The Consumer’s Voice

J. D. Power and Associates has been measuring consumer preferences for four decades, providing key performance indicators for various industries in various parts of the world. Late last year, we finalized the results of our inaugural Canadian Home and Auto Insurance Customer Satisfaction Study. The study solicited the feedback of nearly 15,000 personal auto or home policyholders across the country, attempting to bring the voice of the customer to the property and casualty industry in Canada. The goal was to provide insurers specific information to help them improve their customer experience. To this end, the survey identifies:

• competitive benchmarks in customer satisfaction among both home and auto insurers;

• key drivers that affect policyholders’ experiences with their primary insurers;

• “moments of truth” and best practices in meeting and exceeding customer expectations; and

• changing consumer insurance needs and attitudes.

There were a number of interesting findings in the study. For example, consumer opinions expressed in the study suggest that consumer experiences with direct writers’ service levels might be more positive than publicly portrayed. Also, customer satisfaction appears to be driven more by the insurer’s customer service than by its premium/ pricing or policy offerings.

COMPETITIVE BENCHMARKS

As with our other customer satisfaction benchmark studies, primary dimensions of the customer’s experience are explored through detailed ratings of various customer “touch points” (that is, areas of the system in which consumers have a direct interaction with insurers, agents or brokers). We assess the importance of these touch points on customers’ overall satisfaction with their primary insurers. Combining the importance and evaluations of various touch points, a Customer Satisfaction Index (CSI) model was built. CSI values ranged from 100 to 1,000 points, with the higher numbers indicating higher satisfaction levels.

The following charts show the 2008 CSI scores and rankings of Canadian auto and home insurers. Please note that only insurers with sufficient sample size are included in the ranking. Government- run auto insurers, as well as private auto insurers in Quebec, are excluded from the publicly released ranking.

It is interesting to note that the eight brands ranking higher than the private full coverage auto industry average are either exclusively agent-based or direct in terms of distribution. Among the 12 brands that rank below the average, eight have their policies distributed primarily through independent brokers. This seems to suggest that although the broker channel still accounts for the majority of the policies written in Canada today, the insurers’ direct or exclusive- agent channels are delivering a better customer experience, thus providing a stronger foundation for future growth.

A comparison of our industry benchmark studies show that customer satisfaction scores for the property and casualty insurance industry are generally higher than those of the home building industry, but trail those of automobile dealership service. This poses a challenge to insurers. A consumer might enter into a relationship with an auto insurer with high expectations shaped by their experience at a car dealership, bank, hotel or favourite diner, for example, and therefore experience disappointment if they do not get what they expect from their insurers.

Customer satisfaction is a moving target. It can be viewed as the function of a customer’s experience minus his or her pre-existing expectations. To meet and exceed such expectations, insurers not only have to continuously improve their products and services, but also learn from the best practices in other industries.

KEY DRIVERS

J. D. Power and Associates’ customer satisfaction studies operate on two fundamental premises. First, the studies must measure the individual insurer’s performance in a competitive context. Second, the studies must reflect what is important to the customer. Evaluating specific customer experience at various “touch points,” and assessing the relative importance of each touch point on overall satisfaction, helps us determine the “key drivers” of consumer satisfaction with the insurance industry.

The 2008 Canadian Home and Auto Insurance Customer Satisfaction Study identifies the importance of five policy holder satisfaction drivers:

• customer service;

• price and/or premium;

• policy offerings;

• billing and/or payment; and

• claims.

As the following charts show, customer

service is the most important driver of customer satisfaction, accounting for 28% of auto insurance policy holder satisfaction and 38% of home policyholder satisfaction. In both segments, customer service overshadows price/premium or policy offerings.

This may come as a surprise to many people, since Canada’s property and casualty industry has long been considered a commodity business, with the majority of policies written through independent brokers. The government’s direct participation in the auto insurance market in four provinces and heavy regulation in others has shaped the industry’s focus on rate and premium rather than delivering a superior customer experience.

However, insurance is a service industry, and policyholders expect their primary insurers to provide the same level of service they have come to expect from other service industries. By putting customers first and differentiating themselves on service, insurers theoretically would not have to rely so heavily on premium discount to attract or retain customers. Accenting customer service will help insurers win the competitive race in long run by building consumer loyalty.

In fact, this year’s auto study shows customers who reported being “delighted” with their insurers’ services are twice as likely to recommend the insurer to their friends and family, as well as 60% more likely to continue using the insurer for other insurance policies, than consumes who said they were just “moderately pleased” with their insurance services.

MOMENTS OF TRUTH

Given the relatively infrequent purchase or renewal cycle of the insurance product, it is critical that insurers accurately identify the key customer touch points and relentlessly enforce customer-oriented service processes or standards. The goal should be to make sure each of these touch points turns into a “moment of truth” that delights customers and shapes their entire experience about their insurers.

One such “moment of truth” is in the area of claims handling. Claims handling accounts for only 8-12% of overall home and auto policyholder satisfaction, but it is by far the single most important factor among those who have filed a claim in the past three years — 41% for auto claimants and 52% for home claimants.

Many claims handling processes or standards can be implemented to improve customer experience. One is to minimize the number of claim centre representatives with which customers must interact. Another is to ensure the consistency of claimant information that is being captured so that customers do not have to repeat the information when they deal with multiple representatives. As the charts below show, each of these two processes significantly affect customer satisfaction, resulting in different claims handling CSI scores.

Auto insurance is a complex product. Consumers’ needs for different coverage options change with their lifestyle and family circumstances. Consumers expect insurers and the agents or brokers working on their behalf to be proactive in reviewing their auto insurance needs regularly and recommending the most appropriate policy options. They also expect insurers’ representatives to clarify the policy statement in consumer-friendly terms, so they understand the coverage, benefits and avoid any surprises when accidents do happe
n.

In spite of these consumer expectations, only 40% of all policyholders in the survey reported having their policy needs reviewed within the past year by someone from their insurer. Forty-four per cent said their policy needs had never been reviewed after initial purchase. This lack of review is a problem, particularly as stated by customers of government-the run insurers (61%) and those who reported purchasing their policies through brokers (50%). It is no surprise that the policy review process has a direct impact on customer satisfaction. Those who have had recent review (within the past year) have substantially higher levels of satisfaction than those who either never had a policy review or only had one in the distant past.

Another “moment of truth” is when insurers increase their premium rate and have to communicate the bad news to customers. What we have seen is that although premium increase leads to lower satisfaction level, it can be mitigated through proactive communication with more of a personal touch. Customer satisfaction can be salvaged somewhat if they are notified of premium increase in advance, particularly if the notification is done with a phone call from the agent, broker or insurer representative directly.

CONSUMER NEEDS AND ATTITUDES

Given the high level of public scrutiny related to auto insurance, it is no surprise that Canadians have strong opinions about the industry, its regulation and the government’s role in it. More than 40% of our survey respondents found insurance products difficult to compare because each insurer uses different terms. More than 30% of respondents believe there is too much regulation in the industry.

When it comes to the ongoing debate between private versus government run auto insurance, one-third of respondents think private insurance offers better services and more benefits. One-fifth believed government-run insurance is less expensive. Those currently being served strictly by government-run insurers in B. C., Manitoba, and Saskatchewan held a somewhat ambivalent view about whether a government-run insurer offers less expensive insurance. Twenty-seven per cent agreed that it does, while 31% disagreed. Quebec policyholders, who deal with both the government-run SAAQ and a private insurer of their choice, tended to hold a more favourable view of the private sector and its benefits.

In terms of channel preference, a majority preferred to deal with independent brokers representing multiple brands (and therefore, presumably, offering the best option). Forty per cent considered brokers to be “middle men” and preferred to deal directly with an insurer. This rift is more pronounced among people who bought their policies through different channels: those who bought through a broker have a much higher preference for the broker channel (75%), while most who bought direct favour the direct channel (55%).

A majority of policyholders are interested in consolidating all their insurance and financial needs with one firm (61%), although they are hesitant to commit to purchasing insurance from their primary banking institution (20%). Not surprisingly, those who are currently with bank-affiliated insurers such as Desjardins, RBC Insurance and TD Insurance Home and Auto are more likely to commit, with roughly one-third to one-half expressing interest.