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Mastering persistency: Excellence is not an act, but a habit

 

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Persistency is the fundamental pillar of the insurance industry but one that has been often overlooked in favour of new business flow.

The SARS-CoV-2 pandemic is costing the insurance industry a whopping USD 100-200bn; affecting organisation’s revenues and profits and the income of their customers.

In the more mature life insurance markets, we’re seeing the challenges in persistency management being further intensified. Now is the time to double-down on persistency improvement strategies and focus on keeping customers by revisiting the core principles.

Those who are positioned to advance these fundamentals will be best equipped to ride out the current crisis and protect their future persistency rates.

Organisations that are unable to cope with the forces currently at play could see their very existence threatened.

 

 

Before Coronavirus: The Leaky Bath Syndrome prevailed

Volume of new business has been king for as long as we can remember. For years, the bath taps have been turned on to full and high volumes of new policies have poured in. Chunky commissions incentivised Agents on signing new customers and, consequently, the small but steady seep of income – when policies weren’t renewed in the 13th or 25th month – was counterbalanced by opening another gushing tap of new business flow.

In mid-2020, the flow of new business began to ebb. By the end of the year, the taps were barely trickling; some had dried up completely. And the flow of that steady income leak was moving faster down the plughole.

Organisations that have experienced the double hit of lost collections and lost new business may soon experience risky solvency situations. If they don’t plug the leak – in less than five-years’ time – they’ll struggle to pay out on maturity dates. Regulators will soon be chasing organisations to prove their profitability and solvency positions.

As a response, it seems that the industry has entered a period of intense introspection. Such navel gazing has led to a profusion of studies and reports that describe the issues and predict the likely future of the life insurance industry.

A new dimension to the old retention conundrum has begun

The SARS-CoV-2 virus has brought a new dimension to persistency and customer retention.

In the past, the 5th year/61st month renewal was predicated on the customer believing that it was no longer a flexible expense or that paying their premium was simply automatic. Back then, invariably, the customer stayed for life.

Now, the changes to the industry metrics driven by the global pandemic are bringing some of these long-held beliefs into question.

Pressure on wages has driven many to financial hardship and subsequent premium payment avoidance. Lapse rates suggest a strong correlation with the unemployment rate and ‘What is flexible spending’ is likely to remain a hot topic way beyond the end of this period of uncertainty.

Everyone will need to assess their financial situation post-pandemic and make a decision about whether their life insurance premium or investment product is still as important to them as it was before the virus changed their lives.

 

 

So what now?

Stopping the leak requires more than just technology

In a stable market, 5-6% leakage is expected with a 60-70% persistency rate at the 61st month. Persistency jumps to well above 90% if the customer makes the 5th year renewal. So, in the past, the focus has been quality upfront selling and critical touch points with the customer across those first five years.

Organisations in mature markets that have long been engaged with their customers in this way, now have an advantage over others who have not focused on their persistency strategy in the last five years or who are operating in developing markets. This second group have a long way to climb to build trust with the customer and deepen the relationship before they can broach the topic of premiums and policy renewals.

The companies that are performing well now have had a long-held belief in quality selling, ethical selling and holding their distribution channels accountable to a high market conduct standard.

In addition to these best practice methodologies, companies have also invested in the technology infrastructure and digital capabilities to help facilitate customer contact are in better shape than their peers. These tools have allowed them to frequently reach out and support their clients with wellbeing programs and ideas to navigate daily life during lockdown, as well as cross-selling and up-selling new products. Persistency tends to follow this deep level of commitment to customer support and engagement.

Using artificial intelligence algorithms to predict and analyse topics or products that interest customers can create more opportunities to engage with them. However, if you transition to digital customer engagement models without demonstrating how this shift will benefit your customers, your employees and your distribution intermediaries, then persistency is not a given.

Virtual commerce can even threaten persistency rates

When assessing the digital advances being made, it soon becomes obvious that technology can be a double-edged sword.

The new ecosystem of commerce has arrived much quicker than anyone might have imagined. Out of necessity, we’ve become relatively comfortable meeting virtually and living through the digital connection that has been imposed on us. But the fallout from predominantly digital contact is the lack of personal touch which can reinforce a loss of authenticity within customer relationships.

Multiple digital options provide salespeople with numerous routes to reach customers. But on the flipside, this stimulates the ‘always on, always available’ mentality that could add to the already intense pressure on distribution channels.

