Moving the Needle: The Evolution of Customer Engagement in Life Insurance
October 7, 2019
Moving the Needle:
The Evolution of Customer Engagement in Life Insurance
The historical, low-touch nature of the life insurance business makes it difficult for insurers to build strong customer relationships and create customer loyalty. Studies show that the more meaningful interactions insurers have with customers, the greater the customer loyalty. That means, insurers need to better engage their customers in order to build awareness, knowledge, value and trust. In doing so, insurers deliver real value to customers over the course of the entire relationship. The reward? Improved impression, conversion and retention rates and higher net promoter scores that result in a more satisfied and loyal customer base.
Ask anyone who has ever bought life insurance how often they hear from their insurer and the answer will likely be, “I’m not sure. Does receiving my premium notice count?” Even back in the day when agents met with clients at their kitchen table, the opportunities to connect with customers only surfaced occasionally – typically at the initial sale, the birth of a baby, buying a house or perhaps a check-in every few years.
The relationship between the insurer and the customer has traditionally been purely transactional and the blunt truth is that most customers don’t give a second thought to their life insurance policy once they buy it. In fact, only one in five people can name the life insurance company who issued their policy.¹
Out of Sight, Out of Mind
For most people, especially those who buy life insurance for income replacement, their experience feels something like: “I buy my policy, I pay my premium and if I die my family gets the benefit. That’s it.” The nature of the life insurance business itself creates a naturally low touch relationship. Unlike health or property and casualty insurance, there are no claims to file or regular records to update over the course of a life insurance policy.
In fact, life insurance companies and their customers seldom interact compared to other industries. The chart below from McKinsey and Company shows that over the course of 20 years, insurers and customers have contact an average of 40 times or merely two times a year. That’s quite low when compared with other industries like banking which averages more than 100 customer contacts each year.
Judged on Customer Service Transactions
That means customers tend to judge life insurers on more simple issues such as questions about coverage or a request to update a phone number or address. And while those matters may seem trivial, one bad customer service experience can reflect negatively on the insurer and loom largely in the customer’s mind. Besides billing and service issues, generally the only other times the insurer might contact the customer is through a letter offering an annual review or to discuss additional coverage needs. Does this type of communication add real value to the relationship? These limited interactions make it difficult for insurers to stand apart from the competition and severely impacts their ability to engage customers and build relationships.
How can a life insurer move the needle to increase the volume of interactions and improve the value created by these interactions?
In a recent study on customer behavior and loyalty in insurance, Bain & Company noted that “the more meaningful interactions customers have with their insurers, the more loyal they are likely to be.” 2 The study notes that this can be a serious roadblock for insurance companies because of the inherent low-touch nature of the business. How can a life insurer move the needle to increase the volume of interactions and improve the value created by these interactions?
Historically, the captive life insurance agent represented a single insurer and built the relationship between the company and the customer. The agent raised awareness, shared knowledge, gained trust and built loyalty. However, multiple forces have altered the dynamic of the relationship between the insurer and their customers. First, the distribution landscape has changed dramatically. The rise of independent distribution, insurance aggregators, call centers and direct to consumer distributors have challenged the insurer’s ability to develop a relationship with the customer. The insurer has been relegated to building a relationship based on limited customer service transactions. At the same time, customer expectations have changed too.
The insurer has been relegated to building a relationship based on limited customer service transactions.
Millennials were shocked by the paper based, time consuming nature of buying life insurance and questioned why it was not like other e-commerce experiences. Finally, a growing number of consumers don’t recognize or understand the value of life insurance as demonstrated by the growing insurance protection gap.
Digital Customer Experience = Customer Engagement
As mentioned, one of the most pressing priorities facing life insurers over the last five years has been the demand for a digital life insurance buying process. The industry responded and most insurers have streamlined the purchasing and underwriting process making it easier to buy insurance with online quotes, electronic applications and accelerated underwriting. Many have also expanded their online capabilities offering portals and mobile apps. While these changes may offer a level of convenience to customers and improve the customer experience, they do not create engagement and the benefits associated with it.
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