Tag Archives: roi

ROI Study on Customer Experience

What’s a great, differentiated customer experience (CX) really worth to a company?

It’s a question that seems to vex lots of business executives, many of whom publicly tout their commitment to the customer but are actually unsure about the ROI of customer experience — leaving them reluctant to invest in customer experience improvements.

As a result, companies continue to subject their customers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent service, unintelligible correspondence and products that are just plain difficult to use.

To help business leaders understand the overarching influence of a great customer experience (as well as a poor one), my firm sought to elevate the dialogue.

That meant getting executives to focus, at least for a moment, not on the cost/benefit of specific customer experience initiatives but, rather, on the macro impact of an effective customer experience strategy.

We accomplished this by studying the cumulative total stock returns for two model portfolios – composed of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in customer experience.

As the graphic in the next section vividly illustrates, the results of our study were quite compelling.

The Results

Eleven years of customer experience rankings were available for our analysis. The graph below shows the cumulative total return across that period for the Leaders and Laggards.

  • Customer Experience Leaders outperformed the broader market, generating a total return that was 45 points higher than the S&P 500 Index.
  • Customer Experience Laggards trailed far behind, posting a total return that was 76 points lower than that of the broader market.
  • Customer Experience Leaders generated a total cumulative return that was nearly three times greater than that of the Customer Experience Laggards.


This analysis reflects over a decade of performance results, spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

While there are obviously many factors that influence a company’s stock price, the results of this study indicate that, over the long term, a great customer experience helps build business value, while a poor customer experience erodes it.  That’s an important takeaway, for public and private entities alike.

What creates that enhanced value?

Revenue growth. When most people think about the economic benefit from a great customer experience, this is where their heads go.  That’s entirely appropriate, because revenue growth is indeed one clear advantage of customer experience excellence. Why? Happy, loyal customers have better retention, they’re less price-sensitive and they’re more willing to entertain offers for other products and services – all helping to raise revenue. Plus, because they love you so much, they spread positive word-of-mouth and refer new customers to you – lifting revenue even higher.

Expense control. This is the part of customer experience economic equation that most businesses fail to appreciate. (It’s also why using revenue growth, alone, to demonstrate customer experience ROI is misguided.) When you have happy, loyal customers, it helps to better control – if not reduce – your expenses. For example, due to all the customer referrals you’re getting, you can spend less on business acquisition – which reduces expenses. In addition, happy customers tend to complain less, putting reduced stress on your operating infrastructure (e.g., lower call volumes), thereby also helping to keep expenses in check.

Of course, these economic dynamics cut both ways. Customer Experience Laggards struggle to raise revenue (e.g., poor retention, high price-sensitivity, limited cross-purchasing, negative word-of-mouth), and they’re burdened with higher expenses (e.g., to acquire new customers, and to deal with the existing unhappy ones). This weighs on their long-term profitability and makes them less valuable in the eyes of the market.

To learn more about the study’s methodology, and what Customer Experience Leading firms do to achieve their outperformance, view Watermark’s complete Cross-Industry Customer Experience ROI Study.

The Insurance Industry Perspective

The insurance industry often views itself as being different than other sectors, given, for example, its highly regulated nature and the fact that its products are something of a “grudge purchase” for consumers.

Well, we’ve crunched the Customer Experience ROI numbers for the Auto and Home insurance industries – and it turns out the customer experience story is even more compelling in those sectors:

Insurance Customer Experience Leaders outperformed the Laggards by over a three-to-one ratio. It’s a striking result that suggests, at least in this regard, the insurance industry isn’t different from most other sectors, and the compelling economics of a customer experience excellence still apply.

To learn more about Watermark’s insurance industry analysis, including the implications for insurance providers seeking to improve their own customer experience, view the complete Insurance Customer Experience ROI Study.

How to Gain Real Value from AI

As artificial intelligence (AI)-based solutions are introduced to the insurance industry and a new wave of insurtech companies rise up, it can be difficult to see the forest for the trees. AI-based products are designed to do a great number of things today: solve complex problems associated with care and claims in a fraction of the time; automate operations and improve efficiency; and enable greater, more personalized customer service — just to name a few potential benefits. Every solution a vendor tries to sell you can sound compelling on the surface. But the million-dollar question is whether there is tangible value for your organization.

