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2009 Home Claims Satisfaction StudySM

A Management Discussion based on the 2009 Home Claims Satisfaction Study

December 2009

© 2009 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. MD-1


Table of Contents Topic Page #

Overview ....................................................................................................................................................MD-2

The Impact of Home Claims Satisfaction on Retention ..............................................................................MD-3

How Home Claims Satisfaction Differs from Auto Claims Satisfaction.......................................................MD-4

First Notice of Loss .....................................................................................................................................MD-6

Claims Servicing and Appraisal ..................................................................................................................MD-8

Cycle Time..................................................................................................................................................MD-10

Settlement...................................................................................................................................................MD-13

Conclusion ..................................................................................................................................................MD-16



Overview

J.D. Power and Associates has measured overall customer satisfaction with auto and homeowners insurance for more than a decade. In 2007, the company launched the Auto Claims Satisfaction Study, which focuses specifically on the key drivers of satisfaction with the claims experience—the ultimate moment of truth for any insurance customer. During the 3 years the study has been conducted, customer satisfaction among auto claimants has steadily improved. In 2008, J.D. Power and Associates launched a separate and equally comprehensive measurement of the experiences an insurance customer has when filing a property claim. The Home Claims Satisfaction Study measures insurer performance throughout the entire claims experience, from First Notice of Loss (FNOL) through the repair of the home. The 2009 study includes evaluations from 2,500 insurance customers nationally who filed property claims between January 2008 and July 2009. As with other property and casualty customer experiences that J.D. Power measures, satisfaction with the home claims experience is strong in 2009. However, the study identifies key components of the home claims experience that are significantly less satisfying than those of the auto claims experience. For the industry overall, satisfaction with the home claims experience averages 828 points, which is 14 points lower than the overall average satisfaction score for the 2009 Auto Claims Satisfaction Study. While home claims are generally far more complex than auto claims and home claimants tend to have less knowledge of the specifics of their policy coverage than do auto claimants, meeting the needs of home claimants has a significant impact on long-term policy retention. This gap in satisfaction is driven primarily by the following:

• First Notice of Loss—Property insurers are less likely to use the FNOL call to manage claimant expectations and ensure the claimant is put at ease, compared with auto insurers’ handling of FNOL.

• Claim Servicing—With the absence of direct repair facilities, which greatly simplify the automotive claim experience, customers are more likely to interact with multiple insurance company representatives during the home claims process. With each added layer of contact, the possibility of service inconsistency and lack of information sharing increases.

• Cycle Time—There are more periods of claimant uncertainty during the typical home claim than during the typical auto claim. Insurers do not always level-set customer expectations, which may lead to dissatisfaction.

• Settlement—Multiple payments are more common for home claims, than for auto claims. One in five home claimants reports having to negotiate their final settlement amount, a key dissatisfier.

This Management Discussion focuses on these four key performance opportunities and highlights the benefits of long-term retention in providing home claimants with an exemplary home claims experience.



The Impact of Home Claims Satisfaction on Retention

The 2009 Home Claims Satisfaction Study finds a positive relationship between an exemplary home claims experience and intended customer retention. The linkage analysis includes segmenting profiled insurers into one of three tiers based on their Customer Satisfaction Index (CSI) scores. The high satisfaction tier includes six insurers with index scores between 837 and 893. The medium satisfaction tier includes five insurers with index scores between 822 and 832, and the low satisfaction tier includes four insurers with index scores between 769 and 816.

