Business of Well-being

The Challenge of Product Development for Voluntary Benefits

The Challenge of Product Development for Voluntary Benefits

A speaker at a recent Voluntary Employee Benefits Board conference pleaded with attendees to take a fresh look at their product development processes and commit to significantly improve them. Their current approach is simply not working.

Speaking in the context of voluntary products, it was noted that most carriers are getting less than 20 percent participation, which means carriers are failing to meet the needs of more than 80 percent of their customers. To be more successful, carriers need to create truly innovative products that solve real customer problems!

The Goal of Marketing

The goal of marketing is to create a value proposition that solves a customer need. That is, to create a product or service that is useful and valuable (i.e., relevant) to the buyer. But, relevancy is insufficient. Having tires on a car is useful and valuable. But, people do not make purchase decisions based on whether a car has tires.

The analogy in insurance is claims. Everyone values good claim service.  Since most carriers pay claims promptly, claim service does not drive a purchase decision. Value propositions need to be compelling as well as relevant.For the carrier, there are two additional objectives.  

Since there are hundreds of carriers in the market, it is important for a carrier to provide something other carriers don't.  This calls for a value proposition to be differentiated from those of the rest of the market.

Further, we don't want to ignore the importance of "shelf-life" and miss a key challenge for the product development process.  An effective product development process will give carriers the opportunity to deliver a sustainable competitive advantage.  This is important because sustainability will drive results for a long time.

Creating Actionable Consumer Insight

Traditional industry practices have failed to deliver the necessary levels of consumer insight to enable companies to develop products that delight customers, respond to their most important needs and result in highly satisfied customers.  Consider:

  • The industry is viewed very unfavorably and has a low reputation.  Based on the recent American Customer Service Index , the health insurance industry ranks lower in customer satisfaction than the United States Postal Service, public utilities and cell phone companies.  Only airlines and gas stations rank lower.
  • Mistrust of the industry is very high and results in high levels of regulatory scrutiny and legislation.
  • Acceptance rates and satisfaction with current voluntary products, such as critical illness, are low.  A 20 percent acceptance rate for voluntary insurance plans means that current products fail to satisfy real customer needs.

What is it about current industry practices that have resulted in such poor performance?  Consider the following:

  • Current product development processes are focused more on competitors than customers.

It's a competitive marketplace. In the end, customers, employers and brokers are choosing between products of different carriers.  It's important to understand how current products compare with those of competitors. It's easy to get access to competitors' current products.  

Analysis of competitor products tends to focus on benefits and features of the currently marketed products.  It's common for competitor analysis to be the basis of carrier product development practices.  The result is rapid adoption of market "best practices" and only incremental innovation.But, this approach contributes to the commoditization of the industry and severely impairs a company's ability to create sustainable differentiation.

  • Current product development processes are often focused on internal industry mechanics, with focus on mitigation of risk and achievement of profitability, not on meeting customer needs and solving their problems.

Product development often sits with the actuary or underwriter.  These are industry professionals whose training centers on complex internal insurance company operations, who are held accountable for achievement of profitability and who are responsible for management of risk.

Many actuaries and underwriters do not have training on product development, innovation or marketing. Many will struggle to embrace the concept of consumer value (the relationship between value of a benefit and price).  Little priority is given to satisfaction of a customer need or the solving of a real customer problem as the basis for the product development discipline.

A more consumer-oriented approach can produce a better result.  Consumers at a recent focus group were asked to design their own product.  When complete, they were asked how much they would be willing to spend on their product.  They indicated they were willing to spend as much as five times the current market rate for the product that they designed!

  • Current product development processes are hampered by confusion as to who is "the customer."

There are a large number of constituents in the voluntary benefits market. Carriers market to managing general agents who work with their agents to market to corporations who offer benefits to their employees.  This makes it hard to think clearly about "the customer." There are distinctive sets of needs for brokers, corporations and employees.  

It is hard (and maybe unfair) to expect any one constituent to be able to provide deep insight into the needs of the other constituents. The solution is to turn up the volume on the voice of the the point where it is the loudest voice in the analysis.  Direct research with the end consumer is needed.

This highlights the importance of primary market research to the product development process. Current industry product development practices often fail to incorporate the deep, actionable customer insight needed to enable truly innovative product development.

Creating a Sustainable, Differentiated Competitive Advantage

Current industry product development practices rely heavily on competitive analysis.  This is an essential component of an effective product development process.  I am not suggesting carriers stop conducting competitive analysis.  But, failure to incorporate new, actionable consumer insights into the process will result in the continued under-performance of current process.  

Don't stop doing competitive analysis. Start doing more consumer analysis. Products are easy to copy and fail to provide long-term competitive advantage.  Most carrier products are filed with insurance departments, where records are easily available for public consumption.  

Agents are eager to share market innovations with their carrier partners, hoping they will respond (i.e., copy) to help them compete.  There are highly efficient competitive intelligence providers, such as Competiscan , that help carriers rapidly identify product innovations.  