Although it can be tempting to gravitate toward a bright, shiny object, there needs to be a legitimate business reason for adoption other than “everyone is doing it.” I recommend taking the following inventory as you delve into AI to ensure you maximize your investment.

Know what specific problem you are solving. Is the problem you are solving a priority?

One of the biggest challenges lies in identifying how and why AI fits into the big picture of your organization. Many executives hear a persuasive use case for a new technology and get very excited about how AI can be applied within their own company. This is logical; it’s human nature and fits with how we learn about and discover things in an age when everyone is overcommitted to tasks that are perceived as a higher priority. This approach should be avoided, however.

See also: How to Use AI in Customer Service  

AI makes it possible to capture so much more data than we’ve ever been able to get our hands on before, but, unless this data pertains to an issue you need to address, it may be deprioritized … data for data’s sake. McKinsey suggests that the process of determining uses for AI that drive value “will require exploring hypothesis-driven scenarios in order to understand and highlight where and when disruption might occur — and what it means for certain business lines.” I recommend starting with a problem, one that is causing real pain to your employees, customers or partners or affecting your bottom line. Then work backward to determine how AI and machine learning could be used to develop something better than the status quo.

Now, do a little research. Consult with analysts. Engage with vendors. Try out products and determine how they might work at scale, consult with references and have users test them. Those products now exist or are rapidly coming to market, but, if you don’t have a handle on your needs or know what you are looking for, you risk choosing a solution that fails to live up to the high expectations for AI.

Evaluate for simplicity

This may be stating the obvious, but that doesn’t make it any less essential. Any AI-based product, service or application must be easy to use. This point is non-negotiable.

Your people are probably long-entrenched in certain processes and ways of doing things. There could be some resistance to change, and, if a solution isn’t simple and intuitive, teams won’t adopt it. As a result, even if a system or application yields the best data and insights on earth, your company will never derive maximum value from it.

The consumerization of IT has ensured that people of all demographics expect and demand easy-to-use software. Therefore, you have to build or buy something that everyone feels comfortable with and wants to adopt. If they can see how it makes their day-to-day job more rewarding, all the better.

Have a plan to embed it in your processes and measure ROI

You have great data, and people suddenly have access to information they never had before. Now, what do you actually do with that information? What is the next step? You must consider how it enters into your processes. Knowing exactly how the product will be used will not only help you make the implementation painless, but also will define what product functionality is critical for your business.

Take your existing workflow, and plan to integrate your AI application into it so that you’re not creating more work, nor are you making the transition for others harder than it needs to be. To accomplish this effectively, you need to make sure to involve at least one team member with deep operational experience, who knows processes and workflows, and can educate and collaborate with data scientists and technologists to ensure all of the organization’s needs are met. This team will work together to develop the best processes and practices for leveraging new levels of intelligence.

If your new application doesn’t drive ROI, then it’s nothing more than a shiny new gadget. Create a plan to track and measure performance before you implement anything new. And integrate as much measurement as you can into your existing processes.

See also: AI Still Needs Business Expertise  

Over the next decade, we will see huge advances in how the insurance industry conducts business. The formula for success is knitting each of these pieces together: deep data science with a purpose, accessible through consumer-grade software that is guided by operational expertise. To ascertain the actual value of these components, track how people use AI-based tools as well as what the results are over the short and long term. Strive toward “better than before” rather than perfection — and continue iterating.

AI is poised to profoundly change the industry, but implementation of these exciting new technologies is not a one-and-done thing — it’s a journey. If all goes according to plan, and AI lives up to potential, your organization will reap tremendous rewards.

As first published in DATAVERSITY.

3 Ways to Optimize Predictive Analytics

A few years ago, simply applying predictive analytics to insurers’ underwriting practice was enough to gain a competitive edge against the large portion of the market that was still operating with traditional methods. That ship has sailed with increased adoption of analytics, raising the stakes for companies that once enjoyed a first mover advantage. Currently, 60% of insurers have welcomed predictive analytics into decision-making and underwriting processes, and research continues to show correlation between predictive analytics integration in the property & casualty industry and improvement to top and bottom lines. Companies that view analytics as a necessary commodity for modern underwriting instead of the centerpiece to their decision making will find themselves falling short of their competition. The biggest differences between the winners and losers in analytics today is equal parts ideological and technical.

In its recently published ROI study, Valen Analytics observed 20 insurance companies, representing $1.8 billion in premium, and compared their loss ratios and premium growth against the industry. The study showed that data-driven insurers consistently outperformed the market on both metrics.

