From Your Partner in Event of Loss to Your Companion During Every Phase
Tobias Hinterthuer knows what he is talking about; he has been working in the insurance business for almost 25 years, 17 of them at Zurich Insurance. He held a number of positions and was involved in multiple projects in Germany and abroad before he accepted the position of director of the Innovation Lab for Smart Home a little less than three years ago. What exactly is an innovation lab? The germ cell for digital transformation, says Hinterthuer, and invites us to take a revealing look behind the scenes.
Tobias, you can look back at extensive wealth of experience in the insurance business. What are the topics that have repeatedly required your attention over the years?
Right from the moment I began working in financial controlling, we were looking closely at models for labor distribution. How can I correctly measure employee capacities, what work do we have, how many people do we need for what must be done, where is there potential for optimization? We examined both the distribution of labor during the year and the granular management of daily work. A new approach for the time was the derivation of forecasts covering periods as long as a quarter of a year on the basis of what had happened in the past so that we could see what effects there would be on vacation scheduling, just to mention one example.
In my current role revolving around smart home and the internet of things (IoT), I am concerned above all with the question of what data are generated, what benefits for ourselves and our policyholders we can draw from these data, and what new insurance products – or, to put it more concisely, what propositions – we can develop on this basis.
What do you mean precisely when you use the term proposition?
I associate with this term our goals of offering more than just a traditional insurance product and being a more integral part of the policyholders’ worlds and lives. We want to move away from the traditional position of a household-residence seller and become more of a “lifetime companion.” We want to put aside the image that we “act” only when an insured event has occurred and to support the policyholders at a much earlier stage by helping them to avoid the insured event in the first place. Our policyholders should perceive us as partners.
Sounds fascinating. Can you give an example?
Take the weather – a beautiful, sunny day like right now, but a thunderstorm is approaching. The data from the smart home system warns us that a roof window is open and that the policyholder is not at home. In addition, I have the weather data. This enables me to approach the policyholder proactively and offer my help, either in the form of help for self-help – the policyholder is notified and can ask a neighbor to take action – or by providing assistance service, i.e., we send someone who has authorization to enter the premises to the home. In both of these scenarios, intelligent locks can be a part of the solution contributing actively to the prevention of loss or damage.
Another example comes from the IoT sector. Zurich is a major commercial insurer, so we have a lot of logistics companies among our policyholders. In the meantime, it is possible to track the butchered steer from Argentina until the meat has been placed on the refrigerated shelves in the supermarket. A look at the meter, and you see precisely whether the meat is on the right route, whether the refrigeration chain remains unbroken, etc. In the future, we at Zurich want to support such services and in this way protect our policyholders such as logistics companies from suffering losses.
That is a very broad scope. What approach are you taking to the topic of innovation management, and what are the greatest challenges in this respect?
We keep a close eye on the market and new megatrends as they arise. The examples illustrate very well what has our attention and in what direction we want to go. We have established so-called innovation labs for these topics of the future. Besides the Smart Home Lab, which is my responsibility, there are labs for mobility and for the field of life insurance. The former covers everything – from autonomous driving to the last mile and right now, for instance, the topic of e-scooters.
What we have learned in our innovation labs is just how important the subject of ecosystems is. Even though this has become a buzzword in the meantime, it is unbelievably important for us to engage in partnerships and to create networks in which policyholders want to be integrated because of the benefits that accrue. These systems do not have to be complex logistics networks; they can also be simple constellations in which consumers, for instance, receive certain benefits from an energy utility because they are insured at Zurich – or vice-versa. In all cases, we want to develop strategic partnerships that will engage the policyholder with holistic services.
A second challenge is in sales. Our exclusivity organization characterizes us at Zurich. The colleagues are very busy with their daily work; nevertheless, they must schedule time for new topics during their dialog with policyholders. I try to convince them that the new topics offer sustainable value to their policyholders and to their customer relationships. And that takes time.
Can you explain this in greater detail?
One good example is the wedding insurance that we conceptualized about two years ago. We thought that we had landed the sensation of the year. But we discovered that we were far ahead of our time. The sales representatives were simply unprepared for the idea – and why should they have been? We had long demonized (so to speak) sectoral covers, and the lack of a commission was not exactly incentivizing, either. We had to take two steps back to bring the sales reps on board.
