I have had the great fortune to work with numerous insurance companies in the past five or six years, both in terms of assiting with their own business processes and orgnaizational culture in an effort to drive a more innovative and customer centric environment. I’ve been fortunate to call many of these clients and more so, professionals who work there, friends. Many of these people have come back into my life in the past two or three years, specifically seeking ideas and process to create superior customer experiences both in terms of their broker dealers and consumer policy holders. These companies have begun adopting customer centric thinking and recognize that superior customer experience will deepen the relationship with the outside ecosystem of agents and consumers and ultimately drive loyalty and uplift in lifetime value of each member, participant, policyholder and agent.
It occurred to me during one of my earliest professional engagements with one of these companies that the relationship dynamics in the insurance industry are dramatically different than almost every other industry and company. In other industries, the perception of a company’s value in the eyes of its customers, and similarly, the value of the customer from an insider’s point of view often directly align. Companies and customers value similar ideals and attributes of a good, well working relationship can be often agreed upon. Indeed, very frequently, one of the principal markers of a good commercial relationship is measured in terms of how often a given company’s product is consumed such that more can be bought, and equally used. Companies love it when consumers use their products to a point of depletion, only to come back and replace the used product with another, and the cycle repeats.
Identically, consumers in most industries attribute the greatest value to specific purchases by the derived utility of the good or service purchased, which is often measured in frequency of use amongst other measures such as ease of use, and of course, price. Think, for example of the consumer in the Northeast who invests $1,500 in a top of the line snowblower for his home to only find the winter weather abnormally warm and without snow, or the hobbiest weekend boater with the new speedboat on the trailer ready for the water but rainy weather delays the launch of the boat or indeed, cancels the season if on-going.
The buyer of the snowblower or speedboat will feel as though his money was wasted given no net marginal utility, even if circumstantial and temporary.
Now, in thinking about the insurance industry, there appears to be a conflict in terms of derived value of a customer relationship. I’m not saying this idea is either new thinking or unique to a specific company or small group of firms. It’s part of the system.
Insurers manage a portfolio of risk, and the more policies sold that go on without a claim, the more profitable, and less risk associated with the given customer. The more profit and less risk, the better the perception of value of that specific consumer relationship. Flipping the coin over, that same consumer who continues to pay his annual premiums into the insurance company in order to maintain the policy but who does not need to take advantage of it because of no illnesses or injury while on one hand may consider himself lucky, on the other, perceives little utility. Again, much like the snowblower and speedboat customers unable to use their purchases, the consumer without a history of claims has little to show for the investment other than peace of mind.
When the economy constricts and family budgets tighten, tough choices are made about what household spending is continued with and which is tabled or cancelled. Depending on the severity of the dip, families with little if any claim history grow cavalier and consider cancellation of their personal insurances in the belief that money is better spent on “necessities”.
There is an inherent conflict between the two points of view. The company values customers with little if any claim history the greatest while families with similar histories place the least value on their own particpation in the plan. Similarly, policyholders with the most frequent claim histories who have derived the greastest utility from the policy and coverage afforded are deemed the riskiest, and least desireable to the company insuring them. They’ll never agree, it seems.
Many of my consulting engagements with these same insurers came to similar sets of action items and recommendations in terms of creating the desired customer experience and behavioral outcome. I urged these companies to build strong value added engagement, educational and communication programs that are designed to touch the customer with increasing frequency in a non-regulatory or compliance-driven manner, and well outside of a claim cycle. I wanted these companies to consider holiday cookbooks of low glycemic food ideas for consumers known to battle obessity and related deseases. I urged the use of the Internet to create social communities of consumers who actively share ideas and even friendly competiton with one another. I even urged the promotion of “bike to work week” to help these insurers to promote healither lifestyles but in a soft, value added, non judgemental way lowering their risk position at the same time.
History, and some of these specific assignments have shown us there is a clear-cut linkage between engagement outside of a claim cycle and the perception of value, and given a higher value perception, a lower likelihood of consumer attrition. Longer lasting consumer households only drive higher and higher total lifetime value of a given policy, lower the chance of unexpected future churn, and deepen our ability to analytically predict specific risks and an ability to provide ample arbitrrage for them.
Insurance companies desiring longer lasting, more loyal customer behavior need to think more like marketers and less only like accountants seeking the minimal risk exposure. Customers will value the relationship more deeply and in likelihood, think harder about cancellation, even in the most challenging financial climates.
