How Do Insurance Companies Treat Loyal Customers?

Who Benefits From Customer Loyalty?

Back in December 2015 Annette Franz in her post titled So, What Exactly is Customer Loyalty? made the following statement:

I had a situation recently that caused me to call on a provider to whom I’ve paid thousands and thousands of dollars by way of monthly premiums for the last 20+ years. I’ve never filed a claim, but I did six weeks ago. It’s not been a good customer experience since that day.

Annette went on to question the concept of Customer Loyalty.  Does it refer to the customer being loyal to the organisation? Or to the company being loyal to the customer?

This was my response to her question:

Hello Annette, I have been and continue to be clear that customer loyalty is a marketing concept. As such it is consists of a bunch of tools and techniques for getting the customer to stick with the organisation as long as the customer is generating handsome revenues and profits for the organisation. It is certainly not the organisation being loyal to the customer. Put differently, customer loyalty is a company centric concept.

I assert that as a customer you either have to be naive or stupid to think the organisation is loyal to you. Take insurance, if you are loyal customer you will be worse off. How so? When it comes to renewal time you will pay higher premiums. Why? You will accept the renewal premium without shopping around.

What Is The Cost of Customer Loyalty When It Comes To Insurance?

Want an example of how insurance companies penalise loyal customers?  Thanks to the Guardian newspaper, I have an example for you.  Allow me to share some passages from How Halifax penalises its insurance customers for their loyalty (bolding mine):

How much should the buildings insurance be on a £250,000 terrace house in Redcar, north-east England? It probably wouldn’t be difficult to find quotes for less than £200.

Mrs Laurie (I’ve changed her name) had always been good with managing her money. She dutifully paid the home insurance premiums demanded by Halifax every year, even though it kept going up. But when it hit £450 she could no longer afford to pay it.

What was Halifax’s response? Did it review the premium and reduce it to reflect the prices that other people were paying in the market? Oh no. What Halifax appears to have done is reopen her former mortgage account with the bank, then charge the insurance premiums to that account. Halifax then continued jacking up the price every year, to a vastly inflated £800 at the time of her death – a figure her son says is around six times the going rate. The final insult was that Halifax charged interest on the unpaid premiums, making ever more profit out of its elderly, loyal and vulnerable customer.

When Does It Make Sense To Stick With Your Insurance Company?

If you are a customer then here is my advice: never ever take the renewal quote offered to you by your insurance company. Why? Because from an insurance company perspective the most logical course of action is to offer you an inflated premium. Why? To take financial advantage of those folks who are either ignorant (of how companies work) or lazy (cannot be bothered to shop around).  When you have millions of customers, even a mere 20% of customers renewing automatically can generate £millions in extra revenues and profits.

Having said the above, I wish to point out that the insurance premium should not be the only factor that you consider. Why?  Because one takes out insurance just in case one needs to make a claim.  Which implies that you should, at a minimum, consider other factors including:

  1. Coverage – what is and is not covered?
  2. Time and Effort  involved in making a claim;
  3. Claims track record – how good is the insurer at dealing with and paying out on legitimate claims?

For example, for the last two years running I chose to stick with my home insurer even though I get a cheaper premium from other insurers. Why? Because for the first time (2 years ago) in 20+years I had to make a claim. The process of making the claim showed up as effortless. The claim was dealt with quickly by the insurer and in full. And, when I was dealing with the loss adjuster he told me that my insurer is among the best insurers when it comes to paying out legitimate claims.

If you are regular subscriber to this blog then I thank you. And take this opportunity to wish you the very best for this year.

Europe: what does EY’s VoC survey tell us about the needs/behaviour of non-life insurance customers? (Part I)

A week ago I summarised my take on the Global findings from Ernst & Young’s “Voice of the Customer, Time for Insurers to Rethink Their Relationships 2012″. And I promised to take a look specifically at the European customer and the European market.  This series of posts honors that promise – staring today with the first post (Part I).  Please note that I am only looking into and sharing non-life insurance and the related customer needs/behaviour.  Let’s get started.

