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Customer Experience Leaders Widen Edge

Insurers that earn jeers from their customers are falling further behind the ones that earn cheers.

That’s the key takeaway from Watermark Consulting’s 2018 Insurance Customer Experience ROI Study.

The study, which was last conducted two years ago, seeks to provide insurance executives with a macro understanding of the impact that customer experience has on a company’s fortunes. This is important information for an industry that publicly affirms the importance of customer experience, but privately struggles to quantify the benefits of such investments.

About the Study

Watermark’s analysis is based on data from what is arguably the best-regarded source of insurance carrier customer experience rankings—J.D. Power & Associates’ annual Insurance Satisfaction Studies.

The study’s approach was simple: We calculated the cumulative total stock returns for two model portfolios, composed of the Top 5 (“Leaders”) and Bottom 5 (“Laggards”) publicly traded companies in J.D. Power’s annual study. (A white paper about the study, referenced at the end of this article, includes a more detailed description of how the analysis was conducted.)

We went through the exercise twice—once for auto insurers (where J.D. Power rankings were available from 2010-2017), and once for home insurers (where rankings were available from 2009-2017).

In both cases, our model portfolios tracked the stock performance of the carriers for the year-earlier period of their designation as a Leader or Laggard (so, for example, J.D. Power’s 2017 Leaders were used, retroactively, to build our 2016 stock portfolio).

See also: Profiles in the Customer Experience  

This approach was consistent with our thesis that the market would already be rewarding/penalizing the Leaders/Laggards in the full-year period preceding the release of J.D. Power’s consumer survey (given the customer experience the carriers were already delivering). It also helped ensure that the model portfolios’ performance was not at all influenced by the publication of the J.D. Power study itself.

The Results

Yet again, the Insurance Customer Experience Leader portfolios far outperformed the Laggard portfolios—and the margin of victory widened considerably as compared to the 2016 study.

Watermark defines Auto Insurance Customer Experience Leaders and Laggards as publicly traded insurers falling in the Top 5 and Bottom 5 national ranking of J.D. Power’s 2010-2017 U.S. Auto Insurance Satisfaction Studies. Comparison is based on performance of equally weighted, annually readjusted stock portfolios of Customer Experience Leaders and Laggards.

As the accompanying graphic shows, over the eight-year period studied, the portfolio of Auto Insurance Customer Experience Leaders far outperformed the industry, generating a total return that was nearly double—171 points higher—that of the Dow Jones Property & Casualty Market Index.

While a few carriers made repeated appearances in the Leader category over the eight years examined, only one, Erie Insurance, earned that distinction for every year of the study.

What’s most striking is the growing chasm between the Auto Insurance Customer Experience Leaders and Laggards. The Laggard portfolio now trails the Leader portfolio by an astounding 242 points.

As with the Leaders, there was some year-to-year consistency in the Laggards list, with two firms— MAPFRE-Commerce Insurance and the Hanover—showing up in that category every year of the study.

The graph below, which shows the analysis for home insurers, exhibits a similar pecking order as seen with the auto insurers.

The Home Insurance Customer Experience Leader portfolio outperformed the industry, generating a total return that was nearly double (87 points higher) than that of the Dow Jones Property & Casualty Market Index.

While several home insurance carriers made it into the Leader category multiple times, Erie Insurance was again the only one that achieved that distinction for each of the years covered by the study.

The Home Insurance Laggards in this latest study fell even further behind the Leaders, with the cumulative performance gap between the two portfolios reaching 119 points. (In the prior study, the gap was 57 points.)

Interpreting the Results

This study should give pause to anyone who is skeptical of the value that customer experience differentiation accords to an insurer.

The Auto and Home Insurance Customer Experience Leader portfolios generated average annual returns that were more than double that of their Laggard counterparts. The results suggest that carriers that consistently excel in customer experience tend to be viewed by the market as more valuable entities than those that do not.

That enhanced value is a function of the Leaders seeing a rise in revenue, thanks to happy, loyal customers who spend more with them, stick around longer and refer others.

