There is a new ComEx playbook for insurance companies

In an industry where historical advantages are quickly eroding, Nordic insurers have to find new ways to continuously improve and preserve profits. Driven by market trends and emerging digital possibilities tipping the power balance in favour of customers and intermediaries, the insurance industry must transform its Commercial Excellence program with a stronger emphasis on customer-centricity and frankly, get better at cost-efficient selling at scale.

Historically, the insurance industry worldwide, including in the Nordics, operated an almost frictionless business model. Consumers need insurance for various reasons: some types of insurance are mandatory, others are necessary when seeking financing, and many are desirable to avoid significant financial losses. Like many other industries, the insurance industry has traditionally operated with limited transparency. Complex and difficult-to-understand insurance products made it challenging for consumers to switch providers. For many years, this reinforced the perception of the insurance industry as a seller’s market, characterized by strong pricing, high customer retention, and limited competition.

Several factors have dramatically altered these dynamics:

• Today, obtaining multiple competing quotes for insurance products is quick and easy online or through call centers. In the Nordics, dedicated comparison websites allow consumers to evaluate different insurance products for the best price and fit. And these aggregator sites continuously get better and more suited to customer segments, life events and preferences, and they are integrated to where customers go about their business digitally. Consequently, surveys and experience in the Nordics show that within personal lines and lower market segments in commercial lines, the number of individuals benchmarking their insurance renewals before the end of their policy periods is increasing annually. Additionally, churn rates are at an all-time high.
• Driven by national legislation and EU/EIOPA initiatives, consumer and SME protection within insurance has significantly increased. Regulations focused on treating customers fairly have led to detailed rules regarding insurance advice, proper notifications, broad consumer rights for cancellations and switching, price walking, and more. Although Nordic regulators have adopted a less stringent approach in certain areas compared to other countries, insurers in the region have had to adapt.
• Greater transparency in the insurance market has intensified competition. This is further exacerbated by the lack of systemic market growth in the Nordics, which are mature economies with some of the highest insurance penetration metrics globally (insurance premiums/GDP). For insurers to grow, they must, in the main, attract customers from competitors. This partly explains the rising sales operating expenses observed among many Nordic insurers in recent years. Although there are exceptions – primarily within travelling in-person personal lines sales where reductions in staff count have happened. This has, in my view, very often resulted in adding more expensive resources to inefficient ways of selling
• Independent insurance intermediaries have grown an appetite for selling insurance products. Auto dealers sell auto insurance with vehicles; banks offer home insurance alongside mortgage lending; unions provide white-labeled personal lines insurance; web shops bundle insurance with their products, and so on. Some intermediaries, particularly auto retailers in the Nordics, have been highly successful, eating into the profit pool. If we believe in international trends, and I challenge those who do not, there is more to come. Very few people are eager to talk to their Insurer… If insurance can be seamlessly bundled with the purchase of other goods and services, it aligns with what most people prefer. All of our analyses consistently support this preference.
   

New ComEx disciplines

The bottom line is that many companies in the insurance industry are under pressure to define and implement new growth strategies. The old recipe for success no longer works. In response, many insurers are transforming the Commercial Excellence (ComEx) program. We define Commercial Excellence as the interplay between sales processes (both new sales and wallet share), customer service, retention, and pricing.

To clarify, we are not referring to the new entrants in the insurance industry, whose operating models differ from traditional players by being born digital with automated pricing and underwriting and hence, very low run costs.

For many insurers, building an improved ComEx program scaled across the organization can be a daunting task. Many disciplines are relatively new to insurers, and most operating models are often not equipped to handle data, system support, and workforce training. Arguably, insurers have for hundreds of years been built and nurtured for an “inside-out” approach, pushing hard-to-understand-insurance products to customers, instead of creating a customer pull. Nevertheless, there are numerous “high impact/low cost” opportunities to explore and significant benefits to gain.

