Go-to-market strategy for a top-5 independent insurance broker

By Clientcases, Insurance

What they wanted
After years of double digit profitable growth to a top-5 position in the market, the firm’s executive board realised a next step in their strategy was required as focus started to blur and key (market) insights were missing. They therefore wanted a futureproof growth strategy that would determine the growth path for the next five years, and in parallel would enable them to 1) simplify governance, 2) focus investments and 3) optimise their operations in line with this strategy.

What we did
We split the project in three phases to enable to cooperate with different stakeholders in each phase. Phase one concerned creation of a strategy based amongst others on unique insights in the Dutch market for distribution through our proprietary tooling “Distributiemonitor”, and the internal context. Phase two concerned the resulting priorities and phase three concerned the resulting actions to realise these priorities. Each phase started with a kick-off to create alignment on the deliverables and key questions, halfway there was a validation session to discuss prelimenary findings, and each phase concluded with a workshop on the conclusions and implications of the former. During each phase different sets of stakeholders were involved to ensure buy-in and a smooth transition after the ending of our engagement.

What we achieved
We were able to determine a growth strategy, with unique insights on the market and their own customer base, in under three months’ time. All resulting priorities and actions were co-created into implementation plans by the management team and IG&H to ensure logic, buy-in and feasibility in execution.

What they said
Client satisfaction, CEO: 8, COO: 9



What Data Science Managers can learn from McDonalds

By Data science, Insurance, News

Insurers and intermediaries digitize their companies more and faster. This has implications for the organizational functions that support this such as the Data Science and AI teams. From our recently conducted Data Science Maturity Quick scan among Dutch Insurers we learn that nearly all companies currently organize their Data Science in the same way, centrally. However, the front runners are now about to transition to a different, hybrid, organizational model. Determining the best organizational model for the Data Science function turns out not to be simple.

How do you organize Data Science and AI as a scalable corporate function, when you can no longer keep it centrally organized and also do not want to switch to a very decentralized, hybrid model?

Three basic models
Actuary expertise and business intelligence have been part of the insurance business for a long time. But since about two decades people with the title Data Scientist started to appear. These professionals usually worked on non-risk use cases, such as in Sales, Marketing & Distribution, Fraud and Customer Service and they wanted to apply the latest, often non-linear, Machine Learning techniques (ML). The introduction of this kind of work often happened very decentralized and scattered throughout the organizations. But as the reputation and expectations of their work grew, these new professionals were often grouped together in central Centers of Competence (CoC).

Fig 1. Three basic models for organizational functions

The CoC model brings some advantages for a new data science function, when compared to the decentralized model. Especially when the company is not yet really functioning like a digital, data driven organization. Five out of six organization in our Maturity Quick Scan have organized their data scientists in a CoC model. However, at some companies, the digital transformation is getting serious and, in that case, strong centralization can result in a capacity bottleneck. Or be the cause of too big of a gap between business and data sience teams in terms of knowledge, priorities and communication.

Switching from a centrally organized model to a more hybrid model is often advised as a best-of-both-worlds solution. This should make it easier to scale up and align knowledge and application of data science closely with the day to day business, while a select number of activities and governance can remain central.

Concerns over hybrid models
Spotify developed a popular hybrid version that has become known as the Spotify model with its Squads, Tribes, Chapters and guilds1. This type of model has become popular among the digital natives and e-commerce companies in this world. But many data science managers in Dutch insurance companies have their concerns about this highly decentralized version of a hybrid model. These concerns are;

  • Data culture and scale of the AI applications may be insufficient still to maintain the needed continuous development and innovation
  • There are often still company-wide use cases yet to be developed that could be realized much more efficiently centrally
  • Next to that, IG&H has identified there is a large gap in data science maturity between corporate insurance and consumer insurance2. A more central organization model can help to narrow that gap

This is why in practice we often choose for a more central version of the hybrid model. But every hybrid (re)organization raises questions such as;

  • How do you keep the complexity of funding and governance down?
  • How do you maintain sufficient control over standards, continuous development and innovation?
  • Which activities and responsibilities do you keep central and which not?

