Leading in a New Era of Connectivity with Bain & Company

Bain & Company - a global consultancy helping the world’s most ambitious change makers define the future - created a customer behaviour and loyalty in insurance survey in 2014, and have repeated the survey every year since. Modern Insurance spoke with Mário Conde, a Partner based in their Amsterdam office, about the results of the 2020 survey.

ach year, Bain & Company conduct a customer loyalty survey across the industry. Last year, they covered 16 countries and 170,000 customers – 17,000 of which were UK customers.

The first headline of the survey is ‘Loyalty’, which drives customer lifetime value. This concept is extremely important for insurers: both life and P&C. When considering the customer lifetime value of promoters, it is six times higher than that of detractors, and is driven by customers who stay longer with you. People who buy more products and tell their friends. Loyalty, which we measure through NPS (Net Promoter Score) is a number that really delivers that customer lifetime value.

In terms of where we see the market, while there is a large gap between loyalty leaders and laggards, most insurers operate in largely undifferentiated markets – the UK is no exception. In the UK, NPS scores fall at 5-7% in P&C and just 2% in life. Compared to figures of the US - 30% plus – this is quite low. Millennials are a challenge; they are 5 percentage points lower that other customers. They are more digital, are more likely to switch, and are more willing to buy insurance from tech companies. When we think of differentiation, we see insurers doing two things to drive loyalty and relevance. Insurance is a low-touch industry, so creating reasons to interact with you customers begins that drive. Then we see it through ecosystem services, which is a current trend in the industry, where insurers are adding more benefits beyond the core insurance products. This serves other needs of the customer and creates reasons for engagement and interaction.

QThe 2019 report states that connectivity and digitalisation is the way forward, that there is a strong link between connectivity and loyalty. Are insurers utilising this information effectively? Could they do more?

and interact with customers. We are seeing customers with connected devices interacting six times more than customers without – and they have 25% more products from that insurer. In terms of how insurers are actually taking this opportunity: in the UK, 40% of customers have a connected device but very few are connected to the insurance service. So, if you have a connected home device, it’s very unlikely that it was provided by your insurance company. If you have a connected dashboard in your car, it’s usually the OEM or a tech company providing it. When we think of the relevance of insurers within the connected device base, there is a lot more they could be doing. They’re falling behind tech companies and OEMs, who are taking the lead in putting connected devices in the hands of customers.

QMillennials are a huge opportunity for insurers looking for new consumers – how do their expectations differ from existing customers?

AWhat we see of millennials being served in the market today, is that their demand is quite hard to fulfill. They are certainly a customer with different needs, and they tend to be more dissatisfied. As mentioned previously, they fall at 5 percentage points more dissatisfied than other consumers. The UK is a highly digital market, but millennials are still 10% more digital. They’re more likely to switch and shop, they are more likely to change after one or two years. So, it’s a real challenge for the industry to build a long-term relationship. One third of millennials are interested or willing to buy insurance from tech companies in particular – Apple is one of the first names that shows up when we ask customers whether they’ll be interested in insurance from non-traditional providers. This is clearly a problem, and no one has cracked this from a proposition standpoint, or from a delivering on expectations standpoint. One of the points we believe contributes to this, is that expectation is not only influenced by peers and the industry, but also by other services the customer interacts with. Insurers need to see themselves as competing with the digital experiences of Amazon, or Uber, or WhatsApp, as opposed to just looking to the neighbour and trying to beat them in an insurance game.

QHow important is brand? Many consumers already trust companies, for example Amazon, how can insurers compete with those disrupting the market?

AWe developed, some years ago, a methodology to quantify the drivers of customer value. We call this ‘the elements of value’ - there are thirty elements that we think customers perceive as value from different products and services. When we ran the survey for insurance, asking what actually drives this customer value – what drives NPS – we were able to highlight what matters for customers. In P&C, the important elements are things like quality, rewards, access, saving time, saving cost, reducing effort, etc. We think of these are the elements that you can fulfill or not, and your NPS – your perception – will be driven by it. So, what matters most to customers of insurance today are the functional elements: cost, time, effort, etc. Then when we look at companies like Amazon, these are the elements that they are exceptional in. So, it is not a surprise that when we asked why customers would be interested in purchasing from nontraditional methods, like Amazon, they

cite similar elements: competitive price, ease of purchasing, strong reputation, and quality of service. The theme here is that there are a lot of these important elements that tech companies in other markets have already succeeded with. It is only a question of time as to when these advantages are deployed in insurance.