An introduction to the survey

The basis of the European findings is survey of 8,532 consumers of life and non-life insurance products between August and October 2011.  The survey covered the following countries: France, Germany, Italy, the Netherlands, Poland, Spain, Turkey and the UK.  As you can see that whilst these countries are relatively wealth in comparison to other countries, there are considerable differences in wealth and demographics between these countries.

What Are The Key Findings for non-life insurance?

The survey addresses the following five “key myths”:The future is online; it is only about price;good claims experience builds loyalty; customers don’t respond to cross-selling; and insurers can’t influence customer retention.

The conclusion? According to E&Y: “While there is some truth in the myths around how non-life insurance products are bought and sold, the reality is more complex.” That accords with my experience – the gold, the insight, the levers for effective action are in the details. Today, let’s dig one level deeper for each of the myths to learn what E&Y has to say.

Myth 1: The future is online

Accepted wisdom: use of the internet (online channel) is growing rapidly and in the future online will be the dominant channel for both research and transactions.

Research suggests / E&Y position: use of online channels is growing rapidly and customers want access to offline channels; insurers need to put in place an integrated channel strategy to accommodate customer needs & behaviour over the customer life-cycle (from research through to renewal).

Myth 2: It is only about price

Accepted wisdom: non-life insurance products are commoditised and therefore customers buy only on price – this one factor swamps everything.

Research suggests / E&Y position: Price is an important component of value but it’s not the only one. Many customers also consider and differentiate between provider on the basis of brand (trustworthy?), product features and previous experience. The importance of price varies both by geographical market and by the type of insurance product that is being bought.  For example, when it comes to private healthcare insurance, customers look for ‘indicators suggesting quality’.

Myth 3: Good claims experience builds loyalty

Accepted wisdom: a good claims experience generates customer delight and automatically leads to higher customer loyalty and brand value

Research suggests / E&Y position: customers expect a good claims experience and do not necessarily reward it; they do punish a bad claims experience.

Myth 4: Customers don’t respond to cross-selling

Accepted wisdom: customers resent insurers selling them more products – they don’t enjoy the sales process.

Research suggests / E&Y position: customers are willing to buy multiple products from insurers provided this is done in a certain way that creates value for customers.

Myth 5: Insurers can’t influence customer retention

Accepted wisdom: insurers feel they have little influence / control over retaining customers

Research suggests / E&Y position: customers are not keen on switching as it is inconvenient; insurers can keep more of their customers if they take the right actions at the right times – in particular during the ownership stage.

In Part II, I will be talking a deeper look at both Myth 1.  Specifically, what is the reality when it customer needs and behaviour when it comes to channels.  And spell out the issues and implications for insurers(as identified by EY).

Global: what does the Voice of the Insurance Customer tell us about customer needs and behaviour?

Ernst & Young have issued a report titled “Voice of the Customer, Time for Insurers to Rethink Their Relationships 2012”.  This report is based on a survey of 27,000 customers across 7 regions and covering 23 countries.  Here is the global summary:  EY-Global-Report-Global-Consumer-Insurance-Survey-2012.    I found this report, along with the webcast I attended, interesting and as such I wish to share with you the aspects that caught my attention.

What’s new?  Consumer behaviour and expectations are changing rapidly

This is how the EY report puts it:  “Customer behavior is changing rapidly. Technology, and in particular the growth of online and social media, is driving a fundamental shift  in customer expectations in terms of how products are marketed, priced, sold and serviced, and how companies are perceived. Pure internet businesses have set new standards for customer-centricity and engagement that raise the performance bar for players in every retail business sector.”

What is the key challenge for insurers?

