Moving 5-10 to additional cost savings. percent of new business online will lead to direct savings on commissions. The cost of Digitisation of back end operations: Automation distribution through digital channels is almost of back end operations will lead to a higher one–sixth that of agency and much lower percentage of Straight Through Processing than any other channel. Cost savings will be (STP), digitisation of post–issuance customer much larger for insurers who are able to build service, and self servicing that will improve scale and move 25-30 percent of their sales productivity of the employees involved in daily online. Online renewals will also help life business operations, besides reducing effort insurers in improving persistency. Many and cost. policies that would otherwise have lapsed can be retained with digital help, through timely Risk management: Digital initiatives like Big intervention and advice. data and telematics can improve underwriting, fraud control and bring about effective claim Digitisation of front end operations. Digital management, especially for non–life insurers. has the potential to transform insurance sales

The Boston Consulting Group • Google | 27 and marketing, enabling a multi–channel a pipeline tracker clearly enhances the sales journey customised for each segment. sales process. This allows not only for Significant revenue upsides can be garnered more meaningful tracking of the sales by improving the effectiveness of existing force, but also eases the actual sales channels by leveraging digital to focus on process. Digital data capture results in a agent enablement and customer targeting. lower number of visits to the customer to close the sale (potentially from an average Agent enablement. Agent enablement drives of three meetings to two) and reduces value through increased conversion and up– customer dissatisfaction arising out of the selling, in addition to freeing up agent time current processes of checking for missed towards sales rather than administrative data. tasks. To unlock value, insurers must be will- ing to embrace new digital tools representing •• Enhanced customer engagement: Digital tools a major change compared to their existing such as online maps, calculators for sales process. various customer requirements and videos can not only provide sales assistance and Many insurers have already enabled their standardise the sales process, but also agency force to use tablets with great success. build customer connect. Imagine an agent AIA uses the iPad as part of an ‘Interactive who can show case product features Point of Sales’ (iPOS) to increase the produc- through multimedia tools, calculate tivity of its agents. Beginning with Taiwan in premiums, allow the customer to connect 2011, it has now been rolled out to over 16 through video to an expert, complete the countries, with 50,000 field agents who can application, and showcase a video of the sell completely paperless insurance policies CEO welcoming the new customer, all in on a tablet, anytime and anywhere. Allianz the same customer visit. has piloted a digital agency with 800 agents in Italy. All aspects of the purchase process have •• Increased enablement of Feet on Street (FoS): been digitised. The pre–sales process has web Tablets can also be used to provide online / SMS lead generation and online quotations training, disseminate new product infor- available. The sales process itself is enabled mation, process changes and solve FAQs. with e–signature and digital payments for a This not only minimises non–productive dedicated digital product line. The policy is sales time, but also reduces the time that mailed within 30 minutes as a PDF attach- agents spend in their office. It also allows ment. for online quizzes to ensure that newer features and changes have been under- Digital tools not only support a paperless, stood by the sales force. one–stop sales process, they also create a substantial impact in operational efficiency. Val- Customer targeting leveraging digital. In addi- ue can be derived from four important as- tion, digital can also be leveraged for better pects: customer targeting through:

•• Better data capture and cross sell: Instant •• Customer profiling: Shifting customers inputting and verification of customer data towards the best suited channels and on applications by sales staff, field investi- products can lead to increased profitability gations, and CAMs preparation, resulting by transitioning low value interactions (for in faster, cheaper and more accurate data example, research, product comparison capture. This will further allow for in- etc.) to online channels for less profitable creased cross sell opportunities. customers, currently served through agents. •• More efficient sales processes: Lead management systems integrated with email and •• Timely intervention: Digital tools provide a overall MIS can lead to enhanced sales critical advantage through analytics to force productivity. Leveraging the tablet prevent revenue leakage through surren- for follow up with the sales funnel and as ders and lapse. These tools can be used to

