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High customer churn has been a fact of life for underwriters of insurance coverages perceived as commodity products, but that could change with better customer experience, according to EY’s 2014 Americas Consumer Insurance Survey: Reimagining customer relationships.
Low cost is the primary factor in choice of personal lines/individual insurer, and the most important drivers of high customer turnover are low levels of trust in insurers and the simplicity of switching carriers, according to EY’s survey of 24,000 people in 30 countries, including 2,342 in North America, between May and July 2014. However, while value for money is the primary factor that determines consumers’ insurance choice, other non-monetary conditions also influence customers, particularly in North America, including the following, according to EY:
- Although it is possible for insurers to win long-term loyalty by seizing opportunities to communicate with their customers, 54% of North American customers report having no interaction with their insurers in the past 18 months.
- North American customers place much stronger emphasis on client service characteristics than global customers do. In particular, being “easy to deal with” is more important than “value for money” (60% vs. 53%, respectively) in North America.
- Being responsive is also viewed as a more important relationship characteristic in North America than globally, especially for non-life products, where 50% of respondents cited responsiveness as an important characteristic, compared to just 33% of global respondents.
- Unlike other industries, just because a customer leaves an insurer it doesn’t mean they don’t still love them. In fact 20% of North American customers closed a policy in the past 18 months despite more than half of this number saying they are likely or very likely to recommend their former insurer.
“The results of this survey should give insurers cause for concern and hope,” comment Kaenan Hertz, US Insurance Customer Leader at Ernst & Young, LLP. “While the survey confirms industry-wide concern about customer turnover, the steps insurers need to take to improve their relationships with customers to combat this turnover are clear and achievable. In essence, insurers must take control of customer relationships and put their customers at the heart of their operations.”
Insurers are particularly vulnerable to churn because of low-frequency of interactions with customers, unlike, for example, banks and retailers, an EY statement on the survey suggests. That being the case, it is critical that insurers provide a satisfactory claim experience – a task made more difficult by price competition. Beyond the claim experience, insurers should create opportunities to engage with their customers through more frequent communication, EY recommends.
Currently, insurers are missing this opportunity, EY implies. Only one in five North American customers report being very satisfied with communications they receive, EY reports, with other data supporting the call for more frequent communication: Thirty-two percent receive information about special deals and promotions once a year but 49% want this information semiannually. Thirty-nine percent receive policy updates once a year but 57% say they want these updates more frequently.
EY warns that simply increasing the frequency of customer contact is insufficient. Communication also needs to become more relevant. The firm advises that insurers “greatly improve” their knowledge of customers through the adoption of advanced analytics capabilities.
Insurers Need to Embrace Analytics
“Tomorrow’s top performers will be notable for having accurate and actionable insights into shifting consumer needs,” says the EY statement. “Further, they will gain the ability to act predictively, precisely and nimbly in advance of key decision points, and offer relevant and timely information.”
Embracing advanced analytics will not only help insurers meet the challenges they are facing today, the EY statement adds, but will also position them to capitalize on the technologies that are likely to impact the industry in the future.
“Although customer turnover is the immediate reason why insurers need to improve customer relationships, the future of the insurance industry creates longer-term and arguably more pressing reasons for change,” Hertz adds. “Telematics, wearable technology and other advancements are redefining the ‘art of the possible’ in terms of what we know about how people live and behave. Without an analytics-led, customer-centric organization, the insurance industry will be vulnerable to disruption from new entrants in the market who are equipped to serve the customer of the future. For insurers, the time to act is now.”