You don't need a research report to tell you there's a strong connection between customer loyalty and profits.

But new research helps quantify just how much loyalty is worth in the p&c business, why the value of a loyal customer is growing, how individual p&c companies rate in customer loyalty today, and what specific actions your firm can take to increase customer loyalty.

NEW TRENDS, NEW SENSE OF URGENCY

Chances are you've heard the old axiom that a 5 percent increase in customer loyalty can increase profits as much as 85 percent, and that it costs five times as much to win a new customer as it does to keep an existing customer.

A closer look shows that in the p&c industry, these numbers are magnified—and new trends are further increasing the impact of loyalty on the bottom line.

Without getting into the nitty-gritty numbers, here's what new research is telling us:

• Loyalty and referrals are directly related, and insurance companies—particularly those selling personal lines—are more impacted by referrals than other businesses.

• The rise of social media and the ubiquity of smart phones, texting and instant messaging have exponentially increased the influence of word-of-mouth (both positive and negative).

• Younger insurance shoppers are even more influenced by referrals from their peers than older customers.

They are also less price-sensitive, less responsive to traditional marketing such as advertisements, more likely to gather information about insurance companies using online sources, and more likely to switch companies than baby boomers.

Finding creative ways to keep these young consumers loyal will be the key to long-term success for p&c companies and agents.

• Maintaining customer loyalty is a growing issue for agents as well as insurance companies.

The younger the consumer, the less likely they are to buy insurance through an agent at all, and the less loyal they're likely to be if they do buy through an agent.

MORE LOYALTY INITIATIVES, BUT MANY MISS THE MARK

These trends are not lost on insurance company executives, and that is why customer satisfaction, customer experience management (CEM) and voice-of-the-customer (VoC) initiatives are now receiving top billing on the corporate agenda. Executives with titles such as chief customer officer and vice president, customer experience, not only have the ear of senior management but are also getting a seat in the C-level suite or on the board.

Clearly, customer loyalty has become a focal point.

Yet on the whole, the insurance industry is still in its infancy when it comes to maximizing customer loyalty. Studies show that most loyalty-focused programs still fail to achieve results.

It's not for lack of measurement. Loyalty metrics such as Net Promoter Score (NPS) are widely gathered and tracked and provide insight on how companies are doing relative to others and over time. NPS categorizes customers into three groups based on their willingness to recommend your brand:

• Promoters are loyal customers who keep buying more and refer others.

• Passives are satisfied but unenthusiastic and vulnerable to competition.

• Detractors are unhappy and can damage your brand through negative word of mouth.

This simple segmentation allows companies to improve the customer experience by increasing the number of promoters and reducing the number of detractors.

And how do p&c companies stack up? The accompanying chart below shows the NPS of major U.S. auto insurance companies from the Satmetrix 2010 Net Promoter Benchmark Study of U.S. Consumers.

The accompanying graphic shows that there are large differences between companies in customer loyalty, but it doesn't show what creates these differences.

In general, there seem to be three key reasons why loyalty programs aren't effective:

1. Customer feedback is fragmented.

Marketing, sales, service and other departments all collect feedback but can't or don't share it with other departments, branches, regions or lines of business.

2. Individual customers are lost in aggregate results.

Customers become “pixels in a pie chart,” and in some cases no one responds when a specific customer needs attention. Customers become frustrated and don't renew or refer.

3. Employees are not empowered to act.

Employees lack the information, insight or authority to take swift action when customers have issues, leading to slow resolution times and customer complaints.

So what can insurance companies do to improve the customer experience, and thereby increase retention, repurchase and referrals? Here are a few suggestions.

#1: Get Executive Buy-in First

If there are skeptics on the executive staff, the initiative will fall apart. The sponsor of the program should be a strong proxy for the CEO.

Furthermore, the program cannot be viewed as the “initiative du jour.” To put teeth into the initiative, it must be seen as long-term and funded as such.

#2: Consider Creating a Separate Department

In determining the best structure for your customer experience program, in most cases it pays to evaluate the costs and benefits of creating a specific department to lead the program. Centralized program management increases visibility for the program and often makes it easier to obtain funding.

#3: Set Specific Goals and Use Metrics Consistently

It is critical to create a line-management perspective on the goals of the program. And the wrong metrics can destroy the credibility of the program.

Remember, the goal is to create a better business, not just loyal customers. Managers should enforce common metrics across business units, geographies and functional areas, and implement standardized analysis, reporting and follow-up activities.

#4: Offer Incentives at All Levels

To ensure good participation and results, develop a compensation strategy for all levels of the organization.

Test the goals at a local level before implementing them worldwide. And go the extra mile to make sure employees can't “game” the system or manipulate results.

#5: Treat Customer Experience Data as Perishable

Old data is useless data.

Gathering feedback on the overall health of client relationships can be done periodically, but you should monitor the customer experience continuously at specific customer touch points—for example, in support or customer care.

Customers will be patient if your company responds quickly to negative feedback, but failure to respond has an immediate negative impact on customer loyalty.

#6: Make Sure You're Getting Data from the Right People

Not all respondents are created equally.

First and foremost, develop a clear recruitment strategy by setting goals for response rates by segment and level. Consider incentives and perks that will increase participation rates. Clearly segment respondents at multiple levels: by account, by market, etc.

#7: Respond Tactically, not Strategically

Without action, a customer experience management program is simply a waste of time.

Tactical responses to customer data are often more valuable than strategic responses.

Make sure you have the systems in place to send the right information to the right people at the right time, and that the business processes are in place so that employees can take the right action.

#8: Build it on an Enterprise Scale

Your customers see you as a holistic organization, so you need an enterprise view of customer feedback. You need to consolidate enterprise feedback, integrate it with CRM and financial data to see how the customer experience impacts business performance, and use indexes like NPS to evaluate the total customer experience.

#9: Close the Loop with Customers

Use all available vehicles to showcase your commitment to improving the customer experience: quarterly communications to your customers, regular reports to senior management, e-mails to partners and contractors—even 10-K Securities and Exchange Commission annual report filings and ongoing communications with analysts.

Special Reports /

Customer Loyalty More Important Than Ever For P&C

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