Customers of high satisfaction insurers are significantly more likely to say they “definitely will” renew their coverage and/or “definitely will” recommend their insurer than customers in the other two satisfaction tiers. Additionally, these customers are less likely to shop in the next 12 months for a new insurer and/or make negative comments about their insurer. (Figure MD1)

42%

52%

64%

% Definitely Will

Recommend

19%49%21%808Low-Sat

19%55%18%829Medium-Sat

8%66%12%868High-Sat

% Made Negative

Comments% Definitely Will Renew

% Will Shop in Next 12

Months

Referral-RelatedRetention-Related

Overall CSI

Company

42%

52%

64%

% Definitely Will

Recommend

19%49%21%808Low-Sat

19%55%18%829Medium-Sat

8%66%12%868High-Sat

% Made Negative

Comments% Definitely Will Renew

% Will Shop in Next 12

Months

Referral-RelatedRetention-Related

Overall CSI

Company

Home Claims Satisfaction on Retention and Referrals

Figure MD1



How Home Claims Satisfaction Differs from Auto Claims Satisfaction

While only approximately 6% of home insurance customers experience a home claim each year, among those who do, no other aspect of their experience with their insurer is more meaningful. A positive claims experience that meets or exceeds expectations may foster long-term loyalty, while a negative experience may drive a customer to shop for a new insurer.

Figure MD2 illustrates the relative impact of the most significant “touch points” in the home claims experience on an insurer’s overall Customer Satisfaction Index score. The First Notice of Loss (FNOL) interaction drives one-fifth of the entire experience, underscoring the importance of this initial interaction. Settlement is the most important factor in the experience, accounting for 41% of overall satisfaction.

Home Claims Customer Satisfaction Index Model

59% Call Center

41% Agent

OverallSatisfaction

Index

Appraisal19%

41%

5%

14%

Settlement

Repair Process

Service Interaction21%

First Notice of Loss

79%Local Agent

21% Claims Professional

Figure MD2



Overall satisfaction with the home claims experience is 828 points in 2009, compared with 842 for the auto claims experience. This gap in satisfaction is primarily driven by the FNOL and Settlement experiences, which collectively account for nearly two-thirds of overall satisfaction with the home claims experience. (Figure MD3)

For claims interactions outside FNOL and Appraisal there is a notable gap of 67 points in satisfaction, compared to auto claims, when claimants interact with claims professionals at the insurance company. These claims professionals are most often desk adjusters, who are often asked to deliver settlement terms that may be less than what the claimant is expecting. Desk adjusters are also often involved in negotiated settlements, which ultimately lead to poor claimant satisfaction.

Comparison of Auto and Home Claims―2009 Index Scores

725

750

775

800

825

850

875

900

Overall CSI

Call Center FNOL

Agent FNOL

ClaimProfessional

Agent Appraisal RepairProcess

Settlement

Inde

x S

core

2009 Auto Claims Study 2009 Home Claims Study

Satisfaction Gap: 14 30 7 67 8 7 7 23

Overall First Noticeof Loss Index

Service InteractionIndex

Figure MD3



First Notice of Loss Home and auto losses reported to a local agency are managed and executed in a similar fashion. However, satisfaction is 30 index points lower for home claims reported to an insurer’s call center (59% of home claims) than for auto claims similarly reported to the call center. Insurers are missing a significant opportunity among a larger proportion of home claimants than auto claimants to manage expectations regarding the ultimate settlement and ensure claimants feel at ease. Failing to provide claimants with realistic expectations during this first contact leads to uncertainty, and may cause the claimant to wonder whether the loss will be covered and/or what will happen next in the process. While it is definitely more challenging for an insurer to fully qualify the extent of damage and specific nuances regarding the loss during this initial call, study data highlights some key opportunities for improvement. Insurers have an opportunity to improve the Call Center FNOL experience in four key areas (Figures MD4 and MD5):

• Coverage Explanation—Fewer than three in four home claimants indicate their insurer provided an explanation of their policy coverage during the FNOL call (compared with 81% for auto claims). Falling short on this Key Performance Indicator (KPI) is particularly challenging for insurers, as home claimants often lack knowledge on the specifics/limitations of their policy and generally assume they have more coverage than they have actually purchased.

• Process Explanation—One in four claimants reports the insurer failed to explain the steps in the claims process during the FNOL call. As home claims tend to be infrequent, insurance customers do not have much experience with them. Therefore, confusion is more often the norm, and insurers that take the time to thoroughly set expectations more often achieve higher satisfaction.

