Carriers still lag the marketplace in embracing the customer as the center of their strategy.
The industry has been slow to embrace the customer-centric nature of today’s buyer. According to recent, 2016, SMA research, 85% of insurers report that customer experience and engagement is a top strategic initiative, ranking it as #1 – a significant shift from #4 and #5 in past years. This is good news for the industry, as it points to determination and focus. All indications are that insurers intend to sustain these efforts over time. But the question is whether they can transform rapidly enough to stay ahead of the pack – and these days the pack includes not just traditional competitors but new entrants as well.1 Beyond insurance, carriers are being judged by how other industries have been transforming themselves into customer-centric organizations. The stakes are high for insurance carriers. They are faced with expanding customer expectations, a changing risk profile, competition from both traditional and non-traditional sources, and age-old internal practices that are very resistive to change, and yet carriers have to change, and they have to do it quickly if they want to stay in the game.
Not only do carriers need to speed up their transformation to customer-centric organizations, but they also must develop this transformation with the support, cooperation, and integration with their agent and vendors. Developing a strategy that doesn’t include the carrier’s distribution channel and vendor support systems is a strategy doomed to fail. The industry must find a more coordinated and consistent way of integrating their distribution channels and their support vendors, such as IA’s, garages, and contractors, into a seamless process that offers the customer communication and service pathways that are better suited to how the customer wants to interact with their carrier today and going forward.
Why do carriers need to move more rapidly to a more customer-centric focus? The answer is simple: retention. According to an article posted by The Independent Insurance Agents of Dallas, the average customer retention rate within the insurance industry is 84%. Furthermore, many studies have shown that $1 paid towards customer retention increases profits by more than $5 spent on new customer acquisition.2 As the personal auto and home industry continues to slow, each carrier must maximize retention as new business is costlier to produce and is becoming much harder to attract as carriers segment and specialize. Based on the latest auto and home 2018 numbers the top 20 Carriers grew at 0.975.3 Even though we are seeing a shift from more traditional carriers such as State Farm or Nationwide to Geico, Progressive and National General, the overall market is not expanding and there is no indication that it will. Carriers need to retain customers they have spent so much money and time attracting and an 84% retention rate is not going to be sufficient going forward. To retain more customers carriers need to reimagine their operations where the customer is truly at the center of the strategy and not simply a line in a mission statement.
Another pressure being felt in the industry today is the rise of Insurtech organizations. As they continue to pop up, their draw, to some extent, is the development of new and innovative products, but what they are truly selling is a differentiated customer experience. An Insurtech developing better software or digital experience isn’t going to dramatically change their financial performance compared to a traditional insurer, but it will change how customers buy insurance over time by focusing on the customer experience rather than the internally focused matrix that most carriers focus on today. Insurtech firms will capture a certain part of the market, and it is likely that many of them will be end up part of a larger more traditional carrier group, but their effect will be to push that customer experience focus even faster giving traditional carriers even less time to right the ship.
Even though insurance carriers have poured millions into their digital capabilities this too is an area where they have fallen short in understanding what the customer needs. This again will limit what carriers can do to move toward a customer-centric strategy. According to the J.D. Power 2018 U.S. Insurance Digital Experience StudySM while insurers have succeeded in creating attractive user interfaces, they have lagged when it comes to core insurance functionality. Most insurers’ digital offerings are lacking in insurance-specific capabilities such as processing claims, effective shopping and servicing of policies. As consumers increasingly expect to interact seamlessly with an insurance brand—regardless of the channel—most insurers are falling short on digital capabilities. Without a digital platform that conforms to the customer’s expectations, insurance companies will continue to struggle to move the digital experience similar to what has happened in banking and other financial services.
Every insurance carrier talks about the customer, about how they are there for the customer, but I challenge every executive to consider just how committed to the customer their organization truly is. Internal customer experience groups, evaluating NPS on every transaction, and tracking customer experience is all good, but what happens with the data? Is it truly evaluated without the internal filters that look for ways to explain the results rather than finding solutions to the customer experience shortfalls? How many changes are made every year based on customer feedback, or are many of those needed changes overlooked because they won’t fit into the institutionalized processes that have served the organization for a long time? Insurance is a low touch business, so every connection made with a customer has to be on target and leave the customer feeling that they are receiving a good value for the cost of this product. If a carrier is not independently having their customer experience evaluated they are probably not seeing a true picture as the internal filters will always sway results to less action, not more.
1SMA White Paper, Author: Mark Breading, SMA Partner, Publication Date: August 2016; www.strategymeetsaction.com
2The Insurance Industry 18 Critical Metrics, Guiding Metrics: https://guidingmetrics.com/content/insurance-industrys-18-most-critical-metrics/
32018 SNL Market Share Numbers