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Consumer Buying Preferences Driving New IT Investment Priorities for P&C and Life Insurers

Cost, ease of obtaining a policy and trusted brand are top influencers of consumer buying behavior; community involvement and recommendation of agent/broker rank lower. Business and IT leaders must understand the voice of the customer to support acquisition and retention targets.

Impacts
  • Customer cost sensitivity requires that insurers identify ways to reduce the cost of insurance, control premium hikes and make pricing rules more transparent.
  • Consumer demand for convenience will require that insurers invest in launching new channels, improving the user experience through all channels and integrating channels for improved interactions.
  • Insurers need to ensure strong and customer-aligned customer service to support customer acquisition and retention strategies.
Recommendations

Insurance CIOs:

  • Implement Web-based and modern rating and pricing technologies that can show the user the rules behind premium calculation.
  • Identify the gaps needed for multichannel integration and channel support to share with heads of marketing and distribution.
  • Align customer service channels with the appropriate technology to support personalized, fast and effective customer service.
Analysis

Customer centricity is becoming a top priority among insurers. A Gartner CIO study conducted at year-end 2012, with a sample of 63 CIOs from global life and property and casualty (P&C) insurers, found that customer acquisition and retention was the second-most important business priority for their organizations in 2013. To do this, companies must obtain a better understanding of the consumer market, including attitudes, perceptions and behavior. They cannot rely on input solely from their distribution partners, but need to actively invest in understanding the voice of the customer.

To do this, many life and P&C insurers are launching voice-of-the-customer initiatives, which include identification of various sources of information to drive a better understanding of consumers. One key requirement is to better understand what drives consumer buying behavior (that is, what makes a consumer select an insurer and products from the vast number of options available to them in their market). This intelligence can help guide insurer product development efforts, investments in channels, strategies around pricing, partnership models, and service strategies.

To help understand the influencers of consumer buying decisions, Gartner conducted a survey with 6,279 online consumers aged 18 to 74 in Australia, Canada, France, Germany, the U.K. and the U.S. The survey was conducted in October and November 2012, among consumers who personally accessed the Internet or online services during the past three months. This sample, while not being a full representation of the entire consumer market, provides some insight into the drivers of mass-market buying decisions.

This study found that there were many commonalities in consumer buying behavior for personal P&C and individual life insurance product lines. Table 1 and Table 2 show how nine factors rank in order of importance to consumers when they select an insurer and product. Among the highlights of the study:

  • Cost was the top influencer for product lines in all countries. This exemplifies the cost sensitivity still felt in international markets by consumers and its impact on driving commoditization for retail product lines.
  • Ease of obtaining a policy was ranked as a top factor for P&C as well as life insurance; however, it received a slightly higher score among consumers for buying P&C products.
  • Other top priorities include the individual's past experience with the insurance company and trusted brand name. While there was some country variation in the order of these factors, they all ranked high on the list for P&C and life insurance product lines.
  • Brand recognition was a moderate-to-low influence in most regions. There were significant variations in the countries and between product lines.
  • Recommendations of friends, family and acquaintances far outweigh the recommendations of agents/brokers. Consumers in all countries and for both product lines considered agents and brokers as a lower influencer in their buying decisions than trusted peers/friends/family members.
  • The Internet experience is ranked moderate as a buying influencer. Web functionality and capabilities was ranked slightly higher related to personal lines P&C buying decisions than life insurance; however, it was not ranked as a top factor in any country.
  • Community involvement and the insurer visibility in community service were not important in driving buying decisions. Consumers in France and Germany ranked it higher for P&C buying decisions, but for all other decisions, it was ranked at the bottom of the list.

Table 1. Influences Driving Consumer Buying of Retail/Personal P&C Insurance – Rank Order for Each Country

table 1

Source: Gartner (March 2013)

Table 2. Influences Driving Consumer Buying of Individual Life Insurance – Rank Order for Each Country

table 2

Source: Gartner (March 2013)

Having this intelligence will help business and technology leaders invest in the right marketing and sales strategy. It is imperative that insurers understand how these factors drive consumer buying behavior, or they risk falling behind more-customer-aligned competitors.

Figure 1. Impacts and Top Recommendations for Insurance IT Investment Priorities

fig 1

Source: Gartner (March 2013)

Impacts and Recommendations
Customer cost sensitivity requires that insurers identify ways to reduce the cost of insurance, control premium hikes and make pricing rules more transparent

Global economic conditions continue to drive cost sensitivity among insurance consumers. In many markets, consumer buying patterns for all types of goods and service is changing due to macroeconomic issues such as taxes and consumer sentiment, as well as factors such as unemployment, volatile stock markets and high living costs. All of this drives focus on saving money, especially when paired with sentiment that the goods/services that are being purchased are commodities.

Insurance consumers want to pay less for insurance. In the Gartner study, when asked, "I would like my insurance company to identify ways that I could lower my premium," most consumers agreed with this statement (mean rating of 5.67 for all respondents on a 7-point scale). As a result, insurers need to determine how they will meet the needs of the cost-sensitive consumer. This may include:

  • Creating lower-cost products to position to these individuals – usually basic coverages.
  • Building new insurance products that allow consumers to control the cost of insurance. One example is pay-as-you-drive insurance, a usage-based auto insurance product where consumers are charged for the distance driven in their cars on a monthly basis. Consumers learn through this experience that if they drive less they can reduce the cost of auto insurance.
  • Providing more visibility into how insurance is priced. This will improve the customer understanding of what they are buying, including what is covered in the event of a claim and what additional coverages are offered. This would also include providing life insurance customers with insight into how behavior change could reduce risks (for example, losing weight or stopping smoking).
  • Managing pricing changes at the point of renewal, including offering more discounts to discourage customers from seeking cheaper alternatives from competitors. This also would require greater customer intelligence to know when to apply these discounts (such as for customers with greater lifetime profitability scores) or those likely to churn.
  • Controlling operational costs to prevent future premium increases. This would include building more operational efficiencies and controlling losses (such as fraud prevention and management).
  • Not all insurers, however, want to compete based on cost. They attempt to avoid cost battles, for example, by not offering online products. These insurers will need to differentiate their products (possibly through product innovation, which would include specialty products that are not mass-market) and provide pricing transparency to show consumers the benefit to be gained from higher-priced products.