28 | Insurance @ Digital–20x by 2020 identify the probability of lapsation or around time in policy application, as also cost surrender by picking up early warning savings of almost 67 percent. The same study signs. Processes for quick reaction times also showed a clear correlation between the can then be put in place for customers level of straight through processing and the who surrender policies or let them lapse. number of Full Time Employees (FTE) required. The greater the STP, the lower the •• Enhanced conversion of existing customers: FTE requirement per unit volume, leading to Converting service customers to sales can a large cost benefit. become a reality through improved analytics. Analytics can also be used to Players like Allianz Germany have been able reduce funnel dropout due to poor multi– to achieve close to 100 percent back office digi- channel experience. tisation. Processes have been streamlined so that there is a paperless interface available for Digitisation of back end operations. Digitisa- all channels (including agents), not just online tion has accelerated development of technol- sales. In 2012, 94 percent of motor policies and ogies that enable current paper processes to 97 percent of other non–motor retail policies be shifted towards paperless; and automated entered into the system digitally as compared processes with Straight Through Processing to only 45 percent for the industry, with 80 per- (STP). Improved efficiency can lead not only cent STP compared to only 25 percent for the to substantially reduced costs but also enable market. self–service portals that can improve customer satisfaction and retention. The key to Goudseinsurance in the Netherlands has also improving back end operational efficiencies reached 70 percent STP in new policies, sup- is to ensure that physical processes are not ported by streamlined underwriting technolo- simply replicated in the digital context. The gies. It used real time underwriting combined aim should be to place digital processes in with workflow software to connect the front the centre and ensure that processes are and back office, allowing for faster end–to–end simplified across channels and support closure with customers. This resulted not only multi–channel interactions. There are three in improved efficiency and speed, but also levers for back end improvement: automa- greater customer satisfaction. Customers were tion; STP and paperless processing; and self happy to complete the underwriting informa- service acceleration. tion easily with limited iterations, and also receive speedy clarity on the acceptance of risk. Automation. Automation savings are available through simplification, and subsequent auto- Self–Service acceleration. Post–issuance cus- mation of both underwriting and claim pro- tomer service is currently relatively manual cessing. Automation savings arise from re- and entails a relatively high cost. Digital cus- duced labour and processing time through tomer self–service offers an opportunity to re- the shift to non human underwriting. Re- duce this cost significantly and simultaneous- duced human involvement improves process- ly improve the customer experience. This ing times and reduces the chance of under- requires robust and user friendly interfaces writing errors. In addition, process and a programme to take customers onboard automation is a major lever for agent enable- the digital self service channel. This can also ment and consistency of experience across be an important tool to increase customers’ channels. Automated processes allow real use of the portal and look for opportunities time quotations through links to digital tools for cross sell. used by agents and other physical channels. AXA PPP, one of the largest private medical Straight Through Processing (STP) and paperless insurers in the UK, established a self service processes. Digitisation and automation of in- portal to improve ease of access to health ser- surance processes can yield considerable pro- vices; it used its service provider database to cess cost and customer service benefits. BCG recommend doctors and hospitals that provide benchmarking in South East Asia revealed efficient service to its insurance customers. The significant potential for reduction of turn- matching of service provider choice to patient

The Boston Consulting Group • Google | 29 needs adds value to the patient and reduces decisions. Around 80 percent of respondents in claim costs. Further, it monetised the portal by the BCG CCCI India digital influence study re- offering complementary products like healthy ported narrowing in on their policy brand after food, beauty treatments and vacations. online research. This influence only increases with the increasing digital age of the consumer. Risk management. Risk management is Recent studies from Google India have also potentially the most disruptive cost lever. demonstrated that 2 out of 3 digital consumers New digital solutions generate large amount of financial products changed their mind about of new data that is highly valuable for the product or brand after conducting online insurers; digital capabilities can bring signifi- research. Insurers need to be very conscious of cant value for insurers on multiple dimen- their online brand equity as it not only influ- sions: ences the decisions of a customer searching online, but also snowballs through social media Underwriting: Enhanced risk assessment and and other channels to impact the decisions of innovative pricing schemes: Integration of ex- other customers. ternal digital data allows enhanced risk assessment for new customers; smart devices enable The influence of social media is more import- innovative pricing schemes (for example, pay– ant for the insurance sector than for other per–drive). product categories. The BCG Digital Media Study 2012 of insurance buyers reveals that Claim management: Improved early outlier search and social media account for nearly a claim identification and claim assessment are third of the traffic to both company specific enabled thanks to Big data and technology, re- websites as well as third party insurance web- sulting in reduced claim costs. For example, sites. Social media influence in specific catego- Liberty Mutual uses Big data to optimise han- ries like life insurance is seen to be higher than dling of outliers in claim management. These the average across all product categories. Tradi- claims can cause high bottom line impact (the tional channels like television contribute to less top 50 percent of claims generate 90 percent of than 4 percent of traffic to company websites claim payments) and are difficult to identify. and third party websites. The company now uses a predictive model, developed after analysing 140 million data points In addition to customers, the various digital and has seen sizeable reduction in the average channels also provide the opportunity to con- claim size for outliers. nect and engage with distributors through multiple elements such as a distributor portal, Loss prevention: New affordable technologies agent ratings online, etc; as well as employees help connect networks and monitor critical through the intranet and social media. data, influencing customers to lower risks. The trend allows insurers to graduate from simple risk assessment to dynamic knowledge of risk Summary and mitigation whenever possible. In summary, the impact of digital is going to be massive. While online sales are likely to Digital branding: The power to move grow by more than 20-30x to Rs. 15-20k crore insurance from a push to a pull model by 2020, digitally influenced business is esti- Beyond the huge impact on sales and opera- mated to be Rs. 300-400k crore. In addition, tional efficiencies, digital provides an opportu- the impact of digital goes way beyond sales. nity for deeper brand and customer engage- Leveraging digital for a combination of effi- ment. In today’s world, digital is no longer an ciency enhancement in front end enable- ‘alternate’, but the main channel for all the key ment, back end operations and risk manage- stakeholders—customers, distributors and em- ment will reduce costs by 15-20 percent for ployees. life insurers and 20-30 percent for non life insurers. Lastly, digital media can be lever- The Internet is playing a dominant role in in- aged to build connect and engagement with fluencing brands not only for purchase deci- all key stakeholders—customers, distributors sions but also for employment and partnering and employees.

