Published Study Shows the Value of Customer Interaction to Auto Insurers
4/30/2007
Marketwire

From Increasing Customer 'Churn' to Creating Adversarial Relationships, There Are Hidden Costs to Auto Insurance Industry's Move to Depersonalization

SAN FRANCISCO, CA (MARKET WIRE) -- Quality Planning Corporation (QPC), an ISO company, has published a study that quantifies the benefits to insurers of taking a 'customer-centric' approach to interaction with policyholders. The study¹ has major implications for the insurance industry, which is investing in technology to automate most of the interaction with its customers through efficient techniques designed to shave costs such as online applications, automated renewals, automated claims filing, web-only responses, automated voice responses (phone trees), and so on.

The problem is, these approaches have a large cost associated with them, according to Ted Harris, one of the researchers who authored the study.

"Increasingly, insurance companies are losing contact with their policyholders. The use of the Internet and mass-mailings has replaced the direct contact needed to build healthy customer relationships," says Ted Harris, manager of research and development at Quality Planning Corp. "Our data show that those insurers committed to maintaining direct contact with their customers will likely see financial benefits."

The study, published online at www.qualityplanning.com ², examines the benefits of regular, direct contact with policyholders using a simple technique: telephone contact. The researchers evaluated one year of renewal data (470,000 policies) for a major carrier that embarked on a 'high-touch' approach to customer interaction, and compared its claims and costs data with equivalent data from other auto insurers.

The study reveals:

-- The insurer that employs a 'high-touch' approach with its customers saw a 12 percent reduction in claims per policy the year following a phone interview. This compared with an increase in claims of between 4 and 8 percent for insurers that did not take the 'high-touch' approach. -- Average claim costs over a one-year period fell from $1,200 to $1,055. -- Total reduction in claims over a one-year period: $4 million.

These results were confirmed across two additional carriers and by evaluating multiple renewal years.

"Direct contact with policyholders yields several benefits, from calculating the correct premium, to creating a trusting relationship, to increasing sales, and fostering safer driving habits," said Bob U'Ren, chief marketing officer at Quality Planning Corporation. "We estimate that, on average, a timely, well-managed phone interview with a policyholder can result in as much as a 16 percent reduction in reported claims, per policy."

Recommendations for auto insurers

Based on the findings of this research, QPC is recommending the following course of action for auto insurers:

-- Maintain regular (at least once a year) phone contacts with policyholders. -- During these phone contacts, use a well-designed interview script and polite and well-trained staff. Listen intently and make sure the attributes of the current policy are meeting the current needs of the policyholder. -- Use a targeted approach. Know the specifics pertaining to household you are calling before you dial the number and pay special attention to policies where misreporting is suspected.

About ISO

ISO is a leading provider of products and services that help measure, manage and reduce risk. ISO provides data, analytics and decision-support solutions to professionals in many fields, including insurance, finance, real estate, health services, government and human resources. Clients use ISO's databases and services to classify and evaluate a variety of risks and detect potential fraud. In the U.S. and around the world, ISO's services help customers protect people, property and financial assets. For more information, visit http://www.iso.com.

About Quality Planning Corporation

A member of the ISO family of companies, Quality Planning Corporation (QPC) is focused exclusively on providing decision integrity solutions to the insurance industry. QPC works with insurance companies to identify areas of significant premium leakage using sophisticated database management, statistical analysis and modeling, customized survey design, and highly targeted customer interaction., QPC, the rating integrity solutions company, was founded in 1985 and is headquartered in San Francisco. For more information, visit http://www.qualityplanning.com.

¹ "The Benefits of Customer Touches" - Quality Planning Corp., April 2007

² The Benefits of Customer Touches