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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.

The Great AI Race in Insurance Innovation

The rise of artificial intelligence is the great story of our time. Leaving the laboratory after decades in the making, artificial intelligence, or AI, is infusing itself into many aspects our daily lives – from homes and phones to cars and offices. Machines are now able to perform tasks that previously required human intelligence across various industries. Insurance, once perceived as highly resistant to change, has now accelerated the race for innovation.

Placing AI at the forefront of the innovation agenda, insurers have been separating the hype from reality to reinvent business models. Insurance has accepted the fact that AI isn`t coming — it’s here. Companies are racing to apply artificial intelligence to find a 10X improvement.

The following case studies provide a first-hand look at how today’s pioneering insurers are advancing strategic growth and transformation with artificial intelligence:

AI in Consumer Engagement

Insurers are constantly seeking opportunities to enhance the trust and relationship with customers, as the industry has always suffered from a lack of frequent and direct engagement. Today, AI is increasing being applied to collect large volumes of real-time data at very high velocity, recognize patterns of customer behavior and engage in deeper interactions for a more personalized and engaging overall experience with customers.

As AI is vying to become an indispensable part of customers’ everyday life, intelligent personal virtual assistants like Amazon’s Alexa, Microsofts’s Cortana, Google’s Now, Facebook’s M and Apple’s Siri are evolving to learn customers’ preferences and behavioral patterns and then making recommendations and potentially acting on behalf of the customer. Using just voice services, customers are now able to interact with insurers through a more intuitive channel, from asking everyday insurance questions to getting an insurance quote, or simply navigating the insurance process.

See also: Insights on Insurance and AI  

AI bots’ are becoming the new user experience (UX). Chatbot technologies are engaging customers on websites, mobile apps and messaging services such as WhatsApp, Facebook Messenger and SMS using natural language. The advancements in conversational AI agents, including their ability to adapt to speech patterns, vocabulary and personal preferences, have driven insurers to take things to the next level with full conversational interactions powered by AI bots throughout the customer journey. From a customer perspective, it`s truly a game-changing experience as we could now simply ask a question through speech or text and have insurers resolve problems or attend to an inquiry, at any point in time from any digital interfaces (including websites and mobiles apps) instead of navigating our way around complicated websites or time-consuming contact centers. Some insurers have successfully launched Alexa-integration, allowing customers to quickly access important information such as policy premium status, as well as make payments and recommend additional coverage based on lifestyle changes.

Although these advancements won`t be able to replace an agent in the short term, AI agents are learning at unprecedented speed, and this is just scratching the surface of what’s coming. A recent Gartner study predicts that, by 2020, the customer will manage 85% of its relationship with an organization without human interaction. While we know analyst projections may at times be over-optimistic, the reality is that AI likely will be the basis for competing on customer experience from here onward. There’s no turning back.

AI in Automated Advisory

Some insurers will leapfrog the innovation race with automated insurance advisory. With robo-advisers, insurers can now offer real advice without the need for any human intermediaries, anytime and anywhere.

The complexity of insurance often frustrates customers and leads to mistrust. It is also hard to decouple decisions from emotional and social reasons or agent bias.

Robo-advisers can build a consolidated financial portfolio, often aggregating data from various insurers and financial providers including life and health coverage, annuity accounts, savings, brokerages, etc. Robo-advisers then combine behavioral and external data to simulate future risk preferences, running future scenarios to infer cradle-to-grave financial plans and investment management advice.

AI in Underwriting and Claims Management

Increased automation in claims management and underwriting holds the promise of delivering a more customer-centric experience.

Today, AI-based agents are building predictive models for processing and settlement of claims expenses and high-value losses with far lower costs and heighten levels of efficiency. Tasks that took typically months are now accurately achieved in a matter of minutes, allowing insurers to focus on value-added activities. In early 2017, tongues started wagging when Lemonade used AI to settle a claim in three seconds and Fukoku Life of Japan displaced 34 employees with IBM’s Watson Explorer AI, for a 30% productivity increase.

See also: Seriously? Artificial Intelligence?  

Software developed using machine learning gathers all the details that underwriters need, while also identifying hidden risks.

Insurers are racing to routinize more work with artificial intelligence automation in core insurance business process areas such as fraud detection, policy services and contract administration, claims administration and risk compliance. We foresee increased application of artificial intelligence in any task that’s high-volume and highly repetitive and demands low human judgment, reaping sizable costs savings.

AI in Pricing Risk

Traditionally, insurers use generalized linear models (GLM), with predefined variables such as age, sex, location and occupation class, then fitted with additional factors/variables for predictions.

Today, modern machine learning techniques have increased speed, sophistication and accuracy, accelerating the adopting of usage-based and behavior-based pricing. Motor, alone, has seen a constant stream of telematics data ingested into machine learning models; driving patterns are not only used for accurate pricing of risk but also to prevent accidents by alerting drivers with behavior tips and with information about traffic and road conditions.

Health insurers are capitalizing on wearable technologies such as Fit Bits and Jawbone to drive individuals toward better health. By linking incentives to customers with healthy lifestyle characteristics such as regular exercise, walking, running, cycling, swimming and a healthy body mass index (BMI), insurers are lowering risk — and premiums.

With shorter modeling response time, increased actuarial simulation and the capability to learn, machine-based pricing is marching toward becoming an industry standard much quicker than we anticipated.

The Future

The work in artificial intelligence is just beginning. Insurers are aggressively exploring opportunities.

See also: Convergence: Insurance in 2017  

Winners will be determined by the velocity and scale of their use of AI and by the ability to go beyond pure business results. After all, the fundamental promise of an insurer is to help customers live their lives with peace of mind — healthier and safer.