When it comes to sustaining your products’ performance in a ‘polycrisis’, customer engagement is key. Marco Spagnuolo outlines how life insurers can weather today’s economic storm
Inflation dominated headlines around the world in 2022.
The magnitude of its increase caught many by surprise and the double-digit inflation rate, largely driven by energy and food costs, has brought back memories of the 1970s for many.
The latest reports suggest that price pressure is easing, with inflation in Europe expected to fall to 6.3% in 2023 as current drivers fade and monetary policies kick in. Nevertheless, the consensus is that inflationary pressure is here to stay, with headline inflation expected to remain above the European Central Bank’s target of 2% until 2025, according to Issue 8 of the Bank’s Economic Bulletin (EB8) in 2022.
Due to rising interest rates (caused by central banks’ restrictive monetary policies), the Eurozone’s economic activity is also cooling. The second half of 2022 saw GDP slow down compared to the first six months of the year, and that trend is expected to continue at least during the initial part of 2023. Projections for the Eurozone have been revised downwards and set real GDP growth at 0.5% in 2023 according to EB8, with a mild contraction at the beginning of the year and a rebound into positive territory expected from mid-2023.
Inflation is generally seen as a concern for non-life insurers due to the rising cost of claims, but the risks to life insurers should not be underestimated. In fact, the combination of high inflation, rising interest rates and an economic slowdown can negatively impact customer behaviour through the erosion of purchasing power, which drives people to partially lapse or cancel their policies. Those same factors can also make new business acquisition difficult, as might the public’s decreasing perception and awareness of life risk as the pandemic starts to fade from view.
In short, life insurers could be affected in their profit and loss by a dual impact: lapse-driven reduced value of the in-force portfolio, and lower sales volumes.
It’s no surprise that the economy and interest rates are now among the top five challenges for European insurers, according to NMG Consulting’s L&H Reinsurance Study Continental Europe 2022.
Of particular concern, it says, are inflation’s impact on consumer purchasing power and the effect of interest rate increases on asset values and capital management. Meanwhile, the cost of living is number one in the top 10 global risks (ranked by severity over a two-year period) according to the World Economic Forum’s Global Risk Report for 2023.
What to do?
Faced with this macroeconomic and risk environment, one toolkit that can help life insurers from the bottom up is customer experience and engagement (Cx&E). Investing in Cx&E knowledge and capability can help insurers to retain policyholders, enhance their persistency and optimise sales volumes and quality.
Investment in the customer journey is showing results, but the customer experience is far from reaching its full potential. Enhancing Cx&E requires a multidisciplinary, cross-functional approach that takes in business processes, communication, data and technology.
In my April 2021 article for The Actuary (bit.ly/Lets_stick_together), I elaborated on the first three components. Along with the fourth component – technology – these Cx&E aspects take on increased relevance in a high-inflation environment.
Adapting business processes to new circumstances is key to providing an optimal customer experience throughout a policy’s lifecycle. Insurers can make it easy, quick and intuitive for customers to reinstate missed premium payments, and amend products to reduce potential lapses due to affordability issues. Such amendments might include a reduction in the sum assured and/or scope of cover, or a premium holiday. In addition, incoming requests for policy cancellations could be diverted towards more retention-friendly channels.
Turning to the sales slowdown, an optimal re-engagement journey for lost leads and ‘not take-up’ customers can drive the ‘not take-up’ rate down by double digits and benefit new business volume. This can be achieved by:
- Understanding the reasons: before you can effectively engage with lost leads and those who have not taken up the policy, it’s best practice to investigate and understand why they did not enroll. This can be done through surveys, focus groups, drop-out analysis and so on.
- Personalising outreach: (potential) clients are more likely to engage with personalised and targeted messaging. This can be done by segmenting the audience and tailoring your messaging to specific groups, using behavioural economics and data analytics.
- Leveraging multiple channels: different people like to receive and engage with information in different ways, so use multiple channels and do so when it’s most convenient for the client. For example, scheduling and appointment booking capabilities can be leveraged for efficient interactions with agents.
- Simplifying the enrolment process: make sure the enrolment process is as simple and straightforward as possible. This includes a frictionless journey, concise and easy-to-understand information, and a dedicated support team that answers questions according to a specific service-level agreement on quality and performance metrics. Make the subsequent onboarding process optimal to reinforce the purchase decision.
