From dust to dawn
The recent ash cloud that settled over Europe, upsetting travel plans and causing travel insurers to define to policyholders what it is they will and will not cover, has been something of a wake-up call to the travel insurance industry. John Everhard thinks it’s time to shift the focus and differentiate with customer service, not price
First published in ITIJ 115, August 2010
The recent ash cloud that settled over Europe, upsetting travel plans and causing travel insurers to define to policyholders what it is they will and will not cover, has been something of a wake-up call to the travel insurance industry. John Everhard thinks it’s time to shift the focus and differentiate with customer service, not price
The Eyjafjallajokull volcano will undoubtedly make 2010 another year of reduced margins in the travel insurance industry. Indeed, the ash cloud is just one of a long string of events that is leading to higher volumes of insurance claims. British Airways and Air India strikes, harsh winter conditions in Western Europe and political unrest in Thailand have all contributed to the tough market conditions.
While there is a direct impact on insurers’ bottom line as a result of these events, they have also prompted growing consumer scrutiny over insurance policy details, right down to the minutiae of terms and conditions. After a long period of reticence, the tide is starting to turn and consumers are beginning to compare policies on more than just price alone. Importantly, they are starting to put precedence on customer service in the event of a volcano-type scenario that leaves them stranded in a far-flung airport. With the industry under the microscope, how are insurers responding to this shift in priorities?
Customer demand + changing regulations = the perfect storm
In recent years, consumer demand for a quick-fix policy that they purchase through an aggregator website has fuelled a substantial portion of policy sales. Policy details and customer service were not previously considered a strong selling point by insurers, or consumers, and as a result, the industry has generated a flood of travel insurance products that compete directly on price alone. Over the longer term this becomes unsustainable.
the industry has generated a flood of travel insurance products that compete directly on price alone
With price-based marketing dominating, consumers often purchase their travel insurance the day before a holiday or business trip and are ill-informed on the product that they are buying, or even the underlying carrier. However, events such as the ash cloud have laid bare the dangers of a low awareness of policy entitlements and how to actually make a claim.
Consumers, therefore, are now increasingly seeking information and advice about policy details before they purchase, as opposed to rushing into a largely unknown product. They want support online and via customer call centres to evaluate their personal needs, for example in terms of certain health conditions or what to do to safeguard an expensive camera, as well as gaining an understanding of what kind of protection they can expect in the event of a freak natural disaster.
In the UK, this market trend is in fact supported by regulatory changes due to be implemented over the next few years. The Financial Services Authority’s Retail Distribution Review is forcing through change by demanding greater product transparency. This means that insurers will need to change the way in which they approach marketing, sales and customer service to ensure that customers fully understand what they are buying.
Consumers’ increasing desire to know more about insurance products, in tandem with a more stringent regulatory environment, is creating a strong business case for insurers to adopt a customer-centric approach. Many are now looking to turn the previous cost-based strategy on its head and focus on the customer as a way of increasing revenue.
Why should travel insurers make changes?
Customer retention is increasingly seen as a key way for insurers to pull themselves out of the recession. With the investment arm of most insurance businesses struggling because of the current climate, revenue generated from the customer is critical to ongoing profitability.
A price-based strategy has been successfully driving the majority of sales in travel insurance for a number of years. However, the reality is that while there will always be customers who purchase on price alone, this segment is diminishing. In order to grow customer wallet share, and increase profit per customer, insurers must move away from marketing the product itself and consider the whole customer experience.
There are direct economic benefits to investing in the customer experience. The industry is all too aware that a price-based sale yields high customer turnover and low share of wallet, worsened by disaggregation with the carrier that creates a low brand allegiance. Beyond travel insurance alone, consumers own an average of five insurance products that are spread across numerous insurers; as a result, customer churn is very high. However, this dynamic also presents an opportunity for insurers to up- and cross-sell new products and bundle numerous products together. This strategy would help increase customer wallet share and reduce the likelihood of a customer jumping to another provider.
However, before bottom line and customer loyalty benefits can be fully realised through enhancing the customer experience, insurers must bridge the significant gap between the level of customer service they want to deliver and their practical ability to do so.