• Knowledge/Expertise—Whether insurers use the same claims representatives to manage home and auto FNOL calls or channel each type of call to specialists, satisfaction ratings are significantly lower for the representative’s Knowledge and expertise when customers are filing a home claim. Given the extreme complexity of many home claims, insurers may benefit from providing representatives with enhanced training in this area.

• Empathy—Slightly more than half (55%) of claimants indicate the insurer made them feel more at ease during the claims process, which can be a harrowing time. Empathy and heartfelt concern, while extremely difficult to display in a 10-minute FNOL phone call, help the claimant recognize that the insurer’s representative understands what they are going through and is working to ensure they are made whole.



Call Center First Notice of Loss Key Performance Indicators

0%

20%

40%

60%

80%

100%

Provide Explanation of Policy Coverage Provide Explanation of Claim Process

% Y

es


Figure MD4

Range of Performance―FNOL Call Center Attributes

750

800

850

900

Explaining theclaims process

Time it took toreport claim

Concern for yoursituation

Ease of reportingclaim

Knowledge /Expertise

Courtesy andfriendliness

Inde

x S

core


32Satisfaction Gap: 17 32 25 28 23

Figure MD5



Claims Servicing and Appraisal Although often given high ratings for their technical abilities, appraisers struggle to achieve the same caliber of personal, empathetic service as that supplied by local agents and FNOL representatives. These service challenges are found in both the home and auto claims experiences. With the absence of a turnkey DRP solution, home claimants are more likely to interface with an appraiser—either one directly employed by the insurer or one who is an independent. In fact, 31% of home claimants considers the appraiser to be their primary contact with the insurer, compared with 12% for auto claimants who consider the appraiser their primary contact. (Figure MD6)

Primary Contact during Claim

0%

20%

40%

60%

Local Agent Home Contractor/Body Shop

FNOLRepresentative

Appraiser ClaimProfessionals

% C

laim

ants


Figure MD6

Differences in approach used by independent appraisers add to the challenges insurers have in providing exemplary customer service to their home claimants when multiple representatives have contact with them. Nearly one in five appraisals is conducted by an independent appraiser, and these appraisers may not use the same techniques as the insurer’s appraisers, who would have received communication on company-sponsored customer service initiatives or training in conducting an appraisal. While having a network of trusted independent appraisers may help an insurer broaden its geographic footprint, using outside sources for appraisals makes it more difficult to ensure a consistent service experience for claimants.



Overall satisfaction with independent appraisers is 22 index points lower than for insurer appraisers (822 vs. 800, respectively). This gap in satisfaction is partially attributable to low ratings for the Thoroughness of appraisal attribute, for which independent appraisers rate lower than both insurer and repair or restoration company appraisers. (Figure MD7)

Who Conducted the Appraisal

0%

20%

40%

60%

80%

100%

Insurer Appraiser Independent Appraiser Repair Contractor/Facility

% o

f Cla

iman

ts

6.50

7.00

7.50

8.00

8.50

9.00

Thoroughness of Appraisal

2009 Auto Claims Study 2009 Home Claims Study 2009 Home Claims Index

Figure MD7



Cycle Time

The average cycle time for the industry overall—as measured from the time of the loss report to when the final settlement is fully paid—is 18.8 days, but varies widely among insurers. In general, insurers inform claimants of the settlement terms within 10 days of reporting the loss. Ensuring this information is conveyed to the claimant close to the time of the appraisal eliminates a period of uncertainty in their wondering what is covered by their policy. While some insurers deliver the settlement information on the same day as the appraisal, others may take up to 5 days.

There is a wide disparity in the number of days it takes from the point of being informed of the settlement terms to the time the claimant receives final payment, ranging from a low of approximately 8 additional days to as many as 16.

