Tag Archives: j.d. powers

4 Insurers’ Great Customer Experiences

McKinsey research has found that insurance companies with better customer experiences grow faster and more profitably. In 2016, 85% of insurers reported customer engagement and experience as a top strategic initiative for their companies. Yet the insurance industry continues to lag behind other industries when it comes to meeting customer expectations, inhibited by complicated regulatory requirements and deeply entrenched cultures of “business as usual.”

Some companies–many of them startups–are setting the gold standard when it comes to customer experience in insurance, and are paving the way for the industry’s biggest insurers to either fall in line, or risk losing out to smaller competitors with better experiences. Through a combination of new business models, clever uses of emerging technology and deep understanding of customer journeys, these four companies are leading the pack when it comes to delivering on fantastic experiences:

1. Slice – Creating insurance products for new realities.

Slice launched earlier this year and is currently operating in 13 states. The business model is based on the understanding that, in the new sharing economy, the needs of the insured have changed dramatically and that traditional homeowners’ or renters’ insurance policies don’t suffice for people using sites like AirBnB or HomeAway to rent out their homes.

According to Emily Kosick, Slice’s managing director of marketing, many home-share hosts don’t realize that, when renting out their homes, traditional insurance policies don’t cover them. When something happens, they are frustrated, angry and despondent when they realize they are not covered. Slice’s MO is to create awareness around this issue, then offer a simple solution. In doing so, Slice can establish trust with consumers while giving them something they want and need.

Slice provides home-share hosts the ability to easily purchase insurance for their property, as they need it. Policies run as little as $4 a night! The on-demand model allows hosts renting out their homes on AirBnB or elsewhere to automatically (or at the tap of a button) add an insurance policy to the rental that will cover the length of time–up to the minute–that their home is being rented. The policy is paid for once Slice receives payment from the renter, ensuring a frictionless transaction that requires very little effort on the part of the customer.

See also: Who Controls Your Customer Experience?  

Slice’s approach to insurance provides an excellent example of how insurers can strive to become more agile and develop capacities to launch unique products that rapidly respond to changes in the market and in customer behavior. Had large insurance companies that were already providing homeowners’ and renters’ insurance been more agile and customer-focused, paying attention to this need and responding rapidly with a new product, the need for companies like Slice to emerge would have never have arisen in the first place.

2. Lemonade – Practicing the golden rule.

In a recent interview, Lemonade’s Chief Behavior Officer Dan Ariely remarked that, “If you tried to create a system to bring about the worst in humans, it would look a lot like the insurance of today.”

Lemonade wants to fix the insurance industry, and in doing so has built a business model on a behavioral premise supported by scientific research: that if people feel as if they are trusted, they are more like to behave honestly. In an industry where 24% of people say it’s okay to pad an insurance claim, this premise is revolutionary.

So how does Lemonade get its customers to trust it? First, by offering low premiums–as little as $5 a month–and providing complete transparency around how those premiums are generated. Lemonade can also bind a policy for a customer in less than a minute. Furthermore, Lemonade has a policy of paying claims quickly–in as little as three seconds–a far cry from how most insurance companies operate today. When claims are not resolved immediately, they can typically be resolved easily via the company’s chatbot, Maya, or through a customer service representative. But perhaps the most significant way that Lemonade is generating trust with its customers is through its business model. Unlike other insurance companies, which keep the difference between premiums and claims for themselves, Lemonade takes any money that is not used for claims (after taking 20% of the premium for expenses and profit) is donated to a charity of the customer’s choosing. Lemonade just made its first donation of $53,174.

Lemonade’s approach to insurance is, unlike so many insurers out there, fundamentally customer-centric. But CEO Daniel Schreiber is also quick to point out that, although Lemonade donates a portion of its revenues to charities, its giveback is not about generosity, it is about business. If Lemonade has anything to teach the industry, it is this: that the golden rule of treating others as you want to be treated, holds true, even in business.