Who’s to say that the golden rule of 60/70% persistency at the 61st month won’t be revised upwards? Might this shift to the 73rd month in the near future?

And with the proliferation of information available, customers can more easily compare and select policies from competing carriers. This brings about a rise or a change in the level of customer expectation which can further threaten persistency rates.

Instil best practice methodologies and best-in-market training

 

 

Mature markets: change compensation models and ramp up training

Technology is part of the solution now. No question. But in the past, companies were able to instil the value of retaining the business and address persistency rates using best practice methodologies and best-in-market training. These allowed a productive salesforce to develop who were able to achieve the persistency numbers with or without the help of technology. Instil the value of retaining the business amongst your distribution channel and agency forces by:

1. Overhauling Agent compensation models

The Leaky Bath Syndrome is enabled and driven by Agent’s compensation models. Agents are more greatly incentivised to sell hundreds of new products to new customers rather than circle back to old customers and ensure they renew at the 24th month of the policy. As a consequence, Agent’s are not helping insurers improve their policy persistency rates and so compensation models must be overhauled. Provide incentives for improved policy persistency and a penalty for low policy persistency. Consider introducing a commission-based reward scheme with a persistency modifier. It’s a tried and tested approach and works in balance to keep the Agent’s interest while protecting the persistency ratios.

1. Deliver blended learning sales training for distribution channels

High market conduct standards are more prevalent in mature markets, but companies should still reassert greater professionalism and quality upfront selling by delivering best practice training.

• Behavioural authenticity in a digital world – Persistency follows with the streamlining of quality touch points by reputable and authentic salespeople.
• Stay connected over the long term – A focus on after-sales service can leave a positive impression of the organisation and deliver a more satisfying customer experience.

 

 

Emerging markets: build engaging relationships and prepare to be regulatory ready

There are few true new emerging markets now, save for Myanmar. Most of the insurance markets of the world have been around for the last five-years and are reaching the first inflexion point of maturity.

In most cases, emerging market insurers haven’t considered persistency rates in these early years of existence: their salespeople have instead focused on collecting first and second year premiums.

Alongside the rest of the insurance industry, these newer organisations have faced the effects of SARS-CoV-2 while chasing dwindling new business volume. Signing up new customers across digital platforms has presented challenges and pivoting to a persistency strategy has not been an option for many.

As younger organisations reach this first inflexion point, there is increasing pressure from owners and stakeholders to focus on longer-term strategies. But what are they?

1. Overhauling Agent compensation models (see above).
2. Delivering blended learning sales training for distribution channels (see above).
3. Build engaging relationships and switch focus to persistency rates.

Although newer organisations in emerging insurance markets have relatively more freedom to operate in less-regulated environments, they should follow their mature market peers and concentrate resources on deepening their customer relationships. As an organisation matures alongside its market, persistency becomes the most fundamental pillar of an organisation’s financial health. It’s the strategic link between profitability and solvency.

1. Align with the local regulator’s requirements.

The development, age and sophistication of the regulatory environment pose both challenges and opportunities. Many emerging regulators are still at the embryonic stages of development and enforcement, which has allowed organisations to intentionally delay the implementation of certain professional standards.

But emerging regulators are quick to emulate the mature market regulators in a process not unlike osmosis. As their markets mature, regulators will demand more. They expect greater visibility, more detailed reporting, and a greater focus on ethics and professional conduct.

With maturity and professional conduct standards, customer retention grows and allows those companies who are moving through the maturity inflexion point to build greater trust with their customers.

• Use regulation and compliance as your allies to enhance the skills of salespeople.

Organisations can view compliance and regulations as their ally and actively use them to enhance the core skills of their salespeople.

Being ‘regulation ready’ and integrating industry compliance requirements into optimised training materials – even if you’re operating in an under-regulated market – will provide security in a new regulatory environment and allow your business to stay ahead of your competitors.

If you are operating in an emerging life insurance market, how much energy do you give to being regulatory ready?

Are you aware of where your regulator is at? Have you done a market scan on your regulators and markets in contiguous countries?

Professionalism and market conduct may not be your focus today, but it may rapidly need to become your focus, so it is important to be ready.

