Nature and Importance of Design and Innovation in Insurance - Dissertation Example

?Table of Contents Table of Contents 1.0. Introduction 2 2.0. Synthesis and Review of Literature 2 2 Stylistic Change towards Insurance 2 2.2. Changes in Customers’ Taste, Need and Fashion 4 2.3. Patents and Licenses 5 2.4. The Case Study of Max New York Life Insurance 7 3.0. Analysis 9 3.1. Innovation from a Marketing Perspective 9 3.2. Nature and Importance of Design and Innovation in Insurance 10 3.3. Organisational Theory 12 4.0. Conclusion 16 References 17 Bibliography 22 1.0. Introduction In the current financial dispensation, insurance has captured centre stage of the world troubled financial economy, and has shown impressive growth worldwide. Influence of insurance on the business industry provides a clear indication of the significance and value to the global economy. With the emerging insurance sector worldwide, policy holders as well as investors are exposed to a wide range of products (Augustine & Chandrasekhar, n.d.). The insurance industry contributes to economic growth and national prosperity in multifarious ways. Insurance helps to strengthen the effectiveness and resilience of the economy by minimizing risk. It helps individuals by reducing the financial impact of unpredicted and unwelcome incidents, and helps them to perform their work activities as well as organize their lives with greater certainty. Risk-averse people are able to enjoy greater utility from their assets. Today almost every conceivable asset can be insured such as car, motorcycle, business, travel and others (Wahi & Et. Al., 2010). 2.0. Synthesis and Review of Literature 2.1. Stylistic Change towards Insurance The insurance industry is considered to be one of the major segments for economic growth and development. In other words, perceived benefits compared to actual benefits are the backbone for marketing of insurance services. Over time, the insurance industry has found new and innovative ways for expansion. Insurance products have risk management features and collateralise policyholders for predefined incidents and loss by accidents. Furthermore, insurance product is the substitution of certainty over uncertainty. The insurance sector has realized growth because of considerable shift in savings, bank deposits and mutual funds to insurance policy contracts. The regular dissolution of conventional social structure also increases the demand for insurance. In this growing competitive insurance sector “customer is the king”. For this reason, insurance products are designed and customized in such a way that they can be tailored to the changing style of customer tastes. Insurance products are developed by considering various demographical factors such as family status, gender, age, employment and income level (Kumar, 2008). To illustrate the critical importance of insurance, HDFC Standard Life has developed ‘Super’ series products for the diverse need segments. This series has developed to meet changing needs and preferences of customers across various life stages. For example, ‘HDFC Young Star Super’ product caters for those customers who wish to provide for their children’s education, and ‘HDFC Pension Super’ for those customers who plan for retirement and save for key milestones (HDFC Standard Life Insurance Company Limited, 2009). Another example is ‘Oman Life Insurance Company’ which introduced ‘Property Owner’s Association Package Insurance’, a new product in the UAE insurance industry. This product will provide multiple insurance coverage including ‘Property Insurance’, ‘Third Party Insurance’, ‘Office Bearer’s Liability Insurance’, ‘Fidelity Guarantee Insurance’ and ‘Machinery Breakdown Insurance’. Oman Insurance Company believes that this policy will provide coverage to all in a jointly developed property, for instance, residential tower, commercial offices and villa communities. Both owners and renters will benefit from this insurance product (Mesbah, 2010). 2.2. Changes in Customers’ Taste, Need and Fashion In the past, younger generation was not conscious about the need to purchase insurance. However, today not only are they interested in insurance but have also started treating insurance as any other form of investments. Today the insurance industry is experiencing a paradigm shift. Insurance is not just a form of protection against the untimely and unfortunate events of life, but it has also emerged as a measure of investment in the equity market. As more and more private companies enter the insurance sector the whole insurance concept is changing. Insurance not only guarantees life protection but is an attractive form of savings for policyholders. With increase in awareness and fashion among ordinary people, modern plans of insurance have handed over control to the insured (Kumar, 2011). The advent of technology, several innovations have come up in insurance, such as Self Service Portals, Unified Communication and Collaboration, and Mobile Computing that saves the insurer costs and time. Previously, insurers were not quick enough to adopt cutting edge technology. Only 25% to 30% of insurers implemented innovative technology. This was due to adequacy of old systems to manage low volume transactions, mostly because of conservative attitudes of insurers. Presently, all insurers take advantage of technology to improve all aspects of their business. The younger generation with the help of communication technology is ready to imbibe innovation (Sethuraman, 2011). 