May 2, 2022
The insurance industry in India is expected to hit $250Bn by 2025. However, the ongoing Covid-19 pandemic has upended industries including insurance, forcing them to adapt to new customer behaviors during this crisis. The insurance industry has to respond to these challenges with newer products to meet the new demands. However, just selling these products is not enough; repeat purchases and renewals of policies are a necessity for sustained growth.
Persistency rate (percentage of policyholders who continue to pay their renewal premium) is by far the most important metric that insurance companies track especially for policies like term and life insurance. Since the number of policies lapsed directly impacts revenue and profitability, companies constantly apply different strategies to increase persistency.
Indian insurance companies, for example, greatly struggle in maintaining high persistency rates. To throw some numbers, the average persistency rate for life insurance policies in the 13th month was just 61% during 2015-2016, compared to the global average of 90%.
While insurance companies have taken up various initiatives to solve this problem, there’s no quick-fix solution to the problem as multiple factors influence renewals.
While there are multiple reasons that negatively impact persistency, mis-selling and lack of customer engagement are by far the biggest challenges. Let us learn about each of them in-depth below.
With 76% of consumers relying on agents/brokers to learn about policies such as life insurance, a large number of consumers fall prey to mis-selling every day. Many agents make unrealistic promises to sell the insurance policy as their focus is more on gaining the upfront commission than selling the right policy.
Insurance companies are trying their best to curb mis-selling by employing different strategies and practices like PIVC (Pre-Insurance Verification call) where a call is triggered by the insurance company to share the important insurance details and confirm it with the policyholder. While the number of mis-selling complaints is reducing, it still continues to be a big threat for insurance companies.
Mrin Agarwal, founder director, Finsafe India, said that mis-selling of insurance is rampant. In most cases, consumers themselves are not aware that they are being overpromised returns. Insurance agents sell policies claiming 8% returns per annum but the actual XIRR (real rate of return) comes at 3-4% only.
Below are few reasons why mis-selling is so common in countries like India:
Lack of need-based selling and segmentation
Multiple reports show that there’s a huge dissatisfaction among customers when it comes to their insurance policy. This makes them unsure whether they should renew the policy or not. Most often this is because they’ve brought a policy that they don’t need.
The lack of need-based selling is one of the several issues that cause policy lapsation. The only way to fix it is by customer segmentation and by understanding their need through data to ensure the right policies are sold to the right customers.
Lack of education and ineffective communication
Financial literacy plays an important role in ensuring consumers choose the right policy for themselves. They cannot be overdependent on agents for this. For example, many consumers still look at life insurance from a tax-saving perspective rather than its long term benefit.
Over 38% of consumers find life insurance products too complicated and find the need for expert assistance. (LexisNexis Report)
Another reason for low persistency rates is the lack of customer engagement. Insurance companies put little to no effort in communicating the different benefits of the policies and in educating customers about the importance of insurance policies. Rather they only engage at the time of renewal or for cross-selling. This lack of focus on customer experience makes consumers feel less secure and greatly impacts the renewal rate.
Hence, one of the biggest reasons why customers don’t end up renewing their policy is because they lack confidence in the policy they’ve bought. A report shows that only 42% of people with life insurance were “very confident” that they purchased the right life insurance policy.
Usually, insurance customers use channels like emails and SMS to remind customers about their upcoming renewals. While they work to an extent, it’s unidirectional, meaning it doesn’t capture any intent from the customer whether they’re looking to pay it in a few days, they’re facing issues with payment or whether they don’t want to renew the policy at all.
Since they only understand the intent, a few days before when they start calling customers who haven’t paid, it leaves them with very little to no time in understanding the customer’s problems and solving them. This significantly impacts conversions.
Let’s look at different strategies insurance companies can implement to tackle the above challenges –
Insurance companies cannot afford to shift their focus on consumers after conversion. To ensure they exactly know the benefits of their policy and the value it can add, companies need to effectively onboard them. Surprisingly, many policyholders have little to no information about the policy they hold.
Secondly, companies need to engage with customers at regular intervals, be it for education, sharing critical updates or just checking on them during certain events (like a pandemic). This will greatly help in making them feel valued and promote loyalty.
Voice AI is an innovative and scalable way to craft multiple and personalized touchpoints for constant customer engagement.
Companies shouldn’t just limit their communication just to renewals and upselling/cross-selling.
There’s no doubt that reminder calls for renewals greatly impact persistency and timely repayments. However, the framework used by insurance companies is in a lot of ways broken.
The current framework that most insurance companies leverage is unidirectional which means that it just focuses on reminding the users about the renewal without capturing their intent. While this works to a large extent, it causes multiple challenges including –
An effective way to fix this is by capturing the user’s intent after each engagement. Hence, rather than using a voice blast, companies can leverage AI voice bots capable of holding natural conversations, to not only remind customers but also capture their intent. Using this data, AI voice bots can either reschedule the reminder call or share the intent with the agent for further communication.
For example, if a user responds by saying that he/she will pay after a few days, AI voice bots can intelligently schedule a call in case the payment is still pending.
Again, insurance companies are free to leverage any channel of their choice, as long as they’re able to capture the user’s intent (critical for segmentation and personalization).
By using this framework, insurance companies can –
Thus insurance companies need to think and act more decisively to forge deep customer relationships and invest in building truly digital and agile organizations.
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