In 1666, the Great Fire of London razed the medieval City of London to the ground. The blaze gutted many of London’s key civic buildings, the old St. Paul’s Cathedral, almost 90 parish churches and more than 13,000 homes. It was a fire like no other in London’s history. Approximately 15 years later, the first fire insurance company – the Insurance Office for Houses – was created in London. It was established in 1681 (six years before Lloyd’s of London came to life) to meet the demands of Londoners who were actively seeking out insurance that could protect them from the next deadly blaze. At this point in time, insurance was sold to the consumer.
Over time, insurance has evolved from a product that is sold to a product that is bought, according to Christian Bieck, global leader of the insurance practice for the IBM Institute for Business Value, a research organisation that provides thought leadership based on primary data and real-life case studies. Today, market power has shifted to the consumer due to the proliferation of the internet and social media, and how easy technology makes it to share information about brands, their products and their customer service.
“A big part of the business model of insurance companies [historically] was the fact that there was information asymmetry between the insurance company and their customers. But that’s gradually disappearing,” said Bieck. “The internet and digitalisation enable consumers to gather more and more information on their own, so they’re more knowledgeable about risk, about what [companies are offering], and about what other industries are doing. Suddenly, insurers have to compare themselves against the best customer experience in other industries, and insurance is becoming a product that is bought instead of sold.”
The IBM Institute for Business Value recently released a report entitled ‘Elevating the Insurance Customer Experience’ in which it augments the data of two surveys conducted during the COVID-19 pandemic – one targeting 1,100 insurance executives in 34 countries regarding their customer experience (CX) initiatives and corresponding key performance indicators (KPIs); and the other targeting 10,000 consumers across nine countries to hear the customer side of the story.
The surveys show that insurers have made significant strides in CX in the past decade, with 85% now deploying CX initiatives throughout the customer journey, and 90% hiring a chief CX or chief customer officer (CCO) to drive these initiatives. Insurers are driving these initiatives at a company level, but also within individual lines of business. They’re also looking at all parts of the customer journey, from on-boarding, to billing, renewal, claims, off-boarding and so on.
However, insurers still have a long way to go, as shown via the result of the IBM consumer survey, which found that 42% of consumers still don’t fully trust their insurance provider. While that figure is an improvement from a similar study in 2014, where 53% of respondents said they didn’t trust their insurer, 42% is still far too high, according to Bieck. He added: “It’s the number the industry is fighting against as it tries to gain new customers. They don’t know you yet; they just know they don’t trust the industry. So, [insurers’] customer experience actually has to be a lot higher than it would otherwise be if trust [in the industry] was higher.”
The seeming success of insurers’ CX strategies has made executives “overconfident,” according to Bieck. When asked: ‘How do you compare your customer experience to your peers?’ more than half thought they were better than the average, which is simply not possible. Bieck suggested that it’s not good CX strategies keeping consumers in place; rather, it’s “customer inertia” and a “lack of alternatives” which have largely kept major attrition at bay.
“To actually improve customer experience, insurers need data, but getting data is hard,” said Bieck. Almost half of consumers strongly agree that the less data a company has about them, the better. But there are things that insurance companies can do that would convince more customers to trust them with their data, for example, using artificial intelligence (AI)-based tools to augment their understanding of the customer, while also saving them some money at the same time.
“A lot of this revolves around technology,” Bieck said. “Insurers who use more AI tools have a higher Net Promoter Score, and a better customer retention. One example of AI use is in customer sentiment analysis - when you look at what customers are saying or writing in order to gauge what they're thinking and feeling. Customers do want to be understood. Two-thirds of customers say it's important that insurers understand what they're about, what their feelings are and what their emotions are. The use of customer sentiment analysis has a clear and positive effect on net promoter score.”
Insurers who are committed to improving their CX strategies must look beyond the insurance industry, even beyond their own countries, to see where other organisations and other industries are succeeding, according to Bieck. He added: “The first step is the foundation – creating agility in the organisation, in the culture, in the processes, to actually enable improvements in customer experience. Listening to customers is very important to set the stage for the future, to be able to gain data, to understand the customer and to actually give them what they want. And last but not least, look at what your peers are doing in other countries, and look at what other organisations and other markets are doing to improve customer experience. That's really the first step to a mindset shift, which is important to be able to improve customer experience above and beyond the simple mechanical point solutions that [insurers have relied upon] for a while.”