3. State Farm – Anticipating trends and investing in cutting-edge technology.

The auto insurance industry has been one of the fastest to adapt to the new customer experience landscape, being early adopters of IoT (internet of things), using telematics to pave the path toward usage-based insurance (UBI) models that we now see startups like Metromile taking advantage of. While Progressive was the first to launch a wireless telematics device, State Farm is now the leading auto insurer, its telematics device being tied to monetary rewards that give drivers financial incentives to drive more safely. The company also has a driver feedback app, which, as the name suggests, provides drivers feedback on their driving performance, with the intent of helping drivers become safer drivers, which for State  Farm, equals money.

By anticipating a trend, and understanding the importance of the connected car and IoT early on, State Farm has been able to keep pace with startups and has reserved a seat at the top–above popular auto insurers like Progressive and Geico–at least for now. If nothing else, unlike most traditional insurers, auto insurance companies like State Farm and Progressive have been paving the way for the startups when it comes to innovation, rather than the other way around. For now, this investment in customer experience is paying off. J.D Powers 2017 U.S Auto Insurance Study shows that, even as premiums increased for customers in 2017, overall customer satisfaction has skyrocketed.

4. Next Insurance – Automating for people, and for profit.

Next Insurance believes that a disconnect between the carrier and the customer is at the heart of the insurance industry’s digital transformation problem. In essence, it’s a communication problem, according to Sofya Pogreb, Next Insurance CEO. The people making decisions in insurance don’t have contact with the end customer. So while they are smart, experienced people, they are not necessarily making decisions based on the actual customer needs.

Next Insurance sells insurance policies to small-business owners, and the goal is to do something that Next believes no other insurer is doing–using AI and machine learning to create “nuanced” and “targeted” policies to meet specific needs.

An important aspect of what makes the approach unusual is that, instead of trying to replace agents altogether, Next is more interested in automating certain aspects of what agents do, to free their expertise to be put to better use:

“I would love to see agents leveraged for their expertise rather than as manual workers,” Pogreb told Insurance Business Magazine. “Today, in many cases, the agent is passing paperwork around. There are other ways to do that – let’s do that online, let’s do that in an automated way. And then where expertise is truly wanted by the customer, let’s make an agent available.”

See also: Smart Things and the Customer Experience  

While innovative business models and cutting-edge technology will both be important to the insurance industry of the future, creating fantastic customer experiences ultimately requires one thing: the ability for insurance companies–executives, agents and everyone in between–to put themselves in their customers’ shoes. It’s is a simple solution, but accomplishing it is easier said than done. For larger companies, to do so requires both cultural and structural change that can be difficult to implement on a large scale, but will be absolutely necessary to their success in the future. Paying attention to how innovative companies are already doing so is a first step; finding ways to bring about this kind of change from within is an ambitious next step but should be the aim of every insurance company looking to advance into the industry of the future.

This article first appeared on the Cake & Arrow website, here. To learn more about how you can bring about the kind of cultural and institutional change needed to deliver true value to your customers, download our recent white paper: A Step-by-Step Guide to Transforming Digital Culture and Making Your Organization Truly Customer Focused.

Why Are Direct-Sales Carriers Winning?

Agency consultant Chris Burand wrote an interesting article published in Insurance Journal. The article discusses the declining role of the agent as an underwriter and the increasing use of data analytics and predictive modeling. It also cites a recent J.D. Powers survey that identifies a correlation between advertising by direct sales carriers and growth and profitability. For example:

“Another nail was driven into the coffin of agency upfront underwriting with a J.D. Powers study reported in the June 19, 2017 Insurance Journal. The study, specific to private passenger auto (PPA), shows a strong correlation between advertising and underwriting profitability. Several companies that spend the most on advertising, and do not have agents, have the best underwriting profits. Furthermore, they have some of the highest growth rates. If then, underwriting profit is high, and growth is higher, with more advertising and less agents, at least in PPA, why should companies focus on agents?”