2.3. Patents and Licenses Importance of Patenting Ideas Today several new products and variations on old products are being invented. The high–volume generic product line of the recent past has been splinted into several innovative niches. Patent protection is the best way to protect these niches. “Developing and licensing new patented ideas is the economical way for companies to protect new product launches, achieve new profits as well as secure the future of the company” (Gibbs & Matteis, 2003). Patents are approved by governmental agencies for inventors. Patenting makes invention a legal asset or property of inventors, which could be bought, sold or leased to anybody or any company (Professional Insurance Agents, 2011). Patent is a big issue in today’s business world thus whenever new technology, design or functionalities are developed, it should be protected through patent insurance (Qaiser, 2011). Design Registration Design is a decisive competitive factor of any insurance company and a good design can increase the competitiveness of an insurance company. A new design is essential in markets where it is not easy to gain competitive advantage. It can provide an insurer with quality marketable products and reinforce its commercial value and identity. Design registration provides an insurance company the sole right to that particular design. It protects the company’s product from unauthorized commercial use. Design registration keep imitators away and thus sustain the strength of competitive advantage of insurers. Design registration gives insurer rights to license or sell its design as a legal property for consideration or royalty. So, it is in the insurer’s interest to register newly innovated product designs (Awapatent, 2011). Trade Marking A trademark is a sign, image, symbol or a kind of design that depicts, identifies and associate products with specific companies. It is used to classify a product and service of a specific organisation. Trademark is a type of property identifying a company, which is illegal for other companies to use. Trademark is referred to a brand name as it helps to identify a company’s product. An affective trademark can ‘stand out as its own advertisement’ (Lindsay, n.d.). In today’s intensely competitive market, a trademark can often be a crucial factor in determining the success or failure where many different products share similar properties. Financial strength and a strong trademark are key factors for an insurance company in constantly changing insurance market. Safeguarding and defending trademarks are significant aspects in the battle for market share. Therefore, every insurance company should register their trademark. Through registering a trademark, an insurance company protect their logo and can litigate against anyone who copies their trademark illegally (Awapatent, 2011). 2.4. The Case Study of Max New York Life Insurance Max New York Life Insurance is one of the largest insurance companies in the U.S., it promotes by encouraging and funding creative events in all aspects of their insurance business. In 2008, chief officer and head of the Corporate Information Department (CID) hired 1300 IT professionals in six U.S. locations of Max New York to develop and extend technology services to the company’s customers, employees and agents, through its newly developed program ‘New Horizons’. The program mainly focuses on innovation. The company has developed new types of insurance products such as the ‘Family Protection Insurance’ policy which covers both parents and their dependents. Through its innovative information technology, Max New York provides tremendous amount of technology for running their business smoothly. For example, Max New York has developed ‘Web Portal System’ which provides the agents access to online applications and offering a wide range of information such as ledger data, sales ranking, news and e-mails. Web Software allows agents to develop models for Max New York customers online. The introduced Web 2.0 functionality on their website enables customers to provide feedbacks in real-time and rank individual article on the website. It also gives customers access to high-end social networking sites for information sharing through various links. Nowadays, Max New York is working to develop social networking and Wi-Fi technology, a current trend to grab customers’ attention to gain an increased market share (Feretic, 2008). In 2011, Max New York Life Insurance has launched a new innovative insurance policy ‘Max New York Life College Plan’ for children. This plan can help parents create and receive a calculated amount to cushion increasing higher education cost. This plan also offers peace of mind to parents as it ensures a guaranteed pay out when children reaches the age of 18 years. An additional benefit is a guaranteed amount each year till age 21. By selecting this plan, customers do not have to risk their child’s career due to financial problems. This plan was created after detailed understanding of customer needs and identified market segmentation. “This insurance plan helps customers to start planning for their children from 0–8 years and provide guaranteed returns from age 18–21, i.e. throughout his college life” (Max New York Life insurance Co. Ltd., 2011). 