Part one of this series by Brenda French takes a look at how poor service is costing the industry. The next two articles will discuss the factors that contributed to the industry’s service crisis and offer recommendations for solving the problem.
'Everyone is in service. If you aren’t serving the customer, you’d better be serving someone who is.'
Service America
Because friends and neighbors know that I work in the insurance industry I periodically receive calls asking for information or referrals. That is, until this year. Since January, I’ve been overwhelmed with calls from frustrated and angry friends. This consumer angst crystallized for me when I attended a barbeque and the topic of insurance surfaced. Everyone was complaining about bad service and had a horror story to tell.
I leaped to the industry’s defense gallantly, but as expected, these consumers had little interest in our problems. As customers, they expect fast, professional service with no hassles when they need help.
To get the customer’s perspective across, I’ll share four of the stories from the barbeque. Since my friends were in a cooperative mood, I gathered these statistics:
Number of customers 18 (nine couples)
Average age 51
Total annual insurance premiums $189,000
(Auto, Home, Life, Disability, and Small Business)
Average annual investments $200,000
(RRSPs, Stocks, GICs, etc
Number of days to untangle service problems 48 (three per household)
In the day-to-day busyness of our professional lives, it’s easy to lose sight of what drives the insurance business: creating long-term relationships with profitable customers. Maintaining empathy for customers, especially when they’re upset, can be even harder. As the industry has focused on improving financial results, many executives have ignored the impact on customers, confident that they’ll accept the latest price increases. Although this is probably true, when we combine hefty rate increases with poor service, we have to expect a backlash.
Consider these four 'telling tales' that illustrate the growing discontent between consumers and the industry:
SCENARIO A: MARY AND ANDY
Mary and Andy, self-employed professionals with three children, have been insured with Traditional Brokerage for more than 20 years. All of their Personal insurance has been with ABC Insurance Co. for the past 15 years. They own a million-dollar home, a cottage, and three cars. They also have these investments with Emerging Brokerage: $400,000 in RRSPs, $50,000 in stocks, $2 million in Life insurance, as well as Professional Liability and Income protection. Andy’s father and brother co-own a successful contracting firm and also have their Personal and Commercial insurance with Traditional Brokerage.
Mary and Andy had a water damage claim three years ago when the sewers in their neighborhood backed up, flooding their basement (this and one small Auto fender bender 20 years ago have been the only claims). They were very impressed with how professionally and speedily their claim was managed. Their adjuster was reassuring and knowledgeable. During the damage assessment process, Mary told the adjuster not to worry about such things as the furniture legs being refinished since they weren’t really noticeable. She felt that because the insurance company was being fair and professional she wanted to cooperate as much as she could. After their claim, Mary and Andy were very pleased that their business was with a professional firm like ABC Insurance Co. In addition they invested $10,000 in grading and weeping tiles so that their basement wouldn’t flood again.
About a year ago, XYZ Insurance Company purchased ABC Insurance. Fast forward to March of this year. XZY Insurance sent a letter to Mary and Andy informing them that they wouldn’t be renewing their Homeowners insurance. When Mary called Traditional Brokerage, they were informed that their broker had retired but their new broker would look into it and get back to them. Three phone messages and three weeks later, they still hadn’t heard from the broker. In frustration, they eventually moved all of their personal insurance to Emerging Brokerage.
Andy’s father and brother are watching events closely. Their Business insurance is coming up for renewal in two months.
- Mary and Andy: 'Angry people will be much more prone to gouge or cheat on any future insurance claims. If I had an insurance claim today, I’d insist on having the legs on our furniture fixed and would be looking for anything else that could be added to the claim. Any sense of loyalty customers might have had has been thrown back in our faces.'
SCENARIO B: JUDY AND MARK
Judy and Mark are self-employed professionals who both work from home. They have no children. They own an $800,000 house, a cottage, and two cars. They have $300,000 in RRSPs, $50,000 in GICs and $500,000 in Life insurance. They also have Income Protection and several Business policies. In fact, they recently realized that they had nine policies with four different brokers. They find the whole process very confusing and have no idea how things evolved like this. Like many consumers, they view insurance as an expensive necessity and manage it with benign neglect. They pay their bills yearly, never have claims, and assume that their brokers will keep them informed. Until recently.
In June of this year, they received the renewal for the insurance on their cottage that had been due in March. The brokerage had changed carriers, increased the coverage and rates, and backdated the invoice — which was also stamped overdue. When Mark tried to call their broker, he discovered that he couldn’t reach anyone after 4:30. He left two voice- mail messages and eventually the broker came to visit them. The broker explained that they were overwhelmed with work, and that at times, staff was working until 6:00 pm. This didn’t impress these professionals, who work long hours regularly.
This event prompted Judy and Mark to review all of their insurance and to start asking some questions. They quickly discovered that they spend twice as much on insurance and investment products each year as they do for their mortgage. They also realized that they probably shouldn’t have their insurance spread among so many brokers. They aren’t receiving all the discounts that are available to them, have some potential gaps in their coverage, and don’t have a single professional who can advise them on 'the big picture.' What’s more, neither could remember when any of their four brokers had actually spoken to them.
Judy and Mark are in the process of moving all their business from the four brokers and consolidating it with New Strategy Brokerage that was referred to them.
- Judy and Mark: 'Bad service coupled with large rate increases sensitizes us to view everything that comes from the insurance companies negatively. A reservoir of bad will has developed that will take a long time to change.'
SCENARIO C: HEATHER
After Heather’s divorce, she decided to move all of her insurance — and potentially her investments — to another brokerage. A VP with a leading manufacturing firm, she plans to retire in 10 years. She owns a late model SUV, a condo in downtown Toronto that’s mortgage free, and $250,000 in Life insurance, plus $125,000 in RRSPs and $10,000 worth of GICs with her bank.
