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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.”
I largely agree with you. Insurers are prone to hyperbole on service topics. I do see opportunities for the kind of thing that EY’s Hertz suggests, and as my previous comment explains, I see room for improved services that actually could result in something worthy of the name “relationship.”
Thanks for the kind words. I’ll take a shot at your questions:
Mike: For E&Y to be saying this, doesn’t this reinforce the fact that insurance leadership (in general) isn’t doing this?
Anthony: In fairness, I think one has to acknowledge that insurers have accepted that personal lines products are viewed as commodities. This study doesn’t say otherwise. The point of the study is that there might be a small opportunity for service to make a difference, particularly with North American customers.
Mike: Haven’t insurance executives been snickering at new “techie stuff” for almost 10 years now? And if so, is it now next to impossible for them to say, “I was on the wrong side of that one.”
I guess one could respond, “yes and no.” There is of course a question of how much is to be gained for how much spent. Insurers have been paying quite a bit of lip service to customer-centricity and also investing. How seriously they have taken any given bit of technology would probably have to be taken on a case-by-case basis. Some hyped technologies have gotten more attention than less exciting opportunities for improvement.
Mike: Is it just a matter of time before the pain from standing still exceeds the pain of change? As a freelance consultant, I cling to that hope. I’m guessing E&Y probably does as well.
Anthony: I want to say, “Yes,” but I’ve seen this happen more times than I can count at particular insurers. To a significant extent, the pace of overall change in the industry is dictated by what peers/direct competitors. I think we’ll probably see some situations where some insurers leap ahead and where external competitors find ways to change the game. Progressive is one of the biggest personal lines carriers today because it made a technology play on auto policy underwriting.
Mike: What’s the more common barrier? An IT strategy that stifles tech progress or a Compliance strategy that bogs down external communications?
Anthony: Both are persistent impediments. Add to them the fact that consumers may not care. I think that’s changing for a couple of reasons. One is that people live to a significant extent in the virtual world and on devices that permit the kind of marginal communication that may just work. The other is only hinted at by Kaenen Hertz’s quote at the end of the article. I believe that the direction for insurance is suggested by the technologies Hertz refers to – telematics, wearables, etc. These technologies are opening the possibility for a new relationship based on services that go beyond the simple indemnity product that has been the essence of insurance products for the last couple of centuries. This kind of relationship has already existed in commercial lines in the form of risk management and loss control services. Emerging technologies will improve how that’s done in commercial lines and introduce that kind of offering in personal lines/individual insurance.
I think the EY study is just common sense. People do not have or want a relationship with an insurer. They want someone to do the job efficiently – as expressed in the expectation of responsiveness. The industry is convinced that a relationship exists and this is poppycock.
How do you reduce churn? Maybe just value for money and customer service – and that is not just an annual invoice. For my home, I might expect advice as to how to protect it – I do not want to claim, that means I have a problem, I don’t want a problem. Insurers look at the claims process as service, it is not. If I have to claim, I expect responsive action, thats what I am paying for. What do you do for me between invoices?
Recently I called my howowner insurance agent because he failed to call back on a question. He said my line was disconnected and it was. It was the home landline I disconnected 5 years ago. He had not spoken to me in 5 years! Is that a relationship? Am I loyal to that insurer? No, I am just too lazy to find an alternative. But I would entertain new options.
I think I am a typical consumer, insurance is somethink I need and I have. Thats the end of my thinking on the matter and while that is the case I am liable to churn especially if someone comes along with a product suits me more.
Good to see an established entity, E&Y, reinforcing these concepts. The challenge seems to be that this is WHOLE different mindset and requires a vastly different business model as compared to the business-as-usual models from the 90’s and 2000’s. Changes need to happen in customer service, underwriting, compliance, finance, HR, and perhaps most importantly and strategically, at the C-level, where the purse strings are.
Anthony (and other readers), can I ask a few candid questions? And maybe I’m out in left field on this, but…
1. For E&Y to be saying this, doesn’t this reinforce the fact that insurance leadership (in general) isn’t doing this?
2. Haven’t insurance executives been snickering at new “techie stuff” for almost 10 years now? And if so, is it now next to impossible for them to say, “I was on the wrong side of that one.”
3. Is it just a matter of time before the pain from standing still exceeds the pain of change? As a freelance consultant, I cling to that hope. I’m guessing E&Y probably does as well.
4. What’s the more common barrier? An IT strategy that stifles tech progress or a Compliance strategy that bogs down external communications?
Curious. Good writing, as usual. Nice work.
PS. I wrote about solutions to this last week on Linkedin: