Hold on tight
Just how important is customer retention in the travel insurance industry?
Just how important is customer retention in the travel insurance industry? Stewart Farr gauges industry opinion and considers the different ways in which some travel insurance providers build customer loyalty
Loyalty is not a condition the casual observer might think characterises the occasionally fractious relationship between traveller and travel insurer. Disputed claims, buying on price alone, not reading the small print, and dishonesty – all conspire to produce an atmosphere of suspicion and mistrust. At least, that’s the general media view, but does it reflect the real situation? Are customers constantly churning their suppliers or are retention and loyalty the watchwords of travel insurance? What are the key strategies that companies employ to achieve repeat business and are such strategies effective for the enhancement of retention rates?
Steeped in history
Travel insurance has been around in one form or another for at least 150 years. Its origins are credited to American businessman James G. Batterson, who founded The Travelers Insurance Company of Hartford, Connecticut, in 1863 and introduced accident/casualty insurance to the US; quite probably, though, Lloyd’s of London had been issuing some form of travel accident insurance since its inception as a maritime insurer in 1688). On 1 April 1864, Batterson issued the first written Travelers insurance policy to himself (cynics may see this as a perverse April Fool’s joke). Prior to officially composing written policies, Batterson had entered into verbal agreements with his clients; the previous month, for instance, he had insured local coal dealer Edwin S. Tyler for $5,000 against any accidents encountered on a trip to Washington.
Since then, travel insurance has changed significantly, particularly in the last 50 years. Theft in transit would have been a major problem in the 19th Century (the Harvard to Washington turnpike was probably well infested by outlaws, bandits and footpads in 1864); now it ranks fairly low when up against protection from accidents and illnesses, health cover, trip cancellation, flight interruptions, acts of terrorism, even kidnapping and ransom. According to a survey published in early 2014 by the US Travel Insurance Association, one in six Americans (17 per cent) said their travel plans had been impacted by medical conditions, natural disasters including severe weather, or mechanical or carrier-caused problems.
Batterson’s company simply covered all the costs associated with theft and other unexpected circumstances such as accidents. Any words of wisdom he had on customer retention have been lost in the mists of time and likely wouldn’t have any relevance for today’s situation anyway, except for two key words – trust and service. Research last year by Accenture among nearly 8,000 car and home insurance customers in 14 countries must have some significance for travel insurers: it found speed of settlement and process transparency are the most important contributors to customer loyalty, with each cited by 94 per cent of survey participants as a key expectation when interacting with insurers during the claims process. In a nutshell, trust and service were top priorities.
So how do travel insurers harness these concepts in order to appeal to their policyholders and keep their business from year to year, or from trip to trip? And is this a priority for travel insurers anyway?
Inspiring loyalty
Some form of no-claims bonus/discount is a concept often used in other forms of personal lines insurance to keep customers on the books, but not so much in travel insurance. Bob Chambers, VP of operations for US-based CSA Travel Protection, explains that as, currently, most travel insurance policies are technically not renewable, the concepts of ‘retention’ or a ‘persistency rate’ may not exactly apply, because repeat customers have to buy a new policy per trip. Chambers said: “I guess we can think of retention rates in terms of repeat customers coming back to buy a new policy for their next trip as opposed to going to a competitor. Given the new policy is not a renewal for their old one, you can’t exactly apply a ‘no-claim discount’ as a rating factor. Also, since insurance is a regulated market, discounts (as a rating factor) need to be filed before application.”
Mark Kopec, head of travel Asia & Pacific for Zurich, notes that in his company’s experience, most insurance is sold by travel and insurance agents and therefore satisfaction/loyalty is tied to that transaction and relationship. The aim, though, is to always ensure that customers receive class-leading claims service and client-centric products: “The company has considered introducing a no-claims bonus,” said Kopec, “but has not embraced this idea for several reasons. Travel products are typically bought on an ad-hoc basis, so renewal incentives are less relevant, and the relatively low cost of our insurance makes a significant price difference for a no-claims bonus unlikely.”
On an industry level, our corporate travel products use previous claims experience as one of the rating factors at renewal, so reduced claims activity does contribute to lower pricing
There is also the risk that the hope of such a discount on future medical and personal accident cover might dissuade customers from seeking help earlier in order to contain costs; they could hold off on medical treatment because they want to ensure a future no-claims bonus – thus potentially leading to greater medical claims costs further down the line. However, as Kopec noted: “On an industry level, our corporate travel products use previous claims experience as one of the rating factors at renewal, so reduced claims activity does contribute to lower pricing. Zurich’s retention rates on corporate travel are above industry benchmarks.”
There is also a clear difference between the concept of ‘renewal’ when discussing annual and single-tip policies. With annual multi-trip policies, automatic renewals provide continuous cover and customer peace of mind which enables retention, but they are not for everyone, maintains Tom Bishop of the UK’s Direct Line Group. “No-claims discounts (for travel insurance) are less common (than on motor or home), primarily because the premiums and margins in play are so much lower to start with, but as an incentive to customers taking one holiday a year, this can be quite an effective means of enticing single-trip customers to make repeat purchases.”
