You don't need a research report to tell youthere's a strong connection between customer loyalty andprofits.

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

NEW TRENDS, NEW SENSE OF URGENCY

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

A closer look shows that in the p&cindustry, these numbers are magnified—and new trends are furtherincreasing 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 directlyrelated, and insurance companies—particularly those sellingpersonal lines—are more impacted by referrals than otherbusinesses.

• The rise of social media and theubiquity of smart phones, texting and instant messaging haveexponentially increased the influence of word-of-mouth (bothpositive and negative).

• Younger insurance shoppers are evenmore influenced by referrals from their peers than oldercustomers.

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

Finding creative ways to keep these youngconsumers loyal will be the key to long-term success for p&ccompanies and agents. 

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

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

MORE LOYALTY INITIATIVES, BUT MANY MISS THEMARK

These trends are not lost on insurance companyexecutives, and that is why customer satisfaction, customerexperience 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 vicepresident, customer experience, not only have the ear of seniormanagement but are also getting a seat in the C-level suite or onthe board.

Clearly, customer loyalty has become a focalpoint.

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

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

• Promoters areloyal customers who keep buying more and refer others.

• Passives aresatisfied but unenthusiastic and vulnerable to competition.

• Detractors areunhappy and can damage your brand through negative word ofmouth.

This simple segmentation allows companies toimprove the customer experience by increasing the number ofpromoters and reducing the number of detractors.

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

The accompanying graphic shows that there arelarge differences between companies in customer loyalty, but itdoesn't show what creates these differences.

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

1. Customer feedback is fragmented.

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

2. Individual customers are lost in aggregateresults.

Customers become “pixels in a pie chart,” andin some cases no one responds when a specific customer needsattention. Customers become frustrated and don't renew orrefer.

3. Employees are not empowered to act.

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

So what can insurance companies do toimprove 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 shouldbe a strong proxy for the CEO.

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

#2: Consider Creating a Separate Department

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

#3: Set Specific Goals and Use MetricsConsistently

It is critical to create a line-managementperspective on the goals of the program. And the wrong metrics candestroy the credibility of the program.

Remember, the goal is to create a betterbusiness, not just loyal customers. Managers should enforce commonmetrics across business units, geographies and functional areas,and implement standardized analysis, reporting and follow-upactivities.

#4: Offer Incentives at All Levels

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

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

#5: Treat Customer Experience Data asPerishable

Old data is useless data.

Gathering feedback on the overall health ofclient relationships can be done periodically, but you shouldmonitor the customer experience continuously at specific customertouch points—for example, in support or customer care.

Customers will be patient if your companyresponds quickly to negative feedback, but failure to respond hasan immediate negative impact on customer loyalty.

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

Not all respondents are created equally.

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

#7: Respond Tactically, not Strategically

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

Tactical responses to customer data are oftenmore valuable than strategic responses.

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

#8: Build it on an Enterprise Scale

Your customers see you as a holisticorganization, so you need an enterprise view of customer feedback.You need to consolidate enterprise feedback, integrate it with CRMand financial data to see how the customer experience impactsbusiness performance, and use indexes like NPS to evaluate thetotal customer experience.

#9: Close the Loop with Customers

Use all available vehicles to showcase yourcommitment to improving the customer experience: quarterlycommunications to your customers, regular reports to seniormanagement, e-mails to partners and contractors—even 10-KSecurities and Exchange Commission annual report filings andongoing communications with analysts.