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This article traces the marketing and delivery of insurance products and services from the man on his bicycle to today's call centres and then looks ahead to the interactive era that is about to burst into our homes. August 1998.
Much of the early post war era was an easy time for business, not least within the insurance industry. The austere grey years of the war with its unitary furniture gave way to the bright fifties when people clamoured to buy whatever the factories could produce. The consumer age had arrived. Many people bought their first home and they furnished it with a whole array of electrical white goods and trendy plastic furniture, whilst outside stood a gleaming car, proudly washed every weekend. As Harold Macmillan famously said, "you've never had it so good".
New wealth meant more commitments, especially HP and mortgages, as well as more assets. All these needed insuring. Insurance for the house building and its contents, the car in the drive, and for the unexpected event like accidents, sickness and unemployment (though that seemed unlikely), as well as for the breakdown of those gleaming new appliances, and for the perils of new holiday adventures.
One of the key drivers in this era was the rise of advertising industry enabled by the new opportunities for communicating to the public. Steam radio and pastel railway posters both gave way to commercial television, a vast range of full colour magazines and weekend supplements, and of course "junk" mail. The mass media age had arrived.
However, an expanding market with good margins was bound to attract more players. First the banks, with their one stop financial shops mirroring the new supermarkets, and then the building societies with their new post flotation freedoms. More recently it’s been the turn of the major retailers, using their strong brands as a springboard for expanding outwards from their maturing markets.
Many of these new entrants followed the business models of their established rivals. They may seek to capitalise on their expensive high street branches or they may invest in a tied sales force, all be it using a car instead of the bicycle, and calling by appointment rather than every Thursday at 10.00 (as the man from the Pru did in my childhood home). The more entrepreneurial business people have seen the opportunity to develop new ways of doing business and some have been spectacularly successful. Peter Wood created Direct Line with its cheerful, fun looking red telephone. It shook the whole industry and now most of the larger players have set out to emulate him. As a result, a price war is cutting margins to the bone, and worse still, because the insurance companies are making it so easy for customers to do business, they now have high rates of churn.
Direct Line and its imitators used a new business model built on information technology. The telephone had of course been around for years but other factors needed to be in place. At the supplier end it needed on-line computer systems, associated call centre technology, and low cost telecommunications for all those 0800 and 0345 calls. At the consumer end it needed a high degree of penetration within homes and a commensurate cultural change whereby people's first choice was to communicate by 'phone rather than letter. But above all, consumers needed confidence to deal with financial services.
Up to this point, most people had been content to deal with the traditional high street broker or their friendly door to door salesman (it always seemed to be a man on the bicycle). But after many years of buying and handling financial services products, plus the educational role that advertising and TV consumer programmes provided, consumers felt confident enough to pick up the telephone to seek the best deal.
It started with the simpler general insurance products, like motor, but has now extended to life insurance, unit trusts, and pensions. Many an established insurer said the latter was impossible, but strong brand names like Virgin and Sainsburys have proved them wrong. After all, if every day you trusted Sainsburys not to give you food poisoning, then surely you could trust their PEP.
Meanwhile the traditional High Street broker has seen much of his or her business disappear. As consumers, we are no longer prepared to take valuable time out of any lunch hour we might have, or to pay for the broker's large commission, or to restrict ourselves to the limited number of established insurance companies that they tend to deal with. Many brokers are feeling vulnerable as even the established insurers (i.e. the brokers' suppliers) are setting up their own direct lines, or are supplying the new direct players. Some brokers have decided to go for a niche market, addressing the unusual needs such as classic cars, drivers with criminal records, busy executives for whom time really does equal money.
In the past the mass market techniques seemed to work, but for how much longer? Recently my son, who has just left university, received (at my address) promotional material for home insurance from a niche broker. Using a form of his name that he doesn't like (a good start!), the letter opened by referring to high net worth homeowners (he is neither), and gave example quotations for homes with sums insured of 250,000 to 1 million UKP. Even I don't live in a 250,000 house! I retrieved the mailshot from the bin and kept it as an example of poorly targeted promotions.
What about the major financial players? For how much longer can even they continue to increase their promotional spend? One major bancassurer told me they spent 20 million pounds last year and will spend 25 million pounds this year, all just to maintain parity with their competitors. It's like a huge poker game, but I believe one where there may be no winner, for the market place is about to change. The rise of the direct lines is not an end game, but merely a stepping to a completely different world. A world of interactivity, of personalised and customised products, all at a mass produced price.
As individuals we are leading more complex, more fragmented and unpredictable lives. Combined with individualism, with a growing confidence in financial services, and a number of highly visible scandals (e.g. pensions misselling), we are increasingly sceptical of "one size fits all". Further, mass market techniques depend on mass market mediums, but all this is about to change.