3.0. Analysis Over the years, dependency on insurance has increased more than before, as many small business owners prefer to protect their commercial buildings, materials, and other assets from all types of losses irrespective of the prevailing economic condition and rising unemployment. Introduction of the internet has further provided opportunities for small business owners to search and select the most affordable insurance policies. Nowadays, almost every business owners seek insurance protection thereby increasing dependence on insurance, which has grown steadily (Wilson, 2011). 3.1. Innovation from a Marketing Perspective Market innovation and creativity play a significant part in accomplishing competitive advantage for the insurance industry. Achieving new gains and meeting the needs and requirements of customers, insurance companies are constantly developing new products and services through creativity and market innovation. In the insurance industry, competition has increased by forces of recapitalisation as well as consolidation. The insurance industry has undergone changes through information technology, economic development, globalisation of financial services and financial reforms during the last decade. Those changes have had a substantial positive effect on efficiency, productivity, market structure and performance resulting in a stronger insurance industry. Innovation refers to the use of new products or methods in business. It influences financial success and increased market share in the global competitive financial market. Several insurance companies have increased the use of advanced technologies and their innovative efforts for gaining competitive advantage. Insurance companies are now facing mounting challenges in the ever growing competitive environment as many new entrants seek an encroaching share in the industry. To overcome these challenges, insurance companies have progressed towards innovation and creativity, which encompasses new service delivery. Consequently promoting those services to customers at the ‘right time and the right place’. The speed to market of insurance products and service is critical. To attain competitive advantage and achieve customer satisfaction as well as loyalty, insurance companies have to deliver best products quickly (Epetimehin, 2011). 3.2. Nature and Importance of Design and Innovation in Insurance The ability to launch new or modified insurance products provides the insurer with a competitive advantage. Traditionally, insurance companies focus on life, health, property and casualty, which did not provide much on creativity, innovation and originality in their products. In addition, the insurance companies were quite slow to respond to new market opportunities. However, in the current scenario, insurance companies have made much progress in managing their products through innovative market segmentations. Successful innovative insurance policies depend on availability of related data timely delivered to make and take management decisions (IBM Corporation, 2007). Figure 2 shows how innovation comes through many stages, from generating of ideas to commercial action. Intellectual Property rights Intellectual property is referred to the creation of human intellectual minds. Intellectual property (IP) laws protect inventors by providing property rights over their inventions. Unlike physical property that can be impaired by physical losses resulting from various contingencies either through man-made or natural, IP possesses a different risk. In case of tangible property, loss or damage can be seen, but in a non-tangible IP asset, the inventor may not be aware that his IP right is being violated, and should form part of the risk management of any company. Therefore, IP must be supplemented by sufficient and appropriate insurance cover. In earlier times, there were not many varieties of IP insurance policies but through smart innovation and design many IP insurance policies are now marketed, each with its own unique feature providing IP insurance coverage. Recent examples are policies for Defence and Indemnity, Enforcement, IP Exploitation Agreement, and IP Asset Protection. The patent insurance ensures the long-term survival and serves to strengthen investors’ confidence (Qaiser, 2011). 3.3. Organisational Theory The definition of an organisation has changed and evolved over time. Organisations facilitate the control and co-coordination of human activities and physical resources with the aim of achieving certain objectives. Organisational theory describes and explains the occurrence of various methods for achieving most goals and objectives. There are various mechanisms to control and coordinate human behaviours both internal and external organisations (Docherty & Et. Al., n.d.). Organisational theory combines theories from economics, management, psychology and sociology (Abell, 2006). Economist Approach Economists integrate organizational theory on the assumption that economic factors act rationally within Organizations. Rationality involves selecting the best options, preferences and opportunities for optimal performance. This approach seeks to promote efficiencies and optimisation of allocation of resources. The