30 | Insurance @ Digital–20x by 2020 “DIGITAL” CALL TO ACTION: TIME TO ACT IS NOW

hange is happening—‘digital’ already in on this opportunity could be both external Cpartly is, and even more so in the future, (intermediary or agent resistance) and internal will be the new way of life. The digital influence (legacy technology or slow pace of transforma- on insurance is largely enabled by the explod- tion). Such excuses are signs of inertia that ing popularity of mobile devices and social need to be overcome. Companies that have media. Its reach continues to expand at a rapid successfully repositioned themselves have ex- rate with a fundamental change in the way perimented with different approaches and people, technology and businesses interact. found ways to share the benefits of their digital investment with their distributors. The impact of digital in insurance in India can- not be wished away. Not doing anything is not This aspiration can be set on multiple dimen- an option. Insurance companies need to ac- sions. It could be x% of new sales through digi- knowledge the impact that digital can have on tal by 20XX, and / or y% of renewals by 20YY, their business model and act on multiple and / or z% of customers interacting online, fronts. and / or w% STP and cost reduction, etc. The list can be long but insurers need to be able to define what they are going after. At a more tac- Set Digital Goal Posts tical level, practical goals need to be set. It is Insurers will need to align their digital strategy clearly critical to define the focus segments, for to their standing business objectives. This will example are you targeting 100 percent of the entail understanding how customers are lever- people interested in insurance online or 10 per- aging technology; and then selecting a digital cent of the people interested in finance online? aspiration that guides their strategy. Along On similar lines, insurers will need to deter- with this, it is important to assess their own ca- mine the level of visibility they want to create pabilities to meet the opportunities and in line with their overall brand, for example, threats. whether they want to do viral campaigns. They will also need to determine the extent to which Companies need to identify what kind of busi- they integrate their web or mobile experience ness model they wish to pursue. Would they with the offline channels. like to actively cannibalise the current business? Would they establish a new digital unit as a parallel business? How would, or could the Rewire for a Digital Mindset complete business be reoriented around digi- True realisation of the benefits of digitisation tal? Traditional reasons offered for not moving requires a fundamental shift in mindset. Insur-

The Boston Consulting Group • Google | 31 ers need to be prepared for a more disruptive •• Creating a centre of excellence: Bundling and agile world in comparison to the episodic of core digital functions into a coordinated transactional world they have witnessed so far. digital centre of excellence, while decentral- They need to create a work environment in ising execution and content creation. which employees are empowered and motivat- ed to improve and contribute to the entire or- •• Creating a cross functional team: ganisation. This includes a test, learn and share Matching the right skill sets and decision culture. Employees need to be empowered makers to work on the task at hand. with the freedom to generate bottom–up ideas; time and resources must be allocated to try •• Defining the governance model: Deter- and test these ideas at an early stage, coupled mining decision rights and creating a with mechanisms for scale–up and selection of process that enables cross team participa- initiatives. It is critical to identify the best peo- tion while integrating digital functions into ple and charge them with the duty of getting the day–to–day business. the company digital–ready. You need to ensure a good mix of the best leaders and fresh blood, Some obvious elements that require atten- including digital natives, to create a powerful tion in an organisation for it to be ‘digital team with diverse perspectives. ready’ include:

