Insurers face customer churn as prices rise in select products

Experts pin 3 ways to adapt to a more ‘demanding’ customer base.

Whilst the insurance sector has seen improvements in customer loyalty, it is challenged by increased customer switching in certain markets and the need for stronger emotional engagement. Industry experts suggest seizing the right opportunities as consumers become “more demanding.”

Over the past decade, loyalty amongst insurance customers, as measured by Net Promoter Score (NPS), improved significantly across most countries. The increases ranged from 10 to 30 percentage points (pp).

However, customer switching rates went up in the property and casualty (P&C) markets due to increased premiums and reduced coverage, according to Bain & Co. Naturally, customers gravitated towards more affordable options.

“In P&C, motor remains the dominant line of business in most Asian markets. The development of non-motor P&C in retail as well as more specialty and NatCat (natural catastrophe) covers on the corporate side has remained slow and below what can be observed as trend patterns as markets mature,” Bernhard Kotanko, senior partner at McKinsey & Company, told Insurance Asia.

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/Bernhard Kotanko, senior partner at McKinsey & Company

Conversely, in life insurance, a carrier’s reputation is more influential than price, emphasising the importance of delivering a high-quality customer experience to retain customers.

More consumers were observed to value insurers that excel in higher-order or emotional elements such as ethics, heirlooms, and reducing anxiety. Insurers that perform well on these higher-order elements see increased NPS, yet few currently excel in these areas.

“In life and health insurance, the broad protection priorities among consumers in Asia have not materially changed in the past year — health, critical illness and family protection remain critical. Long-term savings needs however have evolved with a closer linkage of insurance and wealth solutions, and more interest in solutions that address interest rate and currency volatility,” Kotanko said.

Expanding the role of insurers from merely capital providers to comprehensive solution providers can lead to greater customer engagement and improved economic outcomes over time, he said.

Whilst growth in insurance premiums has not outpaced general economic growth, retaining customers is critical as it links to increased product ownership and improved economics through cross-selling.

3 keys to meet customer demands

Customer acquisition, though more expensive, remains essential and requires targeted strategies based on consumer segmentation.

Henrik Naujoks, the head of the Asia Pacific Financial Services practice at Bain & Co., told Insurance Asia that customer expectations in the insurance sector have been steadily increasing over the years.

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/Henrik Naujoks, head of APAC Financial Services practice at Bain & Co.

This trend is not limited to a single year but is part of a broader, long-term shift. “Customers are becoming more demanding,” Naujoks noted, highlighting the growing need for immediate responses and higher digital sophistication.

“I think this is driven by the experience that customers make across the different offerings — not only in insurance, but also with banks, telco providers and retailers. Obviously, this is leading to a different expectation level. They’re expecting much more immediate and personalised responses when needing additional help. Overall they are becoming more critical,” he explained.

Naujoks set forth three conditions to successfully transition from capital providers to comprehensive solution providers.

Clear strategy and participation approach: Companies need a clear strategy to participate effectively in the market. If a company isn't a market leader, it should consider partnering or contributing to other networks rather than attempting to build and offer everything themselves.

Understanding the value proposition: A common inhibitor to success is a misunderstanding of the value proposition. Companies must deeply understand customer needs and ensure their offerings align with these needs. The example of Suncorp in Australia illustrates this when they abandoned their attempt to become the “Amazon of Financial Services” in 2019, combining insurance and banking services, due to a misalignment with customer preferences.

Excellence in execution: Successful implementation requires excellence in execution, including well-developed partnering capabilities and alignment between different service offerings and distribution channels. Challenges include overcoming organisational silos and ensuring all parts of the business work collaboratively to meet customer needs effectively.

Maximise engagement

Enhancing customer engagement across all channels and striving for best practices is vital. Insurers must prioritise understanding and addressing the specific needs and preferences of their customers. To enhance reputation, Kotanko advises insurers to increase their touchpoints with customers and transition from being mere “payers” to becoming true partners. This involves offering personalised advice and value propositions that extend beyond just financial compensation.

And how can insurers effectively integrate new technologies into their operations whilst ensuring compliance, data privacy, and security?