QRegarding incumbent insurers vs insurtechs: what is the playing field right now and how do you expect it to change? Will tech take over, or is collaboration the way forward?

AIn terms of incumbents vs insurtechs, this questions is really in two parts. One, we see real differentiation as a kind of leading indicator to potential winners in the future. Two, how can incumbents think about competing? So, for differentiation, many insurtechs are still small and have not reached a large scale – it is hard to say what is really evidence of success vs incumbents. However, there are several things that insurtechs are extremely good at. For example, they build great customer obsession (essentially very, very high NPS). An example from another market would be Root, a well-known insurtech in the United States. They have an NPS score of over 80% versus a market with an average score of 30%. So, Root is a company that builds true customer obsession. When you check their Facebook, YouTube, and social media their customers are raving about them. A parallel in the UK would maybe be Monzo. Another aspect they do very well is their ability to be extremely efficient. This is due to their digital native architecture, there are no legacy systems or operating structures to deal with. Lemonade, in the US, has two or three times the number of customers per employee versus the average incumbent. They need a lot less people to provide just as good, if not better, a service. So those are two true drivers of differentiation; the ability to engage and delight your customers, and the ability to do it at a much more efficient level and/or lower cost. Despite their sizes, insurtechs have some significant advantages.

However, the growing trend of open architectures and ecosystems of capabilities, are allowing incumbents to react to insurtechs. This means being able to take the functionality that is out there in the market and plugging it into your own systems, providing services and technology that is just as good as some of these startups. For example: telematics technology. To build this from the ground up would take a lot of time, capability, and expertise. But nowadays there are a number of companies that are almost ‘plug and play’ telematics solutions. They bring you an app that is white label and ready, it’s easy to plug in, and easy to delight your customers without having to do it all yourself.

To take a step back onto the questions, on one hand, yes – there is extreme competition driven by firms who have completely reinvented the level of customer obsession and efficiency of the industry. But on the other hand, there is an increased availability of plug and play technology to be deployed on open architectures and allow the same capabilities and functionalities as startups.

QCould you elaborate on the report findings regarding the split between online and offline consumers? How can insurers adapt their business model to cater for all?

AThis is one of the key metrics we have been following over a number of years. Granted, in the UK over the stage of research and initial interaction, there was already a very digital market when we started the survey in 2014. For P&C, we’re looking at 80% of customers having a digital interaction at this stage, which rose to 90% last year. In Life it’s a bit lagging, with 60% rising to 80%. Despite starting at a very high level, there has still been a significant increase over five years. Interestingly, when looking at loyalty – or NPS – per type of channel, we see that digital is still the lowest NPS score. But when you add offline channels, and create a hybrid journey, there is a rise in the NPS score. Ultimately, hybrid experiences produce better results than digital. There are two explanations for this. One, the incumbents have not reached the level of digital experience that we expect and receive from tech companies, which is why digital only does not work well. Two, a hybrid experience tackles more key emotional moments of truth. If you crash your car, and are panicked and nervous, do you want to use an app where you fill out a form? Or do you want to call someone who will help and talk you through the process? So, we think there is some magic in really tailoring the experience, and potentially using human touch in the high impact moments of truth.

QHow can insurers navigate the ‘increasingly stringent regulations’ on data – how can they build their consumers’ trust?

A40% of consumers have a connected device, but only 10% in the UK are provided by or are sharing data with their insurer. But we believe there is an additional 40-60% of consumers who are willing to the idea of sharing data, even though they haven’t installed a wearable device, or home alarm, or camera yet. They are open to having these devices provided by their insurer and sharing data from them. In this evolving landscape, there are two important questions: how do you give the customer full control and transparency over the use of data? And secondly, what is in it for the customer? Sharing data under my control, in transparent conditions is one part of the equation, and sharing it with a clear incentive of how this device is going to make the product and the experience better for me, is the other part.

Mário Conde is a Partner at Bain & Company.