Insurers are increasingly encouraged to improve the customer experience to attract and retain policy holders. Commoditization remains a persistent threat and a few “insuretech” startups like Lemonade have shown an impressive ability to attract new millennial customers. The thinking goes that, in order to compete, insurers need to catch up to other industries and improve the quality of their customer experiences; having done so, persistency and referrals will improve, and growth will follow.
But while it’s never a bad idea to improve one’s customer experience, I wonder if customer experience design is the panacea insurance sales and marketing leaders are hoping for. Depending on their products and business model, insurers may want to double down on customer experience improvements or look elsewhere for drivers of differentiation.
A fundamental challenge is that many consumers have very few experiences with their insurer. Per research by Bain, insurance claim experiences offer the greatest potential to delight customers. But based on published claims frequency tables, very few personal lines customers file a claim each year. As shown below, personal auto insurance leads the way at a meager six claimants per 100 auto years insured, with life insurance coming in at less than one per 100. (And of course, a life insurance claimant can’t be said to “experience” the claim.)
Looking beyond claims, many carriers find that most of their customers have no engagement whatsoever outside of the annual renewal process. For those who do engage, for example, it is estimated that a typical insurer receives between two and three information requests annually per customer—a paucity of moments that matter.
All of which raises the question: How does an insurer win with customer experience when there are so few customer experiences?
One way is to increase the frequency of engagements to create more opportunities to delight customers. A good example of this is the work John Hancock has done by integrating Vitality into its life insurance products, providing an ecosystem of wellness benefits, insurance discounts and digital engagements with its customers. Hancock has gone all-in on this transformation—it now exclusively sells interactive life policies—and the results have been strong. It saw a 24% increase in new annualized life premium in 2019 and an 86% increase in policies with Vitality Plus.
But a greater frequency of interactions doesn’t always lead to a better customer experience. For example, we recently worked with an insurer who integrated a digital alert into its product. The insurer had observed a decline in customer retention, and we worked to identify and mitigate drivers. Controlling for other factors, we found that too few engagements via the digital alert could lead to churn—but so could too many engagements (see figure below). Using this information, the insurer redesigned its product around this “goldilocks” zone of engagement frequency.
Insurers shouldn’t assume that increasing interactions necessarily improves the customer experience. Instead, they should train their focus on interactions that customers truly value and, ideally, where the insurer can make the interaction distinctive, positive and memorable. Otherwise, increasing interactions may simply raise costs and exposure to potential negative engagements detrimental to persistency and referrals.
Alternatively, some insurers may want to focus on indirect customer interactions that drive engagement, many of which can also drive significant impact. These can include the brand, the product or distribution channel partners.
This later group—the agents, brokers or other intermediaries involved in product distribution—often has a high density of insurer interactions. In ZS studies, we’ve estimated that many insurers interact with individual intermediaries 10 to 100 times as often as with individual policyholders. And despite the independence of many of these intermediaries, we have repeatedly found that agents, brokers and advisors are strongly influenced by their experiences with insurers and willing to transfer those experiences into the advice they provide their clients.
We’ve found that early experiences shape long-term productivity for captive agents. Since then, we’ve similarly found that interactions with independent producers link directly to customer recommendations—that positive agency service experiences, for example, are transferred to positive perceptions of end-customer service. So, if an insurer finds it hard to affect customer beliefs through direct interactions, these indirect interactions may provide an important alternative.
All of which brings me back to my original question: How can insurers win through customer experience? The answer is to identify those experiences that can be the most impactful—and be willing to look beyond direct customer contacts if need be—and then truly be distinguished in those interactions. While it is not an easy path to follow given the nature of insurance interactions, it can still be a powerful and profitable one if done well.