When Heather called a brokerage near her office, the broker recommended a new company that was offering very competitive rates. She agreed and placed her Auto insurance with Best Rates Insurance Co. on a monthly pay plan. Six months later, she purchased a Condo package from the same broker and carrier, and paid for it in full. Three weeks later she received a registered letter informing her that the package was being cancelled for non-payment. Heather called her broker, who straightened things out.
When her Auto policy renewed six months after that, the premium increased from $1,600 to $4,200 (with no accidents, violations, or tickets). She called her broker, who discovered that a coding mistake had been made and in fact her premium had decreased $100 from the previous year.
Three months later she received a letter from the insurance company saying that the post-dated check she’d given them had been returned NSF. They were going to take two months payments from her account and if there were another NSF check, cancel her coverage. There was only one problem. Heather had never given them any post-dated checks. When she contacted her bank, she discovered that $650 had been withdrawn for these 'NSF' checks. It took three months to have the money refunded.
Last month, her Auto insurance renewed again and went up $1,000. Again, Heather called her broker, only to find that he no longer worked there. The brokerage partnership had split and her broker had gone one way and her file another. Although no one at the brokerage knew who was handling her account, they promised that someone would get back to her within 48 hours. A week and a half later, she received a voice-mail message informing her that all insurance premiums were up substantially this year and if she wasn’t satisfied she could cancel her policy — which is exactly what she did. The company continued to make withdrawals for her non-renewed policy for the next three months to the tune of $947.85. She’s still trying to get her money back.
- Heather: 'These experiences radicalize consumers. They will scrutinize everything and squeeze back on price at every renewal.'
SCENARIO D: ANDREA AND JOHN
Andrea and John are professionals who have just married for the second time and have four children in their combined family. They own a $700,000 house and two cars, have $200,000 invested in RRSPs, $20,000 in GICs and $2.5 million in Life insurance. This year Andrea’s trying to coordinate their financial services, including insurance. Previously, John had his Homeowners insurance with an agent, his Auto insurance with a broker and his RRSPs with his bank. His Professional Liability and Income Protection are with his professional association. Andrea had her Auto and Homeowners insurance with a broker and her RRSPs with her bank. Her Income Protection and Group Benefits package are with another broker. Andrea had an at fault accident three years ago. John has no violations and is claims free.
Andrea’s goal was to place all the insurance with the same company for one-stop shopping and to maximize discounts. Because service had been poor with all of her previous insurers, she decided to use a direct writer who advertised good service. The first policy up for renewal was John’s Auto insurance. When she called the direct writer, NewWay, Andrea emphasized that she’d had an accident and needed to be able to place the two Auto and Homeowners policies with the same company. She was told that would be no problem. When Andrea’s Auto policy came due two months later, she called NewWay, but was placed on hold for more than 20 minutes. This happened three times in one week. No matter when she called, Andrea wasn’t able to get through nor was she able to leave a message. The following week, she called while doing some administrative work, waited 45 minutes, and still didn’t get through.
In the third week, she called right at 8:30 and was eventually put through after a 15-minute wait. When she spoke to the agent, she was told they couldn’t accommodate her because of her accident. Company policies had changed and there were no exceptions. To top it off, her current insurer no longer offered accident forgiveness, so her Auto premium increased $1,200 over the previous year.
Andrea spent the next week calling around to see what she could do about coordinating their policies, but no one was interested in the business because of her accident. After three months of planning and organizing, Andrea and John are in the same position as when they began.
- Andrea and John: 'Any organization that comes up with a better game plan will attract customers. My brother also had a terrible service experience with his insurance agent. There’s a cauldron of discontent that has been created by shortsighted business practices and disregard for customers.'
HOW DID THIS HAPPEN?
Our industry’s financial difficulties are creating an inward focus that excludes long- simmering customer service issues. This happens for two reasons.
First, we’ve done a less than adequate job on the distribution side in identifying which customers create profitability and delivering the quality service needed to retain those relationships.
Second, insurance company decision makers are disengaged from customers and their needs. The closest they come is through sterile research that analyzes internal company data and actuarial models. Unfortunately, this information lacks nuance, doesn’t view the customer as a human being, and only provides data on past activities — ignoring what would happen if customers were treated differently. Because no carrier or distributor has enough information on its customers to cultivate profitable relationships with them, it’s all too easy to ignore their demands for quality service.
This deadly two-step means that we’re missing profitable opportunities with existing customers and new prospects, using rate increases as a blunt instrument to correct poor financial results, and treating customers disrespectfully. We’ve inadvertently created a process that disappoints and alienates customers faster and more efficiently.
This raises some key questions.
- How did service delivery spiral out of control so quickly?
- What will be the long-term implications of today’s poor quality?
- Most important, how can we get off this reactive treadmill to deliver the quality service needed to foster profitable lifetime relationships with our customers?
OTHERS TIDBITS FROM THE BARBEQUE AMBUSH:
- 'Savvy consumers like us know and respect good service when we receive it. Since we have lots of choices, we’ll leave the minute we are treated badly.'
- 'All businesses are going through tough economic times. The best way to stay in the black is to treat your long-term customers very well so that they stay with you. Previously, if my agent had asked for referrals, I would have given them. Now, I won’t.'
- 'Some consumers will now view a claim as an opportunity to get even. They’ll see it as an entitlement issue because of bad service and unreasonable rate increases and find ways to pad the claim.'
- 'Nobody’s stupid. We recognize bad business practices when we experience them. The insurance industry is over-promising and under-delivering.'