Meeting demand
One of the biggest hurdles that insurers need to overcome is the challenge posed by legacy technology in place today that prevents them from putting the customer at the heart of their business strategy. Most insurers currently rely on out-dated technology that often results in information that can support the sales process being left in forgotten and inaccessible silos. This problem has been further exacerbated by the rise in M&A activity in the insurance industry as a whole, which has impacted travel insurers.
In addition, the number of channels that customers can use to access travel insurance products has increased, with a huge volume going through the online channel. Online sales in travel insurance are amongst the highest proportion compared to other insurance sectors, in part due to customers’ historic desire to access economical policies at the last minute. This means that the insurer must grapple with another form of customer data to be collected and stored for easy retrieval.
Across the board, insurers are struggling to manage, interpret and act on the customer data gained. This means that insurers do not know important customer habits such as the type or location of holiday they often choose, or if the customer has a spouse with separate policy details. Without this visibility of customer information, travel insurers are unable to tailor offers to the individual. On the few occasions when customer service representatives have the opportunity to converse with customers, they are not therefore able to adequately respond to their needs. By not utilising technology effectively, insurers are also increasing the time spent per customer, thereby reducing staff efficiencies.
Finally, while insurers must be able to provide all customers with good service, they currently lack the ability to differentiate high value customers and provide an appropriate level of service; for example by routing their calls to dedicated call centre operatives who can provide a specialised service, as we are beginning to see with some of the higher end general insurance products.
Lightening the load
The big inhibitor that is often cited against updating old systems is the initial investment required. In addition, travel insurers face the challenge of rapidly rolling out new technology to maximise ROI. However, in the UK, the impending Retail Distribution Review and the changing customer demand for enhanced customer service is presenting a perfect storm of issues that the most progressive insurers are acting on now.
Improving the customer experience need not be costly and the most technology savvy insurers are currently looking to augment rather than replace their technology. Unlike full system replacement, augmenting technology means that new systems can be implemented in only two to three months at relatively low cost.
The benefits of a system that can capture valuable customer data from multiple channels are widespread. In particular, as more people use the Internet to book travel insurance, it is critical that call centre staff are empowered with customer information from across the organisation. For example, it is important that a customer service operator is made aware that the customer they are talking to has recently logged a question or complaint online about the level of policy cover they have or what countries they can travel to. It is even more important to know if they have been ‘surfing’ product options on the company’s self-service channels.
the impending Retail Distribution Review and the changing customer demand for enhanced customer service is presenting a perfect storm of issues that the most progressive insurers are acting on now
Making changes now is vital to retain the increasingly valuable Generation Y segment. With their well-documented use of multiple customer service channels, Gen Y are an important target market when it comes to integrating information on customer profiles and ensuring consistent communications across the Internet, telephone and even smart phone applications. For example, noticing that a customer chooses a more detailed policy that includes a new baby may lead to different cross-sell and up-sell opportunities in terms of the types of policy cover the family will need on holiday. A business travel executive may get a new contract overseas and share a second address, which could change their policy entitlements abroad.
Noticing these changes and using them as a starting point to hold conversations and offer relevant products will not only help customers feel ‘understood’, but should also increase company revenue. Bundling numerous products can also have the longer term effect of reducing the desire and ease with which a customer can leave an insurer and thereby increase the long-term value of any given customer. Maximising such opportunities also acts as a preventative strategy as customers often see changes in situation or lifestyle as an opportunity to shop around for better product offers. At present, few insurers have a full view of their customers and consequently are unaware that a customer is looking to leave their company until it is too late.
In the bag
The insurance industry is shifting its focus across the board in response to the need for greater customer centricity. To put the customer at the heart of their business strategy, insurers will need to overcome the challenges posed by the legacy technology in place today. It is only through the better aggregation and use of customer data that insurers will be able to fully understand their customer. In doing so, insurers will be better placed to offer customers the right product and thereby maximise loyalty and wallet share whilst ensuring compliance with upcoming regulation.