A different perspective; a successful retail business model
Thinking about these questions from a different perspective or from the perspective of a different sector can help to find answers. We do this a lot to solve problems at IG&H. In this article we make an analogy with a good ol’, trusted, business model. In the late fifties of the 20th century fast food giant McDonalds started to conquer the world in rapid pace. The McDonalds concept (branding and methodology) was a proven success, but the explosive, profitable growth was partly made possible by the chosen business model for expansion, the franchise model.

A franchise is a type of business that is operated by an individual(s) known as a franchisee using the trademark, branding and business model of a franchisor. In this business model, there is a legal and commercial relationship between the owner of the company (the franchisor) and the individual (the franchisee). In other words, the franchisee is licensed to use the franchisor’s trade name and operating systems.

In exchange for the rights to use the franchisor’s business model — to sell the product or service and be provided with training, support and operational instructions — the franchisee pays a franchisee fee (known as a royalty) to the franchisor. The franchisee must also sign a contract (franchise agreement) agreeing to operate in accordance with the terms specified in the contract.

A franchise essentially acts as an individual branch of the franchise company.

Fig 2. Illustration of the franchise model
Credits: https://franchisebusinessreview.com/post/franchise-business-model/

The franchise model offers some important benefits to a business concept that help to expand fast and durable;

  • Access to (local) capital
  • Entrepreneurship of local establishments
  • Presence close to local customers
  • Ability to facilitate centrally what locally cannot be realized in a cost-efficient way, or what is an essential part of the success formula (e.g. R&D, Production, Procurement and Marketing)

Each of these qualities can be related to lessons learned and best practices of scaling up Data Science within an organization. As the franchise principle made it possible for McDonalds to rapidly expand into the world, it can also help expand Data Science throughout the company.

Applying franchise model principles
Many insurers desire a more adaptable and entrepreneurial company culture. Ownership, client focus and flexibility are key words. The principle of local entrepreneurship in the franchise model fits very well with this. It encourages both the business responsible as well as the data scientist to work very client-focused and always with a business case to achieve.

Data Science is a broad discipline and it rapidly evolves while it is often not yet embedded well in most companies. This makes a central organizational element very valuable to ensure quality standards, continuous development and innovation. Just like the franchiser in the franchise model often facilitates certain means of production, R&D and best practices. One of the front runners in the Dutch insurance market with respect to organizing their data science is therefore transitioning to franchise-inspired organization model for their data science function.

So, franchise-inspired thinking can be valuable for Data Science organizations that want to move beyond the CoC, but not (yet) want to move to a very decentralized hybrid model like the Spotify model. However, which organizational model and specific choices are the best fit is naturally dependent on multiple variables. Among others; company structure and company culture, the digital maturity of the organization and the maturity of the data science function itself. Because the value of data science and AI are completely dependent on the quality of collaboration with the business and on broad application throughout the company it is vital to objectively assess the current situation and to strike the right balance between centralized and decentralized, with a company-specific touch.

Mando Rotman
E: mando.rotman@igh.com
Manager Data Science IG&H

Jan-Pieter van der Helm
E: janpieter.vanderhelm@igh.com
Director Financial Services IG&H

1) https://agilescrumgroup.nl/spotify-model/
2) https://www.igh.com/news/page/2/
3) https://franchisebusinessreview.com/post/franchise-business-model/


A takeover wave amongst Dutch insurance brokers is taking place

By Insurance, News

Private equity is growing its footprint in the Dutch insurance brokerage industry. An attractive financial profile, large consolidation potential and the possibility for ‘multiple-arbitrage’ led them to be responsible for 21% of all acquired revenue over the last two years. IG&H and PhiDelphi Corporate Finance jointly investigate the drivers for and impact of the M&A wave that is currently taking place.

A takeover wave amongst Dutch insurance brokers is taking place
Dutch firms active in insurance distribution (‘brokers’) are interesting to various types of investors. Due to this wide variety of potential buyers over 65 large public transactions have taken place over the last two years, and 2020 has already kicked-off with multiple impactful transactions. Recent developments regarding the coronavirus will impact this trend as is discussed below.

The sector is changing as a result of this M&A wave. Valuations have risen to as much as 14-15x EBITDA for the largest advisors and nearly all market segments are concentrating. The overwhelming interest in the sector might come as a surprise as the sector suffers from decreasing commission rates and increasingly stringent legislation. IG&H and PhiDelphi Corporate Finance investigate who are the buyers and sellers, what drives them and what the outlook is for the M&A surge.