Interestingly enough, the wedding insurance has in the meantime been copied by many other insurers. That shows that we were on the right path, and we are still following this road.
Was the wedding insurance a product that could also be purchased online?
The wedding insurance is a product that can be acquired online only – it is still available. The pros and cons of online versus traditional sales must be weighed carefully. If I want to sell a product via an online channel, I must have a relatively large sum of money available to advertise it there. The first party to benefit is Google. Conversely, by which I mean using traditional sales channels, it just takes time. There must be a good thematic fit, the processes and regulations must be consistent, the product must be fully integrated into the sales system – otherwise it will easily be overlooked or forgotten. Another interesting aspect is the sales structure – for instance (completely free of any judgmental connotations), the age structure of the clientele and of the sales reps. In constellations for which I cannot presume an affinity to technology, there is little sense in trying to convince prospective customers of the benefits of highly technical products that require a lot of explanations.
What sales techniques have you found that work well?
In the field of smart home, we are now choosing certain agencies that have a certain size and that we know to have a large clientele of private customers, ideally who are at least to some degree comfortable with the use of technology. We also value collaboration with specific colleagues who are interested in testing new products and who we see as having the potential to enter into a genuine dialog with their customers. Regardless of whether a policy is concluded, every customer dialog is valuable for us because we receive feedback about the product or – more precisely – about the prototypes. Everything that comes out of the innovation labs is for us a prototype as long as the labs still have responsibility. So feedback, including remarks about the sales process, is essential for us. We use it to adjust product and process step by step. Sales figures alone are initially of only secondary importance.
How should we see your role within Zurich? Innovation labs sound like avant-garde. How do they interact with the other organization units? How do you rank yourselves in the process and IT world of Zurich?
An important trigger for the foundation of the innovation labs a little less than three years ago was that we at Zurich wanted to position ourselves differently as a whole. It was clear to us that we would have to examine topics such as “agile working methods,” design thinking, etc. So the innovation labs are also germ cells for the overall transformation of Zurich Group Germany in which we try out new ways of working. From here the new methods are transferred to the line units. There is great interest: more than 400 employees have gone through a three-day design thinking workshop in Berlin, including a visit to a number of interesting startups.
So the innovation labs have a double role? On the one hand, they develop new products, but parallel to this, they drive organizational transformation?
Not officially, but that is indirectly the effect. About 50% of what we do in the innovation labs is to stimulate a certain internal transformation. It is rare indeed that we do something in isolation solely with our teams in the innovation labs. We always need experts from the various divisions, from sales or from finance. When the colleagues work with us, we also transfer our working methods to the line organization. The departments think more and more frequently about whether to initiate a project according to the traditional waterfall method or to choose instead a design thinking process. Within the division Innovation and Market Management, to which the innovation labs also belong, we have our own organization that employs solely scrum masters and UX designers. The original idea was to have them available for the work of the innovation labs. In the meantime, however, they have more and more to do in support of the projects of other units as well. Sometimes it can even be rather difficult to obtain a scrum master for my projects because they are all tied up somewhere else in the company. But this is a good thing because it demonstrates to us that the topic is accepted. What is important here is that we review for every initiative which method – conventional or agile – is most suitable and where the project will find the best home, in the innovation labs or in the line organization.
Do the labs have a time limit, or are they supposed to be a permanent institution where new topics can always be tried out over the long term?
The three innovation labs we have at the moment are genuine line units. The employees are positioned here without any time limits and do not have any special status. We don’t want to be any different here than from, say, customer service or communications. The innovation labs have been endowed with the appropriate budgets and human resources. This has proved to be very helpful because it prevents any conflicts in the use of resources.
At the same time, we encourage employees of the innovation labs to take steps for their further development within Zurich. The ideal case is that someone develops a new topic in the lab and hands it over to the line, then hears the colleagues there say: “Great, I want to have the product owner who developed this as well.” As a rule, this is an excellent career opportunity for the employee. And the current number of applicants shows that the labs have achieved a high level of acceptance.
You spoke about the advantages of working without the restraints of a hierarchy. What role, if any at all, do hierarchies have for you?