I remember seeing this study and questioning two things. First, “correlation” is not cause and effect. Second, are there possible reasons for this alleged superior performance other than advertising and the use of direct, rather than agent-driven, sales?

See also: Why More Don’t Go Direct-to-Consumer  

I suspect there was a “correlation” (vs. cause-and-effect) between advertising and direct sales (vs. agents) because that’s all J.D. Powers really considered. I’m pretty sure there are other correlations that can be identified, correlations that quite possibly have far more cause and effect. Advertising no doubt measurably impacts growth, but does direct sales vs. agent sales really improve profitability or is something else at work?

The most notable alternative correlation could be that carriers who heavily advertise and sell direct sell an inferior product and/or “more stringently” adjust claims. Given that the loss side of the combined ratio is the larger component of premium and profitability, that’s where the biggest payoff comes from. Perhaps J.D. Powers didn’t consider this in their “study” because the authors know nothing about the substantial differences among carriers in product quality and claims practices.

As a coverage wonk, for years I’ve seen increasing numbers of coverage-deficient policies being allowed by regulators into the marketplace and I have literally thousands of anecdotal examples of coverage denials on clearly covered claims. Sometimes I can just about predict the carrier(s) involved in such denials.

Whether you’re using direct sales, phone apps, data analytics or whatever to reduce costs, at some point you are probably going to be operating as efficiently and predictively as possible. If you sell on price, as these direct sales carriers almost always do, what do you do then? The only way (and probably most effective way) to continue that downward pricing spiral is to reduce how much you pay on claims. You do that by reducing coverage and/or “tightening up” adjusting.

See also: Where Can You Find Growth (Part 2)?  

Developing and selling inferior products and adopting more stringent claims practices is potentially a far more cost-effective way of increasing profits than using agents or investing billions in sophisticated predictive models, especially if your sales strategy consists largely of using technology to churn customers by the tens of thousands. As long as regulators allow the sale and service of shoddy merchandise, this is likely to be an increasingly popular path to growth and profitability for some carriers.

As legendary salesman Morty Seinfeld said, “Cheap fabric and dim lighting…that’s how you move merchandise.”

Dare to Be Different: New Ways to Communicate With Customers

Two insurance industry surveys for 2014, released by J.D. Powers (Auto Purchase and Property Claims), conclude that timely and relevant communication is the dominant factor in customer satisfaction. The studies show the intrinsic value of communication in building trust with customers, resulting in retention and in growth.Roughly 45% of insurers cited customer-experience levers as top business goals in research on customer communication released by Forrester in November 2012. So we would expect insurers to tap into the opportunity to engage customers in ways that drive renewals, deepening relationships and brand affinity. Obvious, right?The reality is a far cry from this.Instead, insurers have been focusing on the very obvious savings from the reduced need to print and mail the communication documents, by pushing the customers to digital channels.Here comes the second paradox.You would hope that customers are now far more engaged through the digital platform. But a survey conducted by Nationwide Insurance reveals that 60% of customers have not read their policy in full in a year, and only one in five customers believed that they completely understood their policy. The top two reasons cited are that documents are too long and too complicated.

The Consumer Bill of Rights in Texas is nine pages long — even those who receive it won’t read the full document. For most, buying insurance is like buying a car without knowing if it will accommodate your two wonderful kids, wife, the bags from your normal shopping trips and a stroller.

Nearly 85% of communications with a customer after a sale are in categories covered by regulation: contracts, endorsements, notices, amendments, bills and statements, notifications, follow up notices, reminders, etc. According to the Forrester study, two out of three insurers are worried about avoiding noncompliance rather than focusing on communications that can deliver far more measurable returns from better customer engagement.

Meanwhile, more than half of customers who file a claim don’t understand how to do so and can have a bad and emotional experience, while those who don’t file a claim are never given a way to visualize the protection they enjoy.

Are insurers too focused on regulatory issues and not engaged enough with the customers whose hard-earned money they hope to keep receiving? Can insurers build trust with customers and sell more and faster?

