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Excellent Customer Experience: The Growth Engine mechanism in the Insurance Industry

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– Companies that offer best-in-class customer experiences grow faster and more profitably. To reach this level, insurers must relentlessly improve customer journeys across channels and business functions.

The difference between great and poor customer service has always been clear, and businesses on the wrong end of this spectrum usually pay a price. This is as true for insurance as it is for any other customer-facing business. Today, the consequences of subpar service are amplified by the speed and reach of social media.

One poorly handled claim, one mistake captured on a smart phone, can escalate quickly into a brand-damaging crisis. This is just one reason firms across all industries should increase their focus on providing great customer experience. Providing a strong customer experience is not just about reducing the risk of customer service mishaps.

It is increasingly a way for companies in competitive markets to distinguish their brands. The airline industry is a good point of comparison with insurance. Both are highly regulated and highly competitive, and carriers in both industries find it increasingly difficult to differentiate their products without lowering prices.

ON THE PATH TO PROFITABLE GROWTH

Delivering a superior customer experience takes more than developing a mobile app or adding call centre staff. It requires significant investments, relentless improvements, and collaboration across customer channels and business functions, from distribution and underwriting to claims handling. Many insurers look at each customer touchpoint, from visiting the website to calling an agent, as a discrete event.

But customers see those events as steps in a single journey to meet an important need, such as protecting themselves and their families or recovering from an accident. Improving customer satisfaction can be an engine of profitable growth, but it demands a common vision and new levels of coordination across historically strong organizational silos. Establishing cross-functional, multichannel customer experiences should be a CEO and board-level priority. In this context, digital tools are unlocking new opportunities for insurers.

For example, since more than 80 percent of shoppers now touch a digital channel at least once throughout their shopping journey, carriers can find new ways to engage customers efficiently and effectively with personalized messages, and improve speed, service, and consistency to raise satisfaction. A number of commercial lines carriers are using digital tools to improve journeys. Many commercial insurance buyers value online interfaces with self-service features and the ability to track the status of interactions in real time instead of having to make inquiries by phone, email, or through their brokers.

Advances like these require coordinating multichannel interactions with an overarching view of business value. Quick, cosmetic fixes are likely to fall short, while costly changes do not always deliver strong returns. Delivering a superior customer experience depends on the full range of pricing, products, and services.

BARRIERS TO SUPERIOR CUSTOMER EXPERIENCE

The main reason so many companies fail to improve customer journeys is that understanding what customers’ value is not an easy task. Identifying what drives customer satisfaction and translating it into operational performance improvements requires deep customer insights, solid analytics, and modelling the most important customer journeys, with cross-functional ownership and multichannel, end-to-end management.

So how can insurers overcome these barriers and deliver exceptional customer experiences? The first step is to align on what type of experience they want to deliver. Experts disagree on some fundamental elements of this issue. Some believe that fewer customer touch-points are better, while others say more interactions create more opportunities to add value and build loyalty.

Both can be correct, of course, depending on particular customer segments and the specific journeys they are on. Customers with more complex insurance needs might want a higher-touch approach during sales and onboarding.

TRANSFORMING THE CUSTOMER EXPERIENCE IN INSURANCE

Understanding what customers want is paramount in building a better customer experience. But real transformations are achieved when carriers take a comprehensive approach to customer journeys and how their organization works. Only a holistic process can deliver tangible and sustained improvements.

There are four core elements to a successful approach to excellence in customer experience: inspiration, insights, improvements, and institutionalization. Each element can yield a better experience, but the full impact is seen only when the four are pulled together.

Exh. 1: The growth engine

INSPIRATION

Create a comprehensive vision for a customer-centric business and operating model with clear targets. A customer-centric transformation begins with an overarching vision exemplified by senior leaders and modelled throughout the organization. CEOs listening in to live call center phone calls or serving coffee to their customers are nice, powerful touches.

But the real value of a customer-centric culture is unlocked when employees rally behind a common purpose that drives them to go beyond their regular standard of work. Customer-centric organizations go the extra mile, demonstrating that customer satisfaction is not just a metric on a dashboard but an inspiration.

INSIGHTS

Develop customer insights and link customer satisfaction to operational key performance indicators and business impact (such as churn and cross-selling). Improvements in customer experience result from a clear understanding of customer needs and their implications from an operational standpoint. Most customer-centric processes also improve efficiency, but large investment decisions demand a clear articulation of costs and benefits, such as how much value an innovation adds from the customer’s point of view and how much of a competitive edge it provides.