Kotanko simply noted three layers that good data infrastructure is surrounded by: the foundational system of reference (raw data and information), the system of intelligence (algorithms, AI models), and the system of engagement (interface layer for stakeholders).

Implementing technology alone is insufficient, Kontako emphasised. To achieve meaningful economic and customer experience gains, insurers need to rewire their organisations, including their operating models and ways of working.

Similarly, Naujoks said that insurers have made significant strides in digitising simple transactions, which has led to increased customer satisfaction. However, more complex digital interactions still present challenges. The industry's focus has been on improving these experiences to meet the rising expectations of digitally savvy consumers.

Trust and relationships

“Insurance is a business built on trust and relationships, particularly in this part of the world where pure digital business models are not yet fully developed,” Naujoks said.

He suggested that insurers should start with internal use cases to avoid potential pitfalls in direct consumer interactions. Responsible AI practices and regulatory oversight are crucial to ensuring that the deployment of AI technologies does not compromise customer trust.

The insurance sector faces the delicate task of balancing personalised offerings with data privacy concerns. Naujoks stressed the importance of building trust and maintaining relationships, particularly in regions where agent-based models are prevalent.

“Gen AI will not replace agents but will enhance their capabilities, enabling them to provide better-tailored advice,” he explained.

The long-term impact of AI on operational efficiency is it lowers the cost of insurance coverage, making it more accessible to underserved segments, particularly in Asia. This could help reduce the significant protection gaps in areas like mortality and health insurance.

With increasing interest in risk prevention services, especially amongst millennials and urban families, insurers have the opportunity to offer innovative solutions. Naujoks highlighted that consumer desirability, financial sustainability and technological feasibility have to be assessed before developing these services. Advances in connected devices and the Internet of Things (IoT) enable insurers to offer low-cost risk prevention solutions, which are already gaining traction in commercial insurance.

Adding on to this, Kotanko even pointed out a growing interest amongst consumers, particularly millennials and urban families, in risk-prevention services. Kotanko believes that prevention offers a win-win-win scenario for customers, insurers, and society at large. Insurers are expected to provide more integrated propositions and enable broader ecosystem connectivity to increase touchpoints and deepen relationships.

What to invest in?

Investments in digital channels and tools have led to increased consumer adoption, especially during the COVID-19 pandemic. Digital tools have doubled or quintupled in use for research interactions and purchasing, although complex issues still often require human assistance.

Generative AI and connected devices offer promising opportunities to enhance customer experience and loyalty by providing personalised interactions and proactive risk prevention.

Services such as automatic device shutoff, health checkups, and remote diagnostics are highly valued. Despite improved infrastructure and willingness to share data, few consumers currently use these services.

To back this up, a survey conducted by Capco last year revealed that nine out of 10 Hong Kong individuals are willing to divulge personal information for more personalised insurance products.

“The pandemic reinforced the need for insurance, whilst acting as a catalyst for digital transformation within the industry. Customers’ needs and expectations continue to evolve, demanding greater personalisation, convenience, transparency and choice, shaped by their digital experiences in other industries,” Lance Levy, CEO of Capco said in the report.

It also showed a strong willingness amongst policyholders toward insurance apps and the desire to utilise them for specific tasks. “These include accessing lifestyle recommendations (68% of app users in Hong Kong; 74% in the wider greater bay area) and shopping for complementary products (63% Hong Kong; 73% wider GBA),” the survey said.

Looking forward

McKinsey & Co.’s Kotanko remains optimistic. He emphasises the importance of staying attuned to evolving consumer needs and market dynamics, leveraging technology, and maintaining a strong customer focus to navigate future challenges and opportunities.

“We expect the long-term growth trajectory to continue in most markets of Asia,” Kotanko said.

For Bain & Co.’s Naujoks, he expressed optimism about the future of the insurance industry.

Technological advancements such as AI, big data, and IoT are poised to address long-standing challenges like protection gaps. The industry’s dynamic nature will lead to consolidation, with some players merging or exiting the market whilst others emerge as leaders.

As Naujoks aptly summarised, “The fundamentals of customer centricity haven’t changed. What has changed is the art of the possible.”