The Case for Design Thinking in Insurance

This article originally published on LinkedIn and it is republished here with the author’s permission.

Insurance is a business that dates to early human society, but today it is evolving rapidly with the help of 21st Century creative action. Although the first methods of transferring risk in a monetary economy were practiced by Chinese and Babylonian traders in the 3rd and 2nd millennia BC, that doesn’t mean that our approach to innovation in the industry needs to remain fixed in ancient times.

Even in today’s period of rapid change, it appears that many insurance companies are attempting to create new solutions by relying on outdated paradigms. In order to overcome modern challenges, new paradigms are needed. Renewed thinking from outside the industry could help to drive the next wave of growth within financial services.

Design thinking-a method of creative action that was developed in this century-is a desired approach that shapes customer-centric innovation. However, few insurance companies are set up to do this. This intuitive business model has facilitated the transformation of many of the world’s most successful companies including Facebook, Apple, Amazon, Netflix, and Google.

Design thinking is a method for solving problems through practical and creative solutions. It is a form of solution-focused thinking with the intent of producing a constructive future result. I was first introduced to Design Thinking in an Innovation & Design course that I took at the University of Notre Dame. What surprised me most about this approach was how intuitive it seemed, which made me wonder why so few have tapped into its generous rewards.

Although design thinking was first perceived as a valued concept for designers of physical goods, it has also developed as an approach to resolve issues for creators of intangible products and services. Not only is this approach about making goods attractive, but it extends to the services, experiences, and ecosystems that surround those products and services. This approach demonstrates that creativity is not a phenomenon that is exclusive to artists and designers.

At its core, design thinking is a methodology used to solve multifaceted problems and satisfy complex needs, uncovering desirable solutions for customers. It is a process, a toolkit, and a philosophy. What differentiates this method of thinking against the backdrop of other problem-solving techniques is a suite of core beliefs that are optimistic, human-centered, collaborative, and boldly experimental.

Here are the few characteristics of design thinking that make it a worthwhile approach within insurance:

 

Design Thinking Contemplates the Human Experience First

Empathy is the centerpiece of this human-centered design process, involving the work you do to understand people within the context of a design challenge. It is an effort to understand how people do things and why, their physical and emotional needs, how they think about the world, and what is meaningful to them.

In order to create meaningful innovations, you need to know your users and care about their lives.

Technology cannot replace the power of empathy. Technology should act as a tool for people, and not the other way around. Yet we find many insurance companies putting technology first. This is evident in the hype surrounding fintech. Many of these solutions are designed around the instrument and not the human.

Defining the customer and identifying the problem that you are attempting to solve will vary drastically for different players across the value chain. However, when it is executed successfully, design thinking can provide exponential value for all participants.

At a very fundamental level, companies need to make the effort to understand their customers’ physical and emotional needs, how and why they do things and, essentially, what is meaningful to them. This will enable organizations to extract unique client insights which provide the very basic building block of design thinking.

 

Design Thinking Delivers Groundbreaking Improvement

One of the early steps involved in the design thinking process is to define the problem. Mapping the challenge and deeply understanding the core problem you are solving is critical to discovering the solution. Without getting this first step correct, many projects have gone on to create solutions in need of problems and fizzle out fast.

It would appear that in today’s environment that we are witnessing insurance firms getting stuck in the phase of deciding what is most acceptable instead of thinking seriously about the most innovative solution. We find ourselves in a world in which industry players are abstaining from even putting a boat in the water before knowing with certainty exactly where they are headed and when they are going to get there. That’s a recipe to guarantee a customer value proposition that will never be better than acceptable; however, creating breakthrough value propositions is not about being incrementally better, it’s about really making a difference. Looking beyond insurance, it is both remarkable and refreshing to witness the willingness of other organizations to bet big, fail fast, learn key lessons, and come back hard with improved offerings.

Lemonade is a perfect insurance example of this type of revolutionary thinking within the personal lines space. The company offers modern, mobile-first renter’s and homeowner’s insurance to individuals in a limited number of states through a magical mobile application. It also delivers an astonishing claims process. Although there are still plenty of questions surrounding their business model, it cannot be denied that they took a renewed look at the insurance transaction and developed an innovative value proposition that is far from just acceptable. They saw obstructive brokers and bureaucracy and countered with bots and machine learning.

In the old days of insurance, missions that centered on “helping customers manage risk,” “taking care of them in their time of need,” or “giving them world class customer service” were acceptable when customer expectations from insurance companies were simply to pay a claim when they had an unfortunate event

However, in today’s digital economy, the bar is set much higher and the expectations are far greater. It’s not just about providing good insurance products and customer experiences but about having customized policies on demand and specific to the daily risks that customers face. Insurance companies will also need to step in to help with prevention and mitigation.

Consumers demand more now that they are constantly connected, more broadly informed, and compulsively sharing knowledge and findings with their networks, thereby exposing them to infinite choices. To remain relevant, insurance companies are fighting a battle for client attention and retention on an unprecedented level, discovering that previously successful problem-solving methods have been rendered ineffective by rapid changes in society.

Insurtech can help with this; however, at the moment it would appear that companies have become so caught up in the movement that they’ve forgotten about the one person that matters most—the customer.

