Global insurers are left playing catch up as consumer expectations soar: Ernst & Young

Ernst & Young’s Global Insurance Customer Survey released last week highlights how a combination of increased expectations and accessible technology mean that the insurance industry is now facing a far more demanding customer and that those suppliers who fail to make a rapid move to a more consumer-friendly business model risk being left behind.

Graham Handy, ASEAN Insurance Leader at Ernst & Young and the Asia-Pacific lead for the Survey, commented, “While consumers remain relatively confident in the insurance industry, their expectations are constantly evolving and the industry has not always managed to keep pace. Our survey found that, though there are variations in customer attitudes and behaviors around the globe, there are some remarkably consistent underlying themes about what consumers want and where they expect more from insurers.”

The survey of 24,000 insurance customers across 23 countries underlines that globally the consumer is more active and better informed – over two-thirds of consumers will proactively research their next purchase, more than double those who researched their last purchase.

Consumers have high service expectations, but a substantial majority of them are reporting little or no proactive communication from their suppliers and think that insurers have fallen behind other sectors in customer service and rewarding customer loyalty.

Handy remarked, “Consumers are taking a much more proactive approach to educating themselves about their products and their needs and there is frustration with the industry’s apparent lack of transparency. Consumer expectations in terms of service standards and rewards for loyalty are already being met by other service industries and the modern customer wants to see the same from their insurer. Unless the industry addresses these issues quickly, we expect switching rates to increase in the next decade and that non-traditional providers with better service platforms could use the opportunity to take market share.”

Other service industries are setting standards insurers struggle to meet

The majority of consumers across the globe believe that the life and pensions industry is trailing in service standards and in rewarding customer loyalty. The survey results were fairly consistent across all regions and both life and non-life, with 65-75% of consumers who had an opinion agreeing with the statement that insurers trail other industries in rewarding customer loyalty and 60-70% of respondents who had an opinion agreeing that service levels in insurance lag other industries. In Asia-Pacific the position is slightly more positive but even so, about half of customers perceive a shortfall.

Shaun Crawford, Ernst & Young’s global insurance leader, said, “The results are clear - most consumers are used to the consumer-friendly approach of other service industries, and expect their insurers to match them. Keeping customers is no longer just about price or brand, building a two-way relationship will be key to the success of the industry in the future.”

Insurers are still trusted but…

The survey results show that across the globe despite the financial crisis consumers have not lost faith in insurers; they trust the industry and satisfaction levels are high, averaging 7/10. 60% of consumers in Asia-Pacific are reluctant to change provider, but insurers are losing their customers through inaction.

Around 75% of consumers across the globe reported a lack of contact from their existing provider at the point at which they were due to renew their non-life insurance, with over half of consumers in Europe and the Americas reporting that they received no contact at all.

More effort is being made to communicate with and retain life and pensions customers but this is geographically very mixed, with 46% of consumers in Asia-Pacific saying they felt their insurer had made a great or fair amount of effort, compared to just 30% and 24% in Europe and the Americas, respectively. The high level of contact in Asia-Pacific reflects the agency model that operates in the region. Almost 90% of respondents across Asia-Pacific say that personal interaction is important or essential.

The level of consumers switching providers in life and investments policies may at first glance appear relatively low – on average only around 10% of those surveyed globally have changed their provider in the last five years, but for products with a 25-year life, however, this is a significant degree of churn. Switching levels in non-life are higher, with around a quarter of consumers having switched provider in the last five years, (Europe 32%, Americas 24%, and Asia-Pacific 22%).

“The increasing level of churn in both life and pensions and non-life can’t be ignored. There is a change of mind-set needed when it comes to interaction with and services provided for customers. The largest reason for consumers changing provider, affecting a third of respondents, was that their needs changed and their insurer could not meet their new needs. Many insurers are clearly failing to anticipate and address the changing needs of their customers. The challenge for insurers is to take this information and turn it to their advantage,” added Handy.

Consumers are now proactively researching their options

Over 70% of consumers surveyed in Asia-Pacific intend to research their next life and pensions purchases. This represents a significant rise as just a third of consumers researched their last purchase.

Across the region, personal recommendation (e.g. friends/ family/ insurance agents or intermediary) remains the key source of information that consumers use for their research. It is evident that there is an upward trend towards the use of online sources, particularly among the young and affluent. In the case of non-life insurance, almost 40% of the respondents across Asia-Pacific are using online comparison sites, blogs or other online sources to research their purchases.

“The rise of new technologies does not mean that existing channels will become obsolete. Consumers will now expect a seamless, consistent response from insurers. Effectively integrating different channels will be an important area in the insurers’ distribution strategy,” Handy pointed out.

While the use of internet for research purposes increases, online sales lag significantly behind with only 14% of consumers in Asia-Pacific reporting they have bought insurance products through an internet site so far, against 49% that have considered it. This level is comparable with Europe (also 14%) and exceeds the Americas (7%).

“We believe as insurers become better at creating online sales processes that give customers confidence, this channel will be a clear choice for purchase. We expect, in the near term, a combination of convenience and increased familiarity with internet purchase will boost online sales,” said Handy.

There is a high level of consistency across the region in the most important factors affecting purchase decision. Product features, financial stability of the insurer and product performance are the 3 top considerations for Asia-Pacific consumers.

Handy commented, “With an audience of increasingly well-informed buyers, insurers need to focus on giving them access to more knowledge about their product range. Getting the right information in the right place at the right time is important to next generation consumers. Leveraging new media to convey target-specific messages, building brand and establishing communities will be crucial for insurers to be better connected to their customers.”

Greater transparency and simpler products will be a deal breaker in the future

Well over a third of consumers surveyed find the life and pensions products on the market too complicated. They would like to see simple and more transparent products. More than a quarter of consumers in every region surveyed said that they would reconsider switching provider if they could guarantee more transparency on the products and better communication about product performance.

“The need for clarity and transparency in the buying process is not driven purely by customer preferences. As a result of the financial crisis, regulators around the globe are focusing on protecting consumer interests more than ever before, with major new regulations being introduced around the world. Insurers that align themselves to a truly customer-centric model will find the transition to the new regulatory environment less painful, and will gain competitive advantage,” Crawford concluded.