In other words, customer satisfaction initiatives should be grounded in facts, not gut feelings. Many companies typically rely on two tools to assess customer satisfaction, both with shortcomings:

Top-down metrics: All insurers periodically measure customer satisfaction. Many do so on a differentiated basis—by division, for example. Those may be good starting points, but they rarely provide clear indications as to where and how to make improvements.

Customer satisfaction scores need to be linked to operational metrics and economic value to highlight how to address customer needs. Likewise, recommendation scores may not reflect true customer satisfaction. In some industries, improving the customer rating may barely increase the likelihood of renewing a subscription or buying a new product, while in insurance, a similar jump can be a differentiator.

Internal surveys: Surveying internal leaders is a good way to generate ideas for improvements, but these leaders tend to focus on technical shortcomings and may not rank other nuances in interactions the way customers do. Increasing customer satisfaction goes hand-in-hand with operationally relevant customer intelligence.

Insurers can also gain valuable insights—and avoid trying to solve the wrong problems—by comparing how customers describe their experiences with actual company data. In other words, if customer complaints about long callcentre wait times do not match reality, then the problem might have more to do with communication and not necessarily be solved by adding call centre staff.

IMPROVEMENT

Radically redesign customer journeys from start to finish, using digital elements as the standard. Insights from research help insurers decide where to invest, but effectively redesigning customer journeys also requires discipline. Journeys can be optimized according to a five step structure. An effective process usually requires a cross-functional team with members from sales, operations, IT, and other areas:

Step 1—Break down the journey using customer perspective as a central focus.

Step 2—Map the journey against current internal operations.

Step 3—Call out the “wow moments” and pain points, such as unnecessary wait times or delays in communication.

Step 4—Prioritize pain points based on what matters most to customers.

Step 5—Radically redesign the journey to address the pain points and focus on customer needs.

Improvements must be seen as a continuous process. Carriers should plan for successive rounds of innovation, especially in digital, where expectations rise rapidly. All changes should be tested quickly with real customers, and not every lever must be in place before testing begins: they can be piloted and implemented in stages, and many incremental improvements are possible without lengthy preparations or IT infrastructure overhauls

INSTITUTIONALIZATION

Build customer-centricity into the organization, changing culture and processes from the front line to the C-suite. Sustained improvements in customer satisfaction are possible only if the entire company—from top executives to the front line—is aligned around the effort and the rollout is rapid. Five best practices that increase the chances of success:

  • strong executive ownership and a clear mandate for cross-functional journey owners to drive change across the organization
  • central measurement architecture that continuously reports customer intelligence to the relevant operational KPIs, allowing feedback and improvement
  • lean management practices with regular performance dialogues about customer satisfaction between top management and operational leaders
  • proactive change management with compelling “change stories,” recognition from top management, regular interaction with real customers to gather feedback, and new approaches to attracting customercentric talent
  • training to give employees new skills, and “navigators” and “champions” to carry the change to individual departments and make it stick.

Many companies do well by starting with one or two small, rapid pilots to demonstrate impact and generate knowledge. They then use the momentum to scale up the improvements across the company, rolling out three or four customer journey categories at a time, with organizational owners for each.

A strong central team uses a standardized methodology and identifies synergies between customer journeys, such as in service and claims call centers, and identifies the skills required for success in individual areas. Every team has clear objectives in terms of customer satisfaction with regard to the best competitor. Recruiting profiles and human resources policies are aligned with the new way of working.

TAKING ACTION

Insurers need to invest human and financial resources in customer-centricity to build and maintain a competitive edge. Best-inclass players have already made some of these investments and are reaping cascading benefits. The opportunities for insurers to differentiate themselves through stronger customer experience are huge and growing.

The fundamental challenge many companies face is getting the organization moving. There is no time to wait. In the digital era, consumer power is rising. Carriers that cling to product-, function-, or channel-centric views risk falling behind as market leaders build deeper relationships with customers and capture ever-larger shares of the market.

For carriers with the resolve to see their business through the eyes of the customer, each interaction becomes a way to live up to their brand promise; functions come together in new ways across customer journeys; and technology and digital become accelerators. Transforming any large organization is difficult, of course, but the value at stake is significant. The adage is still valid: “You don’t earn loyalty in a day. You earn loyalty day by day.”

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Insurance

How Much Life Insurance Should an Individual Carry?

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Very few people enjoy thinking about the inevitability of death. Fewer yet take pleasure in the possibility of an accidental or early death. If there are people who depend on you and your income, however, it is one of those unpleasant things you have to consider. In this narrative, I’ll approach the topic of life insurance in two ways: First I’ll point out some of the misconceptions, then I’ll look at how to evaluate how much and what type of life insurance one needs.

