Building loyalty within the insurance sector: it’s not all about price
In recent years, the consumer insurance market has changed out of all recognition. New channels such as the internet have transformed the landscape. Indeed, according to the Financial Conduct Authority, almost half of all internet users have researched motor insurance on price comparison websites, with 4 out of 5 of them going on to buy policies through them.
Customer loyalty is a thing of the past and this is impacting the insurer’s bottom line. As reported by the Financial Times, in the last 19 consecutive years the UK motor insurance industry has failed to turn an underwriting profit. For every £1 earned through premiums, insurers are paying out £1.08 in claims and expenses.
The customer relationship deficit
n this challenging market, retaining customers becomes even more vital. However, research conducted in the United States by KBM Group suggests that only 38% of customers are strongly engaged with their insurers. 36% are moderately engaged and 27% report ‘weak’ levels of engagement. This makes the latter two groups even more prone to switching. Overall the report identifies a ‘customer relationship deficit’ for the entire industry.
On the upside it found that engagement boosts loyalty. Customers who feel ‘engaged’ by their insurance provider will accept a price differential of between 8 and 15 percent before they defect to the competition. Therefore the more ‘engaged’ customers feel, the more they will be prepared to pay before jumping ship. This means there is a significant business opportunity for any insurer that can differentiate itself and increase engagement.
How do we define an ‘engaged’ customer?
The research demonstrated that engaged customers are those who confidently agree with the following 3 statements:
- My insurer describes and promotes its products honestly
- My insurer treats me like a valued customer
- My insurer stands behind its promises.
The insurance lifecycle
Drilling down further, the research looked at the lifecycle experience from the very beginning of the purchase journey right up to the point of renewal (or end of customer relationship). It found the following critical factors that influence engagement levels and are demanded by customers:
- Stage 1, the shopping experience: learning about the insurer’s products and having expectations met.
- Stage 2, the buying experience: applying for and purchasing a policy from the insurer—and, if necessary, reminding customers to complete the application and make the initial premium payment.
- Stage 3, receiving the insurance policy and having initial questions answered by the insurer.
- Stage 4, relationship building experience: receiving tips and newsletters, showing that the insurer cares.
- Stage 5, the growing experience: looking out for the customer’s best interests—for example, by receiving recommendations from the insurer as needs and lifestyle change.
- Stage 6, the service experience: receiving assistance from the insurer when solving a problem, such as billing issues or making a claim.
- Stage 7, the renewal experience: asking if the customer’s needs have changed, looking for coverage gaps, or trying to ﬁnd discounts to help the customer save.
The common theme with all of these is the ability to deliver fast, consistent and comprehensive information to customers and potential customers across multiple channels. Central to this is a focus on both strategy and process - establish a centralised knowledgebase of information, make sure that you are able to cope with every channel efficiently and effectively, and use customer interactions to tune your engagement strategy and products going forward. In particular, analyse what customers are asking and saying across digital channels to make sure you have a deep and engaged relationship.
Price may be a key factor in customer buying decisions when it comes to insurance, but relying on it alone can have a major impact on insurer’s bottom lines. Adopting a more customer-centric strategy based on the 7 lifecycle factors above could make all the difference, reinforcing loyalty, satisfaction and revenues at the same time.