Study: Targeted Customer Contact Can Improve Profits, Reduce Claims

A new study from Quality Planning, a company that verifies policyholder information, provides strategies in identifying which customers insurers will benefit most from contacting while weeding out those who ditch their insurer regardless of the amount of phone contact.

The study, titled “Customer Contact Analytics: New Fuel for Bottom-Line Growth” analyzed 7 million policies from 2005-09 across several insurers.

The vast majority of top rated insurance companies regularly contact customers, but most insurers lack a scientific basis to determine which customers will respond best to such efforts, according to Dr. Raj Bhat, president of Quality Planning.

“Which are the customers who will stay through thick and thin and which are the customers who, no matter how hard you try, are the ones most likely to leave?” the study asks. “This is an imposing question and one that, until recently, was very difficult to answer.”

Contact Crucial in Customer Quality, Retention

Keeping customers is a tricky but vital part of the insurance business with even the highest, top insurers retaining 90 percent of their customers at best, according to J.D. Power and Associates. A 2007 report from Quality Planning showed that nonrenewal rates hover at a high 19 percent throughout the industry and that most insurers reported keeping most policies for less than six years.

The study categorized surveyed policyholders into three groups: those who were targeted that were successfully contacted, those who were targeted and unsuccessfully contacted, and those who were not targeted.

The groups with the highest retention rates were the targeted, successful contacts and the do-no-target group. They had retention rates of 88.1 percent and 86.5 percent, respectively. The targeted, unsuccessful contacts showed a retention rate of 83.4 percent.

In addition, the study links a “measurable reduction in claims” during the year following successful phone contact.

“Perhaps customer contact personalizes the insurance company in the mind of the customer, resulting in decrease in claims exaggeration and reporting,” the report states.

Certain Policyholders ‘Are Worth Severing’

Because a specific group of policyholders doesn’t respond at all to any contact efforts, lower retention rates within that group is not necessarily a bad thing. The study determines that those customers who did not renew after several contact attempts showed an average of 60 percent higher loss ratios when compared to others.

“Elusive policyholders are potentially some of your most unprofitable customers,” the study states.

Risks for retaining those customers include “misrepresenting their policy information,” “higher claims” and “possible claim fraud.”

Erroneous policy information—whether due to incorrect, outdated or incomplete policy information—leads to insurers across the U.S. failing to collect about 10 percent of their deserved auto insurance premiums, according to the study.

To determine which customers should be targeted, the study used the likelihood of changes in underwriting information, including annual mileage, commute distances, drivers in the household, garaging location and use of vehicle (leisure, business, farm use, etc.).

Readers can access the entire nine-page study on Quality Planning’s website.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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