Increasing pressure on insurance markets makes customer retention a crucial issue. Its relevance and importance have increased significantly lately. Insurance companies can mitigate customer retention risks by using technology that analyses real time customer and market data and improves operations as well as pricing.
What is customer retention in insurance industry?
Customer retention is about how many insurance customers stay with their company when they renew their contract. In many markets insurance companies issue insurance contracts for just one year. At this point a customer has the option to leave the company.
This is why customer retention is so important. According to market estimates, it costs between five and 25 times more to acquire a new customer than to retain an existing one. Insurers are increasingly tracking and reporting on customer retention. As a result, retention has become the most important customer-related issue for insurers. Its relevance and importance have increased recently.
To address claims inflation insurance companies are going through a cycle of rate increases. As private customers have to cope with financial pressure, an increasing percentage of customers is shopping around or even leaves their insurer to save money on insurance. Companies have identified customer retention as an important company risk.
Customer retention in insurance industry is most important in these 4 markets
Customer retention in insurance is being monitored intensively in North America, UK, and in the Nordics. The Canadian insurer Intact, for example, writes in its annual report: “In addition, a lack of appropriate focus on customers’ needs and wants may threaten our ability to meet customer expectations, resulting in poor customer retention.” The UK insurer Direct Line writes: “The proportion of new motor insurance policies in the market rose, as consumers responded to a rise in premiums with increased shopping, resulting in a reduction in market retention rates.” The Danish market leader Tryg reports: “Retention levels are very high in Scandinavia compared to everywhere else in the world. This is a key profitability driver, as it helps insurers keep their overall expenses low.”
There are seven success factors that are crucial to improve a company’s retention score:
- Modern and flexible products
- Effective complaints management
- Operational excellence in claims
- Flexible pricing strategies
- Detecting early risk factors
- Scoring and incentivizing of customers
- Advisory to distribution partners
Insurance customer retention to be improved with data and cloud tools
Insurance operations should respond to every single one of these challenges and success factors to mitigate insurance customer retention. Technology plays an increasingly important role. The progress we see in Artificial Intelligence (AI) pushes the boundaries even further. Data is at the heart of the solution, but leveraging it requires investment in IT infrastructure and tools. One important factor is cloud. Cloud is still not widespread in the insurance industry, but the most advanced companies are transitioning to the cloud at a high speed. This helps to accelerate AI adoption and enhance AI capabilities. “Insurers often grapple with structuring data and extracting meaningful insights from documents. Fortunately, cloud-based infrastructure provides an effective solution,”, writes Dominik Kamiński in his article “AI adaptation with the help of cloud.”.
What can an insurance company do to improve customer retention? How to retain insurance customers? There are three general recommendations for insurance CIOs:
- Modernize insurance core systems and CRM
- Implement data tools to make siloed customer data accessible
- Implement data tools to make siloed customer data accessible
APIs will drive data management strategies
A possibly complete data integration is necessary to achieve an intelligence that identifies customer pain points before they cancel. Insurers must be able to integrate internal and external data. From a technological perspective open Application Programming Interfaces (APIs) are necessary to achieve that. Through the FIDA regulation, the EU creates an Open Insurance API that will support the industry’s effort to mitigate the customer churn ratio. “This new focus on APIs will drive insurance companies to revise and align their data management strategies”, writes Mateusz Stasiak in his article “Insurers will be forced to modernise their existing data infrastructure.”. “According to our estimates, only 20% of insurance companies in the European Union have a mature data infrastructure.”
Customer insurance retention is defensive management. Operational excellence is often the decisive factor. Just think about claims handling. In surveys we have conducted together with Ipsos the vast majority of insurance customers reports that speed is the decisive factor when they file a claim, even more important than the actual amount of compensation they receive. But do insurance companies come up to this desire? Best of class analytics around customer data wdon’t help much if a company cannot rely on operations that support customer retention. I think a fully digitized cooperation with agents and brokers is necessary to ensure that a customer with an insurance issue is not leaving.
Insurance pricing tools are key to mitigate retention risks
Due to the rising importance of customer retention in insurance industry many companies have turned their attention to pricing. It has become the dominating topics when it comes to insurance operations. Let me turn your attention to the rating engine Earnix which has become so popular among insurance companies. Their pricing tool allows for informed real-time decision making through robust data science, analytical modelling, and AI capabilities. “Improved rating and pricing strategies provide a competitive advantage,” writes Tomasz Klukowski in “Insurance pricing has become a matter of speed.” “Improved rating and pricing strategies provide a competitive advantage,” he states. As a rule, modern pricing tools enable insurance companies to offer more attractive and tailored pricing structures. This helps to contain cancellations, to increase customer retention and to attract new customers. It is important to keep one thing in mind: policy costs are a key decision factor in retail insurance.
Tomasz Turowski – Leader North America
Tomasz has supported a broad variety of insurance companies in the US, Canda, UK and Japan in implementing core insurance systems and other solutions. He is focused on creating business and IT solutions that help insurance companies improve the services they provide and become more efficient. He has deep practical experience in three major core system solutions and is an expert in cloud transition.