Customer-centricity and the current loyalty paradox

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Customer-centricity and the current loyalty paradox

If you are going to treat all your customers fairly, you either need to treat them all the same or you need to personalise your products and services. The answer for insurers may well be customer-centricity.

Does loyalty pay in business? Most of us, if asked, would probably say that it ought to do so. Fairness suggests that there should be an element of “you scratch my back, I’ll scratch yours.” In other words, if I remain your customer, you will look out for my interests; and if I deliver what you want, you will remain my customer.

Unfortunately, that is not always true.

A super-complaint on pricing

In September, Citizens Advice submitted a super-complaint to the Financial Conduct Authority about excessive prices for long-term but disengaged customers across several sectors, including insurance, cash savings and mortgages. Even in this age of meerkats and opera singers, the issue, it seems, is that many people assume that they are getting a good deal because they have been customers for a long time. That the organisation is looking out for them. They do not “shop around,” but simply pay their suggested renewal premium and stick with their existing bank or mortgage provider.

Anyone who shops around, meanwhile, will know that those people are probably getting a very bad deal indeed. They are likely to be paying more than they should for insurance or their mortgage, and getting a lower rate of interest on their savings. There are undeniable pressures on banks and insurers to deliver growth by attracting new customers, rather than looking after existing ones. The Financial Conduct Authority is clearly taking the issue seriously. It has already started to make noises about treating both new and existing customers fairly. This is an important point: When regulators take a hand, fairness is vital. Directors are responsible for the operations of a business, and can be heavily penalised for noncompliance with regulatory requirements. The times are very definitely likely to be a-changing.

Moving towards customer-centricity

I think the answer for insurers may well be customer-centricity. If you are going to treat all your customers fairly, you either need to treat them all the same – which, sadly, has often meant equally badly rather than equally well – or you need to personalise your products and services. Increasingly, especially among Generations Y and Z, people are willing to provide a certain amount of data to trusted firms in return for a more tailored and personalised service. This delivers both customer satisfaction and fairness.

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The use of analytics is essential to this transformation. With increasing amounts of data from a much wider range of sources, analytics is vital to start making sense of the information and turning it into insights about customers. Analytics, for example, enables innovations such as dynamic pricing.

It allows insurers to distinguish between customers, and particularly to identify their real needs. When I was first buying insurance, that was a key role of insurance brokers. But, in many markets, they have largely been replaced by price comparison sites. I think the next evolution of these sites or direct digital channels is likely to be towards “needs comparison,” because what customers want does not always match with what they need. Customers will often say that they want the lowest possible price – motor insurance is very much a “grudge purchase,” after all, because we all hope that we will never need it – but we also want to be sure that we have the right level of cover for the right risks. The key is to find the balance.

Embedding analytics

There is no shortage of ideas about how to use analytics in insurance. The challenge, however, is to decide which ideas to pursue. Could this new regulatory scrutiny demand that we narrow the focus to innovation that responds to a personalised understanding of each customer’s needs? Success in this endeavour will require the most comprehensive and up-to-date understanding of your customers. Under GDPR, those who build trust with their customers are likely to be granted access to the data that makes this possible. As with the question I raised at the start, “if I remain your customer, will you look after my interests as much as yours?”

Analytics alone won’t deliver this degree of customer-centricity. At a recent event, for example, one insurer reported that the company had set up a global analytics function with hundreds of data scientists. Experimentation with data science is obviously a good thing, but is now the time to question how this is in your customers’ best interests? The fascination with analytics needs to move beyond whether it’s machine learning or good old statistics and get back to genuine curiosity about your customers’ changing needs.

By combining the right analytics strategy, rich sources of open data, the boundless potential of IoT and other emerging trends, surely there’s never been a better time for insurers to become truly customer-centric and make these complaints a thing of the past.

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Paul Ridge

Client Manager, SAS UK & Ireland

Paul Ridge, Banking & Insurance Specialist, SAS UK & Ireland, assists clients to maximise the value of data and analytics. He is an expert in helping them move through the analytics lifecycle at speed to deploy insight within their operational processes to change outcomes and to do this in a repeatable and governed process.

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