For example:

• Use pipeline dashboards and management tools to understand your sales pipeline performance – the first step to managing your distribution economics. Start with an ad hoc analysis of your largest distribution channels on a periodic basis and move into live dashboarding by channel, LOB, segment, etc. How is our submissions flow, Quote Ratios and Hit Ratios doing – and what are we aiming for?
• Do we understand Key Purchasing Criteria (KPC). And if we do understand those, does everyone in our business touching the customer know, and have we designed for it in our sales process, service unit and claims?
• Do we (all) know what our Ideal Customer Profiling (ICP) looks like? Do we measure on L/R only, or do we try to estimate cost-to-sell and serve, retention, cross-sell probability, price sensitivity, etc.? And if we do, have we embedded the ICP across our customer journey allowing the inbound call center service team and claims team to understand, that the customer they are currently talking to is very valuable?
• Do you use intermediaries like bank assurance, auto dealers, insurance brokers, associations, etc.? Build a Partner Management/Broker Management model and start with the basics and move on to more sophisticated dashboarding, tooling, and even organizational construct. If you are not managing your intermediaries (well!), they are managing you.
• Understand your churn! With growing churn in personal lines and the commercial SME segment, begin with a thorough analysis of which client segments, industries, LOBs, premium levels are churning – and even better, why they are churning, and to who. Apply your knowledge using a 20/80 principle.
• Build an “outside-in” segmentation, also called “action-segmentation” by which we mean segmentation based on how customers “act”. Traditional segmentation within insurance by premium size, LOB, L/R, etc. does not work in a customer-centric model. We are not suggesting that insurers should not do Financial Business Performance Management, indeed they must, but not as a tool for ComEx segmentation.
   

Focus on retention and cross-selling

Many Nordic insurers are advancing well on the ComEx agenda and discovering that significant value can be achieved through targeted interventions without trying to “boil the ocean.” While we recommend keeping the target state for ComEx in mind – a state that will differ among insurers based on their business strategy, customer segment focus, underwriting appetite, and business mix – there are different things to consider.

For instance, many insurers’ sales operating models (including personal incentives) prioritize new sales over retention. If you have resources to invest in improving ComEx, allocate them to retention unless you are Champions League winners at retaining all your profitable clients. The economics of retention – in terms of both costs, Loss Ratio and cross-selling to them – are overwhelmingly strong. Existing customers are more profitable than new ones. The cost to retain is significantly less than the sales cost on new, and the cost to cross-sell to existing is significantly less than the sales cost on new.

If we dive deeper into retention, tactics can be categorized into reactive, proactive, and preventive approaches. The reactive approach (the “rescue team” calling up customers who has cancelled their insurance) has been the default for most insurers. Proactive retention means applying churn predictions and then showing love to customers at risk. That is becoming a must-have in Nordic personal lines. Preventive models make sure that (at least your best “ICP” customers) are not at risk of even considering someone else than you. That necessitates clever action segmentation and tiered service models.

Another growth avenue is cross-selling. While cross-selling within a line of business organization can feel like trying to drink water from a firehose – massive potential, but unpleasant if you try – it is far from impossible. Our experience with European clients (see box below) demonstrates that cross-selling can be highly effective, and best practices and successful cross-selling projects surely exists. Consider the cost advantages of generating new premiums by selling additional products to existing customers versus acquiring new customers. Multi-policy clients also tend to be more loyal, enhancing overall profitability.

The ComEx agenda will become a critical battleground for Nordic insurers. On one side, technological, regulatory, and generational shifts are driving the need for transformation. On the other, digitally savvy but brand-disloyal customers, armed with tools to instantly assess the competitiveness of their current insurance, are prepared to switch providers quickly and seamlessly. Excelling in sales and retention management is no longer optional, but essential to stay competitive. The good news is that there are a lot of minor interventions which can fund the journey towards a future-proof ComEx operating model for insurers.
 

Aggregated data from European Monitor Deloitte Insurance projects within Commercial Excellence

• New customers (0–2 years) in CL portfolios often have a 3–5 percentage point higher loss ratio than retained customers (2–6+ years)
• Single-policy holders are 6x more likely to churn than multi-policy customers, and new customers incur a 5x higher cost-of-sales (CoS) compared to cross-selling to existing customers
• 38% of customers churned due to bad service could have stayed if they believed service would improve, while reactive retention efforts have largely proven inefficient
• Data-driven and proactive retention efforts can improve retention success by up to >10 percentage points