Value Based Marketing – A General Insurance Case Study
As the global financial crisis begins to take effect in the ASEAN region and Malaysia alike, it becomes a test on the strength of internal capabilities of financial institutions, which have been operating under a tightly regulated environment and a booming investment market in the past years. Although insurance companies in Malaysia have not felt the complete wrath of the financial turmoil, most have already experienced a sudden decline in their investment income. The more long-term consequence is expected to hit the insurers’ bottomline resulting from a two-prong industry killer: •
Premium reductions caused by a decline in demand for insurance products as businesses and consumers choose to self-insure and the subsequent price-wars between insurance companies to maintain their share of the shrinking market; and •
Increased frequency of claims due to moral hazards in an unforgiving economic environment coupled with rising quantum of incurred losses from rising material costs
1.1 Jerneh Insurance Berhad (JIB)
Since its establishment as a captive insurance company for the Kuok Group, JIB has evolved over the years to provide general insurance products to the corporate sector and small businesses outside its parent company. With the current soft market for general insurance, JIB has been facing challenges caused by conflicting goals of targeting double-digit growth in gross premiums (The Star, 2008b), whilst maintaining high underwriting profitability commensurate with its parent company’s conservative philosophy. Despite the company’s recent rebranding as a provider of risk-based solutions, premium growth is expected to be slow due to stiff market competition (The Star, 2008a).
2.0 Embracing the Value Based Approach
To achieve its mission of being a risk-based solutions provider, JIB must embrace value creation from its two rudiments, ie. understanding what really constitutes customer value, and how the business subsequently aligns its resources to deliver that value to its chosen market segments (DeBonis et. al. 2002, p.3).
To the customer, insurance is primarily viewed as unsought goods (Kotler 2009, p.362), either purchased to satisfy stakeholder requirements or based on the traditional notion of transferring financial risk of a potential loss. Hence, from the customer’s perceived value of insurance, the product itself may bear little or negative value to the customer.
Nevertheless, insurers can ‘recreate’ value for its products by emphasising a cognitive dissonance within the customers’ needs. This can be accomplished by shifting the focus away from insurance as a means of financial risk transfer, to addressing the fundamental need of businesses to maintain business continuity. Customers tend to treat the former as a cost, whereas the latter is often perceived as value-added, revenue-producing services (Zeithmal et. al. 2009, p.13).
To create and deliver this customer benefit, JIB must realign its resources according to its internal strengths and accessible opportunities, as illustrated in Figure 1.0. By matching JIB’s strength in risk management services with opportunities through its intermediary distribution channel, JIB can capitalise on increasing customer awareness on risk management. Furthermore, with the anticipated liberalisation of the Malaysian insurance market and future direction of the economy, JIB’s prudent underwriting philosophy may become its strength instead.
Strength in provision of loss control and prevention services •
Strength in product development
Good spread of branch network across Malaysia
Above average underwriting capacity for conventional product lines •
Good reputation amongst existing intermediaries
Lack of brand awareness amongst end users
Lack of synergy with Kuok group companies
Conservative business approach...
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