Our research suggests that some insurers have taken the lead and have implemented communication capabilities that are delivering benefits in silos. But the industry as a whole has not yet unlocked the value of service communication to generate lower-cost relationships and build trust faster, replacing expensive strategies led by marketing. We believe the starting point is to have a good understanding of contact strategy and its nuances, mapped to what customer value at different stages.

Here is what insurers can do to go from Regulation to ROI.

  • Produce a blueprint of customer communication touch-points across the product lifecycle. The important factors are: business process, event, frequency, emotion, customer segment, channel and interaction sequence. It’s crucial to define the right performance indicators and establish a tracking mechanism. The blueprint will unlock the value of relationship through continuous engagement. Today, communications operations mainly take a “stay out of jail” approach.
  • Make communication proactive, not reactive. Several surveys show that timely communication can limit escalation to 6% of customer issues, whereas delays and unclear communications increase complains by as much as a factor of three. Billing presents the best opportunity to engage customers, through snippets of communication before and after the billing transaction. The same approach can be used to prepare customers for changes in premiums, rather than going through several painful calls around renewals that erode trust. For example, Allstate communicates “reason for premium change,” which reduced the call volume and cost of contact drastically.
  • Make a meaningful channel shift — Of the increasing number of customers who own a smartphone, 90% want the option of buying and obtaining service through mobile apps. The importance of mobile is demonstrated by the fact that 95% of text messages are opened within seven minutes of being received; insurers should look into using push notification through this low-cost channel. To avoid customer pushback about SMS cost, insurers should look for free-to-end-user (FTEU) SMS, which is cheaper than print-and-mail. An integrated communication center should be developed that spans across digital channels and other communication options, including paper. Investigate the possibilities of social media. Include capabilities for e-signatures.
  • Provide a digital policy with intuitive drilldown into all features. Mobile policy download, catastrophe alerts, billing alerts, claims alerts, mobile ID cards and a digital locker all drive up channel adoption and communication effectiveness, and there is opportunity to go much further in treating a policy as a mobile app.
  • Produce creative content. AT&T’s smart video bill directly addresses the population that wants information on-the-go. Smart video is customized for individual customers and helps in visualization of benefits. Allstate’s “Mayhem” advertisement provides this sort of visualization, albeit from a marketing perspective. The same investment can easily be used to address the accessibility requirements for ADA (Americans with Disability Act). GEICO’s coverage coach is an animated tool used for educating the customers as to what coverage can be right for them. Imagine if this visual approach was applied to claims, at the filing stage; it would help customers understand their coverage and reduce complaints. Progressive, GEICO and USAA send periodic news through print and emails that are relevant to the season; for example, something explaining ways to protect a boat or motorcycle during winter. This communication improves customer engagement across the life cycle.
  • Leverage emerging approaches, such as in-car-entertainment, wearable media and the “connected home.” Gamification — using techniques like those for Angry Birds, rather than like a traditional insurance policy — is another emerging approach that can be used. The customer can also be provided virtual assistance to simulate an accident scene, which will help with an assessment while greatly reducing fraud. Gamification should be used to provide customers a visualization of the claims process and the roles they play, which will improve the experience and increase retention.
  • Understand the customers better – Most insurers deliver marketing messages often but do not see a corresponding lift in their results. This is simply because they aren’t taking advantage of today’s data and analytic technology to understand customers as well as they could and to deliver more-individualized, relevant messages. Effective use of all available information about the customer is the cornerstone of this approach. Retailers tend to lead the pack here; insurers can learn from them. Try to sell when the customer is happy; if he is not happy, then create happiness in him and sell. This approach has delivered proven results.

With evolving customer needs and emerging channel and content technologies, insurers have a great opportunity to improve their communication to build trust with their customers, deliver much better returns on their sales efforts and contain most preventable costs, while providing an experience that customers value. Are you up for the challenge?