Design Thinking Provides Concentrated Objectives

In order to create innovative change, insurance companies can’t keep adding elements simply because their competitors do. This tactic will result in solutions that are undifferentiated and too complex or vague, resulting in meaningless value propositions for customers. Many players in the industry still think they can be everything for everyone, but to be relevant and appealing they will need a razor-sharp focus for specific target groups and an understanding of what they truly do well.

Ideally, this focus will allow companies to create offerings that truly revolve around the customer’s participation to create a truly superior experience; however, to do so, it is vital that organizations are deliberate in their efforts to define their customer, which demands careful consideration of a customer profile.

Design Thinking Defies Conformity

As mentioned above, insurance is an industry with a long history. During this history, we have watched insurance companies become enslaved to the rules they created around the customer experience, distribution, and services. Holding on to these rules can only stunt improvement.

Conventional wisdom gives a false and addictive sense of security—if everyone believes it, how can it not be true? Kodak’s stern and stiff conventions are a prime example of the failure of conventional wisdom.

Conventional industry wisdom—collective ideas about how to do business within a specific industry—is based on the assumption that longstanding ideas will continue to work in the future. This is like predicting the future by looking in the mirror for the road ahead. If the world continues to change as rapidly as it is now, these ancient ideas probably won’t hold true for long.

Conventional wisdom revolves around the rules of the game, on leaders lacking guts and imagination—rules about what products should look like, pricing, communication, the customer, and the entire value chain by which these elements of a value proposition are delivered; the industry’s sacred procedures.

To challenge these rules, you first need to understand the existing ones. What do competitors take for granted? What do they overlook? What are the taboos in the industry and within your company? What box is it that you all stay inside? That box is small, so the opportunities outside of it are astronomical.

Analyzing how players within the industry behave as well as the common beliefs that are held about how to do business is of the utmost importance when developing real innovations.

Administering a design thinking approach requires an action-oriented mindset with a healthy defiance of traditional constraints. The output of the design process is the problem solved, a client need met, and a largely improved state of affairs.

The critical task for the insurance industry will involve embracing tradition and breaking convention. This will entail a need for brave, visionary people, people who want to push the boat out, that want to engage in exploring and defining the new borders again and again.

Design Thinking Can Bring Insurance Offerings to Life

Insurance is essentially an abstract construction manifested in some 80 pages of legal jargon that not many people truly understand. This service with little customer involvement creates a real problem when selling the product. Most people need and are accustomed to engaging their senses  during the process of being convinced of something. In an era of information overkill, sensory experiences are vital in the business buying decision. However, in the grander realm of financial services, design is often the forgotten discipline.

Design thinking is centered on the buyer and user interface and can assist in bridging the gap between abstract offerings and the real lives of consumers. Design thinking brings abstract brand values to life and makes intangible offerings more tangible. Great design creates recognition for consumers and indicators for brand, price, and quality. Design can create a better performance and even a position from which to ask a premium price. Pronounced design also enhances product usage as it is more simple and appealing to use.

Conventional wisdom tells you that you cannot make financial services tangible. Intangibility makes people uncertain and is one of the major reasons people feel insecure when making buying decisions. Intangibility can also make your proposition dull. Making things tangible lowers barriers to buying in a mystic way.

Looking beyond the traditional barriers of the insurance sector is critical for producing differentiated products and services. Direct alliance with digital platforms, distribution channels, and policyholders can unlock a host of client insights.

With enough creativity, many things can be made tangible, and  solutions will begin to present themselves.

Conclusion

Although there are many benefits associated with the design thinking approach, there are some very real challenges in developing a design-centric organization within the insurance industry. In particular, the prototyping step involved in this approach is difficult for large insurance companies that are navigating rigid parameters, regulation, and competition.

Furthermore, making entire organizations more innovative takes time and hard work. What, then, can companies do to compete? A good place to start would be to adopt a design thinking strategy of finding, testing, using, learning, and building at pace.

The transformation into a truly customer-centric organization is both complex and long; however, becoming this type of organization is hallowed ground when it comes to unlocking the true potential of customer value. Design thinking trains organizations to focus on minimizing customer effort to maximize customer value.

Design thinking is an approach that can be applied throughout the insurance industry and used by personal and commercial insurers, brokers and agents, chief executives and entry-level employees, risk consultants and actuaries, etc..

It doesn’t yet seem that the industry has fully accepted the design thinking approach on the aggregate, but questions are being raised that address the current paradigm—and that’s a real start.

If the case of design thinking has taught us anything thus far, it is that winning organizations are the ones who treat their customers with respect by providing great service and building sustained relationships with them.

About Cooper Cohen, CPCU

Cooper is an International Underwriter at CNA Financial in Chicago, Illinois providing tailored solutions to meet the foreign insurance needs of US-based clients doing business abroad. He graduated with honors from the University of Notre Dame where he studied the complexities of Finance & Entrepreneurship. He is a native of Colorado and joined the insurance industry in 2016. Cooper holds the following designations: Chartered Property Casualty Underwriter (CPCU), Commercial Lines Coverage Specialist (CLCS), and Construction Risk and Insurance Specialist (CRIS).

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