As a result, only the lightest of competitive intelligence processes are needed to enable a carrier to disarm even the most creative product feature. This results in a constant migration toward product commoditization, making it terribly difficult to utilize product as the means of creating sustainable competitive advantage.  

Commoditization inevitably results in greater rate competition.  Carriers get low margins, undifferentiated products and low customer satisfaction.  The product development process has failed!

The solution is to avoid actions that lead to commoditization.  Seek not to be the same, seek to be different ... in ways that bring real value to consumers ... by responding to their real issues.  Focus on real customer problems and issues, especially unresolved ones.You do this by conducting market research.  Conduct primary and secondary research.

Ask your customers for feedback.  Examine the customer experience and consider the opportunity to differentiate on the basis of services and your customer's experience. Most importantly, build solutions that will delight and impress your customer! Demonstrate that you are listening to customers and that you care.  

This may require you to think long term - and think out of the box!  Tackle barriers wherever they appear, especially if they prevent you from addressing a customer concern! Can this be done?  Consider Progressive Insurance Company's online price comparison service.  

In 1994 , Progressive created a new service that sat outside of the core auto insurance product but complemented it in a very customer-friendly way.  This service allows customers to get online rate quotes instantly, from a number of leading carriers (Progressive's competitors) without an agent.

This required brave new thinking, deep commitment to resolve issues faced by their potential customers and a significant investment.  This sort of customer orientation is working.  Today, they are the fourth largest auto carrier in the country and they continue to grow.  

They continue to advertise this service as it remains a competitive advantage even to this day...more than 15 years after they launched it.

Benefits Industry Structural Constraints

The structure of the industry makes product development in the insurance space difficult.

  • Health Care Reform in the health insurance market limits the range of options for product differentiation by requiring all carriers to provide certain benefits, such as preventive care.  The environment gets worse in 2014 when the "essential benefits" provisions of the law take effect.
  • Heavy regulation of benefits and rates for certain products in certain geographic markets create excessive scrutiny of profitability, driving profit levels down to low levels.

Consumers aren't the industry's best friends either, as their attitudes and behaviors create challenges for carriers.

  • Health insurance is a low involvement category.  Customers do not enjoy shopping for insurance and spend little time doing so.  A recent Guardian study indicated the average customer spent 1.7 hours selecting their employee benefits, yet spent 2.2 hours shopping for school supplies, 3.5 hours preparing Thanksgiving dinner and 5 hours holiday shopping.
  • The insurance concept is not well understood by customers, leaving them confused and feeling like they are treated unfairly.

Despite that, opportunities abound for carriers to create competitive advantage through their product development activities.

  • Health Advocate  is a company that offers independent advocacy services to help health insurance customers in their "battle" with their carriers and to help them navigate the American health care system.
  • Progressive's use of Flo, GEICO's Gecko and Aflac's duck makes insurance entertaining and more engaging.

Benefits Product Development Process Improvements

We've suggested that carriers "turn up the volume" on the voice of the customer, making consumers the primary focus of the process.  We've also suggested that carriers look beyond the features and benefits of the product for customer-oriented solutions that offer carriers competitive advantage for a longer period of time. Here are some ways to accomplish this:

  1. Implement a clearly defined, robust process lead by people who are knowledgeable about the industry, but also have the ability to focus on customer needs and enjoy challenging traditional industry paradigms.  Here's an example:
  2. Invest in market research and look for real customer problems and pain points.
  3. Solve real customer problems.  Be a good listener during your research.  Design solutions that solve real problems.
  4. Think beyond traditional features and benefits of the insurance product.  Recognize that the value proposition involves the total customer experience and all aspects of the relationship between the carrier and the customer.
  5. Be patient and disciplined.  The process takes time.  And, often development of solutions takes a long time.  Consider market testing to validate and test out your solutions.  It's hard for carriers to be patient with the process, but the payoff can be significant and long lasting.
  6. Don't abandon traditional competitive intelligence, and don't ignore the perspectives of the broker and the employer.  Be sure, however, to keep the primary focus on the end consumer.  After all, what employer will reject a concept that truly makes their employees happy?  And, what broker will resist marketing products that make their customers incredibly satisfied?

The insurance business is complicated.  Product development exists within every company, however, and can often be the key to a carrier's success.  Focusing on solving real customer problems and thinking beyond the traditional insurance product can help a carrier improve their product development practices.  

Industry winners will be those that can identify and deliver a value proposition that is highly relevant and compelling to their customers in ways that are clearly different from those of their competitors and that are difficult to replicate.





4- "Reluctance in Studying Benefit Choices"; Guardian Life Insurance Company of America; 2010


About the Author:

Roger Schultz is the President of the Hawthorn Consulting Group, a firm specializing in product development, marketing strategy and product management for the insurance industry.  He is a 35-year veteran of the insurance business and has held multiple product development and product management leadership roles.  He can be reached at

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