It’s also a function of a more competitive cost structure, as the Leaders can spend less on new business acquisition because of all the referrals they receive. In addition, because these firms’ happy customers complain less, there’s not as much stress on their operating infrastructure, which also helps keep expenses in check.

The Laggards, of course, are weighed down by just the opposite factors—depressed revenues, high customer churn and profit-sapping, strained infrastructures.

What was notable in this year’s study was that the disparity in performance between the Leaders and the Laggards wasn’t just striking—it was also growing by double digits.

This suggests that the competitive edge enjoyed by Insurance Customer Experience Leaders is both real and strengthening. That should certainly concern any carrier that frequently finds itself in the Laggard category, because these results do not bode well for firms that struggle to endear themselves to customers.

See also: Why Customer Experience Is Key 

Those angling to break into the Leader category should be forewarned: There is no “silver bullet” for achieving customer experience excellence. Latching on to some buzzword– big data, insurtech, AI, etc.—won’t get you there. Neither will advertising how great your customer experience is. The reality will always overshadow the marketing.

Companies that do customer experience well—inside and outside the insurance industry—recognize that there are no shortcuts. Customer experience isn’t some “initiative du jour” for them. It’s not just part of their business. It is their business.

Those leading firms often rely on a handful of time-tested experience design principles. (See the white paper referenced below for examples). However, at their core, what makes the Leaders different is their unwavering commitment to always start with the customer—understanding their needs and wants, their frustrations and aspirations—and then working backward to craft a distinctive, impressive, end-to-end experience.

Fundamentally, it is this outside-in philosophy that gives these companies their competitive edge. And, as this study so clearly illustrates, the strength of that advantage should not be underestimated.

Note: A white paper describing Watermark Consulting’s 2018 Customer Experience ROI Study (Insurance Industry Edition) is available for complimentary download at http://bit.ly/CX-ROI-INSURE.

You can find the original published here on Carrier Management.

New Applications for Drones

Drones are becoming widely used in a variety of industries, including insurance. As mentioned last week, millions are expected to be sold in 2017, with PwC calculating the global market for the commercial application of drones at more than $127 billion. So how are insurers using drones right now, and what opportunities are arising?

Though drones could theoretically benefit many different aspects of insurance operations, to date the most common application has been roof inspections conducted by certified insurance assessors before payment is made on claims for storm or hail damage. Traditionally, assessors use ladders to climb onto roofs and sometimes need harnesses if the roof is high or steep enough. A manual inspection can take half a day.

See also: Drones + Gig Economy = Win for Insurance  

A 20-minute drone inspection captures around 350 images of the property in question and provides data that can be used to identify moisture trapped in roofs, produce 3D models and elevation maps, calculate flood or wildfire risk and derive property measurements.

This gives insurers several good reasons to carry out these drone inspections. Here are some notable examples in the area:

  • Erie Insurance, an American traditional insurer active in the auto, home, commercial and life insurance sectors, is generally credited as the first insurer to use drones to inspect roof damage. It received approval from the American Federal Aviation Authority in the spring of 2015.
  • Betterview is an insurtech devoted to using drones for property inspections. The company announced this April that it had executed 6,000 rooftop inspections in the last two years and then signed a partnership agreement with Loss Control 360, which makes software for insurance carriers and inspectors. “We have seen insurers allocate budget dollars in 2017 to move from concept to real production use,” Betterview CEO David Lyman told the Insurance Journal. “In 2018, we expect to see a significant ramp up in the use of drones by insurers and reinsurers.”
  • Travelers has used drones to inspect damaged roofs since 2015. The carrier provides insurance-specific drone pilot training to its claims teams; by May this year, it had trained 150 pilots and expected to train hundreds more before the end of the year.

But it’s not just roof damage that drones are being used for.