There is a fundamental, structural, chasm between customers and insurance companies.  Insurers are product and/or intermediary centric models.  Buyers of insurance are looking for insurance companies to be customer-centred. The key challenge for insurers is to make the transition to a customer-centric mindset, business model and operating design.  This is a big ask because insurers in the mature economies (e.g. USA and Europe) as they have ‘extensive legacy operations’.  For example, just changing the IT platform (all the IT systems including all the associated databases) to enable a customer-centred operating mode is a huge challenge.  Another challenge is gluing up the channels so as to enable the insurance buyer/customer to interact seamlessly with the insurer using channels of his/her choice – including switching channels in the midst of doing a job e.g. researching and buying.

What does the global survey tell us about the needs of insurance buyers / customers?

Whilst the majority of customers are satisfied/highly satisfied there is a sizeable minority of buyers who are not confident the product is right for them. Why?  The information that these buyers need (and the way that they need it presented) is missing.

They want to be able to trust insurance providers and build long term relationships.  Specifically, they want to be confident that the products that insurers are selling are right for them (the buyers) and meet their needs.  In other words, they want to be certain that what they think they are buying is what they are buying – no misleading words, no hidden catches and exclusions…

Insurance buyers are looking for a transparent and simple products along with a simple, transparent and convenient buying process.  Notice that the buyer wants insurers to make it easier for them to understand the products on offer, to pick the right one and then easily buy using the channels that are most convenient including switching between channels (e.g. web and call-centre or vice versa).

Customers are looking for value to be clearly demonstrated, reflecting a balance of price, product features and service tailored to their needs.  The more competitive the market the more important it becomes for insurers to demonstrate the value that they are providing other than price.  In other words answer the question “Why should I buy from you and not your competitor who has as similar product at a similar price?”

Customers expect the insurance provider to deliver against the buyers expectations of the product and of customer service.  In other words the ownership phase and associated customer experience matters to customers even if it does not rank that high for many insurers.

How well are insurers doing against these needs and expectations?  According to EY: “The survey shows that the customers’ perceptions are that the industry is failing to deliver this in some key areas.”

Are there any big differences between life and non-life insurance from a buyer / customer perspective?

I noted two big differences, in the word of EY:

“Non-life insurance lends itself more to internet purchase than life and pensions, given the higher customer familiarity and comparability of the products. In all countries we found a growing trend to use the internet to research non-life products, although levels of actual purchase vary considerably between countries.”

“In non-life insurance, price is often the main measure of value since products are more comparable and frequency of purchase drives greater customer familiarity. But in some territories, brand and reputation are more important criteria.  In highly competitive markets characterized by price transparency, there is a tendency for prices to converge. This leads to non-price factors such as brand becoming more important selection criteria as customers search for a way to differentiate between providers.”

What does EY recommend for non-life insurance?

EY advises insurers to focus on convenience and value by:

Providing a seamless customer experience by integrating online and offline channels. Thus allowing the insurance buyer / customer to  use whichever channel works for her at a particular point in time and be able to swap channels and continue where she left off, seamlessly, in the previous channel.  Notice this means integration such that any and all customer related data is shared across channels – a single view of the customer that is in operation in real-time.

Making it easy (simple, convenient) for insurance buyers to buy and for customers to renew – across whichever channel/s they choose to use. For my part I do not believe that EY go far enough.  It is also important for insurers to demonstrate value of choosing / sticking with the insurance providers.

Making the customer feel valued after he has purchased and before the renewal comes up. This has to do with useful communications from the insurer to the customer during the ownership phase AND a service culture that ensures that the customer’s experience of interacting with the insurers matches his/her expectations.  Incidentally, the research shows that a poor claims experience drives churn but a positive one does not drive loyalty – customers expect to be treated well during the ownership phase.

Segmenting the customer base and understanding the needs, behaviours and profitability of each segment. This will allow you, the insurer, to manage the risk and improve retention in a profitable manner.

Developing and manage insurance brand(s) so that the value proposition and key messages are clear and communicated effectively in/across the digital world.

What does EY recommend for life and pensions insurance?

EY advises a focus on improving customer trust and confidence by:

Putting the customer at the centre of the business model: offering the right product, at the right time, to the right customer and following through with service that matches the customers expectations and responds to his/her needs – needs change.  Clearly this means building and exploiting a customer insight capability.

