Customer engagement in the insurance sector virtually disappeared when the Man from the Pru hung up his hat. But the Financial Conduct Authority’s crackdown on auto renewals announced last month shows just how bad the industry’s relationships with its customers have become.
From next year, new rules will require insurance firms to contact customers before each renewal date to disclose their previous year’s premium, and encourage them to review their policy and shop around for a better deal.
Designed to address concerns around customer transparency in the insurance sector, these new rules mark an all-time low for the industry. It’s a sorry situation when businesses have to be prompted to communicate with their customers, let alone be forced by legislation. I can only imagine the reason insurers have remained profitable while ignoring their customers is because insurance is something most of us can’t do without.
There is no denying that being a direct insurer in a world dominated by aggregators is tough. Over the last decade, the market has changed dramatically, with traditional providers now increasingly at the mercy of new online players. By endlessly encouraging consumers to switch providers for a cheaper policy, price comparison sites have commoditised the market and insurance brands have become no more than logos against competing costs.
The promiscuous consumer and death of brand loyalty now poses a significant challenge for insurers in terms of customer retention and is largely to blame for the rise in underhand tactics such as auto-renewals.
However, this has proved to be far from an effective solution and it’s fair to say things have finally come to a head. It’s now time for insurers to work on building profitable relationships with consumers through openness, relevancy and transparency, and a letter in the post once a year is simply not going to cut it.
Insurance brands need to get as close to the customer as possible and offer solutions that consider their individual insurance needs throughout their life stages. These can be easily fulfilled with tailored policies and prices that change and develop over time. With the right data, insurers can develop this new kind of intelligent service that consumers will want to buy into, and, most importantly, will deliver long-term value for both insurers and their customers.
A complete overhaul in the way insurers communicate with consumers is also well overdue. Instead of radio silence, insurance providers should seek to pursue relevant and timely contact with their customers. The odd message here and there would likely be welcomed if it includes information useful to the individual and is sent via their preferred channel. In doing this, insurers can start to establish themselves as a partner, a trusted advisor, and begin to build back the brand value they once had.
The good news is that insurers have a huge opportunity to provide something aggregators cannot; long-term value. To achieve this, they need to ditch their outdated product-centric model and put the customer first. Keep them close, treat them right and watch their lifetime value increase.
Jon Cano-Lopez is chief executive of REaD Group
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