Beyond roof inspection

The French global insurer AXA reported in 2016 that it was using drones in a variety of applications in France, Switzerland, Belgium, Mexico and Turkey. The business case is simple— to assess claims, drones can go places that are risky for humans: into fire-damaged buildings, into places where chemical toxicity is suspected and into manufacturing plants or other areas that have been subject to natural or other disasters.

AXA is developing tools and platforms to use drone images more efficiently, including this new data source in its claims adjustment processes.

Coupling imaging technologies with advanced analytics is proving useful across industries. Drones are being used in disaster management, geographic mapping, crop monitoring, supply chain monitoring, storm tracking and weather forecasting, to maintain power lines, monitor traffic flows and conduct surveillance—all instances that may assist insurers to dynamically adapt and innovate on insurance products and risk cover, especially for short-term cover.

Country Financial is, for example, using drones to identify issues in fields that are hard to spot with just “boots on the ground.” It says its crop claims adjusters using drones can scout three times as many acres as an adjuster on foot. This technology also gives farmers more information to consider when choosing how much crop insurance coverage they need, the company says, and it means more insurance plans can be based on enterprise-level data rather than county numbers.

Evolving drone technology

While these examples provide a snapshot of the growing use of drones in P&C insurance inspections, they also highlight some of the limitations of current applications.

Regulators require drone pilots to maintain line-of-sight during a flight, limiting the range of a drone’s flight. New regulations—and wider use of fixed-wing drones—could dramatically boost this range, with corresponding increases in the amount of property a single flight could cover. Technology and regulation could also conceivably enable greater autonomy for drones in the future, allowing a single pilot to oversee multiple drones at once.

See also: What Is the Future for Drones?  

A recent Businessinsider.com article highlights the emergence of generation seven of the technology, with the announcement of 3DRobotics’ all-in-one drone, Solo. These next-generation smart drones have built-in safeguards and compliance tech, smart accurate sensors, platform and payload interchangeability, automated safety modes, enhanced intelligent piloting models and full autonomy, full airspace awareness, auto action (take-off, land and mission execution). Imagine the future opportunities these drones will open up for insurers.

How the C-Suite Sees the Future

At the 2016 PCI Annual Meeting, a panel of retiring insurance executives discussed lessons learned over their careers. The panel comprised:

  • Marguerite Tortorello – moderator
  • Terrance Cavanaugh – president and CEO – Erie Insurance Group
  • Kenneth Ciak – vice chairman – Ameriprise Auto & Home Insurance
  • Tad Montross – retired CEO – Gen Re
  • J. Douglas Robinson – chairman – Utica National Insurance Group

What keeps you up at night, then and now?

  • The Weather Channel!
  • Making sure that we are achieving responsible growth for our shareholders.
  • The emerging risk trend that had not yet been identified.
  • Worrying is one step. As CEO, you need to do something about the things that cause you worry.
  • The dramatic change our economy is undergoing and the impact it will have on our industry.
  • As CEO, everything keeps you awake.

See also: Blending the New With the Old

Where do you think the culture of the insurance industry should be moving?

  • Our industry used to be very sleepy and stagnant. Over time, we are seeing more specialization, which allows for better expertise. We need to continue to attract better and smarter new talent into our industry. Our industry needs to do a better job explaining the role insurance has in the economy and all the good things we do.
  • The question is – how much of the change we are seeing right now is cyclical versus permanent? How companies respond to this is important to their future direction. Companies are more intelligent now because of underwriting and claims models. We need to be cautious about becoming overly dependent on these models.
  • Is your business culture an accelerator or an inhibitor to future business. Going forward, we need to focus more on service instead of just the protection that we offer. Our clients expect us to be more proactive.
  • There is more emphasis on “work-life” balance, but this may have gone too far. New employees want to work less but be rewarded more. Our clients expect 24-7 service, which conflicts with our employees’ desire for less time at work.

What types of traits do executives need to look for in their management team to lead into the future?

  • You want people who are curious and will challenge the status quo. We cannot be overly dependent on what we have done in the past to make decisions about the future.
  • Leadership needs to have a clear vision about their long-term goals and not get distracted by short-term issues.
  • Leaders need to show their employees they care about them and that we relate to them. Our customers want the same thing.

