Linking P/C Auto Insurance Customer Experience to Improved Financial Value

By David Pieffer and Tom Super | October 2, 2018

Most insurance organizations have historically built strategic plans around a few core tenets: 1) increasing sales (market share and growth); 2) improving acquisition or retention; 3) increased persistency; and 4) increasing effectiveness and efficiencies (less cost). These plans always had the customer as a key stakeholder, but the customer was more the outcome than the basis for the plan. This approach was certainly sufficient for many years, but in today’s world the strategy must begin with a very different foundation, which is, what does the customer truly want?

Twenty-five years ago, insurance was a slow-moving industry based on regulators and an agent-driven distribution channel. Today, and even more going forward, customers have taken greater control across the insurance value chain. Whether shopping for a new policy or servicing an existing one, customers are increasingly empowered – and those carriers that fail to meet those expectations will struggle against carriers that will

An article titled “Stepping into the Ring” from Profile Magazine a few years ago stated:

“Top performing carriers across the industry are spending a lot of time on customer insights, data, research, analytical infrastructure and long-term thinking. They have a plan for how everything ties together and how their product moves relative to the competition.”

Today, top companies have established methods to track, identify and execute on a variety of customer experience improvement opportunities based on inner and outer loop feedback cycles. These carriers have embedded feedback mechanisms that tells them what the customer thinks and helps them prioritize on activities that will have the biggest impact.

What separates those carriers that simply voice their organization’s commitment to the customer and those that deliver on those commitments — demonstrate their seriousness by linking customer tracking to key performance metrics. They elevate delivering on customer experience as a key strategic pillar and then cascade those targets down, throughout the organization.

That is why for those companies that have yet to make customer experience a strategic priority, we say it’s time to rethink your executive dashboard.

Customer Experience Linked to Financial Performance

Will firms benefit financially from a commitment to the customer service experience?

The answer is a resounding YES.

J.D. Power’s cross-industry research demonstrates that companies that deliver the best customer experience also achieve the greatest financial performance. This relationship is also demonstrated through two separate analyses from St. John’s University and from Watermark Consulting both using J.D. Power data (See sources 1 and 2).

A 2017-2018 research study being conducted by St. John’s University—Professor David Pooser and Professor and Faculty Chair Mark Browne—using J.D. Power data and insurance statutory data has identified significant links between customer satisfaction and profitability across the U.S. auto insurance industry. The study examined customer satisfaction and combined ratios for U.S. auto insurers between 2001 and 2015 using multivariate linear regression analysis. The initial findings concluded:

  • Companies that deliver the best customer experience also deliver the greatest financial performance
  • Great customer satisfaction is associated with a lower combined ratio
  • There is a significant relationship between customer satisfaction and the expense ratio but not the loss ratio
  • Customer acquisition costs are lower for insurers with high satisfaction, meaning lower underwriting and staffing expenses

Further, Watermark Consulting’s 2016 Customer Experience ROI Study examined the stock performance of auto and home insurance companies in relationship to their performance in J.D. Power insurance studies. Key findings included:

Publicly traded auto insurance companies with the highest customer experience performances in J.D. Power research significantly outperformed the industry when looking at cumulative stock performance over the last 7 years.

Source: S&P Global Market Intelligence; Based on statutory findings from 2014, 2015 & 2016 – Insurance Expense Exhibit (Part III) of NAIC’s Annual Statement

These same findings hold true for publicly traded home insurance companies.

J.D. Power has also found a strong correlation between customer tracking programs, such as OSAT or NPS and increased retention. In a recent analysis, we found a close link between household retention and customer satisfaction as reported through tracking programs.

Those customers that reported higher levels of satisfaction through both transaction and non-transactional tracking, and their overall likelihood to renew their policy was very high.

As a result, having a robust customer tracking program can provide carriers with a leading indicator on long-term retention and customer turnover rates. The most advanced carriers are even able to layer-in customer insight capabilities, to track how this will impact their book of business, and to predict which customers are likely to defect based on organizational behaviors.

Organizing Internal CEM Programs

While this concept may sound simple, insurers may find applying it to operational decision-making challenging.

Insurers must expand their understanding to satisfy their customers’ insurance attitudes and behaviors. Since insurance is a “must-buy” product for most customers, the reason they buy the product is straightforward; however, why they buy a particular insurance company’s product is not so obvious. Not understanding a customer beyond their risk profile is not going to drive success for insurers going forward.

As a result, top performing carriers across the industry are spending a lot of time on insights, data, research, analytical infrastructure and long-term thinking. They have a plan for how everything ties together and how their product moves relative to the competition.

Consider the results from J.D. Power’s 2018 Insurance Shopping Study, which show the increasing importance of delivering a clear value proposition through your brand in driving overall consideration. Carriers must look at its brand and communicate what value it can bring that its competitors cannot.

Then, carriers must organize themselves to deliver that value across all touch-points – whether interacting through a call-center, through their desktop or mobile device, or through a local Agent. The last piece is then building incentives that drive the behavior that you want.

That is why building a customer-centric strategy is more than just voicing an organization’s overall commitment to customer. It requires much more. It requires the organization to work in lock-step around what the brand represents in the marketplace and how each member of the organization understands how their job links to delivering on that value.

In the end, insurers need to spend just as much time understanding their customers as they do understanding their own businesses. Whether operational or technological, firms with driven, strategic must reconsider their models with the customer at the center of everything they do. Just as important, insurers during the pilot or testing phase of any strategy need to look for the flaws in the strategy based on true customer feedback and not on some internal matrix designed to prove the concept. Developing a strong independent feedback system focused solely on the customer is one of the strongest planning tools a carrier can deploy during the development and pilot stages to guard against institutional bias. In the long run, using an independent source for customer satisfaction can pay great dividends with fewer failed strategies.

Customers are going to force the industry to listen to their needs far beyond anything the industry has seen in the past. The real question, then, is whether the industry is going to listen.

Sources:

  1. Watermark Consulting: Auto Insurance Customer Experience Leaders and Laggards as the Top 5 and Bottom 5 publicly traded insurers in J.D. Power’s 2010-2016
  2. St. John’s University, “Profitability Across the U.S. Insurance Industry,” Professor David Pooser and Professor & Faculty Chair Mark Browne, 2017-2018

About David Pieffer

Piefer is the Property & Casualty Insurance Practice Lead for J.D. Power, where he handles advancing the growth of J.D. Power’s core P&C insurance practice

About Tom Super

Tom Super (thomas.super@jdpa.com) is Director of J.D. Power’s P&C Insurance Practice and is based in Chicago. Super will be at the 2018 P/C Insurer Super Regional Conference in July serving as a panelist on, "What Customers Want: Satisfaction, Engagement, Experience and More."

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