  • Between 2012 and 2017, the industry saw its loss ratios improve by 18 points, whereas these 20 carriers averaged improvements that were nearly twice that (loss ratios improved by 35 points).
  • Between 2012 and 2017, industry-wide premium grew 18% on average, while the carriers studied grew by 53%.

For the first time since its inception, the ROI study isolated the impact of applied analytics on insurers with concerning loss ratios: those whose loss ratio were greater than 60%. This group of insurers saw loss ratios improve to market average within 12 months, and then outperform the market with each subsequent year. These results underscore the value of predictive analytics in insurance.

See also: 3-Step Approach to Big Data Analytics  

Below are three best practices that the insurers studied have implemented to draw the most value from their predictive analytics programs:

Empower underwriters

The considerably positive findings of Valen’s study do not imply that predictive analytics should replace traditional underwriters. Instead, research suggests that predictive analytics tools should aid traditional insurance writers. This year’s study found that underwriter performance improves 3x when they combine predictive analytics with expertise. A well-implemented analytics solution helps underwriters leverage powerful data that they wouldn’t be able to otherwise, and underwriters provide the expertise to make the final decision. In other words, an insurance underwriter’s wealth of knowledge and contextual expertise is a largely irreplaceable asset. Underwriters know the critical variances between the price suggested by the analytics model and the historical habits of a policyholder and can incorporate this information into their decisions. Thus, predictive analytics usage augments an underwriter’s decision-making process rather than supplements it.

Streamline the workflow

Predictive analytics enable insurers to accurately align price to risk exposure, helping underwriters price policies within the context of an insurer’s risk appetite, and oftentimes allowing insurers to implement straight-through-processing (STP) for specific types of risk. In doing so, insurers can eliminate the need for underwriters to be heavily involved in certain decisions and allow them to focus on the decisions that will have the greatest impact to a book of business. This, again, leverages the expertise of an underwriter.

Incorporate the right data

Insurers that have incorporated a consortium of anonymized data into their model-building initiatives tend to be better-positioned for growth. This additional information can be crucial to initiatives like expansion across states or business classes, often by identifying risks that might fall in a blind spot of institutional knowledge. In other cases, the incorporation of consortium data will eliminate sample bias in an existing book of business. For instance, an insurer that’s relied heavily on its expertise in knowing how to underwrite low-risk construction accounts in one state to build a data set that determines good risks in a new state will risk overfitting the model, essentially giving it too high a standard. This will leave an insurer vulnerable to underpricing risky accounts without third party data to balance the scales. Consortium data increases the predictive power of models and helped the group in our ROI study of analytically inclined insurers grow premium last year, even as the market declined.

See also: Global Trend Map No. 5: Analytics and AI  

For the third consecutive year, Valen’s ROI study has identified just how much value applied analytics can add to insurers. The carriers that have leveraged analytics and consortium data and empowered their underwriters have realized significant advantages over competitors to improve both profitability and growth.

Is There Risk in Embracing Insurtech?

As insurers rush headlong into the digital scramble, they should keep in mind the proverbial iceberg. Not all the risks involved are strictly tied to the innovation itself. Certain ones are below the water level.

Insurers actively participating in the digital revolution have done so in a variety of ways: 1) innovation labs, 2) insurtech accelerators with external partners, 3) investments in insurtech companies, 4) purchases of insurtech companies. These are reasonable approaches for staying current and competitive. However, there are some caveats that should be heeded.

Focus Risk

Insurance is not a simple business. Machines cannot be set to produce thousands of identical items, a sale is not final and competition is never at a low ebb. It is a complex business that relies on actuarial forecasting, capital models, complicated and multi-layered contracts, in many cases, and astute claims handling. Thus, companies must remain focused on the functions and metrics fundamental to the business, if they are to achieve good results.

Over the years, the insurance industry has adapted to paradigm shifts of all types, for example: 1) automation of internal operations, 2) agent/broker electronic interface, 3) paperless environments, 4) increased transparency with regulators and 5) product development responsive to new risks such as cyber or supply chain disruption. Now, creating new ways to interact with stakeholders digitally and developing products that are fit for purpose in a digital world should be within the capability bounds of these same insurers.

The caution is that insurers should not get so focused on their digital initiatives they lose proper sight of the basics of the business: underwriting, claims, actuarial, finance, customer service. Equally, insurers cannot lose sight of other disruptive forces in the environment such as climate change, terrorism and cyber threats.