Companies also need to recognise that for the Integrated channels and single customer first time in history ‘older is not better than view: Customers should be able to choose younger’. In fact, with a generation of digital na- any channel or combination of channels tives entrenching themselves in the workforce, such as call centre, mobile phone / apps, so- greater experience on the digital dimension cial media, that best suit their needs. They now lies with younger employees. This has a may choose to move between channels profound impact on organisational dynamics. through their journey and should always be Companies need to create the right mechanisms able to rely on seamless integration between to allow younger team members with newer the channels. This has implications on how ideas to impact and affect change, combining insurers should be organised. their digital readiness with the right interper- sonal communication and leadership skills. Single customer data repository: Within each model, a central customer data repository A good example is Procter & Gamble’s re- needs to provide the inputs for customer ana- verse mentoring programme called “Mentor lytics and inform decisions across the whole Up” which paired senior decision makers business. The role of the repository is to cap- with younger digitally savvy reverse men- ture and store rich customer data, potentially tors. The role of the mentors was to meet from both internal and external sources. the leaders every week or fortnight and share with them all that they had done using Analytics team: An analytics team, which digital channels. This increased the aware- mines customer data for insights that inform ness of digital with the senior leaders and marketing, proposition development, pric- made them alive to the possibilities. ing, as well as claims, needs to be the core element of each model. Under some models, separate customer insight teams, relying on Infuse the Right Digital Reflexes the customer analytics’ technical expertise, within the Organisation may play a critical role in proposition devel- Sustainable digital strategy requires adaptation opment or pricing. of organisational structure and capabilities. In- stilling the right reflexes requires: Selecting the most appropriate organisational model requires evaluating each option against •• Building up the right expertise: Identify- a set of three key criteria: ing and developing new skills, deciding on the right internal and external talent •• Capability creation: The extent to which the balance and robust training programmes. model enables the insurer to build the

32 | Insurance @ Digital–20x by 2020 capabilities required for winning in the ance buying decisions take 26 days). Thus in- digital world. surers need to ensure products and processes are designed to be simple and interactive. •• Performance implications: Whether the BCG’s Global Digital Satisfaction Survey in model enables achievement of the insurer’s 2013 showed that customers today rate in- growth aspirations in terms of customer surance as one of the worst digital experi- acquisition / retention and revenues at the ences amongst all industries. Customers de- right costs. mand increased product understanding / transparency and customised options. •• Implementation feasibility: The cost and difficulty of transitioning to the proposed Insurers’ websites fail to meet customer model, based on existing capabilities. needs. No clear linkages are created to the customer’s needs and find it difficult to understand which products they require. Many Accelerate the Transformation websites have daunting registration process- An active digital strategy should include areas es with no perceived benefit, and terms that that are critical for the insurer to win in the do not seem transparent. current changing environment. Overall, there is a lack of trust with the percep- Integrate online and offline tion that clear information is not provided. A strategies primary issue that keeps customers away from A customer is neither physical nor digital. going digital for their insurance needs is the Most customers today, and even more so go- disconnect between their starting point and ing forward, will use multiple channel path- what the online process offers. A clear path for- ways across their product life cycle. They ex- ward is not available for interested customers pect a seamless experience across both and there is no lock–in of customers to the online and offline. Hence insurers need to brand. While most insurance players have com- create processes that: pelling products to sell, they are not able to translate that into website sales. They need to •• Improve customer–centricity by letting understand the purchase process of a digital customers chose the channels they prefer. user and align their website processes / content / products accordingly. Many users who wish to •• Provide a single customer view. buy an insurance policy do not have a clear idea of their requirements. Yet, they need to •• Provide consistent and “real–time” infor- buy one. They expect help from a user–friend- mation of all interactions across channels. ly insurer website to:

•• Ensure that channels refer to each other •• Discover their requirements: Most users are and provide real–time assistance (for not fully clear on what they are looking for. example, chat, call back …). Therein lies the opportunity for the insurer to assist them and build credibility for the •• Ensure seamless cross–channel acquisition brand. Customers will not buy until they processes reducing leakages during the are convinced about the product value purchase process when customers switch proposition and the website intent. Insurer channels. websites should not appear to hard sell to their users. •• Consolidate vision of customer behaviour and profitability across all channels. •• Understand the products offered: Users’ understanding of insurance evolves as they Provide simple products and intuitive discover more information about the processes products. Hence the insurer should start by As per the Google eCommerce study, con- providing basic information about the sumers spend a longer consideration time products and subsequently present the for high value purchases (for example, insur- finer points. A phased approach is a good

