News Clip: Australian Financial Review, BOSS, 12th of February 2010
Story by: Matthew Drummond
When a big insurer needed to find some nimble moves to take on the start-ups, it adopted a Silicon Valley ethos.
In March 2008, Insurance Australia Group executive Jacki Johnson found herself walking across Pyrmont Bridge in Sydney wondering whether she had done anything wrong. IAG chief executive Mike Wilkins had just called and asked her to come straight to his CBD office. Once she'd sat down and listened to what the CEO had to say, she felt pleasantly dumbstruck. Johnson, then head of business partnerships at IAG's broker business CGU, was to head up a completely new insurance company. She was charged with building it up from scratch and bringing it to market - and fast.
IAG is Australia's second-largest insurer and already had a range of well-known brands that were either market leaders or close to it - think NRMA in NSW and RACV in Victoria. But as Wilkins knew, smaller, more nimble challenger brands were circling. Operating completely online, companies such as South African-owned Budget Direct and Youi had come in with lighter cost structures and the ability to undercut on price.
They were also the industry's innovators, using their websites to offer features and an ease of use that incumbents do not like, allowing customers to manage their insurance policies online.
What IAG needed, Wilkins decided, was to take the fight to these competitors on their own ground. He didn't want his existing businesses to be distracted by battling it out for what was still a niche part of the market.
To beat these start-up, and up-start, internet competitors, IAG needed to think like a start-up itself. But how does one create a start-up culture within a corporation that already has thousands of staff, millions of customers and an ingrained way of doing things that stretches back to 1925?
It was an exciting challenge, and a risky proposition, for Johnson personally. She was walking out of a major established business with 2000 staff and $2 billion revenues, into a job where there was nothing on her desk except for a clean sheet of paper. After meeting with the IAG board, she was assured she would have her own division and her own budget. There would be no fights or territorial turf wars with other parts of the company. Johnson was also encouraged to break a few rules. She recalls early meetings with the board and Wilkins: "They said, 'We want you to be able to challenge the status quo of the organisation.'"
Johnson began by immersing herself in the cradle of start-up culture: Silicon Valley. "I had to think differently," she says. Insurance firms are especially reluctant innovators. Insurance is about managing risks, not creating new ones, and the industry is tightly regulated. As a result, established market leaders are not always giving customers what they want.
"The people who buy books online and don't go into a bookstore anymore expect to do all their business online, and they are getting frustrated that insurance doesn't deliver to that," Johnson says. "Consumers are not being trained by the financial sector. Their expectations are being led by other category leaders."
So Johnson visited some of those other category leaders in the US, such as eBay and Microsoft. She also talked her way into the Silicon Valley Association of Startup Entrepreneurs, an annual forum targeted at small businesses and normally off limits to established companies.
Johnson came home from the trip with three key messages. First, think about the culture you want and set that in place early. Second, don't put on too many staff; you need to be able to run quickly with the new ideas and avoid getting bogged down in process. The third point came from a venture capitalist she met at the Silicon Valley Association.
"The best industries where an entrepreneur can succeed are industries that are old, tired and bureaucratic and do not believe that things will change," she recalls. "You just have to go for it and listen to the consumer."
Back in Australia, Johnson took the unusual step of bringing in an occupational psychologist to help find IAG staff members who could step out of the main business and enter a fluid, fast culture with the new start-up. Just two staff were signed up, one with a background in marketing and the other in finance. The team needed to get moving; they had just 100 days to get a strategy, business case and budget requirements back to the board.
As things took shape, potential new workers needed to be comfortable with no impressive title, little status, few rules and a culture in which everybody has to pitch in and do the occasional mundane task - the sorts of chores that someone else would do back at IAG.
Those who didn't fit had to go. Johnson recalls farewelling one contractor who had a temper tantrum because his desk was not near the window. Another person, who interviewed for a role as "leader of technology", asked if his title could be changed to chief information officer. "Otherwise my friends in the industry won't realise that I'm head of technology," he explained.
"You know what," Johnson replied, "you're not going to cut it in our culture because we don't have chiefs, we have team members. It's a flat structure and we're not running 'Animal Farm' with some being more equal than others."
Johnson's own career path demonstrates flexibility. A science graduate, her first job was as an occupational therapist at Sydney's Westmead Hospital. From there, she jumped to a consulting company that worked with car manufacturers on reducing injuries. She then helped National Australia Bank start selling car and home insurance. That business was sold to Allianz and Johnson briefly went along before joining IAG in 2001 in its strategy division. She has also been a director of the NSW WorkCover Authority and is a director of the Community First Credit Union.
Johnson wanted her business to be different from the existing internet offerings. She took the advice of the venture capitalist to heart. The task of "listening to the customer and just going for it" began with randomly selected focus groups sharing their likes and dislikes about insurance. It quickly grew into a full-scaled collaboration.
Johnson and her team set up a website called myinsuranceideas.com.au and attracted 4000 people sharing their thoughts on what the new business would look like. Baby boomers were particularly helpful. And they just happen to be safer, more experienced drivers and just the kind of customers the new business was hoping to pick up.
In May 2009, just 14 months after the walk across Pyrmont Bridge, The Buzz Insurance came online. The website's stand-out feature is the ability to provide a quote in less than 60 seconds, much faster than at other websites. Customers can fiddle with the level of cover or excess and immediately see what happens to their premiums. Many of the website's features came directly from some of those 4000 collaborators.
For example, Johnson had been planning to put a "click to call" button on her site, should customers want to speak with someone.
"And then this person started to blog about how internet companies shouldn't use click to call, they should use click to chat. That was a defining moment for us. We realised we were going to date our proposition before we even started. There was not one general insurer who had done it but it has proven very popular."
Getting The Buzz started was not about just slavishly copying Silicon Valley start-ups. Big companies have a reputation to protect. Missteps can alienate customers and turn off investors. Plus, internal relationships and politics also needed to be managed. The Buzz was a brand-new business that would be picking up customers from everywhere - including taking them away from businesses run by Johnson's colleagues at IAG's headquarters.
If there were any ruffled feathers, an internal summit about halfway through the Buzz's genesis helped to smooth them. Johnson shared the findings on what customers liked and hated with about 64 IAG staff. "It made people feel less scared of what we were about to do and it got people very committed and excited that IAG was about to launch a new company," Johnson says. It also helped give them the time to think about car insurance from the customer's perspective. "That's been really good for all the people from other divisions," Johnson says.
Another lesson from the process, she says, was that innovative thinking can't be turned on with the flick of a switch. "If you keep yourself in a bubble," she says, "you can't actually listen to the community. You have to immerse yourself where your customers are going to be. So sometimes I deliberately catch the train [to work] so I can hear commuters."
Ross Curran, an insurance analyst at UBS says new entrants are making the sector more competitive, particularly in the online space. "It's important to have an online product that can see off this threat," he says. "The important thing for IAG is to try and compete against the new entrants while protecting the main mass-market brands. That is why the creation of a separate brand is a sensible strategy. It allows them to compete on a like-for-like basis with the new entrants without permanently damaging the profitability in the main mass-market brands."
While still too early to say what share of the market The Buzz has picked up, Curran says industry talk is that customers are coming from outside IAG, rather than switching from its existing brands. He also notes that The Buzz's offering is different from its online competitors: "This is not a low-cost option for bargain hunters, although you can tailor it to give you a low-cost outcome. Rather, it is a very transparent product that shows customers exactly what they are paying for."
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