How do you see the industry better marketing itself to millennials to attract new talent?

  • We need to emphasize the vast variety of tasks we perform and jobs available in our industry.
  • Stressing the “service” aspect of our industry versus just paying claims. We help people at a time of need.
  • We are an industry that is under attack at the state and federal levels. We need to do a much better job talking about the good things we do for society and the key role our industry plays in preserving the economy.
  • Everyone uses insurance products, but few actually understand the insurance products. The industry needs to do a better job explaining what we do and why it is so important. We need people to view insurance as an investment in protection instead of just an expense.

How will technology affect our industry in the future?

  • Consumers want instantaneous service, and we need to be able to deliver it.
  • We still deliver paper policies, so we have a long way to go in the technology area.
  • It is important to balance technology changes with regulatory requirements.
  • Technology is affecting almost every risk we underwrite. Industry leadership needs to pay attention to these changes so they make sure they are evaluating the risk correctly.
  • We probably have made more mistakes with technology innovation than other industries due to the significant amount of historical data we are dependent on. On the flip side, we may become better at evaluating risk than public policy wants us to be as certain segments may become uninsurable with better data and analysis.

What are your concerns around the regulatory environment?

  • This is a huge issue. Not only are regulators wanting to regulate how we do the business of insurance, but they are also wanting to regulate what we invest in, who we promote, how we compensate people and the makeup of our boards. At some point, we have to run a business.
  • The constant change of regulations creates so many challenges. For example, after Hurricane Sandy states, put out new regulations to govern how companies handled claims on in-force policies.

See also: Are You Ready for the New Paradigm?  

What regulatory impact do you think the pending elections will have?

  • Historically, the party in the White House has not had a significant impact on the financial markets.
  • We are already seeing so much regulation on our industry, it is hard to get much worse.
  • There is concern that politicians will not like the answers that our data gives us with regard to rates and coverage limitations.
  • The sharing economy is going to have a big impact on our industry. The state elections and how they are viewing this could have a significant impact.
  • The concern is that one party may control the presidency, House and Senate, which would not be best for consumers or our industry as it would allow that party to unilaterally advance their agenda.

How do you see the distribution model changing?

  • We have seen significant consolidation on the brokerage side, and this will continue.
  • We are likely to see more direct-to-consumer products, which is what consumers are requesting.
  • There needs to be a way to allow consumers to have flexibility and still involve the agent or broker in the transaction.

What is one thing you wish you knew then that you know now?

  • I wish we had made bigger investments in technology earlier rather than constantly trying to modify legacy systems.
  • Be mindful of your body language and demeanor as people pay close attention to this when listening to your message.
  • It is so important to have the right people in the right place. Intellectual capital still drives everything.
  • Don’t be afraid to make decisions. Too many let indecision inhibit them.
  • My greatest fear was that I would hire the wrong people for the job. We eventually developed better tools to assist in that, and I wish they had been available earlier.

3 Ways for Video to Reinvent Claims Work

There are lots of great technologies and innovative products being developed that can help redefine the future of the claims process. Most recently, real-time video has been taking its place among industry disrupters such as drones, the Internet of Things and telemetries.

We’ve seen Esurance, USAA and Erie Insurance adopting various video technologies. Yet, the use of video is still very narrow, focusing on real-time applications. In fact, there are three types of video capabilities, not just one, that can deliver a powerful opportunity to redefine the claims process.

Live or Real-time Video Streaming With the Insured

Live video streaming and video collaboration is one of the most critical pieces in being able to acquire a quick visual of the claim from the hands of the policyholder at first notice of loss (FNOL) or in any subsequent conversation. This technology has proven to drive significant efficiency savings by accelerating the collection of claim information, improving triage and even being able to estimate and settle claims remotely.

The largest impact of real-time video on the claims process is made by enabling quick resolution of small claims. Each organization defines its own thresholds for what defines a small claim, but typically any claim above a certain threshold will still trigger a traditional field loss inspection.