The Boston Consulting Group • Google | 33 way to introduce content (as shown in •• Make it simple: Functionality should allow Exhibit 4.1 as an example). for intuitive and quick navigation, high user comfort and fewer clicks. •• Choose the product that is right for them: Insurer websites should allow the user to •• Keep it light: The loading speed is all the compare products on their website. Unless more important on mobile devices, and they are able to narrow down to the thin interfaces should be utilised. product they want to buy, customers will not proceed to the next step of purchase. •• Think about ergonomics: Make large buttons The website processes should be simple and wider clickable areas for small buttons enough for users to identify the best or checkboxes. product for her / his needs. •• Minimise typing inputs: Typing on a mobile •• Complete the purchase process: Ensure that is twenty times slower than that on a the purchase funnel eliminates ambiguity, computer. Reduce input fields to the minimises clicks, surfaces relevant informa- minimum level. tion at each step and allows the user to navigate back and forth on the conversion •• Multiply contact points: Not everybody is steps. ready to migrate to a mobile device; make it possible for the user to stay in the funnel Revamp the mobile experience (web advisor call back, phone number, With one in four queries on Google.co.in click–to–call, e–mail, documentation coming from a mobile device, and over 50 request, possibility to continue on desktop percent of internet users in India accessing or tablet, summary by email ...). the net only on the mobile, it is important for insurers to customise their mobile pres- •• Think vertical: Keep only the essential ence. Insurers need to keep in mind the fact content and highlight the ‘call to action’ that the mobile experience is quite different prominently for the customer. from the desktop experience. Smaller screen size and internet speed are the critical dif- Some companies in the Indian space have al- ferences. This requires keeping a few design ready seen success with focused mobile initia- principles in mind. tives. For example, take RedBus. It developed

Exhibit 4.1 | A Phased Approached to Information

Landing page content Second level Third level Conversion of information of information

User Serve Sure Let them discover Recommend profiling content commitment the potential ed products Inputs on FAQs from the user

• Calculators / • Motivation of • Key products that • What are the most • Have them submit scenarios insurance meet the criteria frequent questions their information • Annual household with an option to user poses after or make a income compare seeing the purchase • Preference of investment riders • Information on: options? – Premium – Coverage • Premium options calculator – ROI – Settlement

Source: Google experience.

34 | Insurance @ Digital–20x by 2020 its business as a mobile first model with ex- potential and existing customers that can pro- tremely user–friendly smart–phone assets and vide interesting and free insights into what seamless integration of back–end processes. It consumers think about the brand. also recognised that a sizeable portion of its target segment of bus travelers did not own Many companies are engaging in listening and smart–phones. As a result, they came up with undertaking two way communications with a business model around phone calls and cash customers. A good example of this is Fidelity on delivery that was sustainable even for low– Labs which engages the customer community margin transactions such as bus bookings. to create innovative financial products. It pilots Myntra also realised the potential for online new financial products not ready for wide dis- shopping through the mobile, and customised tribution segregated from the core products. . its online and mobile presence. Steps were un- Developers ask the online customer communi- dertaken to ensure customised mobile ad– ty about pain points, desires, and experiences campaigns; mobile–specific keywords to aug- from use of different apps and concepts. Fo- ment existing campaigns; modified ad–text on rums and blog posts are mechanism used to search engines to increase mobile relevance; receive feedback. The products are evaluated and ensuring Myntra advertisements ap- by monitoring customer adoption, and the peared at the top of search results for catego- findings influence strategic planning. Apps that ries sold by them. receive positive feedback are released to all Fi- delity customers. ING Diba also created a so- Create a device / platform—indepen- cial media initiative where they published dis- dent experience cussion topics, opinions, videos, charts and All web–content must be specifically optimised ideas from well–connected opinion–makers for for use by different operating systems and de- their customers. The level of discussion and in- vices. Customers operate multiple devices in terest generated online through this has led many cases across platforms and expect the them to plan even more interactive online so- same ease of access and usage. Android is cur- cial opportunities for customers through video rently the leading smart–phone operating sys- conferences, hangouts etc. tem in India. This is expected to continue as per projections for 2017, however, the IOS and Rethink your ad spending Windows platforms are also expected to be- With the Internet almost neck–to–neck with come considerably more important. television in marketing recall, companies need to re–evaluate digital spends and focus on Google’s Think Insights shows that 90 percent newer media. Measures like search engine opti- of respondents use multiple screens sequen- misation will go a long way in promoting a tially to accomplish a task over time, with 98 brand’s digital presence. Google surveys show percent of them moving between devices on that brand value is perceived by the order in the same day. Hence user interfaces have to be which the brand appears in search results. Ad thought through meticulously across all devic- spends should follow the target consumers’ es and platforms. media consumption pattern. In the TGI media study, print accounts for 11 percent of media Digital listening—engage consumers consumption time and a disproportionate 39 effectively percent of ad spends. Television is not evenly From priming users pre–purchase to engaging spread across the target audience and gener- with them after the purchase, social media can ates wasted repetition; online video and other be used to get involved with the user at every channels can be utilised to reach users better. step of the purchase funnel. Whether it is Goo- Studies show that when advertisers introduce gle Plus, Facebook, Twitter, Whatsapp, Vine or direct net channels for example YouTube in YouTube, social media can be used to reach the mix, they can get the same reach as TV, the right user with the right mindset at the with a lower budget. right time. It can be used innovatively to guar- antee reliability of online commitments to cus- In an effort to create awareness amongst young tomers; provide regular updates; disseminate adults, State Farm partnered with YouTube, information; and start a virtual dialogue with Coachella Valley Music and Arts Festival and

