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Elevating customer experience: A win–win for insurers and customers
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ELEVATING CUSTOMER EXPERIENCE: A WIN–WIN FOR INSURERS AND CUSTOMERS
September 21, 2023 | Article
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Our latest survey of North American insurance customers offers insight into the
challenges—and the value—of delivering a winning customer experience in
insurance.
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Article (6 pages)
What is the value of customer experience (CX) in insurance? What sets the
industry’s CX leaders apart from the rest—and what can we learn from their
examples?
Sidebar
ABOUT THE AUTHORS
This article is a collaborative effort by Mathew Lee, Tim Natriello, Arushee S,
Dominique Sanders, and David Schiff, representing views from McKinsey’s
Insurance Practice.
In search of answers, McKinsey launched a survey of more than 8,500 insurance
customers of the 40 largest North American insurance carriers across the life
and property and casualty (P&C) segments (see sidebar, “About the research”).
The results were clear: customer experience is a strong predictor and driver of
financial and organizational outcomes. CX leaders, defined as those with
above-median customer experience scores, outperform their peers across the
board—from TSR and revenue growth to employee and agent satisfaction.
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Sidebar
ABOUT THE RESEARCH
In early 2023, McKinsey completed the North American Insurance Customer
Experience Survey, polling insurance customers of the 40 largest insurance
carriers, which account for roughly 80 percent of individual net premiums
written. Results were collected from more than 8,500 individuals, split evenly
between life insurance and property and casualty customers.
In addition to measuring customer satisfaction, the survey also collected
insights on nine customer journeys and more than 40 customer subjourneys, asked
about preferences across more than ten channels and modes of interaction (for
example, speaking with an agent over the phone and meeting an agent in person),
and evaluated more than 30 underlying experience drivers (such as wait times and
follow-ups). Our analysis offers a granular view of customers’ experiences with
insurers across various journeys, channels, and touchpoints.
For insurance carriers, CX matters now more than ever. Customers have come to
expect personalized advice, omnichannel experiences, and seamless end-to-end
journeys, shaped by their interactions with digital natives both within and
outside the industry. Too often, their experiences with insurance fall short of
those expectations, especially when it comes to sales and distribution.
Meanwhile, rapidly changing consumer preferences, new competitive threats, and a
challenging macroeconomic environment have raised the stakes. Insurers must find
a way to meet the needs of an increasingly diverse and digital customer base—or
they risk watching their customers leave.
Because CX initiatives take months or years to realize their full potential, the
time to invest is now. To maximize the value of these investments, insurance
carriers should embrace a holistic and agile approach that emphasizes
transparency (for example, by benchmarking against peers using customer
experience scores and other CX-related operational metrics), data-driven
decision making (by anchoring on KPIs across various customer journeys), and a
clear sense of urgency that can be sustained throughout the 12 to 24 months it
can take to undergo a customer-centric transformation.
Customer experience is a key differentiator and source of competitive advantage
in more ways than one. Insurers often find that investing in CX also drives
operational efficiencies and that these “stacked wins” combine to improve the
bottom line. By harnessing the potential of CX and overcoming its pitfalls,1Itai
Miller, Kevin Neher, Rens van den Broek, and Tom Wintering, “Six customer
experience pitfalls to avoid,” McKinsey, March 17, 2022. insurers can deliver
superior experience and capture the significant value at stake.
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The survey revealed that CX drives material financial impact and unlocks
step-change improvements in financial and organizational performance for
insurers. Notably, CX leaders outperformed their peers in TSR by 20 percentage
points for life insurers and 65 percentage points for P&C insurers in the
five-year period from 2017 to 2022. Compared with others, CX leaders also
demonstrated stronger revenue growth (by four percentage points), stronger EBIT
growth (by four percentage points), lower expense ratios (by two percentage
points), and higher employee satisfaction scores. Our experience shows that
improving CX can also lead to higher retention, new business, and operational
efficiencies for both life and P&C insurance carriers.
The positive (or negative) impact of CX creates ripple effects beyond the four
walls of an insurance carrier. Poor CX is often a primary barrier to purchasing
insurance, and life insurance ownership already dropped to just 52 percent in
2021—the lowest rate in a decade.2Maggie Leyes, James T. Scanlon, and Stephen
Wood, 2021 insurance barometer study, LIMRA, November 1, 2021. CX improvements
could enable insurance carriers to bridge protection gaps and advance their
broader social purpose of protecting lives and livelihoods.