Consider M&A opportunities

There’s been a substantial rise in merger and acquisition activity in regional insurance industry markets throughout 2020. Organisations that have been unable to cope with the new forces at play – a diverse insurance ecosystem, increasing competition and the SAR-CoV-2 virus – have been driven to the edge of viability. As a result, merging or being acquired has become a practical option.

Insurers are keen to transform and innovate for the future, but often, much is spent on acquiring a new business and not enough is spent on retaining the book-of-business that is acquired.

Financially strong players should consider extra due diligence in developing expected synergies and then execute with greater focus in achieving those synergies. Much of the value in insurance M&A activity is predicated upon retention and persistency.

Putting customers at the centre

Life insurers are likely considering how they can convert the emergency digital programs they implemented in 2020 into business transformations that sustain them through the Covid years and beyond. Developing these tools requires a sense of discipline and a deep level of stakeholder ownership, as well as balancing the cost of investment.

Customer centricity is also a challenge for insurers when advisors – and not the insurer – service the client. This is a critical issue for the industry.

Different roles make important contributions towards maintaining persistency. With professionalism comes improved high standards of market conduct. If Agents behave as reputable, authentic people, then it is easier to engage and access the customer in the first five years of the policy, thus improving persistency.

 

 

Build alternative and direct routes to customers

CEOs are looking for new ways to access customers directly and will require different channel heads to work in different directions. The current lack of direct contact from the insurer, and the headache of incentivizing and training Agents to better focus on customer engagement can be overcome.

In Korea, greater effort is being given to training sales agents to identify potential customers and to serve those customers effectively. Samsung Life are the market leaders in customer care here. They provide agents with user-friendly, key customer segmentation data that allows them to better engage the customer.

AIA China now uses WeChat to deliver important messages to agents during difficult times; has launched the first 24-7 online agency product campaign, ‘YITOU’, which generated thousands of sales leads and policies; and has developed new functionality called Air Sign, which enables agents to close sales with customers without face-to-face meetings. In Hong Kong, AIA has launched three new platforms in 2020 (Sign Everywhere, Easy Sign and EcBuy), all of which allow customers to purchase policies from agents using online platforms.

TATA AIA in India have an engagement philosophy built around customer vitality and wellbeing programs. Part of the bonus structure for distribution agents is tied to this philosophy and being measured on it ensures consistency of quality.

Taking these as examples, companies may realize that their current distribution channels are not efficient enough to deliver their new products to consumers.

 

 

We are what we repeatedly do. Excellence, then, is not an act, but a habit

It’s imperative to instil the value of retaining business amongst the distribution channels and agency forces as opposed to allowing the income leak to drain the business of profitability and, thus, solvency.

The Coronavirus pandemic has presented the need to revisit the basic core principles of persistency management and identify successful customer retention strategies.

Where distribution channels can’t physically engage with the client, technology is bringing advantages. But challenges also come with technology in the changing world it precipitates.

In the current climate, understanding key drivers which impact customers’ premium-paying behaviour is imperative for an organisation to survive.

Now is the time to double-down on persistency improvement strategies and focus on keeping customers by revisiting the core principles.

• Invest in the customer.
• Give them information that benefits them.
• Be proactive.
• Be positive and show emotional support.
• Maintain a balance between customer focus and managing the sales approach.
• Use technology as the bridge.

Those who are positioned to advance these fundamentals will be best equipped to ride out the current crisis and protect their future persistency rates.

Organisations that are unable to cope with the forces currently at play could see their very existence threatened.

How will you master persistency as you transform your business?

 

 

How will you master persistency as you transform your business?

Other references:

Persistency Management Framework for Life Insurance, CapGemini, 2013

China – on any given statistic – is the largest insurance market in the world, but its regulators are still addressing widespread challenges. As foreign ownership restrictions were removed, and other barriers to entry eliminated, the level of quality of professionalism and market conduct reduced. China is slowly shifting from a focus on business volume but – like all emerging markets –persistency rates remain low.

Manulife are used to operating in mature markets. They are well set up with their training in discipline, quality selling, professionalism, and market conduct. They will likely enter the nascent Myanmar market, and likely struggle to compete in the short term because of their high costs and propensity to set their long-term persistency strategy in place instead of chasing volume for the first 1-2 years. But when the dust settles in Myanmar, in 5 to 10 years, Manulife will likely be the market leader there too.

 

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