The Long Tail of PREMIA

Recently, while making a presentation of the powerful product configuration features of PREMIA™– insurance software from 3i Infotech, I was rendered speechless by a question from the IT head of a public sector insurance company – he wanted to know if we could configure a “product-less” product! He had me stumped there; I quite didn’t know how to answer that one. I looked at him for a while…not sure if he was serious, then realizing that he indeed was, went on to “create” a description of the features of the product-less product. I’m not sure if he quite understood what I was saying; I frankly didn’t!!!
Well, the question has not gone away from the mind! Although it sounded quite ludicrous at that time, the more I thought about the question, the more differently I have been interpreting it. And it was when I was reading Chris Anderson’s “The Long Tail” that I’ve finally hit upon a meaning that makes imminent sense!
Now, what has the Long Tail got to do with this? The Long Tail is all about the almost unlimited choice created in the market because of the digital age – more importantly the evolution of the internet. The new economics is about niches, where the sum of the niches is almost as big, if not bigger than the “mainstream” products. According to Chris Anderson, the three major forces that have made this possible are:
1. Democratization of the tools of production
2. Democratization of the tools of distribution
3. Lower costs of connecting supply and demand
What exactly does this mean? I intend to write about the impact of each of these forces in greater detail; for now, let me get back to my story!
I presume what he probably was asking was if our product configuration tool was powerful enough to create virtually any kind of product; in essence, had we democratized the tool of production. It then occurred to me that perhaps the “product-less” product was perhaps the niche market! I found myself extending the concept of localization – the process of creating products / variations for a specific geography or market – further down the line: to the level of an insurance company! The niche regional market had just expanded to a lot of niches. From a software company’s perspective, we could focus on developing the core insurance products while allowing the IT departments of the insurance companies, or for that matter, their customers to develop the rest. By providing a mechanism to create the product by assembling the components, while ensuring that proper business rules were in place, we could in effect, extend the development team right across to the users. By providing this as a service, we would now be able to extend the reach far beyond what was otherwise thought possible. And finally, in allowing these products to be classified and tagged across many categories, we would be in a position to make this offering easily accessible to the customers. And this, is the beginning of the Long tail of PREMIA! (rather, my long tale on PREMIA)!!!
Viewed from an insurance company’s perspective, the solution is infinitely more powerful! They no longer need to depend on the software company to create their insurance products – they can start creating products on their own. More importantly, they can now treat each customer as a niche and work on creating products specific to his individual needs! Or, give him the tools to create his own product – personalize it to his specific needs! This is truly a “product-less” product. While a large chunk of their customers would perhaps still opt for their standard products, they will still be able to cater to the needs of a customer who has special needs. The ability to configure the various components of the product and define rates at the element- level will give the insurance company, the ability to quote extremely competitive rates, instead of a single flat rate. Combined with some intelligent data about the customer, it can become a extremely powerful mechanism of very focused rating – one that takes into account generic factors as well as customer-specific ones.
The ability to personalize a policy by selection of appropriate coverage and limits, applicable clauses and conditions provided the freedom to the customer to choose the policy that best suits his needs at the most economical rate. He is no longer strait-jacketed into selecting from within a limited set. If nothing meets his requirement, he can now create his own product. This benefit gets further amplified when an aggregation engine that will pull data from several vendors is made available!
The introduction of better KYC (Know Your Customer) policies within Banks and Insurance companies is now giving the required impetus for the third force of the long tail to kick into action – that of bringing the customer and supplier closer! We are progressing from the information era into what is now being termed the suggestion / recommendation era. The intelligence gathered about the customer and his special requirements, needs to get translated into suggestions of the most appropriate product. For example, knowledge that the driver is educated, married with a family, living in an upwardly mobile neighborhood, and with no previous record of accidents is information that can be used to suggest a policy with rates reflecting the lower risk. Further, from past experience of selling policies to similarly-profiled people, the system can also recommend an additional personal accident cover, or a homeowner’s policy. Information that his spouse also drives to work will now prompt him to select a special package policy that provides coverage to the couple at a discounted rate. And this is just the tip of the iceberg!
PREMIA, as I am given to understand, is now poised to move to the next stage of evolution – making the transition from the classical role of being a software product to becoming an integral part of the insurance company’s business. This transformation will require it to adopt a “Software as a Service” (SaaS) model, where the lower costs of distribution allow it to tap markets and niches, which were hitherto considered uneconomical. More importantly by democratizing the tools of production and distribution, it will be able to serve a larger customer base than what was previously possible. Further, breaking up a single monolithic product into multiple services allows the customer greater choice in using only those aspects that are required / used by him. Effectively, what this means is that the customer now has the ability to opt, and pay for only a claims module or policy administration module; taking this one step further, if the insurance company was to pay on the basis of usage, the revenues to the software company would be based on the usage of the software – the more policies issues, the greater the revenue, the fewer claims, the lesser the usage of the claims module. Similarly, the ability to integrate external / secondary data with the primary data generated by the system and offer recommendations would make business intelligence-based solutions a lot more meaningful.
In intend to delve deeper into this and look at each of the above aspects and see how they would have an impact on the business. Meanwhile, let me have your comments on this.
PREMIA ™ is the brand name of 3i Infotech’s insurance software. The registered trademarks of proprietary software components of other software vendors used in the article are hereby acknowledged.
Read “The Long Tail” by Chris Anderson, Random House UK, 2006 for a better understanding of the theory of the Long tail.