I am convinced that the right balance between distance and closeness, between hierarchy and no hierarchy, between old and new processes, between “doing something new” and “integrating what exists” is critical for the success of what we are doing here. Just putting something cool on the catwalk somewhere in Berlin and hoping that someone will come along and pick it up doesn’t work. I see this as well at our competitors, who are insourcing their innovation labs again.
Positioning the lab activities as an independent division at the management board level has been a help to us. Since we occasionally still fall back into historical patterns of action, it is important that we are perceived at peer level. Parallel to this, I have a dotted line to the executive officer GI (“Non-life and Accident Insurance) straight into the division. This is also something that we introduced additionally on the basis of our first lessons learned. I sit right in the middle of the division meetings, and we do not launch any initiatives that have not previously been approved by top management. The more understanding and backing we have from the line organization and from the management board, the more effectively we achieve our goals.
Could something like internal competition for you develop in the long run? The business departments take over the methods used by the labs and try to make the labs superfluous?
If we should succeed at some point in doing away with ourselves, then I will actually have achieved my objective! But we have a long way to go before we reach this point. And perhaps there will always be a difference between evolution and revolution. Evolution is the normal ongoing development of the existing products. The innovation labs, in contrast, stand for topics that are 70% or 80% really new. Ideally new for the market, but, as a minimum, new for Zurich. Today’s topic is smart home, tomorrow or in five years it will be something different that we know nothing at all about today.
Besides the organizational question, there is a technical question that often arises: Do you use the existing IT systems and the existing IT organization? Or have you chosen a different path?
We call our model “Parallel IT.” In part, we develop these solutions with the developers we also have in the innovation labs. We like to work with startups as well and do so frequently. The technology for our smart home solution, from the device to the front end to the back end, has been positioned fully alongside the Zurich system world. Once a month, we transfer the data to our core systems via an RPA solution, so the employees in the customer center are always in a position to make authoritative statements.
What experience have you had with this procedure?
First of all, we are much more independent of internal IT resources. But we always remember that we want to be able to migrate to existing systems as soon as a certain critical mass has been reached. With this in mind, we involve the traditional IT department at a very early stage so that the employees there can describe the corresponding requirements to the provider. In the “great” IT, we compete with regulatory requirements, e.g., within the scope of the release processes. All too often, we would get the short end of the stick when it is a question of trying out a new premium. In this kind of model, product development cycles of three to six months would be impossible.
You have just brought up the subject of startups. What is your viewpoint on what is momentarily being hyped as fintechs or insuretechs?
I prefer to use the term tech insurer. Broadly speaking, these players have at this time solved processes more digitally than the large companies. They can do this because they start with nothing and do not have to drag along any legacy systems or a 30-year-old portfolio of life insurance policies stretching over 20 premium generations. Sooner or later, however, they will also have to find a solution to this type of problem.
We are open for partnerships with startups and search for solutions that might be helpful to us for every process segment. On the other hand, we consciously look for companies outside the insuretech world that in the areas of smart home or mobility supply a certain sensor system, have a good platform for data management, or offer mobility concepts. The latter are highly interesting for us because they often give us an opportunity to join them in entering the market. As a rule, startups are looking for partners who can make them big. We are searching for something special that we can use to set ourselves apart from the market. Startups often enrich us by contributing a new spirit to our discussions and work.
Are startup scouting and partnering also among the tasks of the labs, or is there a separate partnering or mentoring department at Zurich?
We do this from the innovation labs. My colleagues and I do a lot of traveling – to startup fairs, for instance – and keep an eye out for interesting partners at these events. If we move to contract negotiations or similar actions, for instance, procurement comes into play. Our focus is on genuine partnerships, not so much on participations or similar activities. In a partnership, both parties are more independent and can also take advantage of other opportunities.
Where do you find your ideas? From your own research? What role do regulatory changes have here – let’s take PSD2, just as an example?
We really do generate many ideas from startup fairs or congresses. We have had good experience in our cooperation with the InsurLab in Cologne, which brings together established companies and startups and promotes the exchange of ideas. In addition, we observe what is happening in other regions of the world as well that might be of interest for the German market.
But we also have an in-house collection of innovation suggestions that have been submitted. We regularly look at the ideas that come to us from the company employees.