This autumn will see a major new delivery medium: Digital TV, with programme and information content delivered via satellite, cable, and terrestrial transmitters. BSkyB will offer 200 channels via satellite, with many being used for near video on demand. It will also offer many more special interest channels, for example, 7 from Disney. British Digital Broadcasting (BDB) will be the major terrestrial player, of which Carlton owns 50%. Some of its 30 channels will be dedicated to programmes based on famous printed magazines issued by IPC and Haymarket.
Cable and Wireless Communications (C&WC), the UK's biggest cable operator, goes a step further. It has acquired 50% stake in Two Way TV and can thus offer its subscribers interactive TV. To begin with, Two Way TV will emphasise game shows, with people at home completing against the studio contestants and against each other. Then there will be home catalogue shopping and home banking, and later maybe even armchair gambling. In a 3,000 home trial in the Midlands, subscribers used the interactive facility on average 10 hours a week at a cost of under 10 pounds a month. Much lower costs are forecast for the national launch.
Not to be outdone, BSkyB has joined with BT and Matsushita and Midland Bank to create British Interactive Broadcasting (BIB). Using its set-top boxes they will also offer home shopping and banking as well as surfing the internet.
Very recently, the BBC joined forces with BT and Microsoft (who last year purchased the WebTV company), to trial a combined TV-Internet service. Viewers will be able to jump straight from a URL displayed in a programme to the actual web site, simply by using the remote control. TV-Internet devices and services are very popular in the US where WebTV already has 400,000 subscribers. They are easy to set up (plug in and go - no software installation or drivers!) and do nifty things like go off-line when there are incoming voice calls and then automatically reconnect when the call finishes.
Watch out for LineOne, owned by the Murdoch empire. I predict they will also make a move into web-TV. Media barons, drawing on their huge information banks, can offer vetted and safe surfing, all packaged with an easy to use and consistent interface. It's ideal for family viewing and for the less technologically adept. AOL is also looking at using web-TV for delivering its services. These services will in-turn attract major suppliers of goods and services who will pay access fees and commission on sales. We could see companies sponsoring the programmes and then having the opportunity to include their products in the programme. So, if you like the outfit the host is wearing, then click on it and you too can buy one, then and there. At a touch of a button, customer service staff will be able to interact with the customer in order to answer questions, demonstrate the product and to highlight features.
Advertisers will have to adapt to these new mediums. They need to think about making more interactive adverts, as well as turning to micro-marketing in order to select the most appropriate channel(s) for the adverts. However, over time the delivery companies will amass social and demographic information on their customers as well as their viewing habits. Advertisers can then, for a price, specify the profile of the viewer, and the advert will be delivered at the appropriate time. This technique, combined with variable pricing, could also be used for delivering targeted and personalised offers and products. American Airlines already does this via the Internet to its loyalty group of customers participating in its Advantage program.
Use and familiarity with interactive TV will, I believe, encourage consumers to use the other new interactive mediums: PCs, kiosk systems, and the more sophisticated mobile 'phones, pagers, and PDAs. But beyond mere familiarity with these devices, consumers will soon learn to personalise the information to meet their needs, such as the actual programmes, the supporting programme information, or the adverts between the programmes.
In the future customers will wish to communicate with companies at a time and place and using mediums of their choice. companies in turn will need to be able to receive and consolidate and integrate customer messages from all these mediums. For example, a consumer may make see an advert in their morning newspaper, make an initial enquiry via their PDA, and later in the day get a query back by mobile phone. Then, on returning home in the evening, find a personalised proposal sent by email to their PC or I-TV.
These more sophisticated mediums will also allow consumers themselves to personalise and customise products, including services such as financial services. Already in the US consumers can specify their own personal credit card, defining such properties as the statement and payment dates, the protection insurance, and the loyalty scheme. They can also negotiate the charges. In turn, suppliers of financial services will use the customer's preferred medium to deliver target infoadverts and promotional offers. It will be the marketers and/or the customer that define the triggering rules, not IT. For example, a customer could purchase additional unit trusts when the price falls to a certain threshold. The marketer could offer a 10% discount when a prospect visits a web page for the third time but has yet to make a purchase. Software from BroadVision already offers this capability.
To exploit these new opportunities, companies will need to know each customer's individual acquisition and use of these new technologies, as well as understand individual consumer needs, values and behaviours. Then, using underlying technologies such as object technology, they will assemble the requisite components to build a unique product or offer, and then deliver it through the appropriate mediums. Above all, this needs a marketing approach with technology very much as an enabler.
The traditional broker or door to door salesman, with their intimate knowledge of the customer, may soon be a mere shadow of their former heyday. But for larger insurers there is now an opportunity in using these new technologies and new mediums to break free from the product-driven mass market approach. An opportunity once again to provide consumers with their unique personal financial needs. But it is a changing consumer, with different and individual needs, more financially articulate, and with high demands, so it requires an approach driven by the customer and not by IT.
WOT is an electronic newsletter about the Web and Open Technologies to support distributed computing and information delivery. WOT is completely vendor-independent and believes the future of the Web technologies lies in open systems, interconnectivity and convergence. It is edited by Christopher Ogg.
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