The European motor insurance market faces intensified price-based competition leading to profitability issues for insurers but as Imran Ahmed explains when it comes to customer satisfaction insurers can hold their heads up high.
European motor insurance is characterised by tough competition, increasing commoditisation and volatile profitability. In these circumstances, insurers are naturally keen to minimise indemnity and administration costs. However, the claims process is also a unique opportunity for insurers to deliver an experience that will allow a positive customer relationship to develop. This can lead to increased retention, shorter claims life cycles and higher fraud prevention rates.
In recent years, European motor insurance markets have seen a steady increase in combined ratios and a corresponding decline in profitability. At the same time, specialist claims management companies and firms of personal injury lawyers have taken a more active role in claims processes in some countries, and the economic slowdown has seen bodily injury claims increase in number and value in others.
In many countries, the internet has also served to intensify price-based competition, and insurers have found it increasingly difficult to pass on their growing costs to customers. Many insurers are struggling to balance their market share and profitability goals, and some have chosen to exit the market altogether.
In markets that are often highly commoditised, making a claim may be the only direct contact that customers have with their insurers - particularly when they have organised their cover through an agent or broker. As such, claims represent a crucial opportunity for insurers to deliver a positive experience, and their best chance of developing a stronger customer relationship. Customers satisfied with their claims experience are expected to be more likely to remain loyal to their insurer or to recommend them to friends and colleagues. Conversely, dissatisfaction has the potential to push both new and existing customers away.
From the perspective of the insurer, the claims process has another important facet - cost. Claims represent a motor insurer's largest spend both in terms of indemnity losses and operating expenses. It is, therefore, vital for companies to keep claims costs under tight control.
Unfortunately, for some insurers an indirect consequence of this approach has been to erode the quality of customer service and reinforce commoditisation. Effective, efficient claims management is, therefore, central to the success - or failure - of European motor insurance models. Recognising this, a number of European insurers have started to give claims management greater priority, and are increasing their investment in technology and training.
To explore this important area, Ernst & Young commissioned Ipsos Mori to conduct a survey of motor insurance customers in Belgium, France, Germany, Great Britain, Italy, the Netherlands and Spain between late August and early September 2010. In each country, 700 customers were surveyed, 500 claimants and 200 non-claimants.
Customer behaviour in any market is a complex animal, and motor insurance has the added features of being a compulsory, regulated product sold to millions of customers. Furthermore, European motor insurance is characterised by tough competition, increasing commoditisation and volatile profitability. In these circumstances, insurers are naturally keen to minimize indemnity and administration costs.
The report - European motor claims: Is customer satisfaction enough? - focused on customer satisfaction with motor claims, and the consequent impact on retention rates and brand advocacy, While claims service is an important part of an insurer's proposition, price, claims cost, operations and brand are also highly significant.
It showed that insurance customers are much happier with their claims experience than had been expected, although there are wide national variations. The sense that insurers are placing customers at the heart of the claims process is a key driver of satisfaction, and the human touch is vitally important. The results show that most European customers have come to expect - and receive - a good level of service. This is a positive finding, but it raises the bar even further for insurers aiming to meet future customer service expectations.
High levels of customer satisfaction emerged from the survey as a powerful driver of stronger loyalty and brand advocacy. In contrast, moderate satisfaction has a far lesser impact on brand loyalty. There is, therefore, an opportunity to boost customer renewal rates by increasing the numbers of customers with high levels of satisfaction. Responses confirm that making a claim is a 'make or break' moment when it comes to customer loyalty. Knowledgeable staff and good customer communication is a key element of success, and can have a significant impact on retention costs.
Claims management is vital to any successful customer retention strategy. In today's highly commoditised markets, making a claim is often a customer's only direct interaction with their insurer. As such, it represents a crucial opportunity for insurers to deliver a positive customer experience. This can lead to increased retention, shorter claims life cycles and higher fraud prevention rates.
Any insurer considering an investment in customer service improvements will want to fully assess the potential benefits and costs for each aspect of its business. As part of this process, each business needs to decide what value it attributes to customer service, as well as whether money would be better spent elsewhere, such as on marketing or premium discounts which could achieve similar improvements in customer retention.
Clearly, there is more to motor insurance than good claims management. However, further investment in this area could be very worthwhile for European insurers. The way that insurers choose to communicate with their customers is vital to generating a high-quality service. In addition, tighter supply chain control also has the potential to deliver real savings, without having a negative effect on customer satisfaction.
Nonetheless, insurers must remain flexible in their approach to different European markets. A ‘one size fits all' approach does not work across borders, and insurers need to be able to flex their operational practices to suit each market in which they operate, while retaining their ability to deal with claims data from multiple channels consistently.
Just as every insurer needs to develop its own response to the challenges of its markets, each business needs to strike its own balance between the need to control costs, meet hygiene levels of service and realise the potential upside of higher customer satisfaction. There are no simple fixes, but there is real potential for insurers making the right improvements to their claims processes to achieve stronger performance in a highly challenging market.
Imran Ahmed is claims advisory leader for Europe, Middle East, India and Africa at Ernst & Young
See also an indepth interview with Imran Ahmed
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