Moment of truth: Why insurance carriers should rethink their customer service models now
The future arrived suddenly for the insurance industry. Almost immediately, carriers had to turn to virtual communications and operations. The COVID-19 pandemic also drove overnight changes in where and how work is performed, and how managers and employees interact. We discussed how insurance carriers are adapting their business strategies as a result of COVID-19 in our series on becoming ready and resilient. As cities locked down and so many businesses closed their doors, the pandemic also impacted the insurance industry. Life and group carriers as well as property and casualty companies stepped up to new challenges as they coped with a radically changed environment.
COVID-19 as a catalyst for change
Before the pandemic, industry executives employed a more deliberate, careful strategy that allowed tech capabilities to evolve through incremental innovations rather than sudden breakthroughs. The emergence of COVID-19 forced an industry slow to embrace change to figure out new ways of working in a matter of weeks, implementing major shifts in technology deployment and usage, agile problem solving and more.
The pandemic also reshaped consumer expectations, bringing virtual interactions into almost every aspect of life. Policyholders, already accustomed to dealing remotely with banks and retailers, now expect the same from their insurance providers as well. We believe the impact will be lasting and profound, and that to survive in the long term, carriers will have to refocus their investments and radically alter their customer service models.
What we’re seeing now in the insurance industry
- Impact on life and group insurers
- P&C challenges
Impact on life and group insurers
The strength of insurance company balance sheets is at risk if mortality significantly shifts, if liability is assigned where coverage was not intended, and by disruptions to financial assets and real estate. Regulatory scrutiny and the looming threat of downgrades by rating agencies could drive weaker players out of the market.
Given the uncertainty about the long-term impact of COVID-19, many life insurers have had to underwrite without the traditional blood tests or limit their appetite for larger risks. And this comes at a time when there continues to be a demand for life insurance; because of the pandemic, 15% of the customers in our COVID-19 Consumer Insurance and Retirement Pulse Survey from June 2020 said they anticipate buying life insurance.
With unemployment at historic highs, group insurance revenue is declining, putting pressure on profitability. Meanwhile, operational and service transactions have increased, driven by COVID-19 disability claims and payouts for Family and Medical Leave Act (FMLA) policies. A potential spike in COVID-19 cases as local economies reopen and fall approaches could add to the pressure that carriers face.
P&C challenges
While stay-at-home orders dramatically cut traffic accident rates, many auto insurers are returning portions of policyholder premiums in a “fair deal” to reflect the decrease in exposure. Housing starts are at a standstill, further depressing revenue and profits in the P&C sector. Declining payrolls are shrinking workers’ compensation premiums, even as a spike in claims is likely due to business interruptions.
Certain industries are feeling the impact of the pandemic more than others (such as airlines, oil and gas, and entertainment/hospitality), and so are their P&C carriers. Lines that follow the economy’s trajectory are seeing reduced premiums, so the pressure to keep expenses in check is strong. (To be fair, it’s not so bad because, in comparison to other industries — where when revenue drops, virtually all costs-of-goods-sold” remain — in insurance, when premiums drop so do commissions and losses, mitigating the pressure that one might expect on expenses.)
As job losses mount, individual consumers may rethink their P&C needs and cut their coverage. In our June 2020 survey, we found that 32% of respondents plan to shop around for different insurance providers specifically to save money. In the commercial P&C space, we may see increased demand, especially from small- and medium-size enterprises (SMEs) as they reassess risk and recognize the need for additional coverage, including business interruption insurance. This could drive price increases across the board.
Rethinking customer service models in the insurance industry
With the increasing need for more people to work remotely, shop remotely and socialize remotely, we have become accustomed to digital interactions and virtual communications in our daily lives. Customers now expect to transact normal-course business digitally. To address these challenges and prepare for a very different future, we believe carriers of all stripes should rethink their customer service models — how they interact with current and prospective customers, including distributors, employers and consumers. These models include processes, channels and even the culture that defines the customer experience. Historically, carriers built traditional models where services were defined. Then they executed to that service level and measured performance. However, you can no longer plot out exactly what you need to do because the future state is unknown. Traditional service models don’t provide enough scale to keep up with changing customer needs. Insurers should rethink their service models and plan to adjust to a moving target, both in the short and long term.