Thomas Plessl, managing director of German travel insurance comparison website ReiseschutzCheck GmbH, doesn’t think a no-claims bonus would be helpful for travel insurers – even for annual policies – as the average turnover is too low. “Customers tend to be price sensitive while choosing annual insurance, but afterward the issue is closed. Nobody wants to think about travel insurance time and time again – that’s one reason why people choose annual.”
The transient nature of – particularly single-trip – travel insurance purchasing is further enhanced by the ease with which travel insurance can be purchased and compared online. With many consumers looking for a cheap deal on their travel insurance, being able to change your travel insurer at the click of a button does little to enhance customer loyalty. But the advent of the Internet, and in particular social media and digital interaction, might just be the key to unlocking future customer retention trends. With more and more insurers launching apps and social media communities that provide additional information for policyholders, such as travel and health advice or support, existing and potential customers have new ways to stay connected to their insurer and potentially form a bond or relationship with them that wasn’t as easy to foster previously. Such digital relationships and interaction are not just about brand awareness either, but are a means of attracting and retaining customers by making the purchase of travel insurance a simple part of the interaction process.
The view of Chambers is that social media plays an important role in retention marketing because consumers are increasingly using the Internet as a channel to interact with brands they do business with: from using Twitter to complain about/seek customer service, posting suggestions or compliments on Facebook, to using review sites. Social media can help paint a picture of a company and give customers a sense of what the company is and does, but it’s challenging – a channel that brands don’t fully control.
No-claims discounts are less common (than on motor or home), primarily because the premiums and margins in play are so much lower to start with
“Growing loyalty is one of the most important benefits of social media,” says Kopec. “Our experience in Europe and the US has shown that social media engagement directly results in higher retention. By developing a relationship, our agents are able to be contextual and responsive to a customer’s life events. Customers, though, are sensitive to sales messages and quick to tune out so we’re focused on ensuring content is informative and relevant.”
Plessl is not so convinced: “It’s a good way to create an image and emotional ties, but it will never outrule prices! You should be in it, but not expect leads or better retention.” Bishop believes it can work both ways: “The anonymity afforded by the Internet tends to produce very polarised views, which can both help and massively hinder attempts to acquire and retain customers.” And the Paul Laughlin Consultancy doesn’t see any intrinsic merit in social media at present: “Insurance customers are not yet looking for this from their providers and may even see it as wasted money when they want a cheaper premium, not a gimmick.”
However, Staysure’s experience is very positive. Alison Longdon, head of product for the company, told ITIJ: “Social media is a very important platform for us to be able to communicate with a wide range of customers and promptly answer their queries. Our customers love to interact with us, share their holiday photos and holiday stories. Our Facebook page followers have grown by nearly 500 per cent over the past year and we are building a like-minded community of over-50s. We know our customers return to the page for leisure, not purely to discuss insurance. Our marketing and customer service teams both find this channel useful at putting customers’ minds at rest when they have a concern.”
Claim rate conundrum
As regards correlation between claims (successful or otherwise) and retention rates, opinions seem to differ. Laughlin believes those who claim are more likely to subsequently switch insurers, even if their experience is good (and even more likely to switch if their claim is rejected). Zurich doesn’t see a correlation between retention rates and declined claims, while Plessl feels in general there is no difference (between claimers and non-claimers) on retention rates, but warned that ‘an unsatisfied claimant will cancel the policy. Satisfied customers tend to stick with their insurance, though with bargains elsewhere they can be gone too’. In fact, from a business perspective, he doesn’t believe retention is worth worrying about in the first place: “It is better to create new services, attract new customers and use mouth-to-mouth marketing.” Laughlin disagrees: “For an insurer, retention has far more impact on profit than just top-line growth.” Plessl maintains, however, that key strategies to maintain loyalty are price and/or additional services, with brand being secondary.
Travel insurance is an extremely competitive market, especially in the aggregator channel; but in the direct purchase sector where, Bishop of Direct Line notes, customers tend to be less price-led and more concerned with a quality product and service, retention is extremely important: “It’s far easier to keep customers than it is to acquire them in the first place, but this is only possible if you continue to provide a good product at a reasonable rate.” He notes that ‘generally, claimants who have experienced a prompt, efficient and fair claims service or a favourable experience at the hands of an assistance provider will be far more likely to renew in subsequent years, not to mention acting as an advocate in recommending the product to friends, family or online’.
For an insurer, retention has far more impact on profit than just top-line growth
Indeed, a key retention strategy for CSA is to provide excellent service for those who do file a claim, said Chambers: “People who file a claim tend to feel they’ve received their money’s worth from the policy. We also want their claims process to be efficient, friendly and without hassle. We’ve found that this goes a long way towards driving repeat business.”
While marketing campaigns and the like are important tactics for drawing in customers, creating brand awareness and staying in touch with customers – potentially creating loyalty – it's good service that ultimately drives customer retention; service and good value, all driven by a positive experience when engaged in any form of communication or claims process with the insurer. Although travel insurance purchasing may be relatively ad hoc when compared to other forms of personal lines insurance, and some insurers may wish to focus on top-line growth, there are certainly a number of tools insurers can easily add to their arsenal if their focus is on enhancing customer retention.