Working with intermediary channels AND building a direct relationship with buyers / customers so as to generate insight, anticipate and meet their needs. The key challenge with the intermediary is to drive the right behaviour – behaviour that creates value for customers and enables longer term relationships.

Putting together a suite of simple (to understand) and transparent products that meet the needs of customers.   The idea is to enable the customers to buy easily – with confidence.

Making it easy for buyers / customers to access relevant (and easy to understand) information and products online – supported by offline personal interactions where necessary.

Building trust by crafting and delivering a great customer experience across touchpoints, across the customer journey.

Rewarding customer loyalty with incentives that recognise the worth (LTV) of the customer’s purchasing behaviour and loyalty.

Improving customer retention by doing a better job of getting at and dealing with the underlying drivers of churn.

Final Words

I will be doing a follow up post which dives specifically into the findings for Europe.  I have a vested interest in this as I believe that would be of service to a group of people that are near and dear to me.

I wonder if all categories of non-life insurance show the same customer needs and behaviour.  Might there be a category or two that is a mix of life and non-life needs?

What flavour of customer-centricity are you practicising?

Customer-Centricity: we are great at lying to ourselves

If there is one facet of ‘customer-centricity’ and the ‘outside in’ approach that I find striking it is this:  almost no-one who talks about this actually goes entices and enters into conversations with customers on what constitutes ‘customer-centricity’ and ‘outside in’ approach to doing business with customers.   Put differently which are the companies that have entered into ‘conversations for customer-centricity’ with their customers?  With all the noise around social media, user generated content including recommendations/ratings/feedback and collaborative platforms I notice only one way communications: from the company to the customer via some kind of survey or from the customer to the company via the call centre and social media.  Some habits persist: on and on and on.

There is a particularly interesting habit that human beings have: lying.  Must people are aware that they are pretty good at lying to others.  One has to be good to survive and prosper in families, organisations, institutions, communities and societies that function because we lie to one another.  What is overlooked is that we are masters at lie to ourselves: we are striding South whilst proclaiming that we are committed to heading North and then finding a whole host of excuses as to how it is not yet time to head North or that the quickest or only route to heading North is to first go South.  My experience suggests that the same is going on in organisations which are proclaiming their ‘love’ of the customer: customer focus, customer service, customer-centricity, customer experience, customer loyalty, customer obsession, customer responsiveness ……  Put bluntly, there are at least two flavours of customer-centricity: genuine customer-centricity (what I refer to as North in this post); and sham customer-centricity (what I refer to as South in this post).

A real world customer experience example

Lets make this real.  I was talking with James (he happens to drive a taxi) and he was sharing his story about difficult times with me.  If you haven’t noticed, there is a recession and James (and his family) really are feeling the effects.  Insurance premiums have been going up and up and up: over the last 2 – 3 years they have almost doubled.  James (and his family) need that insurance cover and yet James finds he cannot afford it.  So when he got is renewal letter (with a big insurance premium hike) James phoned the company and he was greeted by a helpful chap at the call-centre.   By asking him various questions the call-centre chap was able to move James to an insurance plan that was more in line with his needs (cut out the frills that James did not need) and thus take out the insurance premium hike.

Is James delighted?  Yes and no.  James is delighted that the chap on the phone was friendly and helped James to keep his insurance without any increases.  At the same time James is convinced that he has been ‘milked’ in the previous years.  “Why did they sell me a plan (two years ago) which provided benefits which they knew I was never going to need?”  What is James thinking?  He told me bluntly: “If they can find a suitable plan for me today by asking me some simple questions then why did the company not do the same two years ago when I joined them?  Why did they put me on a more expensive plan than I needed?  I don’t trust the company!”

