Customer Satisfaction and
Financial Performance
The J.D. Power Customer Satisfaction
Index has proved to be an enduring
and reliable means to determine which
aspects of a product or service are most
critical to consumers’ overall experience
rating; however, it is through rigorous
Key Performance Indicator analysis
that J.D. Power is able to determine
the behaviors that most drive customer
impressions of quality and value. To
substantiate the financial impact that efforts
focusing on improving these KPIs might
have for an insurer, J.D. Power compares
the performance of all insurers ranked
in the J.D. Power 2013 U.S. Auto Insurance
StudySM with their financial performance in
three critical dimensions:
■■ Customer retention
■■ Cost to acquire new customers
■■ Price elasticity
Year over year, the study consistently
finds a correlation between these three
profit levers and customer satisfaction
levels; higher satisfaction corresponds with
higher average annual policy retention,
lower acquisition costs, and pricing power,
while lower satisfaction corresponds with
a decrease in these profit levers. In 2013,
the link between satisfaction and financial
return is once again confirmed even
with several important insurers changing
relative rank position. The linkage analysis
includes segmenting profiled insurers into
one of three tiers based on their Customer
Satisfaction Index (CSI) scores. Insurance
companies with a CSI that is statistically
higher than industry average are included
in the High Satisfaction tier, while those
with a CSI that is significantly lower than
industry average are included in the third
satisfaction tier, labeled Among the Rest
in Figure 1. Those with a CSI that is
not significantly different from industry
average are included in the Average
Satisfaction tier.
“In 2013, the link
between satisfaction and
financial return is once
again confirmed even
with several important
insurers changing relative
rank position.”
LINK BETWEEN CUSTOMER SATISFACTION INDEX (CSI) AND FINANCIALS
Retention
Related
Insurer Satisfaction Tier
Actual
Overall CSI Retention1
Acquisition Cost-Related
3-Year
Growth2
Acquisition
Cost2
Avg. No. of
Positive
Mentions
% Will Not Switch for
Any Price
High Satisfaction
839
95%
16.6%
14.4%
2.4
32%
Average Satisfaction
787
87%
4.3%
17.3%
1.6
18%
Among the Rest
743
85%
0.3%
20.0%
0.9
14%
Source: 100,000+ households screened by J.D. Power 2013 Insurance Screener Survey.
2
Source: Standard and Poor’s; Based on 2011 statutory findings—Insurance Expense Exhibit (Part III) of NAIC’s Annual
Statement.
Source: J.D. Power 2013 U.S. Auto Insurance StudySM
1
A Global Marketing Information Company
jdpower.com
Figure 1
J.D. Power Insights
Customer Satisfaction and
Financial Performance
Despite continuous economic changes, high satisfaction insurers continue to achieve higher
average annual policy retention, lower acquisition costs, and pricing power. Customer
satisfaction, as measured by the index model for the 2013 Auto Insurance Study has a strong
correlation with financial outcome measures, such as retention and new-business generation.
Retention
J.D. Power’s retention analysis reflects both actual retention (measured by surveying more
than 113,000 customers regarding their current insurance carrier and policy tenure year over
year) and stated intent to renew (determined by customer ratings in the survey for this study).
Both metrics show a significant positive relationship to the overall Customer Satisfaction
Index.
As shown in Figure 1, the average annual policy retention rate for insurers in the High
Satisfaction tier is 10 percentage points higher than for those in the Among the Rest tier.
Conversely, the proportion of customers who indicate they plan to shop (first step to
defection)
for a new
as overall satisfaction declines.
OVERALL
SATISFACTION
ANDinsurer
POLICYincreases
PERSISTENCY
OVERALL SATISFACTION AND POLICY PERSISTENCY
100%
% Retention Rate
90%
80%
70%
60%
50%
650
700
800
750
850
900
950
Overall CSI
Figure 2
SM
Source:
J.D. Power
and Associates
Auto Insurance
Source:
J.D. Power
2013 U.S.2013
AutoU.S.
Insurance
StudySMStudy
Acquisition Costs
There is a clear advantage for insurers in the High Satisfaction tier regarding acquisition
costs, as measured by the Insurance Expense Exhibit (Part III) of the NAIC annual statement.
These insurers have an acquisition expense advantage that is 2.9 percentage points higher
than among those in the Average Satisfaction tier and 5.6 percentage points higher than
among those in the Among the Rest tier. (Figure 1)
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J.D. Power Insights
Customer Satisfaction and
Financial Performance
Many factors affect acquisition costs, such as distribution channel, state concentration,
policy tenures, and risk profiles. Customer satisfaction has significant influence on controlling
these costs, as word of mouth sales through recommendations generate low-cost leads and
influence higher close rates. One indirect measure is the level of customer referrals relative
to customer satisfaction. The number of actual reported recommendations averages 2.4
per customer for insurers in the High Satisfaction tier and 0.9 for insurers in the Among the
Rest tier. These results flow down to the individual customer level, suggesting that there are
benefits for improvement regardless of the insurer’s overall index ranking.
OVERALL SATISFACTION AND CUSTOMER ADVOCACY
For more information, please
contact:
[email protected] or
805-418-8000
OVERALL SATISFACTION AND CUSTOMER ADVOCACY
100%
% Definitely Will Recommend
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
650
700
800
750
850
900
950
Overall CSI
Figure 3
SM
Source:
J.D. Power
and Associates
Auto Insurance
Source:
J.D. Power
2013 U.S.2013
AutoU.S.
Insurance
StudySMStudy
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