Private equity creates foothold, but brokers remain the largest buyers
Incumbent managing general agents (‘volmachten’) were the most active buyers, both in number of deals as in sum of acquired revenues. These brokers can create value relatively easily by transferring regular brokerage portfolios towards their mandated portfolios, while deduplicating the operation from costs.

Out of all acquired volume, 21% has been acquired by private equity (PE). Their share of deals in terms of numbers is low (6%), but these are often impactful transactions involving large brokers. Large quantities of ‘dry-powder’ looking for investments and an attractive, predictable, financial profile make large brokers attractive targets. Next to these drivers the potential for ‘multiple-arbitrage’, where they profit from the fact smaller brokers trade against lower multiples than larger brokers, is often used to create financial value.

M&A wave to continue on the longer term
Drivers of the current M&A wave such as synergies in both the top- as bottom-line and ageing boards of management will be relevant in the future as well. On top of that, there is still room for further consolidation from two points of view. The first is that most segments are still highly dispersed with a large longtail of smaller brokers, which are often inactive. The second view considers concentration: most non-life segments are nearly not as concentrated as the Group D&A and Pension segments, indicating there is room for consolidation amongst larger brokers as well.

It is evident that the coronavirus will impact the wave on the short to mid-term. All investors are dealing with more urgent matters like managing current businesses and capital availability is likely to decrease on the short term as well due to uncertainty. On the longer term, when business goes back to normal, the identified value pools and drivers will however pursue to exist.

An important precondition for successful continuation of the M&A surge is long term customer value creation. IG&H and PhiDelphi see two successful strategies: extensive backwards integration, and/or as part of a strategic move to create a broad ecosystem in which insurance brokerage is just part of the solution provided to customers.

If you are interested in the sector or would like to discuss the findings in depth you can contact:

Jan Pieter van der Helm
Director Financial Services at IG&H-
E: janpieter.vanderhelm@igh.com, +31(0)622554190

Harald Miedema
Partner at Phidelphi Corporate Finance
E: miedema@phidelphi.com, +31(0)611517340

If you want to read the full paper in Dutch, please find it here.




Higher customer satisfaction and lower operational costs? It’s possible!

By Insurance, News

Digitalization is everywhere, including in the insurance sector. It is an important development for insurers and distributors, as the digitalization of customer contact and internal processes contributes to increasing customer satisfaction and saving costs on the performance of internal processes. In the past few years, insurers, service providers, and proxies alike have invested in the development of online quotation, acceptance, and claim processes. In practice, however, having a digital environment doesn’t necessarily mean the customer or intermediary uses it.

The digital channel and Straight-Through-Processing (STP) are not yet the standard for a variety of reasons – customers are accustomed to the usual, analog process. They have little experience with, for example, submitting a claim or surrender request, and they are uncertain about it. People want to communicate with their insurer in a pleasant way rather than engage in business-like and transactional reporting. It is also necessary to build quite some emotional intelligence into a process to eliminate the need for human contact in the event of a claim.

To allow customers and intermediaries to increasingly arrange their own insurance matters online, we should understand the complexity of human behavior. Why do they make certain (financial) decisions? What impedes them from finding the online channel and successfully completing a process there? What emotions does a customer feel at the moment of injury (agitation, irritation, anger)? What affects their behavior in terms of emotions, motivation, attitudes, beliefs, perception, or the interaction with others? Based on this knowledge, customer communication and processes can be adapted to achieve a higher acceptance rate of digital processes. Ultimately, this results in happier customers, because they are served in a personal, relevant manner.

The interplay of three factors determines the extent to which customers are able to find and use the online channel:

  1. Improved customer journey
  2. Behavior within the organization
  3. Data & technology

1) Improved customer journey

Many of the barriers customers experience to using the online channel can be eliminated if we delve into the underlying cause. By applying insights from the various behavioral sciences, we can respond to the conscious and the rational as well as map out a customer’s irrational behavior. For example, people disproportionately place higher value on their own possessions, solely because these are their property (endowment effect). Therefore, a customer might be insufficiently satisfied with full financial compensation.