Surviving in the short term
In the short term, we recommend that you:
- Identify and address vulnerabilities that have been exposed by remote working. As insurers switch to virtual meetings, allow digital signatures and eliminate cash transactions, you should restructure workflows to make them more efficient and effective.
- Don’t underestimate the challenges of staying digital. You’ll also have to enhance the digital skills of your employees or hire more tech-savvy talent. When we asked customers how much digital matters, the results were surprising: 41% of the policyholders in our June 2020 survey who had difficulties with their insurers say they are likely or more likely to switch providers due to a lack of digital capabilities. For example, PwC recently helped a client upgrade its digital customer experience by creating an easy, simplified interface that drives self-service. They saw an increase in self-service log-ins and conversions compared to their legacy site.
- Stress communication with policyholders. Customers want compassion, efficiency and flexibility from their insurers. During this time of heightened anxiety and stress, communication is key throughout the changing process. The world is changing for everyone, and trust matters more now than ever. Insurers must become more customer-centric and focus on relationships that can spell the difference between loyalty and lost business.
- Support with culture. And don’t forget your company’s culture. Think about what your employees need now as they continue to work from home. Continue to be flexible with work arrangements and help your workforce adapt. What technology, collaboration tools and training could you provide now to make their lives easier? Your people are your most important asset. Let them know they are supported during this time of uncertainty.
Longer term strategy
Carriers are reprioritizing the implementation of their long-term ambitions and aligning people and resources with projects that focus on the customer. In the longer term, we recommend that you:
- Use a hybrid customer service model. As we learn to live with this new reality, we suggest a model that leverages video conferencing and digital technologies to allow co-browsing and collaboration and turns to in-person meetings mainly to address critical and complex needs. This new model may open up new talent opportunities as well. Because so many people will continue to work remotely, where employees live may no longer be a key factor in recruiting.
- Look outside the industry for new ideas. Insurers’ business strategies haven’t changed, but their timing and priorities have shifted significantly. We recommend identifying companies that are further along in the journey. For example, some big tech companies have mastered the digital customer service model by studying consumer patterns, browser histories and personal preferences. Be smart and borrow lessons from these companies. We also advise that you formalize the changes that you made hastily when the crisis began and start assessing potential long-term shifts in customer needs to develop new total account solutions.
- Support your long-term vision with culture. Happy employees make happy customers. And vice versa. To build an effective culture, you’ll want to gain an understanding of the self-sustaining patterns of behaving, feeling, thinking and believing that constitute “the way we work.” Identify the traits that are core to the purpose and values of your company. Armed with this understanding, create a culture-building program that relies on formal and informal leaders to drive the desired behaviors and incorporates incentives to help ensure the success of the program.
“There’s also a bright side to remote working becoming the predominant model. Carriers will be able to expand their geographical access to talent.”
How insurance can thrive in a COVID-19 world
Life, group and P&C carriers are learning quickly how to operate in a challenging, unfamiliar environment. In the coming years, you’ll want to refine the service models deployed in the weeks and months after COVID-19 emerged.
The flexible, digital service models that will dominate the future of the insurance industry will yield some unexpected rewards in the form of better work-life balance, less time spent commuting, lower costs and greater efficiency. Already, some carriers have gained a fresh appreciation of how digital technology and improved workflows can bolster productivity and enhance the customer experience. Carriers that become more consumer-centric are expected to emerge from the crisis more agile, competitive and sustainable.
“To build an effective culture, think about continuous optimization in a fast-changing world. That requires building agility into roles, organization design, and control structures, so the organization can readjust quickly as the environment changes.”
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