June 27, 2019

Short-term insurers under immense pressure in low growth market.

The below article provides a keen insight into how the insured South African sees particular brands.

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Traditional short-term insurers are facing tremendous pressure in a low growth market where customer expectations remain high by world standards, while loyalty is on the decline as a result of lower price tolerance – customers are not willing to pay more for their current offering.  Most notable is the fact that smaller, niche insurers are giving large traditional short-term players real cause for concern when it comes to assessing who their true competition is.

These are just some of the findings in the latest South African Customer Satisfaction Index (SA-csi) for Short-Term Insurance (2018) conducted by Consulta which provides highly scientific insights into the overall level of satisfaction of customers of South Africa’s short terms insurers – Auto & General, Discovery Insure, Hollard, OUTsurance, Old Mutual Insure, Santam and Virseker.

In the 2018 SA-csi for Short-Term Insurance, the top spot has been snatched up by Virseker with South Africa’s most satisfied clients for the second consecutive year – a relatively small niche player catering for Afrikaans customers in their mother tongue. Traditional insurance giants like Santam, Outsurance and Old Mutual Insure have remained relatively static compared with previous years.  Hollard has shown consistent improvement in customer satisfaction scores over a three-year period, while Discovery Insure has shown a marked decline in its customer satisfaction score of almost 7 index points compared with 2017.   

The SA-csi for Short-Term Insurance is the most comprehensive survey of customer satisfaction, and is a causal model that links customer expectations, perceived quality, and perceived value to customer satisfaction (the SA-csi score), which in turn is linked to customer complaints (and recovery), and customer loyalty intentions. 

Key take-outs from the SA-csi for Short-Term Insurance 2018
Customer Satisfaction – Overall Index

  • Virseker took leader position in the overall customer satisfaction index for the second consecutive year with a score of 80.7 and well above the industry par of 76.6.  
  • Insurance giant, Santam, follows closely also in a leader category with a score of 79.2.
  • Outsurance (78), Old Mutual Insure (77.5) and Auto & General (74.8) follow with scores that place them in an ‘on par’ category. 
  • Hollard (73.6) and Discovery (72.3) both come in below industry par score of 76.6.  While Discovery has seen a marked decline in overall customer satisfaction score of more than seven index points and is well below the industry par, Hollard has managed to improve its index by almost 2 index points despite tough market and operating conditions. 
  • Hollard is the only brand that has improved its overall customer satisfaction score compared with 2017 – and has done so consistently for the last three years.  All other insurers have shown a decline in customer satisfaction scores compared with 2017 – these declines range from marginal to Discovery’s more severe 7.2 index point decline, raising a red flag.
  • The insurance sector is being heavily tested with fierce competition amongst current players in a relatively low growth market.  The entrance of new Insure-tech brands is also upending traditional insurance models, as well as developing new markets that have largely been ignored by traditional insurers.
  • Virseker has performed well in terms of overall customer satisfaction. Expectations are always based on personal need of the consumer, and Virseker has nailed it in terms of understanding its target market, their needs, and how their value proposition filters into that. 
  • Santam has managed to maintain its positioning as a trusted brand due to its sheer size and advice-driven business model, however it would do well to note the competitive threat from leaner, more focused niche players. It should also guard against being perceived as the more expensive brand in the market.

Customer Expectations and Perceived Quality

  • Across all brands, customer expectations are not being met consistently.  South African customers have very high expectations of their short-term Insurance providers – knowing that this is the type of product that they are very likely to need at some stage. Only two insurers managed to meet the expectations of their customers, namely Virseker and Old Mutual Insure. Discovery Insure and Auto & General showed the biggest gaps between expectations and perceived quality, particularly around the reliability of the offering. Customers experienced more problems than they expected, which in turn drives down the perceptions of reliability. 
  • Hollard was the only brand to show an improvement in perceived quality score compared with 2017, although still remaining below par.
  • Santam and Virseker lead the way on delivering a high-quality experience to customers, with most other providers providing a high quality, but undifferentiated experience.

Perceived Value

  • Perceived value is a measure of the quality, relative to the price paid.  The perception of value for money is a very strong predictor of future usage and company growth.
  • Discovery Insure scores well below the rest of the industry on perceived value at 72.8 compared with the industry par of 76.6.  Customers complained about the effort it takes to obtain the benefits promised as part of the cover.  Overly demanding effort levels have a big impact on perceptions of value, with customers being at risk of moving their cover when it becomes too onerous and the price and perceived value are in conflict. 
  • Virseker is the leader on perceived value (80.3) followed by Old Mutual Insure (79.9).