Can you give us some examples of what type of projects you typically carry out with larger players rather than startups?
It is for us part of the strategy I mentioned at the beginning that we no longer want to operate solely as an insurance company, but aim instead to be a lifetime companion. This very naturally brings us into contact with the automotive industry or the energy industry. Our objective is to work together with our partners to generate additional value that will interest our policyholders. Traditional insurance products are becoming increasingly interchangeable. At Zurich, we want to offer attractive services that policyholders will be glad to use. Important factors are also the message and the credibility of the brand names involved.
Let’s go back to the example from logistics that we discussed at the beginning. How do customers approach this topic? Do they think, we need transport insurance or transport service? Speaking abstractly, who would be the lead player in this kind of ecosystem?
Our experience indicates that there is no one answer to this question. There are topics for which it is sensible for Zurich to act as the platform provider and bring other partners on board, but we are also prepared to become part of a network in which another strong partner – an automotive manufacturer, for instance – plays the leading role. It offers the vehicle in conjunction with certain exclusive services that come from us. In this case, the vehicle, not the insurance policy, is the leading element.
Where could you play this leading role? Vehicles featuring comprehensive service packages, almost “flat rates,” are more or less solidly established on the market. The situation is similar in the travel industry. And most people don’t immediately think of insurance policies when the topic is a house.
The house environment – specifically with respect to the topic of smart home – is where we see our opportunity. The market is not yet very well developed, and it will be some time yet before we have such extensive market penetration in Germany that we can speak of interconnected houses. The exciting question is this: Who will customers most likely trust to offer the best solution? Do I have the confidence that the insurer will offer me the best hardware? Or would the customer prefer to procure the hardware directly from the manufacturer after all? I assume that we will see an ecosystem created here as well, and the question will then be where the customer starts the journey.
The same is true of real estate platforms. It is possible to offer services for moving, sale, subsequent rental, and financing to the customer at a very early point in the process. But it is also clear that there will not be any moving vans from Zurich. We are taking a cautious approach in that we are trying out a lot of different things. If I take over the leadership in an ecosystem, this always means that I must be capable of performing this function and must have the required resources such as personnel, IT, etc. This demands a certain investment that must also be financed. Perhaps it is sometimes better for two or three companies to get together and to say, we don’t need a gigantic IT platform right away; instead, we will jointly make sure we have complementary services that are attractive in their totality and that we place on the market together. Then, perhaps, over the course of time, it will ultimately become clear who should be the leader here or whether all the parties should remain on equal footing.
Once last change of topic before we come to a close. Zurich is an internationally operating Swiss company. What is your perspective on the group? Are there differences in the way the topics of digitalization and transformation are being handled internationally?
We are very tightly interconnected with our colleagues within Europe. There are functions similar to our innovation labs in all countries. Nevertheless, we do notice that there are regional differences. Regarding smart home, for instance, it is striking that other countries display significantly greater affinity for technology than we see in Germany. The Italians, for example, are much, much further along, and it is significantly easier to place the topic on the market. For Germans, the topic of security often plays a key role, followed by consideration of energy savings. In other countries, the prevention of water damage is the top topic, as is the case in Great Britain. So our markets complement one another, and we can share solutions and experience very well with one another within Zurich Group.
Do you approach potential partners as a group? For example, by pointing out your potential across Europe and not only in Germany? How important is the global observation of startups and innovations for you?
That is precisely what makes startups interesting for us in so many cases. We always have an eye on the international scalability. But I also consciously go abroad for partnerships with startups because the topic is still underrepresented in Germany. We note that the professionalism of the startups in other countries has a different quality. In Silicon Valley, no one works with PowerPoint anymore, and everyone observes the three-minute time limit during presentations. The founders are also much more self-confident, and their ideas are more extensive. One startup, for instance, bases its rates on blood samples provided by the customers. That would not be at all possible for us. Still, it is important that we have at least heard of these ideas. Not everything can be realized in Germany – but sometimes we can transfer a part of these ideas.
Tobias, thanks so much for this comprehensive interview. Good luck and plenty of good ideas for the innovation labs!
The interview was conducted by Nikolaos Vlachantonis and Volker Rieger