The Boston Consulting Group • Google | 35 other music sites to bring music lovers an exclu- Make a Beginning sive, front row experience that went beyond on- Traditional insurers who want to reorient their site activation, through online live stream. State business through digital can adopt a number of Farm brought Coachella 11.8 million views in 3 models. They can either develop a stand–alone days at an average duration of 49 minutes per digital platform and actively migrate existing user, nearly thrice the results by other brands. customers; or place digital at the core of their GEICO is another example of an Insurance strategy, designing processes and products, and company that uses YouTube very well. It has adapting other channels accordingly; or they over 80,000 subscribers and videos with over can create a stand–alone unit to target tech– one million views. Such a large fan following is savvy customers. Whatever be the model se- only possible because of the company’s You- lected, it is recommended to adopt a phased Tube–specific content and strategy. The content approach to digital transformation. (refer Ex- is designed to be consumed quickly, to catch the hibit 4.2 for an illustrative roadmap). The core eye of the young population visiting YouTube. elements of the digital transformation: setting the digital goal post; enhancing digital awareness through the organisation; and infusing the Partner—Smart right digital reflexes into the organisation will As insurers look to fully participating in the ex- remain the foundation upon which each of the plosive digital wave, the point to keep in mind phases would be built. is that insurers do not need to build all the digital capabilities in–house. The digital explosion Phase 1: Digital fitness is creating its own ecosystem of business ser- Insurers will need new capabilities to succeed as vice providers, and the smart move would be customer–centric digital businesses. The objec- to partner or leverage these digitally advanced tive in this phase is to understand one’s starting providers. The potential to partner is available position and lay out the roadmap for adopting a across multiple categories, including: more digitally focused business model.

Tablet manufacturers: to customise tablets to The first step in this effort should be to put ba- meet one’s specific requirements, for example, sic processes in place. To begin with, insurers Lenovo. should collect and verify existing customer data (mobile phones and email addresses) to Mobile web / web application and content develop- ensure customer ‘contactability’ to facilitate ers: to create state of the art apps. any future digital strategy. A consistent and compliant online presence needs to be created Analytics companies: that analyse customer pat- with comprehensive social networking and terns and behaviour and enable targeted mar- other online guidelines put in place, aligned to keting / offers. the overall brand positioning. This should then be followed up by shifting appropriate focus of Search engines: to identify target customers ear- marketing activities from traditional media to ly and reach out to them. digital media. Existing partnerships should be reviewed to identify additional partners re- Online retail portals: to generate leads of poten- quired in the digital ecosystem. Potential part- tially interested customers for example ap- ners would need to be mapped and evaluated. proaching customers who search for TV purchase online with householder’s insurance. The BCG Digital Insurer Fitness Diagnostic (as shown in Exhibit 4.3) guides the digital trans- Digital media companies: to help with media formation by defining a customised roadmap. spend optimisation. The starting point for the digital transformation agenda is assessing capability gaps across The list of potential companies to partner with five major dimensions; this focuses on the right can be even longer. As an insurer builds up its digital issues for a specific insurer. digital presence and business, it can look at building and bringing some of the core capabil- The diagnostic reveals key digital gaps and ities in–house. risks, while also providing a preliminary as-

