The growth engine: Superior customer experience in insurance

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. Airlines all use the same planes, serve similar food, and match prices. Personal lines insurance is becoming similarly transparent. Due to the Internet, aggregators, and social media, shoppers know more than ever about coverage, prices, and services.

A number of airlines now see customer service as one of the few remaining ways to stand out from the crowd and are reaping the benefits. The three US airlines with the highest customer satisfaction ratings have profits that are way above the industry average. Another major carrier is raising prices—moderately—on the expectation that customers will pay more for great on-time stats and more reliable baggage-handling.

Can insurers follow this example and avoid competing on price until profits are shaved to zero? McKinsey’s global research across industries shows that improving the customer experience can do far more to drive profitable growth than raising advertising spending or lowering prices. Some executives may still see insurance as a low-engagement, disintermediated category, but analytics prove that in an industry where profits are highly concentrated, leading carriers are delivering customer experiences that inspire loyalty and attract new customers frustrated by their experiences with their current carriers.

For example, in the past five years, US auto insurance carriers that have provided customers with consistently best-in-class experiences have generated two to four times more growth in new business and about 30 percent higher profitability than firms with an inconsistent customer focus, in part because satisfied customers are 80 percent more likely to renew their policies than unsatisfied customers (Exhibit 1).

Exhibit 1

On the path to profitable growth

Delivering a superior customer experience takes more than developing a mobile app or adding call center 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. One carrier spent a significant sum upgrading its telephone system to reduce the average wait time from 40 to 20 seconds, but barely improved its customer feedback. Another touted its “superior service” in a national ad campaign—and saw an immediate decline in its customer satisfaction scores, perhaps because reality did not live up to higher expectations. 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 modeling the most important customer journeys, with cross-functional ownership and multichannel, end-to-end management.

A typical insurance carrier today delivers customer experiences via separate functions (marketing, distribution, underwriting, claims), using a website, sales call center, service department, and so on, most managed by different executives with different goals and metrics. This structure may have its purposes, but it overlooks the fact that from the customer perspective, the experience is often a single journey. Customers are unlikely to draw a sharp distinction between an agent and a claims adjuster—both represent the insurer in the event of an accident.