CX CHALLENGES AND OPPORTUNITIES FOR INSURERS
When it comes to consistently delivering a distinctive experience, insurance
companies must confront a unique set of challenges. Some are inherent to the
complexity of the product and distribution model. Others are the result of
chronic underinvestment in specific capabilities and digital offerings. All of
them represent a meaningful opportunity for insurance carriers to pull away from
the pack and transform CX into a competitive advantage.
CREATE A SEAMLESS, OMNICHANNEL CUSTOMER JOURNEY
Customers typically interact with their insurance carrier once or twice a year.
This is in stark contrast with other financial-services industries such as
banking, in which customer interactions take place ten to 20 times more often.
The low frequency of customer touchpoints in insurance means that it’s extremely
important to get each one right.
> The low frequency of customer touchpoints in insurance means that it’s
> extremely important to get each one right.
In 2023, “getting it right” often translates to offering seamless, omnichannel
customer journeys. But this hardly describes the insurance experience today. The
customer journey is typically fragmented from the start: six out of ten
customers switch channels prepurchase. Moreover, the transition from online to
offline channels can be abrupt or nonexistent. Roughly one in six customers
reports no follow-up from insurers after an initial discussion related to
financial advice. And of those who do hear back, 40 percent report interacting
with two or more people, which can lead to a disjointed experience. Insurers
can—and must—do more to close these gaps and ensure that customer interactions
can move seamlessly between offline and online channels.
Channel preferences differ between life and P&C customer segments. For example,
customers in both industries frequently interact with their insurers through
agents, but life insurance customers are significantly more likely to do so.
Websites are more popular among P&C customers, who report higher satisfaction
and openness toward digital channels than life customers. McKinsey research
suggests that life insurance customers would shift toward digital channels if
they perceived them to be more secure, reliable, and easy to use. Third-party
platforms have the lowest satisfaction scores among channels, however, with an
average CSAT score of 5.4 compared with an average CSAT score of 5.8 across all
other channels,3On a CSAT scale from one to ten. indicating an opportunity to
improve CX across the broader digital ecosystem.
DEVELOP BEST-IN-CLASS DIGITAL CAPABILITIES
Today, a majority of insurance customers are open to using digital channels for
routine servicing such as payments and account changes—a trend that has only
accelerated since the COVID-19 pandemic. Yet when customers take advantage of
digital channels, they are often left wanting more. More than 30 percent of
insurance customers are not satisfied with the digital channels available, and
only 20 percent of customers say that digital channels are their top choice for
interacting with their insurer. In the meantime, new challengers, including
insurtechs and large financial players, are leading with digital and technology
capabilities and are threatening to erode the market share of incumbents.
One insurer developed leading digital capabilities with the goal of decreasing
underwriting turnaround time for customers. As a result of this CX initiative,
the insurance carrier not only experienced higher straight-through processing
rates but also made improvements to the overall enrollment experience.
HARNESS THE POWER OF THE HUMAN TOUCH
Despite the shift toward digitalization, insurers cannot sacrifice the human
touch in CX—especially for life customers, who rank agents as the most trusted
source for learning about insurance products. Our survey found that agents and
advisers are still the highest-rated channel when it comes to customer
satisfaction, and 20 percent of customers report that they would likely switch
insurance carriers if their adviser left. Life customers who speak with their
agents at least once a quarter have an average customer experience score of
approximately 50—compared with roughly 30 for those who speak with their agent
annually and zero for those with even fewer touchpoints. Yet only half of
insurance customers interact with their agent or adviser on an annual basis,
suggesting that insurance carriers—especially life insurers—may be missing out
on opportunities to deepen their customer relationships.
SOLVE FOR A DIVERSE SET OF CUSTOMER PREFERENCES
A closer look at the data reveals that channel preferences vary significantly by
customer journeys and by customer segments. For customer journeys such as
researching and learning about insurance or making an account change, roughly
half of survey respondents prefer to speak with an agent or customer service
representative, while the other half prefer to use digital channels (such as
websites or chat features). At the same time, for more-complex journeys such as
buying a policy or resolving an issue, more than 70 percent of customers prefer
in-person interaction with an agent or third-party representative. It is
important to note that as insurers level up their digital capabilities and
channel interactions, these preferences may change over time.