We should focus on encouraging and rewarding the behavior we wish to see – for example, by offering an exceptionally good customer journey. When it comes to this, most of us agree that there’s still a lot to be gained in the insurance sector. Incidentally, who said interactions with your insurer should be emotionless and incomprehensible? Why does a letter announcing the payment of a life insurance claim only contain a request to provide information? Why not have confetti pop out, or use another means to show it’s a celebratory moment? The amount to be paid out is often a lot bigger than what most of us will ever win in a lottery. Simple lessons can be learned from companies that take their customer journey very seriously and therefore ensure it is as pleasant as possible. If ordering a vacuum cleaner online can be turned into a small celebratory event, we surely can create more experience and interaction around an expiration or claim process, can’t we?

2) Behavior within the organization

It is not just the customer’s behavior that should be changed to realize a shift to digital processes. Employees, too, need to be taken along on this journey. The organization should travel down this digital road from start to finish. It’s necessary for employees to embrace and encourage digital processes and interaction, actively contributing to the offline-to-online shift of work. Here, we can use techniques from behavioral economics as well. Research shows that people want to maintain the status quo, regardless of whether the change would produce results which would be desirable or better from a rational point of view. The choice architecture should be designed in a way that faciliates the choice for the new option. Examples include a form of gamification or a default option to actively encourage the desired behavior while retaining the positive motivation of employees. There are practical examples of companies that have established a digital environment but whose payback potential has been destroyed due to its employees’ strong belief that an offline process is actually better than an online version. Several interests and beliefs are at play in the background, either consciously or unconsciously (justification of one’s own role in the process and a preference for direct, personal contact, but also employment).

3) Data & technology

Data and technology are the main prerequisites for creating a seamless and measurable digital customer journey. It is important that the (online) process goes smoothly and offers room to make adjustments based on data-driven insights into the behavior of customers and intermediaries gained during the customer journey. Not only does the online process need to exist, it should also generate the data required to make adjustments.

Having these three factors work together intensively ensures digital processes can demonstrate their full potential and insurers and other chain parties can realize a much more positive experience of their services. This results in higher customer satisfaction and lower operational costs, and it provides valuable insights into the customer population.

Joost Petit
E: joost.petit@igh.com

IG&H Whitepaper

In the past three years, foreign insurers have managed to increase their premium volume to more than 10% of the Dutch non-life market, according to a study conducted by IG&H. More and more foreign risk bearers enter the Dutch insurance market without reporting to DNB, helped by a mismatch between customer demand and offer, rising premiums, harmonizing legislation, and consultants who professionalize.

This paper maps out the drivers, scope and impact for this development.
If you want to read the full paper in Dutch, please find it here.

Consultants deem innovation of income products necessary

By Insurance, News, Pensions

The income insurance market is becoming more complex due to the growing focus on sustainable employability. Yet according to consultants, insurers mainly concentrate on standardization. A mismatch between customer demand and product offer is brewing. IG&H spoke with several market parties in the insurance sector and provides concrete tools for product innovation.

It’s undeniable: currently, ‘sustainable employability’ is a trendy term. But the attention it receives seems appropriate. Not only should employers get a grip on the (financial) risk of rising absenteeism, the tight labor market also forces them to double down on being a good employer. This is difficult, so employers expect ‘customized’ support. At the same time, insurers focus on simplicity and cost reduction, which leads to less innovation and more homogeneity. As a result, income solutions tend to be suboptimal, and not all employers can realize their ambitions.

We’ve observed three axes for product innovation:

  1. Sector differentation

Conversations with employers have shown that their needs often depend on the sector in which they operate. Of course, all insurers use sectoral premiums, but other than that, consultants still find the sector-oriented offer insufficient, despite the success of (former) ‘pension subsidiaries’ Loyalis and NV Schade. For them, the sector approach results in lower premiums, less absenteeism, and a higher penetration rate.

What elements does such a sector proposition consist of? We’ve listed the three main ones:

  • Insurance conditions focus on the collective labor agreement (which is especially relevant to the WIA (Work and Income Act) supplement), so employees’ financial risk is optimally covered.
  • Additional services are focused on a sector’s issues. This starts with targeted solutions for the main causes of an inability to work, but it can be expanded to other relevant HR domains. An example includes services which promote older employees’ labor mobility.
  • An attractive risk profile is created by a broad inflow (via covering agreements or even collective labor agreements) and by building unique data on a well-defined group of companies. The result is that premiums can be reduced and/or returns can be increased.

