Canadians expect more from their insurers. Consulting firm Ernst & Young says insurers must innovate to satisfy their clients’ needs. If they don’t adapt their business model, they will lag behind more audacious rivals.These conclusions come from a survey of 24,000 consumers in 23 countries, called Voice of the customer: Time for insurers to rethink their relationships, conducted last fall. More than 5000 respondents from North America participated, including over 1000 in Canada. Ernst & Young compared the expectations of Canadian and global consumers.
Michel Bergeron is financial services leader at Ernst & Young in Montreal, and Walter Rondina is senior manager of Ernst & Young’s advisory services. The two men presented some of their firm’s research at the 2012 The Insurance and Investment Convention in Montreal last November. Mr. Bergeron also agreed to an interview prior to the event during which he explained his analysis of the results.
The survey finds that only 28% of Canadian consumers consider that their life insurer has made an effort to keep its clientele. This rate is better than in Mexico (19%) and in the United States (12 %), but far behind Brazil (64%).
“It is not entirely true to say that consumers do not trust insurers. They are neutral. This is not necessarily positive, but there is no widespread negative perception. The good news is that they have confidence in the product and in the industry. Insurers are not seen in the same way as politicians,” notes Mr. Rondina.
“The trends we’re seeing in the other industries are coming to insurance. People want loyalty programs, like the points you can accumulate at Air Canada or Metro supermarket. The banking sector has already made the shift, but not insurance. All the same, consumers want to be loyal. So why not offer this type of program? There’s a bit of this in P&C insurance, but it looks like insurers haven’t reached this point,” he says.
Another highlight of the survey analysis: life insurers rely on their intermediary networks to find out what consumers want. Are they on the right track, given that eight in ten Canadians say they prefer to interact with a real person when they buy an insurance product?
“Don’t forget that consumers want to comparison shop. They are turning to external databases to do this. If someone looks for information on a life insurance product on social networks, they won’t find anything. This is why we emphasize that intermediaries must not be their only source of information. Companies that lead the way in information searches will have an edge over the others,” Mr. Bergeron explains.
Mr. Rondina believes that the proportion of people who desire more personal contact will increase in the future. “Are insurers ready to sell to people who consider themselves independent? Is their product simple enough for that? Their actuaries may think so, but it may not be the case. They should question themselves,” he says.
Mr. Bergeron also points to the case of the banks. “Ten years ago, people believed that there would be no human contact in banks and that everything would be online. This is not what has happened. Consumers want human contact, although automated services have grown,” he comments.
Are intermediaries dispensable?
Mr. Bergeron stops short of saying that the information that intermediaries supply is worthless. “Even if the consumers look around themselves to compare products, they tend to want to confirm their perceptions. If they’re thinking of taking a trip, they will go to TripAdvisor. They will not go to an airline company’s website to buy their tickets. This channel can be adapted in the future. Insurers will have to study their strategy according to channel,” he said.
He gave more proof that life insurers are not probing consumers’ needs sufficiently: only 15% of Canadians say they bought more than one product from a life insurer. “The sales incentive rests on selling the product once. Yet clients’ needs change over time. The survey demonstrates that insurers are not doing a good job reconnecting with the client,” he adds.
Mr. Bergeron admits that learning to know clients may seem easy, but it is actually a complex puzzle. “To do cross-selling, you need clients who already have one product with us. Then you have to make the effort to see what they need. After that you have to think how to sell it. Insurers don’t have this knowledge because they are not proactive,” he says.
This lack of knowledge is reflected in consumers’ trust in life insurers, Mr. Bergeron continues. Canadians give them a confidence rating of 7.3/10. That’s the lowest score in the Americas (vs. 7.7 in the United States; 7.6 in Mexico; and 7.5 in Brazil, for an average of 7.5). All the same, their trust tops that in Europe (7) and in Asia–Pacific (6.8).
“When you do cross-selling, you have to meet with people. We see this in P&C insurance – they prefer to buy from the same insurer. There’s a difference in perception. It’s a good opportunity for insurers,” he says.
This is why Mr. Bergeron is asking insurers to invest in seeking out more precise information to know the client better. He argues that insurers must also review their distribution channels and their sales techniques. He does not want to criticize the work of insurance intermediaries, he says emphatically; he is simply spurring them to become more proactive.
“Only one-quarter of people tell us that insurers are making efforts to keep their clientele. Intermediaries have to be more proactive. However, they may need more information to achieve this,” he explains.
