September 22, 2015 | Written by: Lynn Kesterson-Townes
Categorized: Customer Analytics
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Insurance might not be the oldest profession, but the idea does go back to ancient times. Some say that the concept of sharing risk began 5000 years ago when Chinese merchants started mixing their cargoes together to distribute each merchant’s goods across multiple ships. Of course, the downside was, if a ship went down, it took a portion of each merchant’s goods with it. The upside? Every merchant was “insured” against being wiped out completely. This “colleague insurance,” invented in 3000 BC, came to be because merchants trusted each other to keep everyone’s best interests at heart.
As in ancient times, trust and insurance should be inextricably intertwined. So, why don’t most consumers today feel that way? At IBM, our most recent survey shows that only 43 percent of customers trust the insurance industry. In fact, lack of consumer trust in insurance providers has remained above 50 percent since 2007 (when we first started taking surveys).
The problem with this? It is impossible to develop meaningful customer engagement without trust. Today’s consumers expect insurers to engage them in their context via personalization, responsiveness and seamless experiences across all touch points. In order for insurance providers to do this, they need data—lots of revealing, personal data about consumers’ situations, wants, needs, and behaviors. In the future, providers may find it harder to obtain the data they need for engagement without trust.
Without meaningful customer engagement, forget about customer retention! Our data shows that dissatisfied insurance customers are six times more likely to switch insurers. In fact, 41 percent of policyholders say they have switched their insurer when their needs changed and their provider couldn’t keep up. This is bad news for insurers who have to spend more time and money acquiring new customers only to lose them when they can’t meet their new customers’ engagement needs.
So, what steps can insurers take to ensure they gain the trust of their customers, obtain access to personal data and develop meaningful customer engagement? Insurance providers can embrace IBM’s Commerce portfolio to:
- Leverage customer analytics to build evolving 360° views of policyholders to proactively anticipate needs policyholders didn’t even know they had
- Engage policyholders at the right times/places with the use of a customer journey designer
- Capitalize on customer engagement to deliver more intimate policyholder interactions that improve with time
Remember the ancient Chinese merchant mariners who used their social network to syndicate their risk? What can modern insurance companies learn from their example? The answer brings us back to trust. As consumers continue to become more empowered about the data collected about them, they may allow access only in return for valuable engagement.
So, how can an insurer establish trust with its policyholders? Let’s look at a modern day example— Friendsurance.
Friendsurance leverages social networks to sell “deductible” insurance. When a Friendsurance policyholder makes a claim small enough to have been paid out of his deductible, the payment is made instead by his group of friends who have signed up for Friendsurance’s deductible insurance together. (“Friend” groups can also form ad hoc on Friendsurance’s web site.) If a group’s small claims don’t exhaust the premiums paid in a given year, each friend gets back his share of the remaining funds!
The results? Friendsurance’s model can produce enhanced policyholder profitability due to:
- Reduced claim costs — friends hesitate to ask their friends to pay for unimportant damages
- Decreased marketing costs — friends recruit their own social networks to join their Friendsurance groups
- Lessened fraud risk — friends are less likely to scam each other
- Improved retention rates and increased loyalty — friends don’t want to leave their friends in the lurch by leaving the group
- Higher policyholder satisfaction due to cash rebates as a reward for low claims
As Friendsurance demonstrates, insurance provider profitability can be enhanced by delivering rewarding customer engagement built on trust.
So, if your insurer is looking to improve customer engagement and retention, just ask yourself: How is your insurer building trust?
For more food for thought, insurers can check out IBM Smarter Insurance, IBM Commerce, “Digital Reinvention: Trust, transparency and technology in the insurance world of tomorrow” and “Capturing Hearts, Minds and Market Share: How connected insurers are improving customer retention”.