See also: Insurtech: Unstoppable Momentum  

A piece appearing on AIR Wordwide’s website written by Bill Churney asks “Have You Lost Focus On Managing Catastrophe Risk?” He alludes to the fact that catastrophes have been light these past 10 years, which may cause inattention, and that many new insurance staffers were not working when Katrina, Andrew or Hugo hit, thus have no personal experience to tap for handling sizable events. A lack of focus on managing catastrophe risk could be critically detrimental for companies. And although there is nothing concrete to suggest that insurers have lost such focus, the question underscores the possibility of attention deficits. The need for continuous and careful attention to the rudimentary aspects of the business cannot be dismissed, even if they may not seem as exciting or timely as digital inventions.

Within memory, there have been companies that allowed themselves to lose necessary focus. Some got so focused on mergers and acquisitions that core functions were not managed properly while the emphasis was on cross sales and economies of scale. Some got so intent on improving customer relations that business imperatives were ignored in favor of appeasing the customer, and some got so diversified that senior management did not have the bandwidth to manage the whole enterprise.

How can the 2016 results at AIG be explained? Could the more recent focus on divestitures, staff changes and cuts, a drive to return dividends to shareholders and the CEO’s reported concentration on technology have caused it to lose its once unparalleled focus on profitable underwriting, rigorous claims handling and product innovation.

Investment Risk

With investments pouring into insurtech, it raises the question: What is left for anything else? Despite fintech investments starting to slow, KPMG reports, “There was a dramatic increase in interest in insurtech in Q3’16, and the trend is expected to continue. The U.S. was the top country in Q3’16 with 10 insurtech deals, valued at $104.7 million in total.”

These numbers do not capture the many millions of dollars that insurers are investing in insurtech activities internally, of-course. As mentioned above, they are spending money to create dedicated innovation labs and accelerator programs and to launch other types of speculative insurtech projects. Many older projects have become operational, including new business unit or company startups, the introduction of bots on company websites, telematics in vehicles, digitized claims handling…and the list goes on.

How does an insurer know when an investment in insurtech is enough or too much, thereby negating other necessary investments required by functions such as underwriting, claims or actuarial?

The caution is not about doing an ROI (return on investment) analysis for a specific project. It is about doing an ROI analysis for the portfolio of projects that are vying for funding vis-a-vis the need to keep the company solvent while maintaining progress with the digital strategy. The larger the insurer, the more used it is to managing multiple priorities and projects. For mid-size to small insurers, this skill may be less developed, and they may face even greater risk of getting out of balance.

Growth Risk

Insurance is one of the few industries for which growth can be just as risky as no growth. Industry pundits have long claimed that new business performs about three points worse than policies already on the books. The difference between a company at a combined ratio of 99 compared with 102 can be quite significant. The causes for this phenomenon have to do with such factors as: 1) the potential for adverse selection, 2) the reason customers choose to change carriers and 3) the costs associated with putting new business on the books. These are not the only ones. It is harder for actuaries to predict the loss patterns for groups of customers for whom there is no history in the company’s database.

See also: Infrastructure: Risks and Opportunities  

If the reason for investing in insurtech is to increase new business written, insurers should be cautious about how much and what kind of new business they will write because of their insurtech enhancements. To the extent that insurtech enables insurers to hold on to existing business, the outcome is less risky.

For example, it remains to be seen whether drivers who want to buy insurance by the mile are a better or worse risk pool than other drivers, whether those involved in the sharing economy, such as renting rooms in their homes, are more or less prone to loss than homeowners who do not rent rooms. Are small businesses that are willing to buy their coverage on-line likely to file a higher number of claims or a lower number compared with small businesses who use an agent? Do insurance buyers who are attracted to peer-to-peer providers have loss experiences at a different rate than those who are not attracted to such a model?


The march toward more digitization in the insurance industry will and must go forward. At the same time, insurers should be wise enough to realize and address underlying risks inherent in this type of aggressive campaign to modernize.

The Yuuuuge Hidden Costs of Wellness

We  have written extensively on the direct costs of dealing with wellness vendors, which often do wellness to employees instead of doing it for them. Employers in self-administered programs tend to focus much more on cultural improvements—the “for” instead of the “to.” However, there’s not really a vendor business model in doing wellness for employees. Cultural improvements tend to be internally driven, generating few transactions of the type for which vendors get paid and brokers get commissioned.