economist approach estimates on an assumption that agents will search for the best possible outcome for themselves by considering a variety of opportunities. The factors for shaping opportunities are considered as autonomous to each other. The economists focus upon financial consequences to determine the success of outcomes (Abell, 2006). A major contribution of economists to organisation theory is PA (Principal Agent) theory. PA theory describes the type of incentives a principal must set in order to encourage agent to increase their efforts to achieve the principal’s objective. It is the optimal incentive theory which controls the activity of agents (Milner & Tingley, 2011). In the health insurance markets, agents are sometimes more informed about the health products than the principal, which compensates the insured. If every customer is charged the same premium, then sick customers will buy more insurance products than healthy customers. This will lead to an ineffective spread of insurance risks. There are various mechanisms for dealing with this problem by insurance companies, which can increase the premium drivers and deductibles to reduce multiple claims and offer incentives to take care of ones health (Cave, 2011). Sociologist Approach The sociological approach to study an organisation is influenced by Max Weber’s bureaucracy theory. Sociologist theory gives considerable emphasis on social norms as a mechanism for achieving organisational control and coordination. Social norms are the principles of suitable standards of action in particular circumstances. Social norms can arise from wider society or from a section of society or within organisations. Customers are frequently influenced by social norms, as a result when new and unique insurance policies are introduced to the market and the new policy is able to influence a small percent of any society, it is likely that others will also be attracted to purchase the policies. Thus, organisations should create a distinction between rules and social norms. Sociologist perceives social norms as element of culture. Corporate culture is at times described as ‘controlling and coordinating mechanism’. Sociologist studies how ‘institutions’ impact upon organisations designs. Institutions are interpreted as a number of norms and ways to look at the world (Hughes & Et. Al., 2002). Psychologists Approach A psychologist assumes a wider range of motivating factors than economists such as work satisfaction, personal or group power, self status and self esteem. Psychologists focus on philanthropic motives under commitment. Whereas economists’ approach assumes that people arrive at an organisation pre-equipped with clear preferences, psychologists study how preferences are constructed from beliefs and values acquired within organisations. This approach emphasizes learning, socialisation and behavioural modification. Psychologists emphasize the ‘organisational dilemma’ in integrating a wide variety of dispositions. Both psychologists’ and economists’ views recognize that organisations are significantly controlled and coordinated by choice of human communication (Einstein College of Engineering, 2011). Insurance companies focus on psychologists’ approach. The agents are encouraged to implement customer orientation performance in their selling activities. Customer-orientation behaviour concentrates on the extent to which insurance agents help their customers to make purchase decision, which satisfies their needs. According to psychologist Abraham Maslaw, there are five different levels of hierarchy needs namely psychological needs, security needs, social needs, esteem needs, self actualizing needs. Insurance comes under security needs. In 21st century customers’ expectations toward insurance products have changed. They no longer buy insurance products randomly but rather compare from a varieties of policies offered. Therefore, insurance companies now fully recognize customer’s needs and requirements building a trusting relationship between themselves and their customers to promote and engender a long term ‘mutually beneficial relationship’ (Noor & Muhamad, 2005). 4.0. Conclusion A well regulated insurance industry provides economic benefits with reliable mechanism for transferring risk. Today insurance companies compete over price, product innovation to increase sales and strengthen financial standing. Insurance companies are increasing quality and efficiency by implementing integrated systems that can enhance the functionality of an organisation. Poorly managed insurance company with weak capital base cannot survive in this highly competitive market environment. Creativity and innovation are important factors in order to satisfy customers’ needs and includes competitive pricing, promotion and distribution, which are crucial to retain and attract new customers. Profits resulting from innovations can be realised over a longer period unless other insurance companies duplicates the innovation. Customer’s trust in the insurance industry is fundamental to its success, without trust in the insurer’s ability to pay valid claims; the economic benefit of insurance would be undermined. References Augustine, R. & Chandrasekar, K. S., No. Date. Contemporary Issues in Insurance Management. Cool Avenues. 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