Customer Service Versus Cost

Is the customer always right? The tenet of the retail sector takes on new meaning for insurers as they struggle with consumer ire over a “grudge purchase” that has risen to the status of nightmare purchase. Speakers at the recent Canadian Association of Mutual Insurance Companies (CAMIC) Mid-Year Meeting in Toronto say insurers have much to do in the way of managing customer relationships to strike the right balance between good service and controlling runaway expenses, and fraud in particular. The key, they say, is managing information to know the customer, understand the underwriting process and dissect the claim.

GAINING GROUND

Unlike other insurers, mutual companies welcome the challenges of the hard market, explains CAMIC president Normand Lafreniere. “In a difficult market we take on more customers, in the difficult market we’ve actually expanded.” Consumers, frustrated with the severe pricing justified in the name of shareholder returns experienced with publicly-traded insurance companies, are turning to policyholder-centered mutual operators, he observes. Lafreniere points to British mutual insurers, who are advertising their “difference” in relation to stock companies. In these cases, mutual companies are drawing on the enhanced role of the policyholder in the company, including that policyholders elect mutual boards.

Lafreniere has personally taken on the mantle of trying to promote the “mutual difference” in Canada, and he says policyholders are responding to the promise of greater authority in their relationship with their insurer. “There seems to be an appetite for mutual insurance companies right now.”

All business needs to start with this consumer focus, says Sam Malatesta, senior vice president at CARSTAR Automotive Canada. The incredibly bad public perception of insurers should signal a chance to actively pursue better customer relationships, he adds. “This is an opportunity, not doom and gloom.” In his own survey of customer views on insurance, he found that people felt they were purchasing a promise of protection and peace of mind – the “three Ps”. He also found that claims were the “make or break” moment between insurers and their policyholders.

Malatesta’s research indicates that, of consumers who rated their claims experience as “excellent”, 98% of the respondents renewed their coverage and the reason they gave was “because you [the insurer] took care of me”. Of those who rated their claims experience as “just good”, half of them left their insurer. “It’s not about average anymore, it’s about super-fantastic or really crummy,” Malatesta observes of consumer expectations. And, as expected, of those who rated their claims experience as poor, 80% left their insurer, and he adds, “they are willing to pay more” just to get better service.

Customer pay rates show a steep incline in the willingness of policyholders to bypass the insurer – for fear of rate increases – and deal directly with vendors, such as bodyshops. In fact, consumers are paying in some cases as high as $7,000-$8,000 to avoid the claims process altogether, Malatesta says.

THIN LINE

But where does the line sit between customer service excellence and controlling claims costs, including skyrocketing accident benefits claims associated with the auto product?

Insurers need to invest in obtaining the right kind of information to fully dissect auto claims, says Sam Kodse of Origin & Cause Inc. Modern technology allows for auto accidents to be fully reconstructed and the potential for injury understood. With the spike in staged accidents, specifically in the Greater Toronto Area, insurers have to be vigilant in their assessment of such claims.

Kodse himself was involved in crash testing 30 cars in just three days to understand the dynamics of low-speed collisions. This kind of research and accident reconstruction technology allows insurers to say with authority whether a crash could lead to the kinds of injuries so often being claimed. Additional technology is making its way onto the scene with vehicle “black boxes”. Kodse says understanding of and the use of black box information is “still very much in its infancy” and fraught with limitations. For example, the data may show that a rider’s seat belt was buckled, but not if it was actually strapped across the rider’s body. As well, data is over-ridden by future incidents of greater severity (i.e. a small crash that does not deploy the airbag but causes damage would be over-ridden by a later, more severe crash).

That said, insurers are eager to understand how they can use these technologies to better assess what actually occurred during an accident. “The technology is unbelievable right now, and it’s going to evolve at a phenomenal rate,” Kodse observes.

DATA DILEMMA

Lack of access to information leads to issues of fraud and lack of understanding of risks, says Dave Barber of CGI. For example, technology is allowing insurers to nab “VIN-switchers” by giving instant access to vehicle data. Fraudsters buy vehicle identification number (VIN) tags and use them to report multiple accidents involving the same vehicle, or write off a car that is registered with different VINs in different jurisdictions, he explains.

This kind of data is also crucial to the underwriting process, Barber notes. For example, credit scoring of clients is allowing insurers to understand the relationship between credit history and loss ratios. He explains that people with good credit produce an average loss ratio of 61%, while those with bad credit produce average losses of 127%. While there may be public scrutiny surrounding the practice of credit scoring, Barber says that 93% of clients fall into the “good credit” category. That means just 7% of policyholders are racking up losses that hamper the insurer’s balance-sheet, and ultimately, the rest of policyholders.