Insurers are realizing that improving customer experience (CX) can bolster the bottom line. The good news is that digital tools align well to support improved CX. The bad news is that real changes are not sustainable without more fundamental transformation at the technology and business levels. On balance, is this worth your while?
Consumers are going on-line (with money in hand)
Let’s take automobile insurance as an example. On-line quotes for automobile insurance were introduced in the mid-1990s. But it is only in the last few years that consumers have moved from window-shopping to real buying.
The J.D. Power 2016 U.S. Insurance Shopping Study found that three-quarters of consumers who were looking for insurance went to websites to get information and obtain quotes. More significantly, 25% actually purchased the insurance.
The majority of business accrued to direct writers, who “have invested heavily in digital channels to increase the functionality and ease of using their websites,” according to Greg Hoeg, vice president of U.S. insurance operations at J.D. Power (quoted in PropertyCasualty360).
Buying is only the beginning
As any broker, agent, or marketing executive will tell you, business acquisition alone doesn’t drive profitability; retention does. And retention depends on service.
The UK is one of the most competitive personal lines markets in the world. Driven by consumers, on-line sales and service tools have matured more rapidly than elsewhere. Two years ago, Lloyd Buxton wrote in the Eptica Blog that “(UK) Insurance policyholders are becoming more demanding and expect companies to provide them with a positive customer experience, through their channel of choice, if they are to retain their business.”
And here’s the rub: on-line quoting, rating, issuance represents a small portion of the technology footprint in most insurance companies. Other functions – servicing, underwriting, re-insurance, reporting, billing/accounting, claims, distribution, etc. – take up the balance. For a large number of insurers, much of the functionality still runs on legacy systems.
So, what’s the CX business case?
Legacy systems replacement initiatives are big, sometimes ugly projects that carry a high risk of running over time and over budget. There is usually a business case that supports the project, frequently emphasizing cost reduction and capacity for growth. Customer experience is not always considered.
- Customer Lifetime Value – e.g., research published in the Harvard Business Review found that “customers who had the best past experiences spend 140% more compared to those who had the poorest past experience.”
- Customer Acquisition Costs – this would include improved probability of selling new products to existing customers and leveraging customers to provide referrals
- Reducing costs of bad customer experience – customers will broadcast bad experiences as loud as, or louder than, good ones.
Is this sufficient?
Perhaps not. And Markidan makes an interesting point:
“You can grow your business with an average customer experience. You could even grow it with bad customer experience …
“But just because you can grow your business without a deep focus on CX, doesn’t mean that you should.
“Here’s why: you probably don’t have a monopoly in your market.
“And your customers probably have a choice.”
And this is the critical point. Are we prepared to bet that there is enough of the old paradigm to keep our market share? Or do we take a leap of faith into the customer driven world?
ICEF2016 will provide data on this…
The theme for the 4th annual Insurance-Canada Executive Forum is “Turning Insurance Outside-In.” We are preparing an agenda which will include information from practitioners, analysts, and suppliers who are focused on understanding, and leveraging, customer experience as a strategic tool.
We’d like to engage in a conversation about this before, during, and after the event. Care to join us?