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While life insurance has never been a product that engenders a lot of passion, we believe that these low levels of customer loyalty and satisfaction represent a significant opportunity for insurers–either for current carriers or for new entrants into the field–who are willing to explore new approaches to pricing and distribution.
Last year, Accenture surveyed more than 5600 consumers in 14 countries, covering 10 industry sectors. Of the 5600 consumers surveyed, approximately 2500 were asked to evaluate their life insurance provider(s).
We wanted to explore how the current economic downturn has influenced recent consumer behavior, and, in particular, to determine what decisions consumers have made about staying with, leaving or adding new providers.
There was some good news for life insurers. Life insurance customers were among the most loyal to their providers, albeit for the wrong reasons. The research showed that those customers perceived high barriers to switching to the competition. Only about 25% of customers have changed their mix of providers in the last 6 to 12 months, either by switching from one provider to another or by selecting additional providers.
Although consumers do not switch carriers very often, that does not mean they are satisfied with their current company. The survey revealed a relatively low level of satisfaction and advocacy among life insurance customers. Only 34% of life insurance customers claimed to be satisfied with the services received, near the bottom in satisfaction among industries, and only 25% of customers said they would recommend their current provider or providers to others–the second-lowest score among all industries, with only gas and electric utilities scoring lower.
Interestingly, the concept of “one stop shopping”–often derided in the financial services industry–may offer a profitable route for insurers to add clients and increase customer loyalty. The survey showed that 41% of consumers who use the same provider for life insurance and retail banking said they were satisfied with their provider, versus 33% of consumers who have different providers. Consumers who use the same provider for life insurance and retail banking also scored significantly higher in terms of loyalty to their current provider; in their willingness to recommend that provider to others; and in their willingness to buy more products and services from their provider.
Based on the survey results and our own experience in working with dozens of providers of life insurance and other financial services, we see three main issues–and three huge areas of opportunity–for the industry.
1. Demographics. As mentioned, people under 40 aren’t buying life insurance, and when they do buy, they are less loyal and less satisfied than older customers. The traditional model is a very expensive way to reach and serve these entry level customers. Carriers must come up with better ways to serve this group. Conversely, people over 50 have not tended to annuitize their assets. They need assistance beyond traditional income protection, extending into estate and retirement planning. This is another area of tremendous opportunity.
2. Pricing. Pricing is closely related to demographics. Customers, especially younger people who are generally purchasing simpler term products, are actively seeking better deals, and new Web-driven tools are empowering them to act. With nearly half of potential life insurance buyers describing themselves as “much more likely to shop around for the best deal”–even if it means leaving their current insurance providers–life insurance providers must act quickly to establish rational, effective and transparent pricing strategies. Product design should be rationalized to provide offerings meeting customer perceptions at appropriate price points. Given recent economic issues, a simple, low-cost, easy-to-acquire product line can transform the market.
3. Convenience. A multi-channel sales strategy reaches a broader base of client prospects than the traditional insurance model. Life insurers lag behind other service providers in Web-based options, social networking and direct marketing. They do little to make the industry more interesting, or more exciting. Again, not surprisingly, a generation accustomed to a wide range of choices and instant access to information just isn’t buying life insurance as it is currently sold.
With price so important to consumers, the way seems clear for a new sales model. A commoditized, simple, price-driven model that draws upon the experience of non-insurance financial companies such as Vanguard, Fidelity and ING Direct could provide real value in a crowded marketplace, especially for simpler term life insurance products. In the U.S., the industry has traditionally paid little attention to market segmentation, but there is clearly an opportunity for a low-cost, low-hassle provider to grab considerable share of wallets among consumers, particularly those under 40.
Injecting a little fun–or at least, interest--into the concept of buying life insurance wouldn’t hurt either. ING Direct has established a successful consumer banking franchise on the simple concept of making savings fun. A few insurers are taking steps in this direction—for instance, the launch of the first iPhone application for the life insurance industry was recently announced–but there is still a long way to go to catch up with sophisticated consumers.
In life insurance, we have a product that most people need–but it is being sold in a way that makes people either not want it, or not care about who they buy it from. Note the use of the word “sold” as life insurance continues to be sold, not bought. Expanding and enriching the life insurance experience and offerings could, in turn, expand the entire $150 billion life insurance market in the U.S., with targeted messages in multiple channels helping consumers understand the true value proposition of life insurance. The door seems wide open to new market entrants–especially innovative “category killers”--willing to go where the consumers are and communicate with them through channels that consumers, not insurers, like to use.