Most sector propositions have been created by building reactively on a solution for one customer. But it’s also possible to adopt a proactive approach. In that case, a sector is selected based on several criteria (such as scalability, the collective labor agreement, available data, commitment to the sector), after which a proposition is created with specialized consultants. Not as a replacement for the existing offer, but as a valuable addition to it.

  1. Premium differentiation

Usually, premiums are determined based on historical absenteeism data. As a result, premiums are volatile and investments in vitality barely pay off. On top of that, the use of sectoral premiums means SMEs are ‘punished’ for absenteeism at the companies of competitors/colleagues. Of course, the ‘MKB Verzuimontzorgverzekering’ (absenteeism unburdening insurance for SMEs) will lead to premium stability, but it will ultimately have a price tag. Therefore, we believe that a more ‘customized’ premium contribution rate has potential for many employers, both small and major. Not to refute the solidarity principle, but to make investments in a healthy company more worthwhile.

Insurers struggle with the use of predictive data. The challenge lies in legal limitations and the complexity of data warehouses, but also in the unfamiliarity with the predictive power of customer and risk data. A good first step to detecting predictive elements is to have consultants and insurers bring together anonymized data. Historical absenteeism data don’t have to be abandoned: the flexible premium model forms a great intermediate alternative. In this model, historical absenteeism determines the basic premium, and the premium surcharge depends on investments in sustainable employability and short-term results (such as a reduction in absenteeism and lifestyle changes).

Furthermore, consultants believe a vitality budget may encourage employers to pursue a more conscious policy. Of course, the amount may depend on the scope of the contract and the risk profile. If the effectiveness of investments is proved, this can be translated into a premium discount.

  1. Flexibility of conditions

More and more often, an insurance is the closing entry of a vitality solution, and the conditions hardly vary between insurers. Consultants believe more flexibility is required to keep covering the growing financial risk. There is a particular demand for an automatic link to the rising state pension age. Furthermore, there’s a need for a more flexible contract term – standard options of 1 and 3 years, for example. Finally, consultants wish to see more options with respect to self-retention (stop-loss) and a higher maximum insured amount, especially for large employers (invalidity pension).

Solution guidelines for digital innovation
Product innovation doesn’t yield much if there’s no solid foundation. Therefore, we will provide concrete tools for improving digital services in our next blog.

Written by: Bob van Opstal (Manager Pensions) en Idriss Abdelmoula (Consultant Pensions).
More info: bob.vanopstal@igh.com


IG&H and GroupLife combine forces

By Banking, Health, Insurance, News, Pensions, Retail

Consultancy firms IG&H and GroupLife are moving forward together under the name IG&H, resulting in a specialized consulting group that is able to help realize business and technology transformations from start to finish.

Both companies have in-depth sectoral knowledge, close customer relationships, high quality people and service. By combining their expertise in strategy, organizational transformation, data analytics and technology, they will be able to more effectively help organizations with transformative matters. The new consortium includes more than 220 specialized professionals.

Execution of strategy requires integral approach

Jan van Hasenbroek, managing partner IG&H: “The rapid developments in the technology sector have an enormous impact on the business models of our clients. In order to remain successful in the future, our vision must include addressing organization and technology together. This will lead to corporate strategies being immediately operable, providing concrete results and sustainable organizational transformation. GroupLife has an impressive track record and a proven methodology in business modelling, implementation of technological platforms, and data management. That’s why a collaboration fits well within IG&H’s strategy to continually strengthen its technological ecosystem.”

Wim Groenen and Tom Bottinga, co-founders of GroupLife: “In previous projects with joint clients, we discovered that we had similar ideas about how to address complex business transformations. IG&H knows how to combine its expertise in strategy, data analytics, technology and organizational transformation with sector knowledge. We are delighted with the collaboration and together with IG&H we can make an even greater contribution to the success of our clients.”

About IG&H

IG&H is committed to help leading organisations in the financial services, retail and healthcare sectors. With 160 involved and enterprising professionals, the consultancy and implementation firm, based in Utrecht, helps organizations take steps towards radical customer centricity. They set high standards for themselves and their way of working. With in-depth knowledge and a personal approach, they aid their clients to help them improve the sector. IG&H is recognized as a ‘Great Place to Work’ and puts a lot of emphasis on a high net promotor score.