How One Guy From a Large Insurance Firm Added Millions to the Bottom Line With Lean Startup
This is the story of how a man named Luke spent a mere three months, and 6 percent of his allotted budget, to come up with an evidence-based plan to add millions to his company’s bottom line.
Luke works for a leading Australian insurer that underwrites over $11 billion in annual premiums. It’s a company that recently launched an innovation incubator designed to produce fresh, customer-oriented products and services. Which is why company leadership requested that Luke, the Manager of Product Development & Underwriting Delivery, take a brief hiatus from his role overseeing the company’s 500 products in order to run a design sprint on landlord insurance.
“That was the brief: Run a sprint in the landlord space,” says Luke. “It could be developing an insurance product, or a whole new insurance brand. It could be creating a website that gives advice to landlords, or a tool that connects landlords to tenants. It could be anything.”
Starting with a three-day Lean Startup Bootcamp to get grounded in the Lean Startup methodology, he then developed and invalidated a number of creative ideas until he arrived at one single idea, validated by existing and potential customers, that would result in a product which would truly improve his company’s landlord product offering.Focus on showcasing evidenced-based decisions, rather than decisions based on a hunch. Click To Tweet
While the landlord insurance market is growing across Australia, Luke’s company was losing market share, and its net promoter score was low when it came to the claims experience. According to Luke’s research, their existing landlord insurance product offered less coverage than their competitors, and 80% of customer complaints occurred because they did not have sufficient coverage when it came time to file a claim.
“We were already selling a lot of product each year,” says Luke. “The idea was to apply Lean Startup thinking to make it more desirable and reverse the losing market share. We came up with a few interesting ideas during boot camp we thought would be real winners in terms of solving this problem for us. When we started running our experiments, we destroyed them, one by one.”
Initially, Luke hypothesized that landlords would like a tool that connects them with tradespeople, help them find tenants, and help with the management of the tenancy itself. Using his company’s internal social media site, Luke managed to find and interview 14 coworkers who were also landlords — and learned that 95% of them had no interest in the tool he proposed. Time to pivot. “It was an incredibly valuable exercise that cost us nothing to do,” says Luke.
Knowing that customers disliked the current product offering, Luke began exploring whether the company should offer multiple product offerings, including a “Do It Yourself” bundle option. Through interviews and card-sorting exercises with eight landlords in Victoria, he saw that fewer than 50% were able to correctly match images of damages with the correct insurance coverage, suggesting a gap in understanding of policy terms. When asked to build their own policy, customers in the test group often made choices that left them underinsured.
“We had to take the view that they were so poor at understanding their risk, it would have been unethical to allow them to piece together their own coverage,” says Luke. “That was a really useful insight at that stage.”
At that point, Luke arrived at his final assumption: landlords want a super-charged product that covers just about everything. Working in tandem with the business partners who would be delivering the product to customers, he developed prototypes for two comprehensive products and tested them against the existing product in a survey of 100 landlords in Victoria. More than 70% opted for one of the more comprehensive options.
Having validated his final hypothesis, Luke was ready to present his high-level concept for a comprehensive policy to the steering committee. He recommended that the company upgrade its existing product with additional coverage, presenting customers with a single comprehensive option. Relying on guidance from Marilyn Gorman, his coach from Lean Startup Co., Luke delivered his findings as experiment-validated decisions.
“It prompted a great discussion on how existing customers might react to the changes, and it was nice to respond confidently based on what he learned through interviews and experience,” says Marilyn.
The steering committee immediately greenlit the project, allocating $1 million to develop and market the comprehensive landlord insurance product.
Luke spent $6,000 from his $100,000 budget to come up with a concept that could boost annual revenue by 10% — an increase of $15 million to $20 million. Following a nine-month development process, the product was due to go live in Victoria, then scaled to the rest of Australia.
He’s also taken a lot of his Lean Startup learnings back to his day job. “I’ve changed the way I put proposals forward,” says Luke. “I challenge my team on what they can do to validate their hypotheses before moving forward. It protects our investments and gives weight to our proposal.
“I was able to get a lot of really useful data points without spending a lot of money. Without involving actual customers, we very easily could have recommended a certain path that would not have been successful.”