In sharp contrast to the internal development of a wellness culture, the wellness industry is completely transactional. It’s all about the number of risk assessments, screens, coaching sessions, “biggest loser contest” participants, etc.

Further, the wellness industry is completely unregulated. It claims to offer healthcare, but it is required to know nothing about healthcare. The industry’s disregard for clinical guidelines is the stuff of legend—one vendor has even bragged about it—and it counts fines levied upon employees refusing to submit to pry-poke-and-prod as “savings.” Quite literally, you can become a wellness vendor with five days of classroom training.

See Also: Wellness Promoters Agree: It Doesn’t Work

Any time you have an unregulated industry, bad actors take over. You have the equivalent of Gresham’s Law in economics, which states that bad money chases out good, meaning that people hoard gold coins and spend paper currency. In wellness, dishonest vendors chase out honest vendors, because—aside from the esteemed Validation Institute—there is no resource a layperson can consult to know who’s telling the truth and who’s cheating. Vendors promising that wellness will generate massive savings will always win contracts over vendors who tell the truth, especially because consultants and brokers can’t seem to figure this stuff out for themselves or are chasing the greater fees that come with the easier route of making up high ROIs.

We see this at Quizzify, too. We guarantee an ROI, explicitly define how it is measured (while allowing customers to choose their own measurement instead) and have V-I validation. But we still hear: “Your fees are so low that your 2-to-1 guarantee won’t even save us $100/employee.” Um, yeah, but these very same employers actually lose at least $100/employee using dishonest wellness vendors and pay much more for the privilege.

Our past postings and articles have covered the direct damage that these dishonest wellness vendors have done to employers and employees: the fees, the harms to employees, the reduced productivity and the morale impact.  Others with different perspectives have addressed privacy/intrusiveness and economic discrimination.

But wait. There’s more.

The Indirect Harms of Wellness

Overlooked in the voluminous criticism of wellness vendors is the dog that didn’t bark in the nighttime. Specifically, there are a large number of important items that get overlooked or that are under-resourced in employer settings because of this pervasive wellness obsession. There are so many such items that ITL and I are going to run an entire series devoted to the topics below. These topics aren’t wellness, but that’s exactly the point: Wellness “harms” employees in the following ways because it distracts people in human resources from doing their jobs.

Hospital safety. It turns out to be comparatively easy to get hospitals to focus on safety: Simply don’t pay them for “never events” (shocking errors, such as surgery to the wrong part of the body, that should never occur). Hospital safety issues are very expensive and are far more common than you would think. Leapfrog Group has an entire strategy, policy and how-to guide on that.

PBMS. There’s a reason the pharmacy benefit management (PBM) industry has enjoyed the greatest stock appreciation of any industry in the last 30 years. It’s because those fancy contractual metrics they sell you are profit-making machines for them. The industry has more ways to snooker you than even wellness vendors do. The industry’s contracts take opacity to a new plateau. We’ll look at some of them in our later series and will see what can be done to get a better deal.

Overuse. While everyone is focused on preventing cardiometabolic admissions (which turn out to be quite rare to begin with in the employer-insured population), providers are running amok with spinal fusions and other procedures. Spinal fusions fail at a high rate and can entail painful complications. Even when they don’t, they are expensive and arduous to recover from. Yet, the average company spends more on spinal fusions than on any admissions category other than birth events and joint replacements.

Opioids. Marx was wrong: Religion isn’t the opiate of the masses. Opioids are the opiate of the masses. You may have a major problem and simply not know about it. Overuse of pain medication may be five to 10 times as big a problem in your workplace as overeating, so why would people spend five to 10 times the time and effort on overeating as on opioid addiction?

See Also: Triathlete’s View on Workplace Wellness

Non-inpatient spending. Aside from about 10 procedures, there is not a lot to be gained by trying to “keep people out of the hospital.” Most commercially insured people already are “out of the hospital.” Take out birth events, trauma and orthopedics… and maybe 3% of your employees end up in the hospital in a given year. Most of that 3% is simply not preventable. Yet, outside those hospital walls, a ridiculous numbers of resources are overused, misused, etc.—right under your eyes and are just completely ignored by wellness vendors. Our last post will cover this topic.

So, keep your eyes open. This series will appear approximately weekly, subject to breaking wellness news and, of course, the occasional demands of the darn day job.