Top Service Practices to Delight Claimantsimages.dealer.com/jdpa/pdf/08-US-AutoInsClaims-MD.pdf ·...

October 2008

Top Service Practices toDelight Claimants

A Management Discussion Based on the J.D. Power and Associates 2008 Auto Claims StudySM

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2008 Auto Claims StudySM October 2008

Copyright © 2008 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Top Service Practices to Delight Claimants

Introduction

During the past decade, J.D. Power and Associates has worked to provide auto insurers with valuable insights not only on their relative performance against key competitors but also on how they can improve satisfaction, retention, and advocacy. One vital component has become the identification and utilization of Key Performance Indicators (KPIs).

Key Performance Indicators establish the relationship between the subjective impressions of the end-customer (courtesy, knowledge, ease of contacting, among others) that determine J.D. Power and Associates index scores and objective metrics (time, frequency, cost, and other metrics) that are behavior-based and actionable for insurers to integrate into their performance improvement initiatives. J.D. Power insurance industry studies generally include multiple KPIs designed to help insurers identify paths to customer satisfaction improvement through every step of the customer relationship.

This Management Discussion, based on the 2008 Auto Claims Study, will answer the following key questions:

What are the most important key service practices insurers can target to improve ■

satisfaction?

How satisfied are claimants when these practices are executed successfully? ■

How is the successful implementation of these service practices impacted by claim ■

type and service model?

Which insurers deliver on these service practices and which struggle with them? ■

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The Top Service Practices

Ten service practices have been identified as vital to a satisfying experience for auto insurance claimants. These practices center on a few core servicing philosophies:

Managing Expectations ■ —The claims experience can be overwhelming to the average claimant. Providing claimants with a clear and easily understandable description of what to expect at each step of the process is vital. Confusion, surprises and periods of uncertainty can lead to discomfort and create an atmosphere of distrust and dissatisfaction with their insurer.

Empathy ■ —For many claimants, filing a claim with their insurer can be a trying experience. Providing empathetic service and expressing genuine concern for the specifics of their personal situation, especially during the first notice of loss, is an absolute must.

Convenience ■ —In our 24/7 society, customers expect their auto insurers to respond promptly and provide a flexible experience tailored to their specific situation. The trend toward drive-in claims centers such as those being heavily promoted by Progressive are but one response to this customer-centric focus.

Effective Communication ■ —It is vital that information be effectively shared not only between representatives of the insurer, repair facility, and local agent (if utilized) but also, and most importantly, with the customer. Proactive status updates and follow-up contacts ensure that the claimant continually feels at ease with the process.

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Figure 1 shows the industry’s compliance with the Top Service Practices, identifying the percent of claimants who experience each performance metric.

Figure 1. Top Service Practices—% Customers Experiencing Each

100%90%80%70%60%50%

92%

91%

90%

89%

84%

83%

70%

66%

66%

66%

Answer all customer questions

Settlement covered whatcustomer expected

Express genuine concern forthe customer’s situation

Avoid a negotiated settlement

Flexible appraisal appointments

Ensure all promisedcall backs are returned

Share informationbetween representatives

Provide proactive updateson status of the claim

Ensure customer feels at easewith the claims process

Give customer an expectation of how longthe claim process will take and meet it

Figure 1 shows that the industry as a whole delivers particularly well on 6 of these 10 key service practices, with more than 80% reporting they experienced successful execution of them.

However, only two-thirds of claimants or fewer:

Were notified/updated of changes in the claims process ■

Were made to feel at ease with the claims process ■

Were given a timeframe for how long the process will take ■

Did not have to repeat information ■

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The Impact of Executing on these Service Practices

In total, 1 in 3 (33%) auto insurance claimants report no service “misses” during their most recent claims experience. As Figure 2 displays, satisfaction with the insurer averages a 919 on a 1,000-point scale when insurers execute on every relevant key metric.

Figure 2. Delivery of Top Service Practices—By Overall Satisfaction

80%

60%

40%

20%

0%

1000

900

800

700

600

500

Overall Claims Index

All KPIs Miss 1 Miss 2 Miss 3 Miss 4+

9%17%16%

33%

919863

813745

594

25%

Another one-fourth of customers (25%) indicate their insurer executed on all but 1 of these service practices. Satisfaction among this group of customers is 863—56 points below those experiencing all service practices (919). Considering that the Industry average for claims satisfaction is 818, this same group of customers gives scores 45 points higher than the average. Satisfaction dips below the industry average at the point a second KPI is missed and drops sharply when 4 or more service practices are missed. In total, 1 in 6 claimants say their insurer executed on fewer than 6 of the top KPIs and the satisfaction level is 594—a dramatic 325 index points below those who experience every service practice.