In the real world we have messiness that does not appear in Customer theory and talk by ‘gurus’

So just recap, in James example of his relationship with his insurance provider what is so?  This is what I noticed:

  • James is positively delighted with his last interaction with his insurance provider – the helpful chap who helped him to keep is insurance premium to what it was last year;
  • James distrusts the insurance company – he is convinced that the company deceived him into taking out a more expensive insurance plan in order to fatten its coffers at his expense;
  • James is disappointed with the conduct of the insurance company yet has stayed on with the same company – he does not feel he has a choice.

Lets just take a look at that again and see what we can learn.  When I look at this I notice that life is messy.  You can have a customer who is delighted (in traditional customer satisfaction terms), distrustful & disappointed (not loyal in attitudinal terms, certainly not an advocate!) and yet loyal in behavioural terms – all at the same time.  I believe that this is kind of what I was pointing towards in one of my earlier posts.

A genuinely customer-centric organisation would have won James trust and advocacy by being genuinely customer-centric!

If James does not trust you to look after his best interests then he will not be loyal to you and he will not be an advocate.  How do you win him over?  By being genuinely customer-centric.  What does that involve?  It involves giving up the pretense to the outside world and lying to yourself.  It means recognising that behind the find words and the excuses you are simply exploiting the customer as best as you can.  And it means giving that up.

The access to customer loyalty and advocacy is simply HONESTY – being a honest broker. Do what you say and say what you do.  You might just want to read this short post by Seth Godin which gets to the heart of the matter.  Or you might want to revisit one of my posts on what it takes to cultivate trust:

Service Providers: why trust matters and what you can do to cultivate it (Part I)

Service Providers: why trust matters and what you can do to cultivate it (Part II)

Want a breakthrough in customer-centricity in 2012?  Start with ‘Integrity’

Where does HONESTY start?  With the people at the top.  I assert that the fundamental task of Tops who espouse customer-centricity is to be HONEST with their customers.  And if the Tops are not willing to do that then they should give up claiming their ‘love of the customer’.  Why?  James is not easily fooled – sooner or later ‘dishonesty’ shows up and occurs about as inviting as walking into a room full of elephant dung!

How to profit by taking on more of your customer’s risks

What is the core of the human condition?  If you dig down deep enough you might just find that most of us feel vulnerable and strive for security.  In our social lives we minimise our vulnerability and build up our sense of security by cultivating relationships with people we can trust.  In our business lives we strive to do the same: do business with people and organisations we can trust.

One of the major causes of us feeling vulnerable is uncertainty.  Uncertainty makes us feel uneasy: it exposes us to risk and most of us are risk averse.  Research studies show that most of us will pay a premium to minimise risk – to outsource it to someone else.  The entire insurance industry is founded on this understanding.   Chris Zane has built a successful cycle business through a deep understanding of this principle: he provides a lifetime guarantee!  Zappos have flourished by exploiting this principle: their generous returns policies take the risk (and cost) out for customers.  In return customers happily pay a premium.  This is the reward these companies earn for taking risk out of their customer’s lives.

What am I saying?  People buy products.  People buy services.  People also buy security: peace of mind.   You can build stronger bridges with prospects and customers by taking out risk and replacing it with peace of mindAnd you can make more money!

If you are inspired to provide this peace of mind then might want to make use of some of the insights that Ernest Dichter, consumer behaviourist, came up with back in the 1950s.  He identified that there are at least five dimensions of risk every time someone makes a purchase:

  • Economic – am I wasting my money making this purchase?
  • Functional – will this product work reliably?  Will I get the quality of service I am being promised?
  • Social – what will other people think of me in buying this ‘product’ and doing business with this company?
  • Physical – will this be painful?
  • Psychological – will I think poorly of myself?

When you think about it this way you can get why quality and reliability make such a big impact on customers: quality and reliability makes your customers feel safe.  You can see why good design commands a premium: good design makes us look good in our eyes and in others eyes.  You can see why price counts and why people search out deals: it makes us feel intelligent and good about ourselves.  In the current economic climate price is particularly important as it also gives us bragging rights. 

Now let me ask you two questions.  In your customer experience design efforts what are you doing to take out these risks?  Does your customer strategy make use of risk as a key leverage point?