Insurance carriers must solve for the preferences not of the average consumer
but of a diverse range of customers. There is no one-size-fits-all solution.
Tired of general product pushes, customers also expect advisers to understand
their needs and provide personalized advice. Yet this becomes more difficult as
the insurance customer base grows more diverse. In this environment, insurers
must effectively deliver solutions for multiple customer types and develop
multiproduct relationships that can satisfy a diverse population.
HELP CUSTOMERS NAVIGATE PRODUCT COMPLEXITY
Buying insurance can seem daunting. Customers often find themselves confused and
overwhelmed by the plethora of options. The survey found that on average,
customers contact their insurer four times in the process of learning about and
considering different insurance products. Even after a purchase, customers may
not fully understand the value that insurance provides. Roughly 40 percent of
insurance customers who considered canceling their policy were considering doing
so because they believed the policy was not necessary or did not provide
sufficient value. Complicating matters further is the highly intermediated
distribution system of traditional insurers that can include agents, brokers,
aggregators, and B2B2C (group channels). All of these factors can hamstring an
insurance carrier’s ability to deliver a superior experience to its customers.
The inherent complexity of insurance products requires a more deliberate effort
from insurers to inform and educate customers. Products need to be simplified
and transparent, and product information must be widely accessible and easy to
understand. Insurers should also harness the expertise of their agents and
advisers to provide personalized advice that can help customers navigate the
process and understand the various trade-offs of their decisions.
ACTIVELY ENGAGE EMPLOYEES AND AGENTS IN CX INITIATIVES
Customer, employee, and agent experiences are symbiotic. In our experience, the
most effective organizations should involve employees and agents as cocreators
of change. CX initiatives often call for new ways of working that alleviate the
pain points of employees and agents on the front line while equipping them with
the visibility and the tools to better serve their customers. Delivering better
CX can also tap into a powerful source of meaning for employees,4People &
Organization Blog, “Making work meaningful from the C-suite to the frontline,”
blog entry by Timothy Bromley, Taylor Lauricella, and Bill Schaninger, McKinsey,
June 28, 2021. which can, in turn, lead to higher rates of employee satisfaction
and retention. Indeed, our experience shows that successful customer-centric
transformations in insurance typically lead to a 20 percent uplift in employee
satisfaction.
As part of its customer-centric transformation, one insurer trained 35 percent
of its employees and virtually all of its agents on CX capabilities. In addition
to doubling its customer experience scores, the insurance carrier experienced a
25 percent reduction in processing times as well as meaningful improvements in
cross-sell and retention rates.
A RECIPE FOR SUCCESSFUL CX TRANSFORMATIONS
Customer expectations have soared in the past few years. Noninsurers are raising
the CX bar by offering personalized recommendations, omnichannel advice, and
digital end-to-end journeys. As more and more companies adopt these new rules of
customer engagement, why should customers expect anything less from insurers?
Like their peers in other industries, insurers can follow a proven formula for
executing customer-centric transformations. The approach comprises three
building blocks: a clearly defined aspiration and road map, an agile
transformation approach, and a thoughtful deployment of new capabilities and
ways of working. In the initial aspiration-setting phase, leaders can run a
rigorous diagnostic to size and validate the full potential of the
transformation. This is followed by an execution phase, which involves designing
the new CX organization and operating model, reimagining the highest-value
customer journeys, and launching CX initiatives with cross-functional teams and
agile principles. Such initiatives often target areas that both improve customer
experience and deliver operational efficiencies—another way in which CX is a
win–win proposition. In the final stage, the insurer scales these initiatives
across the organization and builds the capabilities required to sustain CX
excellence well into the future.
--------------------------------------------------------------------------------
CX leaders deliver more value to their customers, their employees, their agents,
and their bottom lines. Despite the challenges, insurance carriers have an
opportunity to invest in their people and their capabilities to drive CX
improvements and capture significant value while better serving their customers.
ABOUT THE AUTHOR(S)
Mathew Lee is a partner in McKinsey’s Miami office; Tim Natriello and Arushee S
are associate partners in the New York office, where Dominique Sanders is a
consultant; and David Schiff is a partner in the Austin office.
The authors wish to thank Tina Cai, Alex Lapides, Kevin Neher, and Robert Schiff
for their contributions to this article.
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