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Successful delivery of the Top Service Practices aligns closely with overall satisfaction performance in the 2008 Auto Claims Study. This finding is based on segmenting profiled insurers into 1 of 3 tiers based on their Customer Satisfaction Index (CSI) scores.

Figure 3 below shows that 39% of customers of high satisfaction insurers report they experienced each service practice compared to just 25% of customers of low satisfaction insurers—a gap of nearly 15 percentage points. Conversely, 1 in 4 (24%) customers of low satisfaction insurers experience fewer than 6 of these service practices, more than twice the level of high satisfaction insurers (11%).

Figure 3. Top Service Practices—By Satisfaction Tier

KPIs Missed (mean)

Hit all KPIs Miss One Miss Two Miss Three + Miss Four +

% Claims OSAT

% Claims OSAT

% Claims OSAT

% Claims OSAT

% Claims OSAT

Overall 1.74 33% 919 25% 863 16% 813 8% 745 17% 594

High Satisfaction 1.36 39% 921 27% 868 15% 833 7% 756 11% 648

Medium Satisfaction 1.82 32% 915 25% 859 16% 802 10% 742 18% 597

Low Satisfaction 2.23 25% 902 21% 849 18% 789 11% 729 24% 574

Note: Insurers with a Customer Satisfaction Index score that is significantly higher than the industry average are in the high satisfaction tier, while those with an index score that is significantly lower than the industry average are included in the low satisfaction tier. Those with an index score that is not significantly different from industry average are included in the medium satisfaction tier.

We queried the data to determine: Can low satisfaction insurers deliver a highly satisfying claims experience to their customers? The Top Service Practices analysis suggests that even though low satisfaction insurers have fewer customers experiencing the customer service practices that drive high scores, they get the same lift in satisfaction when they do execute successfully on these practices.

When low satisfaction insurers deliver these service practices to their customers, satisfaction reaches 902, just 19 index points shy of the satisfaction level that customers of high satisfaction insurers experience.

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Top Service Practices—By Claim Type

Insurers struggle to satisfy customers as the complexity of the claim increases. The 2008 Auto Claims Study focuses on the experiences of auto physical damage (APD) claimants and organizes the complexity of claims into three categories:

Repaired Vehicle—Non-Tow ■

Repaired Vehicle—Towed Vehicle ■

Total Losses ■

This approach is used because J.D. Power analysis has found the Tow vs. Non-Tow distinction to be the best differentiator of complexity, more so than other measurements such as settlement amount.

The Top Service Practices analysis supports the notion that more complex claims are tougher to handle, yet again indicates that a high level of service is not only possible but relatively common among many claimants. As Figure 4 below illustrates, these service practices are delivered on 36% of non-towed repair claims, compared to 29% of repaired vehicles that are towed and 25% of total losses. For all of these claimants, satisfaction is more than 900 on a 1,000-point scale.

Figure 4. Delivery of the Top Service Practices—By Claim Type

36%

60%

40%

20%

0%

1000

900

800

700

600


Repaired—Non Tow Repaired—Tow Total Loss

25%29%

920 908 925

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Top Service Practices—By Staff Servicing Approach

The methods of servicing auto claims are as numerous as the number of insurers in the marketplace. Some insurers choose to position their local agents as the primary interface with the claimant. Other insurers choose to use company personnel such as claims call center representatives, appraisers, or adjusters to provide the customer with service support. Still others choose to connect the customer with a repair facility to manage much of the customer interface.

While many of the highest-ranking insurers in the 2008 Auto Claims Study focus on the agent as the primary interface, there are strong performers using different serving philosophies such as Amica, USAA, and The Hartford—each with their own unique processes to deliver the claims experience. While the full study explores this topic in more depth, this Management Discussion concentrates on one service practice that can be consistently evaluated across all the insurers in the study. That is, How many representatives from the insurer does the customer interface with during the claims process?

