It is fair to say that the insurance industry struggles to understand customer churn. There are a number of reasons for this, but chief amongst them is the focus on policies, not customers. In other words, insurance companies tend not to look at their customers as a whole. Instead, they work in functional silos to sell insurance of different types, such as household, car or health.
The big problem is that customers do not operate like that. Nobody actually wants to buy an insurance policy. They want to cover a risk, and an insurance policy is the best way to do that. However, they hope that they will never have to use it – so insurance is, at best, a grudge purchase. This means that the process of buying and renewing insurance needs to be easy.
It doesn’t take much to put someone off. Getting separate renewal letters about three different policies within a week, for example, will probably be enough. The recipient will perceive that the company does not see them as a "whole person," only three separate policies. If the premiums have gone up – and let’s face it, they usually do go up – then the customer will look for a company with a cheaper product and perhaps even a discount for multiple policies.
Customer experience is a team sport
What’s more, if a claim against one policy is handled badly, or even just turned down, customers are more likely to move all their policies elsewhere. Unfortunately for many insurers, though, claims handling processes focus on loss reduction. In other words, they look only at minimising the loss to the company through that particular claim. The use of analytics in claims handling, therefore, is mainly to eliminate fraud.
This can have huge effects on the company’s overall bottom line. Customers going through the claims process are likely to be fairly stressed anyway – and now their insurance company is suggesting that they are trying to commit fraud? This is not the way to create a good customer experience.
A different, and better, approach would be to focus on lifetime value of customers – that is, their overall value to the business over a longer period. This would require insurance companies to look at the customer experience across all contacts with the company. It would affect all aspects of insurance operations, from sales through renewal to claims handling and processing. Insurers have to understand that retaining a customer is dramatically better, cheaper and more successful than attracting a new one, especially if that customer has multiple policies. For example, it might be worth paying out on a claim more quickly, especially when the amount involved is fairly small, if the customer has four other policies with the company.
Customer experience as team sport
This approach would effectively mean that customer experience becomes a "team sport" in insurance. Analytics could, and should, be used across a much wider area of the business to inform decisions about premiums, offers, renewal action and claims handling. The business should see each customer as a whole – and respond consistently across channels, types of insurance and activities.
Analytics would also be essential to ensure that companies knew which customers were worth the effort. Some customers will stay anyway because of inertia, or possibly loyalty.
There are catches, of course. The use of data in insurance is highly regulated in Germany, Austria and Switzerland, even beyond the requirements of the General Data Protection Regulation. Insurers have to persuade their customers of the merits of providing data – and that means being able to show how it will benefit customers.
Considering the customer journey
It is therefore important to consider the profile of the customer journey. For example, 90% of insurance customers in Germany still buy insurance through traditional, offline channels. It is therefore vital to integrate offline and online channels so that the experience is consistent – and information is available across channels. However, it is also important to remember that the customer journey does not just involve buying insurance. Many customers will come back for more products or need to claim. Those elements are also part of the journey – and insurers forget that at their peril.