Yet, the insureds who are communicating from an area of poor connectivity or insureds who may not be comfortable using the video streaming technology to settle their claims will still require a field inspection. This is where there is an opportunity to apply video in another way to help streamline the field inspection process.

Field Video Claim Documentation

Unlike live video interaction, which is designed to help an inside claims professional see a transmission of what the policyholder is pointing at with a mobile device’s camera, video documentation focuses on a different problem – how to improve the field documentation process and accelerate the collection, delivery and preparation of the claim report.

A deeper look into the field operations shows that a field claims professional is overloaded with many responsibilities – traveling to the loss location, documenting the loss with pictures and preparing a report. With multiple assignments back to back, it becomes an almost impossible task to document and prepare a report one claim at a time. Instead, many claims are inspected with pictures and notes quickly taken on-site, and all the reports are prepared together once every day, every two days or even once a week. This approach delays the delivery of timely field information and hence delays getting the claims to closure.

Claim cycle time is critical in ensuring high quality of customer satisfaction. Video claim documentation breaks up the claims handling process in two. It allows field claim professionals to focus on getting to the customer and conducting quality on-site inspections. Meanwhile, the inside claim teams can focus on processing the claim as soon as video content is delivered. To enable this process, the field claims professionals simply document the claim in video rather than pictures, speaking freely as they capture the video of the claim. Think of it as “visual voicemail” for claims.

You may think that is nothing new. Everyone can take videos using smartphones. The challenge, however, is not whether video can be captured. The challenge is how the video content can be delivered into the business in a uniform and timely business process. This is where the right technological solution is needed to provide the means for field claims professionals to conveniently capture video in the field and deliver it to the inside teams. This means providing support for handling large video files, synchronizing video content, alerting about the arrival of new information and being able to support well-connected, low-bandwidth and “offline,” unconnected environments.

What if the customer has already captured the claim on video? This scenario identifies the next workflow – customer self-service.

Customer Self-Service Videos

Studies found that customers who participate in self-service during an issue that is well-handled experience higher rates of satisfaction. They feel that they have been a direct, significant contributor to the positive resolution. Hence, allowing the customer to deliver video claim information to the insurance company is a big opportunity to increase customer satisfaction.

Most customers capture loss information. Some take pictures. Others prefer to take video. Yet, most organizations do not have a convenient way to acquire large files from the customer. Typically, pictures are acceptable as long as they can be sent over email or uploaded online or through a mobile app. Acquiring a large video file from the customer frequently encounters technical limitations and requires a different approach.

To address customer self-service demands, it is important to account for two types of scenarios. First, imagine the customer calling to report the claim for the first time, before having recorded any visual information. In this scenario, the customer is instructed how to most effectively record the data and how to make the video available to the claims handling team. The second scenario provides the insured an ability to conveniently upload video of the claim to the organization after it has already been captured.


There are numerous additional workflows that can benefit from applying video capabilities, like underwriting, supplemental claims and contractor quality review. The key is that the right technological platform needs to be able to support all three key video workflows to cover the main scenarios that are encountered in the claims process. This includes not just providing the mobile technology to help capture or deliver videos to the inside claims teams, but also a convenient way for the inside claim handlers to receive, access and review the video content to complete the reports and settle the claims.

New Way to Insure the ‘Sharing Economy’

Disruptive influencers are surrounding the insurance industry. Speed and intensity are increasing, challenging industry practices, assumptions and business models.

According to a Forbes article in January 2013, the revenue flowing through the shared economy directly into peoples’ wallets in 2013 would surpass $3.5 billion, with growth exceeding 25%. At this rate, peer-to-peer sharing was moving from an income boost to becoming a disruptive economic force.

Just look at a recent profile by Silicon Valley Business Journal, where Uber Technologies CEO Travis Kalanick confirmed that Uber raised another $1.2 billion following a record year of growth in which it expanded the number of cities it serves by more than 400%, to 250 cities in 50 countries. Astonishingly, Uber, founded just four years ago, had a “post-money” valuation of $18.2 billion after a round of financing in June; today’s post-money valuation is about $41.2 billion. Now that is a disruptive economic force!

The shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere and at any time based on a need for point in time. It is disrupting existing business and industries while spawning new business models, leveraging the combination of crowdsourcing, open innovation and technology to create companies like Uber, Lyft, Airbnb and many others across different industries. Traditional companies  (including insurers) and their brands cannot afford to be left out of the shared economy.

Insurers must reorient their business practices from product development to services aimed at meeting the needs of this new market segment and creating more value and a deeper customer experience. For a recent report, we asked insurers to think about key questions and issues: How will shared-services business models redefine risk or identify new risk? What new products and services can you develop for these emerging new businesses? For your customers who are less interested in ownership and more attracted to access, rental, reuse or subscription, how can you personalize products and services for them? Most importantly, how could the shared economy concept be used to create a new type of insurance company, challenging the traditional view?

One CEO of a start-up who had just received another round of funding and was preparing to launch his business, shared this frustration:

“I just wanted to let you know that I have found the hardest problem to solve as the CEO, is that after talking with 12 different insurance companies, I am still stuck on finding someone to write a policy for me! I am not sure you can overstate the tsunami of change that insurers are trying to avoid. It is frustrating to me as a CEO trying to get my company going.”

His statement says it all. Insurers either can’t or won’t see the influencers and levers of change, and in failing to do so are closing their eyes to the impact to their businesses in terms of revenue and customers. Meanwhile, they are leaving the door open for competitors to fill the need, especially those from outside the industry.

One company, Erie Insurance, did announce that it is offering what it believed to be a first-of-its-kind coverage to protect drivers who use ride-sharing services like Uber and Lyft. Erie initially offered the insurance in two states and would make it available in others states, depending on consumer response. The new insurance coverage is designed to solve a problem for drivers in the ride-sharing economy by eliminating confusion over what’s covered and when it’s covered. While encouraging, the announcement seems rather late in the game, given that companies like Uber have been around for four years. And the coverage does not address the growing set of other business models.

But a new company has stepped forward to meet the need! In the Dec. 4, 2014, Silicon Valley Business Journal, it was reported that Peers  is developing products and services for workers in the “sharing economy.” Peers was founded and funded with money from a number of founders of “sharing economy” companies and has a membership of 250,000 in just a year. Peers has rolled out its first two offerings, including a home rental liability insurance policy, which works for any short-term rental platform. The policy provides as much as $1 million for personal injury or damage to property sustained by a renter and includes compensation for lost income up to $5,000 as a result of damage to a home by a renter or their invitee. The policy costs $36 a month, can be purchased for a single month, is available nationwide from insurance broker Porter & Curtis and is underwritten by United Specialty Insurance.

Shelby Clark, the CEO of Peers, said in the article, “While sharing economy workers are finding new ways to fill their income gaps, they are also encountering challenges they’ve never had to deal with before, such as an inability to find the financial products they need or concern over the stability of their income. By combining the collective purchasing power of the Peers community, Peers is able to pioneer innovative solutions to new problems. Sharing economy workers are not alone, and they shouldn’t feel that they need to navigate these issues alone.”

For insurers, the Peers announcement should be a wake-up call on many fronts, from the lack of seeing and responding quickly to new market needs to seeing the emergence of a new competitor in Peers. While Peers is partnering with an insurer to underwrite the products, it has a growing customer base for which it is meeting insurance needs with innovative products and the services. In the process, it is gaining customer loyalty and potentially owning the customer in a fast-growing, new market segment, one that may be replacing existing segments.

The overriding and most critical question for insurers is not if, but how, they will embrace the shared economy, crowdsourcing and open innovation – first to get in the game, then to influence change and ultimately to win. Well, one insurer is in the game. And one new competitor with a large and growing customer base is now in the game.

This outside-in move by Peers is a game changer. What will your next move be?