Is Customer Loyalty Enough?

By Thomas Mulvey  |  August 5, 2013

Auto insurance policyowners aren’t shopping around as much these days, but the risk of flight persists. In a new report, “2012 Auto Insurance Customer Insights Research – Winning Share and Customer Loyalty in Auto Insurance,” a survey by McKinsey of more than 16,500 consumers revealed some important insights that claims executives can use to help retain customers and increase loyalty.

Last year, 27 percent of auto insurance customers shopped for a new policy — the lowest level since 2008 and a significant decline from 33 percent in 2011. However, that still puts a lot of premium in play: $45 billion in direct written premium (DWP), according to McKinsey. Only 9 percent of the market ( one-third of those shopping) ultimately made a move, but that still translates to $13 billion in DWP.

The annual ritual of customers shopping for new insurance is simultaneously a threat and an opportunity, as the risk of losing one’s own customers offsets the advantages of winning new business.

Loyalty, of course, provides a buffer; but it also covers a wide range, with “passive loyalty” a particular problem. According to McKinsey, passively loyal customers “remain with their carrier more out of inertia than out of satisfaction.” When a triggering event occurs — such as a price change or a claim — they can be easy to lose. While only 18 percent of customers are passively loyal (compared with 55 percent who are actively loyal), industrywide, passively loyal customers represent $18 billion in DWP.

While price changes remain the largest drivers behind shopping decisions (90 percent for passive loyalists and 80 percent for active loyalists), customer service experience is powerful as well. According to McKinsey, 69 percent of passive loyalists and 63 percent of active loyalists indicated that service issues — such as a poor claim experience— would cause them to shop and possibly switch carriers. In fact, such issues ranked higher than advertising in McKinsey’s results. How an insurer handles its customers, therefore, can have a profound effect on its business.

For years, claims departments have recognized their role in insurers’ efforts to attract and retain customers. The experience a policyowner has during a claim — when he or she needs the insurer most — can cause a customer not only to start shopping and ultimately switch but also to communicate that experience to other people, possibly influencing the decisions of many more customers. For that reason, validated by McKinsey’s research, every aspect of the claim-handling experience should focus on a fair, fast resolution that includes a high level of both responsiveness and proactive service.

Thomas Mulvey

Thomas Mulvey has been in the business of insurance investigations for more than 27 years. In his current position, he serves ISO as assistant vice president of SIU and claim services. He is also the coordinator of ISO’s Insurance Fraud Management Conference.