Sep 26, 2008

Successful Innovation - The Swiss Life Case

By Ruedi Bodenmann, Swiss Life

In its recently reviewed strategy, Swiss Life reinforced its ambition to become the leading European life and pension specialist. Swiss Life strives to grow within its geographic core areas, to selectively enter new promising markets, to boost growth and profitability with innovative products and to build on growing distribution channels. 

With its recent launches of index-linked and variable annuity (VA) products on the Swiss, French and German markets, and with structured insurance solutions for wealthy international private customers, Swiss Life has already demonstrated early successes of its strategic thrust to become more innovative and to generate 70 to 80 percent of its new business with non-traditional products by 2012.

This article describes how Swiss Life addresses the challenge to achieve top and bottom line growth with products that offer an attractive value proposition to consumers and generate higher returns for shareholders at the same time. This is certainly a target that cannot be achieved with traditional, commoditised insurance products.

There are a number of challenges a life insurer faces on its way to becoming more innovative: In the past, life insurers and pension funds relied heavily on tax regulation and welfare systems to define their value propositions. Innovation traditionally meant exploiting advantages in  the tax and regulatory system rather than fulfilling true customer needs. As a consequence, products were developed in more or less isolated teams of legal and actuarial experts. A cross-functional project management was missing and there were no market relevant metrics in place such as time-to-market or market success of new products. In addition, given the generally long duration of life insurance contracts, companies are faced with rather complex IT landscapes consisting of multiple generations of systems.

When moving towards a more innovative organisation, it was important for Swiss Life to get some prerequisites right.

1. Innovation-friendly organisation

To focus attention on product management and innovation throughout the Group, product management responsibility has been assigned within each market unit at top management level. Furthermore, a group wide product management function has been introduced at Group level. Group Product Management facilitates best practice exchange between markets and steers international innovation projects, leaving market responsibility to the business units.

2. Enhanced product development process

There are various degrees of complexity in product development, which can involve anything from simple marketing features to completely new designs. Therefore, Swiss Life decided to specify some critical elements in the process, while leaving enough room for pragmatic implementation.

The specified elements comprise, for example, three systematic decisions: definition of business case and detailed design, IT implementation, and launch of the product. The customers’ voice must be taken into consideration from the very beginning when an idea is generated, until the very end when the product is launched. At an early stage, product development initiatives are set-up as projects to guarantee cross-functional co-operation, with milestone planning to ensure adequate time-to-market and project risk management to avoid failures.

3. Skills and resources

Due to its long tradition as a life and pension specialist, Swiss Life has always been well known for its technical (i.e. actuarial and legal) expertise. Therefore – on its journey to become more customer-centric and innovative – the challenge was to acquire marketing and product management expertise from more consumer driven industries, and to team them up with the insurance specialists. Furthermore, Swiss Life has been able to pool skills with clearly visible results due to international exchange.

4. Streamlined IT systems

Most life insurers with a long history face the challenge of a complex network of IT systems from different generations. So did Swiss Life before deciding to consolidate all individual life administrative platforms in the Swiss market into one single system. This platform today serves as the strategic IT system for Swiss Life’s variable annuities initiative. It forms the backbone for the development of a whole range of VA products and their distribution in a variety of markets.

5. Customer centric communication

The most important element in the process of becoming more innovative and escaping the negative price spiral is the way a company interacts with its customers. Only products that are tailored to satisfy customers’ true needs will achieve above-average margins, i.e. customers are only prepared to pay for value, be it functional or emotional. Therefore, Swiss Life has adopted a methodology from the consumer goods industry to better understand customers’ underserved needs. Swiss Life has been piloting this method with already very promising results that are being fed into actual product development initiatives.

Of course, customer communication is not only about the provider understanding its customers, it is just as much also the customers understanding their insurer. Swiss Life is convinced that the life insurance industry can benefit from becoming more transparent, by creating customer documents that are clearly arranged and easy to understand, free from technical language. One of Swiss Life’s most recent VA products in the German market was therefore launched with completely re-designed contract documentation.

The life insurance industry is challenged by not being innovative enough. And as the general constraints (e.g. regulatory, tax) keep changing at an increased pace, it is important to adjust Swiss Life’s business model accordingly. What can happen if companies do not adapt fast enough can be observed in the UK market, where prices and volumes in life insurance are steadily deteriorating.

On the continent, there is still some time to learn and move and there are some promising examples – besides Swiss Life – that demonstrate how the price spiral can be avoided.

Swiss Life:

The Swiss Life Group is one of Europe's leading providers of life insurance and pension solutions. The Group offers individuals and corporations a broad range of products combined with comprehensive advice through its own sales force as well as brokers and banks in Switzerland, France and Germany. It provides internationally operating corporations with employee benefits solutions from a single source, and is among the global leaders in structured life and pension products for high net worth individuals with its centres of competence in Luxembourg, Liechtenstein and Singapore.

Swiss Life is the majority shareholder of the Hanover-based AWD Group, one of Europe's top financial services providers for the medium- and high-income customer segments. AWD offers its clients independent financial advisory services. It employs around 6600 financial consultants in ten European countries.

Swiss Life Holding Ltd, registered in Zurich, was founded in 1857 as Schweizerische Rentenanstalt. The shares of Swiss Life Holding Ltd are listed on the SWX Swiss Exchange (SLHN). The Swiss Life Group employs a staff of around 9000.