36 | Insurance @ Digital–20x by 2020 Exhibit 4.2 | Phased Approach to Building Digital Leadership

3 Digital Leadership

2 Digital Effectiveness Optimise user experience across 1 Digital Fitness Increase agency productivity through new digital tools—agent / digital platforms customer portals Capture basic customer data to facilitate future strategy Develop new channels to service and engage customers Integrate customer touch points CRM for single customer view and increase customer life cycle value Create consistent and compliant Create analytics engine online presence and behaviors

Integrate online and offline channels—direct traffic two way Digitise partner channels Strike balance of marketing activities between traditional and digital media Create a partner ecosystem

Digitise the back–office—paperless Map and leverage potential partners Access younger potential recruits through online recruitment channels

Set a 'Digital' goal post—and keep refreshing

Enhance digital awareness—"Digital immersion"; "reverse mentoring"

Infuse right digital reflexes / capabilities into the organisation

Source: BCG analysis. sessment of the digital opportunities. The able real–time KPI dashboard monitoring. A company’s current capabilities, options for fu- strong online sales channel with clear cus- ture targets, and major gaps vis–à–vis main tomer segmentation and proposition needs competitors or industry peers are measured. to be developed. This requires simple prod- A number of potential initiatives arise from ucts and services to be designed specifically understanding the gaps across the different for the channel. Newer channels to service dimensions. These can help define the overall and engage customer proactively must also objective of the digital effort, inculcate the be created. This can be accomplished by cre- right organisational culture and reflexes, and ating an analytics engine which can use cus- verify existing customer information as a tomer data and insights for better monitor- starting point. The model also provides a ing and analysis of customer issues / clear picture of the resources required. It feedback. In addition, both the online and aligns with the recruitment need through link- offline channels need to be integrated to di- ages with HR and defines the right perfor- rect traffic both ways. The online channel mance as well as the overall technology archi- should be used to direct traffic and generate tecture and platforms to be adopted. leads to agency through social media and other digital platforms. Digital effectiveness Phase 2: Digital effectiveness also means harnessing digital across differ- The focus in this phase is to enhance the ent areas of the core business. A good step core business. Digital tools and applications in that direction is using digital media (in- need to be leveraged to facilitate sales pro- cluding social network sites) to attract po- cesses, free up agents’ time for sales, and en- tentially younger agents.

The Boston Consulting Group • Google | 37 Exhibit 4.3 | BCG Digital Insurer Fitness Diagnostic

Illustrative Customer Operational Employee 1 2 3 Innovation 4 IT 5 Centricity Excellence Culture Real-time Process Effective Cross-functional Digital marketing insight from rich, orchestration innovation process collaboration dynamic data

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Dynamic, Intuitive, on-the-go Straight-through Innovation Decentralized plug-and-play access processing partnerships decision-making sourcing

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Operational Flexible Customer Test, learn and Channel consistency performance infrastructure co-creation share culture monitoring and architecture

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Componentized Fully integrated Third-party Steering of a Customer profiling product model digital services integration flexible organization

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Personalized Digital security offerings and pricing Current level No or small gap and privacy Planned level Medium gap Aspired level Large gap 1 2 3 4 5 1 2 3 4 5

Source: BCG case experience.

Phase 3: Digital leadership are also important initiatives to create a po- Once a strong digital foundation is laid and sition of leadership in customer servicing. initiatives to enhance core activities have been put in place, the last phase of the transformation effort is to enhance the offer- Summary ing to be a leader in the digital space. This Overall, digital provides a once-in-a-lifetime includes extending efforts beyond the core, opportunity to transform the industry both in enhancing the user experience. Extending life and non-life insurance. Digital already is a efforts beyond the core can include enhanc- critical part of insurance and the impact is only ing the user experience with focused efforts going to increase exponentially. The time now across platforms to engage users in product is not to question whether, but more about design, self–service and customer advocacy. when, what and how. Insurers need to shake An essential exercise is to integrate custom- off the inertia and get moving. The er touch points ensuring a seamless experi- transformation required in the effort and ence for customers whichever channel (on- commitment is a quantum leap from where line or offline) they choose. This would insurers are today, not incremental. To end – require building an end–to–end CRM infra- “The world is going digital. Are you?” structure for a single customer view and increased customer life cycle value. Taking successful digital initiatives like sales tools to channel partners; or digitising the back– office to reduce cost and improve efficiency

