The Key to Building Trust in the Insurance Industry

New tools and ways of doing business are required to stay relevant and compete with the InsurTechs, particularly with younger policyholders.

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“The best brands have also the best margins and the best brands have the highest consumer trust.” So said Oliver Bäte, CEO of Allianz, when explaining how insurance companies can position themselves to compete in an increasingly challenging marketplace.

Oliver Bäte, CEO, Allianz.

This statement by the CEO of the world’s largest insurance company is not surprising given that trust is a foundation for loyalty in any industry. In insurance, however, that is all the more true since the entire relationship between a carrier and the policyholder is based on a simple promise to be there in their time of need.

The good news: Nearly 80 percent of consumers say they trust their insurance providers, according to a recent survey of over 4,000 U.S. auto and homeowners’ insurance customers. The bad news: Trust is eroding among younger policyholders. According to the same survey, customers 65 and over are more likely to trust their insurance company, compared to those under 25, by a total of 16 percentage points. Younger customers are also nearly twice as likely to say they plan on switching companies within the next three years.

The Battle for the Hearts (and Wallets) of Policyholders

While many industries such as mobile phone carriers, cable TV companies, gym memberships and many others have eliminated annual contracts in the pursuit of a better customer experience the insurance industry is unique in that it is the largest subscription-based business in the world where once a year every customer has to decide whether to renew or not.

While most policyholders simply “set and forget” their insurance coverages, not bothering to shop on renewal, there is an intense battle for the hearts (and wallets) of policyholders. On the one hand, insurance carriers are spending billions of dollars in advertising and commissions to agents/brokers, trying to convince policyholders to switch. On the other hand, strong forces are at play compelling customers to stick with what they know. Those strong forces are the powerful combination of loyalty and trust.

The Moments of Truth for Insurance Carriers

While a certain segment of the market is extremely price sensitive and willing to switch to save a few dollars, the vast majority can justify spending a bit more to stay with a carrier that they trust and, over time, have become loyal to.

That trust and loyalty can be earned in one catastrophic event or built slowly over time.

For those policyholders who suffer a life changing event such as a debilitating illness or the loss of a loved one, a family home, a business or the ability to work, their insurance policy could be the difference between restoring one’s life and utter devastation. In those highly emotional moments of truth, if an insurance carrier rises to the occasion and fulfills their promise they have the opportunity, in that single event, to forge a level of trust and loyalty that could last a lifetime.

Thankfully, not every insured will experience a catastrophic event in their life, so what can insurance providers do to build trust at scale for the rest of us?

How Insurers Can Build Trust outside Major Life Events with ‘Micro Events’

For most people, trust and loyalty in any relationship is built up over years through a series of small positive experiences while just one negative experience can be enough to sever the relationship forever. The same is true for insurers and if your company can demonstrate with confidence that you can live up to the challenge of delivering on whatever you promise to do, no matter how small—whether that’s a great first impression with a pleasant shopping experience, onboarding new policyholders with easy-to-understand customer communications, keeping your customers informed during claims, or offering useful tools that make your customers’ lives easier—all of these day-to-day, casual interactions, also known as micro-events, can work together to build up trust and loyalty over time.

While this may seem obvious and common sense, most insurers in North America lag behind other industries in operationalizing the customer experience at every step of the policyholder journey to systematically ensure that a) no customer is left behind and that b) points of friction are eliminated forever.

Why is trust eroding for younger generations and what can we do about it?

Now that we understand how trust and loyalty are built, why do younger generations trust their insurers less than older generations, as mentioned in the opening paragraphs?

Besides a general decline in trust of many pillars of society (elected officials, government organizations, religions and large financial institutions, to name a few) in general among younger generations, in the case of insurance carriers millennials  are two to three times more likely to buy their insurance direct compared with baby boomer consumers and therefore not have the human connection to a producer, who they trusted as a proxy for the carrier, that older generations enjoyed.

In the all important moment of truth in a claim, the chart below shows how policyholders under 25 are less satisfied with the claims experience:

(Click to enlarge.)

which reinforces another critical point that they grew up in a world surrounded by iPhones, Amazon and Netflix which has given them much higher expectations for all of their interactions with businesses, including insurers.  This is something that insurtechs like Lemonade and Hippo, have taken full advantage of to deliver a completely new type of insurance experience.

The new frontiers for insurers

As we emerge from the lockdowns and restrictions on face to face business of Covid-19, insurers are finding that Digital and Contact Centers have become the two primary methods to engage with their policyholders and that new tools and ways of doing business are required to stay relevant and compete with the InsurTechs, particularly with younger policyholders.

Regardless of the channel or the technology, the fundamental relationship between customer experience, trust, loyalty and retention remains the same and the carriers that can adapt to this new reality will continue to grow and prosper.

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Greg Osborne // Greg Osborne is the General Manager and Vice President of the Medallia Insurance practice where he is responsible for strategy and sales management. Greg brings 28 years of experience in the Insurance industry spanning global technology providers such as CSC, Hewlett Packard, and Accenture, and insurance vertical software providers Duck Creek and Guidewire.

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