The 2008 Auto Claims Study shows that the most satisfied customers are those who deal with two or fewer insurance representatives from beginning to end of the claims process, consistent with 2007 findings (Figure 5). These more controlled claims experiences tend to limit the potential failure points where questions, concerns, or problems can “fall through the cracks.”

Figure 5. Number of Representatives Involved in the Claim

80%

60%

40%

20%

0%

15%

900

800

700

600

CSI Index

% o

f Clai

mant

s

1 2 3+

45%40%

881854

# of Reps

783

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The Top Service Practices analysis builds on this finding and helps crystallize the challenges insurers face whenever they involve even a second person in the claims process. As shown in Figure 6, nearly half (48%) of customers who interface with only one service representative—be it an agent, adjuster, or other claims personnel—experience successful execution of each service practice. By adding a second person to the mix, delivery of these service practices declines by 8 percentage points to 40%. When a third person (or more) is added, just 1 in 4 claimants report complete success in the execution of the key service practices.

Yet, as with claim type, overall satisfaction levels are almost identical among customers who experience these service practices, regardless of the number of representatives with which they interface.

Figure 6. Delivery of the Top Service Practices—By Number of Claims Representatives

80%

60%

40%

20%

0%

48%

1000

900

800

700


One Person—Only Two People Three or More

25%

40%

927 922 919

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Which Insurers Excel at These Service Practices?

Figure 7 below shows the percentage of customers at the insurer level who indicate they experienced the Top Service Practices during their recent claims experience. Two top performers in the 2008 study—USAA* and Auto-Owners—lead the industry with more than 2 in 5 customers reporting they experience these service practices. On the other end of the spectrum, fewer than 1 in 4 customers of Mercury, Encompass, or Safeco experience these service practices.

Figure 7. Delivery of the Top Service Practices—By Auto Insurer

USAA*

Auto-Owners

American Family

State Farm

GEICO

Liberty Mutual

Amica Mutual

The Hartford

ACG

CSAA

Progressive

Erie Insurance

GMAC

Industry Average

Nationwide

AIG

ACSC

COUNTRY

Hanover

Travelers

Farmers

MetLife

Allstate

Encompass

Safeco

Mercury

45%

41%

39%

39%

37%

37%

36%

36%

35%

35%

35%

34%

34%

33%

31%

29%

28%

28%

28%

28%

27%

27%

26%

24%

24%

22%

60%40%20%0%

* USAA is an insurance provider open only to U.S. military personnel and their families and therefore is not award eligible or included in the official rankings.

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Figure 2 (page 5) indicates that customers who report that 4 or more of these service practices were missed during their claims experience are the least satisfied with the claims process. Mercury, as shown on Figure 8 below has the highest incidence of customers reporting 4 or more misses at 32%, more than 3 times the level of Auto-Owners, the highest-ranked insurer in the study.

Figure 8. Four or More Missed Service Practices—By Auto Insurer

40%20%0% 30%10%

Auto-Owners

ACG

Amica Mutual

State Farm

USAA

Liberty Mutual

American Family

The Hartford

Progressive

COUNTRY

CSAA

Erie Insurance

GMAC

Industry Average

GEICO

Farmers

Nationwide

Allstate

Encompass

Hanover

MetLife

Travelers

ACSC

AIG

Safeco

Mercury

10%

11%

11%

11%

11%

14%

15%

15%

15%

16%

16%

16%

16%

17%

18%

19%

19%

20%

20%

20%

20%

21%

22%

23%

23%

32%

Note: USAA is an insurance provider open only to U.S. military personnel and their families and therefore is not award eligible or included in the official rankings.

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The strong level of service exhibited by insurers such as USAA,* Auto-Owners, and State Farm is once again illustrated when the analysis turns to tallying the number of missed service practices at the insurer level. On average, customers of these 3 insurers report nearly half the number of “misses” as do Mercury customers. (Figure 9)

Figure 9. Missed Service Practices (Mean)—By Auto Insurer

USAA*

State Farm

Auto-Owners

Amica Mutual

ACG

Liberty Mutual

The Hartford

American Family

Industry Average

Erie Insurance

Progressive

GEICO

CSAA

GMAC

COUNTRY

Naionwide

Farmers

Travelers

Allstate

ACSC

MetLife

Encompass

Hanover

Safeco

AIG

Mercury

1.26

1.34

1.37

1.41

1.51

1.56

1.60

1.62

1.66

1.67

1.67

1.70

1.72

1.78

1.80

1.88

1.94

2.00

2.01

2.02

2.03

2.08

2.08

2.13

2.15

2.61

1.501.000.00 2.00 2.50 3.000.50

* USAA is an insurance provider open only to U.S. military personnel and their families and therefore is not award eligible or included in the official rankings.