 

Does Everyone Need Life Insurance?

Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then it is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), you still do not need life insurance.

However, if you have dependents (especially if you are the primary provider) or significant debts that outweigh your assets, you likely will need insurance to ensure your dependents are looked after if something happens to you.

 

Insurance and Age

One of the biggest myths aggressive life insurance agents perpetuate is “insurance is harder to qualify for as you age, so you better get it while you are young.” To put it bluntly, insurance companies make money by betting on how long you will live. When you are young, your premiums will be relatively cheap. If you die suddenly and the company has to pay out, you were a bad bet. Fortunately, many young people survive to old age, paying higher and higher premiums as they age (the increased risk of them dying makes the odds less attractive).

Insurance is cheaper when you are young, but it is no easier to qualify for. The simple fact is insurance companies will want higher premiums to cover the odds on older people, but it is a very rare that an insurance company will refuse coverage to someone who is willing to pay the premiums for their risk category. That said, get insurance if you need it and when you need it. Do not get insurance because you are scared of not qualifying later in life.

 

Is Life Insurance an Investment?

Many people see life insurance as an investment, but when compared to other investment vehicles, referring to insurance as an investment simply doesn’t make sense. Certain types of life insurance are touted as vehicles for saving or investing money for retirement, commonly called cash-value policies. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their benefit, much like banks, and are paying you a percentage for the use of your money.

However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no need for scraps from an insurance company’s table.

 

Cash Value vs. Term

Insurance companies love cash-value policies and promote them heavily by giving commissions to agents who sell these policies. If you try to surrender the policy (demand your savings portion back and cancel the insurance), an insurance company will often suggest that you take a loan from your own savings to continue paying the premiums. Although this may seem like a simple solution, keep in mind that if the loan is not paid off by the time of your death, it will be subtracted from the death benefit.

Term insurance is insurance pure and simple. You buy a policy that pays out a set amount if you die during the period to which the policy applies. If you don’t die, you get nothing (don’t be disappointed, you are alive after all). The purpose of this insurance is to hold you over until you can become self-insured by your assets. Unfortunately, not all term insurance is equally desirable. Regardless of the specifics of a person’s situation (lifestyle, income, debts), most people are best served by renewable and convertible term insurance policies. They offer just as much coverage, are cheaper than cash-value policies, and, with the advent of internet comparisons driving down premiums for comparable policies, you can purchase them at competitive rates.

The renewable clause in a term life insurance policy allows you to renew your policy at a set rate without undergoing a medical exam. This means if an insured person is diagnosed with a fatal disease just as the term runs out, he or she will be able to renew the policy at a competitive rate despite the fact the insurance company is certain to have to pay a death benefit at some point.

The convertible insurance policy provides the option to change the face value of the policy into a cash-value policy offered by the insurer in case you reach 65 years of age and are not financially secured enough to go without insurance. Even if you are planning on having enough retirement income, it is better to be safe, and the premium is usually quite inexpensive.

 

Evaluating Your Insurance Needs

A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:

  • How much debt you have. All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest as well).
  • Income replacement. One of the biggest factors for life insurance is for income replacement. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 8% (if you do not trust your dependents to invest, you can appoint a trustee or select a financial planner and calculate his or her cost as part of the payout). Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Once you determine the required face value of your insurance policy, you can start shopping around. There are many online insurance estimators that can help you determine how much insurance you will need.
  • Insuring others. Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement calculation we went through earlier with his or her income. This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).

 

Other Ways to Calculate Your Needs

Most insurance companies say a reasonable amount for life insurance is six to 10 times the amount of annual salary. Another way of calculating the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement. For example, if a 40-year-old man currently makes $20,000 a year, under this approach, the man will need $400,000 (20 years x $20,000) in life insurance.

The standard of living method is based on the amount of money the survivors would need to maintain their standard of living if the insured died. You take that amount and multiply it by 20. The thought process here is the survivors can take a 5% withdrawal from the death benefit each year (which is equivalent to the standard of living amount) while investing the death benefit principal and earning 5% or better.

 

Alternatives to Life Insurance

If you are getting life insurance purely to cover debts and have no dependents, there is another way to go about it. Lending institutions have seen the profits of insurance companies and are getting in on the act. Credit card companies and banks offer insurance deductibles on your outstanding balances. Often this amounts to a few dollars a month and in the case of your death, the policy will pay that particular debt in full. If you opt for this coverage from a lending institution, make sure to subtract that debt from any calculations you are making for life insurance—being doubly insured is a needless cost.

 

 

 

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