Recommendations:

Insurance CIOs:

  • Identify ways to reduce IT costs through new IT implementations, legacy modernization (including system consolidation), virtualization and use of new hosting models (including cloud-based services/software). IT should help the business reduce the cost of operations to help drive profitability through cost containment, as well as help the business identify ways to control losses, including the use of modern fraud analytics.
  • Implement tools, such as Web-based and modern rating and pricing technologies, which can show the user the rules behind premium calculation. Providing visibility into pricing rules to consumers and agents will help answer questions on how products are priced, and drive improved understanding by users.
  • Leverage gamification technologies to help expose pricing rules to distributors and consumers. This will help provide pricing transparency and educate consumers on their risk.
  • Assess existing customer data and analytics capabilities to determine if appropriate processes, data and technologies are available to support the models (for churn, profitability scoring and householding) and analysis required for improved pricing and risk selection.
  • Work with heads of business and product managers to understand emerging product needs, and lead an assessment of the impact of these products on core business systems. If product innovation is to be a key differentiator, it is imperative that core business systems, including policy management/administration, can support the pricing, issuance and administration processes. Product configuration or new policy systems may be required, or legacy systems may need modernizing to support these products.
Consumer demand for convenience will require that insurers invest in launching new channels, improving the user experience through all channels and integrating channels for improved interactions

Ease of obtaining a policy is directly related to convenience. However, it is important to note that convenience is a subjective term, and will vary significantly by customer segment. There are four elements that insurance business leaders must concentrate on to achieve this goal:

  • Understanding customer expectations for the channel, including business processes supported by the channel (for example, what is involved in getting a quote or buying a new policy) and the experience desired. This may vary by customer segment (for example, by age, technology familiarity, device used or other personality dimensions).
  • Identifying the preferred channels for target customer segments. This will result in launching new channels and expanding the channel network overall.
  • Integrating the channels to support cross-channel interaction by creating a multichannel platform. This includes providing a business process platform to enable event notifications when actions occur, and integrating electronic channels with traditional channels (such as the call center or agents).
  • Improving the experience in the channel, including in the call center, agent/brokers and on the website. Enhancing navigation, functionality, and interactive capabilities and supporting customer-centric processes are key.

Recommendations:

Insurance CIOs:

  • Identify the gaps needed for multichannel integration and channel support to share with heads of marketing and distribution. Provide input into the channel strategy that will allow for future channels to be quickly added, that will allow channels to share a common processing platform, and that will allow all channels to align with customer experience preferences.
  • Identify next-generation portal requirements to identify functional, user interface, process and technical enhancements needed to support more-sophisticated and technology-savvy consumers.
  • Document limitations of the customer information file and how a single view of the customer could be created. Determine whether sufficient customer segmentation and analytics are in place to support future initiatives. Work with business leadership to identify methods required to segment customers based on life event, lifestyle or other behavioral attributes.
Insurers need to ensure strong and customer-aligned customer service to support customer acquisition and retention strategies

While customer service has always been important, it is more critical than ever in the modern insurance market. For commodity product lines, meeting the service demands of customers is essential. It is one of the biggest factors in renewals, as well as found in the Gartner survey to be one of the top influences in buying a policy overall. Having good customer service, especially in claims handling, is often one of the main tipping points to drive customers to look elsewhere for insurance, as well as possibly damaging brand trust (which is also a key influencer in buying decisions). Ensuring a positive claims experience, and that all service interactions provide good customer value, is essential in retention efforts.

Building customer-aligned customer service requires an understanding of the customer's service preferences. For instance, how do they like to be serviced and through what channel? Companies need to determine if service expectations differ across their regions, in various customer segments, or based on demographics (age, race or socioeconomic standard).

Furthermore, bad experiences may be detrimental in markets where consumers have high social media use. Increasingly, consumers are using social media platforms to complain about their dissatisfaction with consumer goods and companies. Insurance companies are already being impacted by this trend. Negative feedback and statements on these public venues can tarnish a brand and negatively influence the buying decisions of others. For example, the study found that recommendations of friends, family and acquaintances out-ranked factors such as agent/broker recommendation. Social platforms serve as a means to give consumers easy connectivity to many people in a "friendship" circle, and one that can expose bad customer service in a real-time fashion. Insurers must carefully assess the impact of the social media in promoting service quality and exposing companies that are not service-oriented.

Recommendations:

Insurance CIOs:

  • Ensure that all customer service channels are supported with the appropriate technology to support personalized, fast and effective customer service. This applies to all channels where servicing would occur, including mobile applications, portals, agent/brokers, social media platforms and the call center.
  • Assess current claims processes to identify areas of improvement and apply business process management (BPM) solutions to help model, automate and improve claims handling.
  • Evaluate social media traffic and policies to ensure that complaint management is supported. Work with heads of claims and customer service to determine how to manage social media posts and the process for which resolutions are done.
  • Mine complaints to determine repeatable problems that signal changes in processes, policies or technologies. Provide this feedback to business management to help continue to improve customer service across the company.

Source: Gartner Research G00248271, Kimberly Harris-Ferrante

27 March 2013