Mission Critical: Customer Retention vs. Acquisition in Insurance (Part 2)

Unique Challenges and Solutions

In Part 1 of this series, we learned that it costs five-to-nine times more to acquire a new policyholder than it does to keep one. Additionally, existing customers have a higher potential to buy new products and refer your brand to friends and family, creating a more significant revenue impact than bringing in a new customer.

Despite this discrepancy, many insurance companies still primarily focus on acquiring new customers, regarding churn as the unfortunate — and unchangeable — nature of the industry.

Meanwhile, by shifting from a new-sale-only focus to an improved experience for current policyholders, insurance leaders are enjoying a refreshing increase in retention and persistency. Which, as noted in the previous article, creates a domino effect that leads to increased sales and revenue.

While both new and existing customers are vital to your business, neither is without its challenges.

New Customer Challenges

New customers are hard to find.
According to the J.D. Power 2018 U.S. Insurance Shopping Study,℠ there are fewer new insurance shoppers now than ever before. Most people who need insurance already have it, and between the abundance of options and a general lack of (perceived) differentiation in the marketplace, consumers are often only interested in finding the lowest rate.

There is no guarantee.
Even if you’re lucky enough to add that new policyholder to the “win” pile, you have no assurance that he or she will remain there. Although policies typically cover a 6- or 12-month span, most agreements allow for cancellations at any time (even after the first payment), which means you are at a perpetual risk of losing your customer to a competitor, creating a persistency problem in addition to retention.

Customer Retention Challenges

Insurance customers are a continuous flight risk.
Your current policyholders are the heart and soul of your business. The proverbial bird-in-hand. Unfortunately, the insurance industry also has a relatively high churn rate - the average successful insurance company can expect to lose almost a fifth of its customers in a given year, even in the absence of a negative experience. (Compare this to a 2% churn rate in the telecom industry.)

Customers are looking for the lowest price.
Aggregator sites have made it easy for consumers to search for policies on their own, reducing options to a simple grid that compares rates across companies. This commoditization has created a climate of price-wars, making it difficult to stand out on any other merit.

Considering margins are already low (3% – 8% in P&C), there is little room for competitive price flexibility. If you’re not in a position to compete on the basis of price alone, you must demonstrate your value in other ways in order to keep your customers from leaving.

Technology Challenges

Insurance has been a “late bloomer” in the technology revolution, and we are finally at the tipping point. Modernization is no longer avoidable, and the gap separating industry leaders from laggards is rapidly increasing.

Customers are gravitating towards the kinds of experiences they have become accustomed to in their preferred transactions. But how does an insurance company replicate the Amazon experience - especially considering the fact that insurance is rarely met with the same level of glee as the online retail giant?

Even without the 2-day shipping and streaming video, insurtech disruptors are taking the industry by storm, posing a new threat to the more traditional and established insurance companies – particularly those that are tied into older systems that have little, if any, adaptability.

Luckily, none of these challenges are insurmountable. With a few simple adjustments, you can increase customer retention, even without a complete core system overhaul.

The Action Plan

For maximum impact and success, the most logical starting place for any insurance company striving to increase retention and persistency through a better customer experience is payments.

Why focus on payments?
Payments not only touch every customer, they are the most frequent interactions insurance companies have with their policyholders. Payments are also the most painful interaction for policyholders — nobody likes parting with their money — and a common launchpad for igniting the impulse to search for a “better deal.”

However, the silver lining of this recurring touch-point is that it also provides the perfect opportunity to create the kind of experience your customer will welcome, rather than dread.

How can you make payments a positive experience?
While nobody likes to pay bills, most people understand the important role insurance plays in their overall financial security. Fundamentally, premiums are not much different across providers, but the quality of experience can make all the difference to your customers.

Generally speaking, policyholders prefer one of two payments experiences.

1. The Frictionless Experience – By allowing your policyholders to communicate and pay through their preferred channels, you create a personalized, respectful environment in which customers can enjoy a feeling of reciprocity. At the same time, you provide a convenient, efficient process that helps them make payments with ease, while reducing missed payments and increasing customer retention.
2. The Non-Event – Some people prefer the hands-free payments approach. These customers favor automatic bill payment options and a simple renewal process, spending as little time as possible on managing their policies. For this group, the set-and-forget payments are exactly the type of experience they’re seeking.
   
   

Offering this kind of flexible, engaging experience may sound like a daunting task for many insurers, especially as they consider integration challenges with legacy systems. We recommend finding a payment processing solution that is designed to integrate with insurance core systems.

This one simple step — modernizing the way you handle payments — can make a big difference in the customer experience you provide. And, as we now know, this kind of positive experience can directly lead to increased retention, persistency, and even new sales.

If you would like to know more about how One Inc can help you keep more customers through payments, contact us today.

You might also be interested in:

Mission Critical: Customer Retention vs. Acquisition in Insurance (Part 1) – Comparing the Costs

Infographic: Customer Retention in the Insurance Industry

Three Payments Secrets All Insurance Leaders Need to Know