He gave the example of General Motors (GM). “You can choose the vehicle model you want on the Internet before you go to the dealer. The manufacturer can then act on this information. If the client wants to make a comparison, GM will be sure to be present on the Web to support the comparison with Ford,” Mr. Bergeron explains.
He adds that insurers are launching targeted divisions. “This can even create competition between networks. It will also affect writing in the network. Consumer demand is there. The younger the population, the more it tends to want to buy online. The increase we’re seeing should continue. It will be difficult for insurers to hold onto two networks. They will have to fine-tune their offer,” he says.
Mr. Bergeron thinks that intermediaries and the Internet can cohabitate. “Insurers need both. They must offer clients personalized service, but also be present on the Internet. We see this in P&C insurance. They’re ready to shop online but want to talk to a live person when they make a claim,” he says.
Who will win out in this evolving context? Insurers who orient their business model toward the client, Mr. Bergeron says.
“People who don’t change might disappear, because they won’t be able to go back to their previous level. This is even truer in P&C insurance, which is a more fragmented industry. Those that don’t evolve their model will become targets for the others,” he explains.
He adds that Wal-Mart, Google or Amazon do not pose a threat to insurers over the short term. “We haven’t reached that point. The same thing is true internationally. It won’t happen in the coming months. It’s a threat that’s years away,” he says.
Mr. Bergeron adds that insurers that have a niche must keep it. Rethinking the way they deal with their clients should be a priority.
“Niche insurers must find a good distribution channel. If they sell farm insurance, they have to see how to reach farmers. They don’t need to change their business strategy. But if it is scattered, with information everywhere, they won’t reach their target clientele. This makes the task hard. They have to think it through,” he explains.
Mr. Bergeron emphasises, however, that insurers are not eager to revisit their strategy in the channels they use. Every six months, Ernst & Young sends a questionnaire to insurance company CEOs to determine the course they are taking.
The latest edition of this barometer revealed that 18% of Canadian insurance company CEOs are looking at the possibilities that could provide them with new sales channels. But none of them were considering which new technologies they should adopt to move in this direction. “They want to get there, but there is no urgency to do so,” comments Mr. Bergeron.
Despite all of insurers’ efforts to get to know clients better, price is still an important argument. The Ernst & Young survey finds that 6 out of 10 people who bought a P&C insurance policy in the Americas claim that price is a determining factor in their choice of insurer. The proportion is similar in Canada.
“There are other factors that come into play. People want to do business with someone they know, who offers good quality service. They are less inclined to call a name they don’t know. They will call three or four companies they have heard of. But in the end, price is an important factor,” Mr. Bergeron points out.
Cross-selling is another major concern in P&C insurance, he adds. He cites banks as a model to follow: they invested heavily in their databases in recent years.
“They now have powerful software to know their clients. Insurers must focus on this point in the future. Once they have the information in hand, the strategy becomes easier to define. You then know your clients’ habits and can target channels. But this project takes more than a few months. Information is not programmed in advance in the systems to target what you really need,” he says.
Insurers tend to orient data collection toward billing, Mr. Bergeron points out. If it were organized by age category, it could then be cross-tabulated again by product. This type of information is often found in three different systems, he points out.
Mr. Bergeron adds that by seeking out this information, P&C insurers can save money. “The industry is facing an attrition rate of 10% per year. Some think it’s not bad to lose only 10% of the clientele per year. But if you don’t do anything, that will add up to lots of lost clients after a few years,” he warned.
On top of that, 8 out of 10 Canadian consumers (83%) say they had little or no contact with their insurer before renewing their insurance contract. Insurers can take advantage of this apathy: 66% said that they did not intend to change insurers over the next five years.
“In this context, should an insurer focus on retention?” asks Mr. Rondina. “Without putting in much effort, the client remains with us. Can we afford to ignore them? The life insurance industry is a little behind. We see other industries evolving more rapidly. We see that the sector has a delivery model that works, but that it does not react as quickly as the others.”
Mr. Bergeron adds that clients consider switching suppliers mainly when their situation changes. “If they buy a bigger house and the insurer comes up with a price that doesn’t make sense because they don’t have the right information, they’re going to go elsewhere. Losing 10% of clients per year may seem minimal, but how much will insurers spend on trying to find new clients? It’s another cost to keep in mind, he says.