Complaints Incidence and Resolution

  • Of the complaint incidence, customers complained most often about the cost of their cover (18%), claims handling (14%), terms of cover (11%), response time & personal contact (9%).  
  • In terms of complaints incidence and handling the industry average of complaints incidence is 14/100 and complaint handling is 49.8/100, which puts the industry on par with international standards in terms of how well issues are addressed. 
  • Santam has a very low complaint incidence (8.5) which measures well against global standards, however the handling of complaints (and the subsequent impact on customer satisfaction) is below par (46.8). While Virseker has a higher incidence of complaints at 17.4, their ability to handle and resolve the complaints for clients is very good at 60.3 which is significantly higher than the global gold standard of 50. Both Virseker and Santam have made huge strides in improving their complaint handling scores compared with 2017, improving by 12.7 and 9.6 index points respectively.
  • Discovery had the highest incidence of complaints at 21.3 (more than double the global standard), and one of the lowest complaints handling scores at 45.7 – in essence this means that customers are leaning towards the negative in terms of how well their complaints are handled.

Net Promoter Score

  • Net Promoter Score measures the likelihood of a person recommending a brand.  Santam has the highest Net Promoter Score (NPS) at 41.1%, which is much higher than the industry average (25.1%). Santam customers are actively promoting and recommending the brand to others. 
  • This is followed very closely by Virseker with an NPS of 39.9% and Old Mutual Insure with 33.9%. 
  • Outsurance comes in on par with 26.4%. However, from there all other brands drop off radically and are well below the industry NPS. 
  • Discovery comes in at the lowest NPS of just 8.9%, while 28% of its’ customers are active detractors from the brand. 
  • Hollard’s NPS of 11.2% and Auto & General 17.2%.

Treating Customers Fairly (TCF)

  • The degree to which customers feel they are being treated fairly by their insurer is highest with Virseker (86.1), Santam (82.4), Old Mutual Insure (80.3) and Outsurance (79.8) – all above industry par of 78.8.
  • All other brands in this index score below the TCF par score.
  • The make-up of the overall TCF score looks at seven key aspects including:
    • Fair treatment of customers
    • Products and services that address customer needs
    • Transparent and easy to understand information
    • Advice that is suitable for the customer’s circumstances
    • Products and services deliver as expected
    • It is easy for customers to claim, change provides, complain or consider other providers
    • Customers are treated with respect and there is an open relationship

According to Professor Adré Schreuder, SA-csi Founder and Chairperson, the strongest predictors of satisfaction in the insurance sector is industry is the degree to which customers feel that their cover provides peace of mind and their provider keeps the promises made.

“It all boils down to trust and this is a significant factor when you consider that the nature of insurance is to protect your most valuable assets in your time of need, returning your financial stability after a mishap.  It is very important that customers understand exactly what they are covered for during the sales and annual review process as this is where their expectations are born. The best way to achieve this is to drive simplicity in communication, remove jargon and provide sound advice.  Customers want a provider that listens to them and responds to their individual needs. Insurers will go a long way to offer solutions that take into consideration individual client risks ratings where they are treated like individuals rather than policy numbers,” says Prof Schreuder. 

In an industry overrun with jargon and regulation, simplicity is key for the consumer. “When customers have a clear understanding of what they are signing up for, there is a much lower chance that they will be disappointed at claims stage.  Don’t expect clients to jump through hoops and expend a great deal of effort to get the cover they need. This year’s index was also telling in the impact that complaints handling and speedy claims resolution has on overall customer satisfaction, and are areas that warrant focused attention from insurers,” he adds. 

“In a tough consumer market and sector experiencing low growth, getting an in-depth handle on how to deliver on all the critical components of customer experience will mean the difference between barely surviving and growing.  In particular insurers must avoid the temptation to look at their customer experience programmes from the constraints of their own siloed business models.   They need to break out of internally focused mindsets and design their programmes from the customer’s perspective, and build from the outside in. It means adopting an approach of serving clients interests and building the business model around that, rather than being constrained by internal structures, outdated legacy platforms and divisional silos,” concludes Prof. Schreuder. 

As a strategic tool for gauging the competitiveness of individual firms and predicting future profitability, an organisation’s customer satisfaction performance, as measured by the SA-csi methodology, provides a predictive indication of how well the firm will perform in terms of future revenue and earnings growth.  Supported by both the scientific and practitioner community, the SA-csi is the first independent, comprehensive national customer satisfaction index with international comparability in South Africa and has collected data from more than 400 000 consumers since its inception in 2012. The SA-csi forms part of a global network of research groups, quality associations and universities that have adopted the methodology of the American Customer Satisfaction Index (ACSI) via its Global CSISM program.

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