Change is coming and the insurance sector needs to embrace Customer Experience


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Ripe for change?

The insurance sector is ripe for change. In truth the circumstances driving sector wide disruption have been in place for some time but have not yet reached a tipping point. That may all be about to change.

Those in denial will point to the relatively high customer retention rates enjoyed by many insurance companies as proof that customers are happy. Retention is not a good proxy for customer satisfaction as I discovered early in my career at British Airways.

At the time BA had a disproportionately high share of business class passengers on the highly lucrative North Atlantic routes operating out of Heathrow. The competitor airlines operating out of Heathrow were weak and Gatwick was a poor second choice for premium passengers which was why BA had a 60% plus market share of the business class market. It was only when we asked passengers whether they would continue flying BA if high quality airlines were granted access to Heathrow that we learned that over two thirds of them would defect. That was a real wake up call.

My suspicion is that many insurance companies are in denial in the same way that we were in BA: confusing low levels of customer churn for loyalty. These companies are not asking the right question and those responsible for customer insight research should be provoking a different kind of conversation around the senior management table.

The drivers of change

Customers are not happy: The evidence that all is not well with insurance company customers is all around us. The recent report from Which pointed to difficult claims processes, muddled and slow communication with customers and poor levels of service. The Institute of Customer Service (ICS) UK Satisfaction Index points to a declining trend in service standards in the insurance sector. And the Financial Conduct Authority noted there was a 19% increase in General Insurance complaints and a whopping 40% increase in Life and Pensions complaints in the first half of 2018 over the same period the year before.

The regulators are not happy either: As we have seen in many other sectors – airlines, mobile phones, energy and water companies – the regulators are starting to flex their muscles. The FCA is shifting its focus from compliance around inputs (which don’t necessarily create a better experience overall for customers) to an emphasis on customer outcomes. The FCA’s review published in April 2019 highlights that over-complex distribution channels and the design and delivery of methods commonly used within the industry, has resulted in products that are sometimes too expensive, represent poor value for money and are frequently inappropriate for the customers who have bought them.

The FCA has teeth when it comes to imposing sanctions on those who transgress. Liberty Mutual was fined £5m in October 2018 for failings in claims handling; an agreement with Express Gifts Limited provided £12.5m redress for customers who were sold insurance that had little or no value; and in March 2019 The Carphone Warehouse was fined over £29m for mis-selling mobile phone insurance.

Customers are changing: And so are their needs and expectations. Millennials will make up 40% of the workforce by 2020 and they have different views, different expectations and they buy differently from their older counterparts. Despite the commoditisation of insurance that is, in part, a result of the proliferation of price comparison websites, there is plenty of evidence to show that for most customers price is not the only or even the primary driver of customer choice. A statistic that surprised me is that millennials are significantly more likely to pay for premium service than older customers, according to industry wide research by the ICS.

Innovation and technology: Insurance companies have been slow to innovate. To date too many of them have operated out of short-term self-interest with a focus on how they can sell more. Culturally, adherence to process and compliance trumps customer every time.

Those companies that continue to focus internally with out dated business models will see their growth and profitability suffer. In the United States the correlation between brand strength and customer advocacy can be seen and it is only a matter of time before the changes happening in the UK industry will encourage customers on this side of the pond to switch if they feel they are not getting value for money. Increased customer churn increases costs and will put pressure on margins. Customers will give their loyalty to organisations that earn their trust and who are genuinely committed to helping them overcome the obstacles and challenges in their lives.

What is it going to take for the insurance company that wants to buck the trend and differentiate itself in order to build a loyal customer base? Here are six key focus areas.

How to build a truly loyal customer base

  • Develop a customer experience strategy. Research conducted by Forrester identified that the number one reason why companies failed to achieve the results they had hoped for was the lack of a coherent CX strategy. A lack of collaboration and cross-business support is the kiss of death for most change programmes. Functional and departmental leaders will need to step outside their silos and take a customer journey view of the world and think about the cross-business implications. To be successful a CX strategy must be conceived of as enterprise wide and not as a standalone ‘project’. 
  • Visible leadership. A company that wants to differentiate through the quality of its customer experience will need a fundamentally different approach. Leaders play a crucial role in moving their organisation from ‘today’ to ‘tomorrow’. Successful leaders create the belief, the permission and the capability for employees to operate in new and different ways. The biggest barrier to change we hear most often in our client work is that employees are unclear that they have permission to focus on customers “in addition to their day job”.
  • Customer insight. The best performing companies have a deep understanding of what target customers want and need, both today and into the future. They know which customers are the most profitable and they focus on the segments that will be key to the company’s growth and profitability. They are relentless in uncovering the critical drivers of retention and word of mouth advocacy – both functional and emotional. Sadly, most of the customer research we see does not provide the insight business leaders need to make investment decision trade-offs in the interests of improving the customer experience.
  • Design a ‘Branded Customer Experience’. To bust a common myth, Customer Experience is not just about service. It encompasses all of the ways in which an organisation ‘touches’ the customer from marketing and advertising that may have caught the customers eye, the online, telephone and face to face experience, how the company’s products work, the support process that the customer may need to use and the price paid for the product or service purchased. All of these make up the Customer Experience. In designing an experience that drives customer loyalty, insurance companies should pay attention to both consistency and differentiation – in ways that reinforce the company’s brand, thus the term Branded Customer Experience. It is important to fix the basics (‘brilliant basics’) which has the effect of driving functional commitment. However, functional commitment does not drive loyalty. There are a different set of factors that inspire customers to emotionally engage (‘magic moments’) and become truly loyal to your brand. The innovation required to build emotionally committed relationships with customers necessitates the organisation thinking from the customer point of view and outside the constraints of current functions and processes. Most insurance company attention is focused on the claims process and renewals. As the majority of customers do not make a claim, they go a whole year without any contact with their insurance provider until details of next year’s premium drops through the letterbox. No loyalty building going on there, in fact quite the opposite when the customer often learns that their neighbour has taken advantage of a special offer with rates only available to new customers. ‘Rewarding loyalty’ is not a function or a department so no one thinks of it.
  • Pay attention to the employee experience. In the same way that organisations need to earn the loyalty of their customers, they must earn the loyalty of their people too. Churning employees is costly – recruitment and training costs go up – but also less experienced staff deliver poorer service to customers. The employee experience and customer experience must be aligned. As Peter Simpson, former Commercial Director at First Direct said “you can’t pretend to be one style of brand to your customers if you’re a different style of brand to your people”.
  • Focus on behaviour. Changing behaviour is difficult; much more difficult than many executives think. Sending out the corporate video, scheduling town hall meetings, distributing the PowerPoint presentation to managers and organising some generic customer service training won’t cut it. We have developed behavioural change programmes for organisations across a range of sectors and have found that it is necessary to address head (what we are changing and why), heart (why it is important to me and the company) and hands (the new skills and tools I need to be successful). By addressing all three, organisations can build passionate commitment and develop employees with the skill and the motivation needed to deliver the magic to customers every day.

The combination of consumer pressure, regulatory intervention, new competitors, new channels and technology presents opportunities for insurance companies to engage with and create value for their customers in ways that they have not done before. Those companies that are bold enough to embrace Customer Experience as a dominant strategy will be rewarded with industry leading performance as the winds of change blow through the insurance sector. I hope you are one of them.

Republished with author's permission from original post.

John Aves
John is passionate about customer experience as a strategy to drive customer loyalty, employee pride and profitable growth. He believes that every successful customer strategy needs to focus first on the people within the organisation. John's experience has enabled him to combine senior line management roles with that of a board level consultant, facilitator and advisor.


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