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Insurer success lies in the customer

The insurance industry is facing a crisis. From an increase in extreme weather events and ongoing regulatory changes to a new breed of customer, challenges are evolving at every turn. This is framed within an already tough economic environment as the world’s markets continue to chase financial recovery. 


Europe felt the brunt of a wet winter this year, with flooding hitting many key markets including the UK, Germany and France. The unusually heavy rainfall is estimated to have cost UK insurers £1.2bn while similar events in Germany last June cost €2.3bn. Meanwhile elsewhere in the world, current attention is turned towards the growing likelihood of the return of El Niño.


Research shows that should the phenomenon return (which is looking increasingly likely), it could be on par with the 1997-98 event which was the strongest on record. Although exact effects are hard to gauge, one thing scientists do know is that its arrival comes with a hugely increased chance of extreme weather events, and therefore larger chances of heavy losses for insurers.


Then there is the continued tinkering of the insurance industry by regulators and governmental bodies as they look to shore it up after the financial crisis. In the UK the Competition Commission is set to deliver far-reaching regulation to the motor insurance industry following its report last year.


Elsewhere, businesses are still grappling with the impact of the Solvency II framework, with only 80% of insurers thought to be ready to meet the legislation’s requirements by 2016. Meanwhile in the US the Treasury has responded to the European Union’s move by releasing a report into the state of the US insurance market that lays the groundwork for a host of reforms over the coming years.


However, while weather and regulation are certainly challenging insures to rethink how they keep their combined ratio as low as possible, it is their customers that are actually causing them to overhaul their entire business model.


The insurance customer of today is almost unrecognisable from that of even five years ago. One of the many by-products of the digital revolution has been the gradual shift in the balance of power from industry to consumer. Whereas in the past consumers relied on brokers and intermediaries to conduct their insurance transactions, technology has handed that power back to the customer.


Insurers can now be researched, rated, analysed and discussed online. Buying decisions today hinge as much on peer sentiment as they do on price, and one bad experience can sully a relationship forever. This fickleness is in part down to the choice that the internet now offers, but also because consumers today are less likely to tolerate poor customer service.


Part of this is because of the new world of connectivity. Consumers expect to be online and connected more and more today. We’re seeing manifestations of this in the rise of the connected car and so-called “Internet of Things”, and the fall-out means that insurers too need to be “always-on”.


They need a mobile strategy that encompasses the entire customer journey, from policy sale to claims cycle through to renewal. They need to be aware of online sentiment about their brand, and be on top of what conversations are taking place on social media. A mobile-optimised website is no longer enough. Consumers want to be able to track every element of their relationship with their insurer online or, more probably, through their mobile device.


The result is a need for insurers to refocus their operations back on the customer. They need to ensure that consumers sit at the heart of the industry, from the buying process through to the claims cycle. Customer service is no longer just a horizontal function, it is THE most important business function in the entire organisation.


Insurers need to be thinking not about where their customers are today, but where they will be tomorrow. They need to be part of the conversation, not outside it. Customer service needs to be as much of a priority as intelligent underwriting and a healthy combined ratio.


Treating customers like a commodity simply won’t work anymore. Fundamentally, if insurers can refocus their business back on serving their customers, they will not only drive loyalty but will also start to lower costs.