Archives for March 2010
The topic of customer loyalty made an unsurprising appearance at recent conference of UK senior marketing executives. In several conversations, and breakout groups, the executives mused how different business might look in the UK if the consumer wasn’t very unloyal. Growth is an important factor for UK in 2010, and the aspiration for lower customer churn is not surprising.
So how did we get to a point where most consumers know it’s better to change insurer every year? Well, the consumer has learnt that loyalty is usually rewarded with a hike in their premium. I’ve experienced this first hand, finding out with some on-line research that my same insurer would take me back as a “new customer” at a lower rate than their renewal offer to me.
The internet has democratized the renewal process. Given some time, access to the internet, the consumer can check across the market, with the use of one or two aggregator websites. And they do use more than one – research suggests most use 2.8 – 3 aggregator websites to find the best price. This is an extraordinary investment in time to get a better deal. It also highlights the very “grudge” nature of an insurance purchase.
The aggregators appear to have caused the insurers to jump into the dire race of competing purely on price. Whilst many aggregators defend their position of being able to offer comparisons in more areas than price, my straw poll of friends shows that they look for a recognised brand in the top 5 i.e. cheapest.
The visual comes to mind of the cartoon sheep/dog/coyote racing over the edge of the cliff, taking a few seconds to realize where they are, and looking down at the vast blue space beneath them. It strikes me that’s where UK insurers are today – realizing they have run out of cliff and it’s an awful long way down to the dark blue sea.
These sentiments were re-iterated at the marketing conference. “This has to end,” said one Chief marketing officer, “it’s just not sustainable.” A US colleague told an amazed audience how her insurer had covered the whole family (motor, house and term life) since she was in college. They now insurer her college-aged daughter, and offer her a discount because she get’s good grades (proven link between claim propensity and grades apparently!). The family was a real fan of this large insurer.
There were no shortage of good ideas to encourage and reward customer loyalty. But the clear risk that remained unanswered was that any insurer taking a line contrary to the market was likely to be punished by the consumer in the short term. In the medium to long-term, lower customer churn would be better for their profitability, but a listed company performing to quarterly and annual reports can be very limited to any long-term plays such as this.
I hope the UK insurers crack this tricky problem. If for no other reason, then I find it tedious investing 2-3 hours a year looking for a new insurer. And the larger message to other markets who are moving steadily towards the low-cost producer model :- watch your feet, you may find yourself running out of runway before you know, and it’s very painful to claw your way back.
One of the benefits of investing in modern, configurable software that is often sought is the ability to move creation and maintenance of systems to the business areas. The premise is that transferring these functions to users will increase quality and reduce costs. In Celent’s discussions with insurers and observations, this is often a goal which is more aspiration than realization.
Our research has begun to quantify the extent to which functions are transferring within various solutions. For example, the graph below details the responses from U.S. insurers using a stand alone rating engine when asked what percentage of work is being performed in their business areas:
Surprisingly, create/change workflow rules are performed more often than change rates. This reflects the expansion of stand alone raters beyond simple arithmetic calculators that was reviewed in the Celent report Future-Proof: Considerations in Choosing Rating Solution Platforms. Not surprisingly, deployment to production is often held in the IT area. For more details, reference the report: US Property/Casualty Rating Systems: ABCD Vendor View, 2009)
We are continuing to collect such data across different software platforms in order to quantify the “promise” of end user maintenance.
Is it true that you can never have too much of a good thing? That’s my take when it comes to staffing the Celent insurance team. I’m pleased to introduce three new team members who will make our strong team even stronger.
Craig Beattie joins us as an analyst in the London office. Prior to joining Celent, Craig was an Applications Architect with Royal Bank of Scotland, working extensively with RBS Insurance. He held roles in strategy and architecture during mergers within the division and consulted on a number of internal divestment opportunities.
Karen Monks is a North American analyst with 12 years of financial services consulting experience. Previously, she worked for a Celent competitor in the analyst space, John Hancock Financial Services, and Coopers & Lybrand. She also completed General Electric’s Financial Management Program.
Finally, Jim Pelis joins the team as an account manager, based in the Boston office. Jim most recently worked for Datamonitor, and he has experience from Collective Next, IANS, and Forrester.
I’m excited to have you meet Craig, Karen, and Jim because I’m confident that they will carry on the Celent tradition of delivering value for our clients.