38 | Insurance @ Digital–20x by 2020 FOR FURTHER READING

The Boston Consulting Group pub- Improve P&C Profitability and From Buzz to Bucks— lishes other reports and articles on Premium Growth: Six Steps Capitalizing on India’s “Digitally related topics that may be of inter- An article by The Boston Consulting Influenced” Consumers est to senior executives. Recent ex- Group, January 2014 A focus by The Boston Consulting amples include: Group, April 2013 Telematics: The Test for Insurers An article by The Boston Consulting The Six Steps to Pricing Power in Group, December 2013 Insurance An article by The Boston Consulting From Cash to Capabilities: Group, October 2012 Profitable Growth for Life Insurers Transformation Amid Tough A focus by The Boston Consulting Times in the Insurance Industry Group, November 2013 An article by The Boston Consulting Group, February 2012 India Life Insurance—Navigating the Troublesome Teens Digital Insurance—Charting A report by The Boston Consulting a Course to Best-in-Class Group in association with The Fed- Capabilities eration of Indian Chambers of Com- An article by The Boston Consulting merce and Industry (FICCI), Octo- Group, February 2012 ber 2013 India Insurance—Turning 10, Customer-Centricity in Financial Going on 20 Services Goes Digital A report by The Boston Consulting An article by The Boston Consulting Group in association with The Fed- Group, October 2013 eration of Indian Chambers of Com- merce and Industry (FICCI), April 2011

The Boston Consulting Group • Google | 39 NOTE TO THE READER

About the Authors Ruchin Goyal Janmejaya Sinha Alpesh Shah is a Senior Partner & BCG Mumbai BCG Mumbai Director in the Mumbai office of +91 22 6749 7147 +91 22 6749 7003 The Boston Consulting Group. [email protected] [email protected]

Burjor Dadachanji is a Principal in Ashish Iyer Saurabh Tripathi the Mumbai office of The Boston BCG Mumbai BCG Mumbai Consulting Group. +91 22 6749 7249 +91 22 6749 7013 [email protected] [email protected] For Further Contact If you would like to discuss the Amit Kumar Navneet Vasishth themes and content of this report, BCG Mumbai BCG New Delhi please contact: +91 22 6749 7105 +91 124 459 7083 [email protected] [email protected] BCG Gaurav Malhotra Neeraj Aggarwal Google BCG New Delhi BCG New Delhi Vikas Agnihotri +91 124 459 7269 +91 22 124 459 7078 Google Mumbai [email protected] [email protected] +91 22 6611 7150 [email protected] Pranay Mehrotra Avartan Bokil BCG Mumbai BCG Mumbai Sujith Narayanan +91 22 6749 7143 +91 22 6749 7143 Google Mumbai [email protected] [email protected] +91 22 6611 7150 [email protected] Bharat Poddar Burjor Dadachanji BCG Mumbai BCG Mumbai Acknowledgments +91 22 6749 7055 +91 22 6749 7564 This report has been prepared by [email protected] [email protected] The Boston Consulting Group. The authors would like to thank Vikas Prateek Roongta Ranu Dayal Agnihotri, Sujith Narayanan and BCG Mumbai BCG New Delhi Sameer Rane from Google for their +91 22 6749 7564 +91 124 459 7083 inputs and assistance. [email protected] [email protected] The authors would also like to Amit Sachdev Yashraj Erande thank and acknowledge the support BCG New Delhi BCG Mumbai provided by Amrita Dutta, Ajit +91 124 459 7334 +91 22 6749 7105 Rochlani, Nidhi Shanbhag and [email protected] [email protected] Navneet Vasishth. A special thanks to Maneck Katrak and Jasmin Kanika Sanghi Amit Gandhi Pithawala for managing the BCG Mumbai BCG Mumbai marketing process, Jamshed +91 22 6749 7147 +91 22 6749 7013 Daruwalla and Pradeep Hire for [email protected] [email protected] their contribution towards the design and production of the report. Alpesh Shah Ashish Garg BCG Mumbai BCG New Delhi +91 22 6749 7163 +91 124 459 7123 [email protected] [email protected]

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