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Helping Leverage KPIs within Your Business

This Management Discussion identifies the Top Service Practices at the industry level. It shows the direct benefits of satisfaction when the industry delivers a level of service that is heavily focused on:

Managing customer expectations of the claims process ■

Continually expressing empathy and genuine concern for the customer’s situation ■

Providing convenient and flexible service at each step ■

Effectively communicating both internally and with the customer ■

The Top Service Practices analysis is intended to be an important first step into the full implementation of these service practice metrics; this and many others are discussed in greater length in the 2008 Auto Claims Study. However, these initial steps can be more effectively prioritized within your organization by linking them to the financial levers of retention and advocacy. To this end, J.D. Power has developed a financial simulator that forecasts the financial return expected by measurable improvements in specific aspects of business performance.

As a starting point, the focus is placed on those rating attributes with the greatest impact on a customer’s overall satisfaction with their insurer. Next, those diagnostic measures (KPIs) that most impact customer satisfaction are identified, and insurer performance is benchmarked for each of these. For example, when settling collision claims, the service practice is to do so within two weeks. By projecting increased compliance with a given practice, an insurer can estimate resulting Customer Satisfaction Index (CSI) scores. In addition to modeling CSI performance improvements, the tool can model the relative cost of the initiative against the potential financial return as measured by increased renewal rates and new business through advocacy.

Because strategic investment decisions are typically made at the enterprise level, it is critical to take a holistic, company-wide view of the customer experience. When developing performance improvement strategies, it is therefore necessary to take into account the combined effects of multiple initiatives aimed at different customer touch points.

With this thought in mind, J.D. Power and Associates has developed the Direct Action Planning Simulator, which brings together all of the KPIs identified in this study. By adjusting the levels of performance on any combination of these KPIs, insurers may use the simulator to forecast the net effect on their overall index score, and thereby the financial gains to be realized through successful implementation of these recommendations.

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J.D. Power and Associates uses this simulator tool through a series of workshops designed to aid insurers in:

Prioritizing those customer touch points that represent the greatest areas for customer ■

satisfaction improvement

Identifying the root causes for underperformance in each KPI ■

Modeling the possible gain in satisfaction, retention and, hence, additional revenue and ■

profit potential based on achieving higher KPI performance

Additional information on the Direct Action Planning Simulator and the 2008 Auto Claims Study is available on the J.D. Power and Associates consumer Web site (www.jdpower.com/insurance).

Authors:

Mark Garrett Senior Research Manager [email protected]

Kevin Keegan Vice President [email protected]

Jeff Leiman Senior Director [email protected]

Jay Meyers, Ph.D. Director [email protected]

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Appendix—About This AnalysisThe 2008 Auto Claims Study is based on more than 11,000 first-party claimants who filed an auto physical damage claim that was repaired or determined as a total loss by their insurer. Surveys were gathered for claims filed between July of 2007 and July of 2008 and excluded third-party claimants and bodily injury, glass-only, and theft claims. The study identifies key performance indicators spanning the five components of the customer’s experience as shown in Figure 10 below:

Figure 10. Customer Satisfaction Index Model—Overall

First Notice of Loss– Call Center

Settlement

RentalExperience

RepairProcess

OverallService

InteractionAppraiser

Adjuster

LocalAgent

Experience45%

Experience45%

Experience45%

OverallSatisfaction

Index

4%

11%

30% 34%

31%

35%19%

37%

Multiple regression is used to determine the extent to which each KPI in the study predicts satisfaction. Each diagnostic question is regressed to overall satisfaction with the appropriate factor (Service Interaction, Settlement, etc.) along with other diagnostics. This regression model generates an impact weight that represents the positive impact on the index when the KPI is met.

To identify the overall impact of each KPI, the impact weights are multiplied by the incidence of the KPI as it applies to a respondent (i.e., not every respondent needs to meet with an appraiser so meeting this KPI will not reach the entire customer base) and the factor weight, in this case of the Appraiser factor. The KPIs with the highest effective weight are selected for this Top Service Practices analysis.

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