Customer Experience and the Insurance Industry

By: Cindy De Armond, Gordana Radmilovic

In a fast-changing and increasingly competitive insurance marketplace, carriers must put the customer experience at the center of their business strategy in order to improve customer retention and position themselves for success.

Competing in a fast-evolving industry.
Property and casualty insurance carriers are facing rapid and pervasive changes in how they acquire, retain, and grow customer relationships. Residual effects of the financial crisis, emerging competitors, changing demographics, and technology evolution are just some of the environmental factors forcing a shift within the industry. Customer retention becomes a central focus when designing strategies for growing the business. Many factors are converging to impact carrier’s ability to retain customers and compete effectively:

  • New vehicle sales are down nearly 8 percent over the past 10 years, meaning increased competition for the buying power of fewer consumers.
  • Declining household net worth and reduced buyer power creates a dip in the overall demand for personal lines of insurance. 
  • New competitors are forming within emerging channels, leaving many insurers vying for a smaller pool of policyholders -- further pressuring profits.
  • As direct channel use rises, customers are able to shop easily and switch companies more frequently. With insurers left competing in a smaller pool and customers eagerly searching for the “next best thing,” customer retention is dwindling.
  • Carriers must provide 100-percent satisfaction 100 percent of the time or risk losing their existing customers to a competitor.

As these factors transform the industry, business expectations of insurance firms are fluctuating and forcing further changes – changes around strategy, technology, and customer experience. Most notably, how do carriers bridge the gap between what their customers expect (their “brand promise”) and their actual experience? The ability to ask key questions to help identify where this gap exists across organizational operations and activities is vital to understanding the issues surrounding customer retention and loyalty.

Many insurers attempt to resolve their challenges solely with technology, but technology is simply a tool for achieving specific business objectives. To remain competitive during times of change, customer retention must be a priority. For example, a recent Insurance Journal study found that customer retention rates increased by as much as fifteen percent when customers bundled home and auto policies. This is an example of how understanding customers and being attuned to their needs gives insurers the ability to tailor products and services accordingly.

Another example of a principal driver of customer churn is claims experience.  Claims cost insurers not only in the form of associated direct costs, but also—and perhaps more significantly—in the number of customers lost due to poor claim experiences.  In fact, one of the most effective ways for insurers to reduce customer churn is by delivering an effortless customer experience. 

Optimize claims operations.
Customers do not hesitate to switch carriers once they have endured a poorly managed claims encounter. In fact, poor claims experience is a leading factor in customer churn, rising costs, and regulatory complaints. According to a Forrester study, more than thirty percent of customers who endured a bad claims experience switched insurers within a year of the incident.  And claims are costly due to increasing inefficiencies and increased customer churn due to poor customer experiences. Furthermore, claim costs account for $74 of every $100 earned in private passenger auto premiums, with $12 dollars going to legal fees.  Effective information sharing and communication are essential for the processing system – reducing overall claims cycle time and costs. Fraud shreds about $30 billion from non-life insurers according to the Insurance Information Institute.

By sharing data, insurers can reduce fraud-related costs significantly.  In addition, consolidation of multiple claims systems drives efficient operations, resolving the issue of data duplication and deficiencies. Joining these systems allows insurers to better utilize the abundant amounts of data presented to them while reducing manual data entry errors. By developing an integrated claims channel strategy, insurers can drive self-service options and refocus customer service representatives and agents to higher value interactions. Self-service options can include channels such as mobile applications for users to access via wireless devices, anytime, anywhere. These applications can be customized to the organization’s specific needs. Benefits of mobile claims applications include a reduction in fraud – through triangulation of data from external services - as well as a streamlined customer experience.

To successfully deliver claims across channels, insurers need to:

  • Provide reassurance and empathy, promoting a simple and secure conversation rather than an interrogation
  • Address customer needs by providing online tools and resources to support a better understanding of the claims workflow
  • Be transparent throughout the whole claims process to foster trust with the customer
  • Develop a tool for knowledge sharing across roles within the end-to-end claims process

Because the claims experience tends to be an eye-opening event for customers, insurers must develop a level of customer intimacy that facilitates customer satisfaction. Ultimately, improving the claims system will empower insurers to deliver on their brand promise and provide an enriched customer experience.

Where do you start?
Your organization may not have even begun to think about customer experience strategies as a long-term initiative, or you may have a fully documented customer experience strategy for addressing the issues described above. Regardless of where you are in the process, it’s imperative to do the following:

  • Define the strategies that will foster customer loyalty and retention
  • Identify the capabilities needed to support these loyalty and retention initiatives
  • Understand the gap that exists between your customers’ expectations and their actual experience, and decide how you will bridge that gap to provide satisfaction at each point of interaction

So where do you start? A good first step is to assess where you stand today as an organization. Awareness of current status and implications will allow you to articulate a clear approach to improving your customers’ experience. To learn more, you can download the full white paper here or contact Cindy De Armond at cdearmond@westmonroepartners.com.

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