- Following up: lost leads and those who have not taken up a policy may need extra encouragement. Following up in a timely manner can help overcome the initial hurdle or resistance.
- Monitoring and evaluating: keep track of your engagement journey, measure the effectiveness of your strategies and adjust as needed.
The power of communication
Behavioural economics can help to make communications engaging and relevant for clients. In addition, communication must be regular. Policyholders often only hear from their insurer at the point of sale and then when making a claim. It’s critical to remind policyholders regularly why they have bought insurance protection – otherwise they tend to forget its benefits. This is particularly important in a tough macroeconomic environment, with customers tending to overestimate the present cost of insurance relative to its future benefits.
When it’s call centres that are dealing with customer queries and cancellation requests, it’s important to give agents the relevant tools and techniques. Discovering the real cause of cancellations is not a trivial exercise, and affordability is one of the trickiest causes to unearth. Embedding behavioural economics in agents’ conversations and scripts improves the efficiency and efficacy of such conversations. Our experience of working with clients around the world shows that such interventions, if well designed and implemented, significantly increase call centre performance, in terms of save or conversion rates, in a matter of weeks.
Dig deep into data
By analysing data on customer behaviour, preferences and satisfaction, life insurers can identify where they can improve the customer journey, personalise interactions and increase loyalty. Data analytics can also track the effectiveness of customer engagement initiatives and adjust them as needed. It allows insurers to identify which products, features and services are most in demand and adjust accordingly.
One example of how data analytics can be used is in upselling and cross-selling, which can increase revenue and maintain profitability. Counterintuitively, a high-inflation environment can be a good opportunity for this – in fact, high inflation calls for upselling to ensure clients continue to benefit from adequate protection. As life benefits are usually set at the point of sale, higher inflation means lower real-terms benefits are paid out (except to those with inflation-linked policies). Data analytics can identify customer segments that are most likely to be interested in upselling or cross-selling initiatives, and track the effectiveness of these initiatives.
New technologies facilitate more effective engagement with customers. With expense management set to remain on the agenda for the foreseeable future, technology can also make operations more cost-efficient and resilient to future change. This is the case for ‘conversation intelligence’ (CI), which leverages artificial intelligence and machine learning for speech and text analytics to provide actionable insights from spoken or written conversations. It improves the customer experience by enabling richer conversations to be had with customers, stakeholders and partners.
The adoption of insurance-relevant CI technology can provide automated analytics and dashboards (visualising, for example, agent performance and interaction statistics) and customised scorecards, as well as agent-assist technology and agent-coaching modules. Imagine a technology that enables:
Improved customer service, through monitoring the quality of customer interactions and identifying areas for improvement. Moreover, CI analyses customer interactions and provide agents
with real-time insights such as sentiment analysis and key topic identification, which helps them to understand customer needs better and respond more effectively.
Increased efficiency, through automatic transcription and analysis of every call centre conversation, removing the need for manual transcription, random selection and sample listening from supervisors. This saves time and resources.
Investing in Cx&E is ‘playing defence’ in the immediate term, but offers an opportunity for future growth – ‘playing offence’ in the long run
Higher agent performance, through real-time metrics (such as call duration, sentiment, talk time versus listen time) and feedback that help agents identify areas for improvement and become more effective.
Greater insights, through the identifications of trends in what customers say and in their behaviour, preferences and buying patterns (think of new products launched by competition, and the impact of new regulation or economic conditions). This can be used to improve products and services, and make more informed business decisions.
Quality assurance and compliance, through screening the entire corpus of calls and automatically flagging those that may violate regulatory or compliance requirements.
Protection against crisis
The current environment has been referred to as a ‘polycrisis’, alluding to the unprecedented number and severity of challenges that the world is facing. This is testing many businesses’ ability to stay relevant, and life insurers must be ready to mitigate the impact of price pressure on purchasing power and prevent it from denting profitability. In this context, Cx&E investment helps to protect against changing customer behaviour. While this is ‘playing defence’ in the immediate term, it will allow insurers to use the current difficult environment as an opportunity for future growth – hence ‘playing offence’ in the long run.
Marco Spagnuolo is head of in-force solutions EMEA at Swiss Re