Cycle Time

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Insurer A

Insurer D

Insurer C

Industry Average

Insurer F

Insurer H

Insurer G

Insurer E

Insurer I

Insurer J

Insurer K

Insurer B

Contacted by an appraiser Appraisal conducted Received final paymentInformed of settlement

Number of Days

Figure MD8



Whether a home is appraised by the insurer’s appraiser or an independent appraiser has significant impact on cycle time. On average, independent-appraised claims take more than 3 days longer to close, driven largely by a 5-day gap between when the appraisal is conducted and when the claimant is informed of their settlement terms (compared with only 1 day for insurer-appraised claims). In some instances, this delay may be the result of the independent appraiser reviewing the damage but taking a day or two to actually write up and deliver the findings to the insurer. Once the independent appraisal is delivered to the insurer, it then must be reviewed by a desk adjuster prior to communicating it to the claimant. All of these steps lead to a longer period of uncertainty for the claimant, which negatively impacts satisfaction. In addition to taking longer, independent appraisals appear to be less thorough, leading to additional work being discovered once the repair work has started (27% incidence for independent appraisers vs. 22% for insurers’ appraisers).

Cycle Time by Who Conducted the Appraisal


0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Repair Company/Contractor

Insurer Appraiser

Independent Appraiser

0 2 4 6 8 10 12 14 16 18Number of Days

Cycle Time by Who Conducted the Appraisal


0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Repair Company/Contractor

Insurer Appraiser

Independent Appraiser

0 2 4 6 8 10 12 14 16 18Number of Days

Figure MD9



In addition to cycle time being impacted by who conducts the appraisal, other variations in the claims process also lengthen cycle times, such as multiple payments being issued or whether a negotiation took place. Specifically, the overall cycle time when claims require multiple payments (or holdbacks) is more than double that for single payment claims. Similarly, when a negotiation takes place, overall cycle time is nearly double the time taken when no negotiation occurs. (Figure MD10)

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

One Payment

Multiple Payment

No Negotiation

Negotiation

Cycle Time Variations


Number of Days

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

One Payment

Multiple Payment

No Negotiation

Negotiation

Cycle Time Variations


Number of Days

Figure MD10



Settlement

The settlement accounts for 41% of claims satisfaction, and dissatisfaction with this segment may greatly impact the entire experience. As noted previously, thoroughly explaining the limitations of the policy coverage and fully managing customer expectations at FNOL are paramount to ensuring the claimant is not surprised by their settlement. The lack of claimants’ knowledge of the parameters of their coverage also leads to a significant volume of negotiated settlements. Slightly more than one-fifth (22%) of home claimants negotiate with the insurer regarding the settlement amount. This type of interaction is never pleasant and leads most claimants to be dissatisfied with their claims experience and twice as likely to consider switching insurers. (Figure MD11)

Negotiated Settlement Amount

0%

20%

40%

60%

80%

100%

Did Not Negotiate Negotiated

% o

f Cla

iman

ts

600

700

800

900

Overall Index


Figure MD11



Homeowner insurers also have an opportunity to better manage claimants’ expectations regarding how the settlement will ultimately be disbursed. Multiple payments are more often needed for a home claim (35% report having received their settlement in two or more installments), possibly due to the complexity of the claim. However, satisfaction declines significantly when claimants are not paid in a single allotment, again illustrating the importance of realistically setting claimant expectations early and communicating them often. (Figure MD12) Negotiations and holdbacks are two reasons for multiple payments being made for one claim. It is not unexpected that negotiations result in multiple payments. This year, three in four claimants who negotiated required multiple payments. In some instances, insurers hold back a portion of the settlement until the claimant has accomplished certain requirements, which can range from the repair work being started to when personal items are replaced. For most insurers, holdbacks are implemented for claims that have a settlement amount of $5,000 or more. The cycle time tends to be longer (25.9 days) for these claims than for claims settled for less than $5,000 (14.9 days).

Number of Payments Received

0%

20%

40%

60%

80%

100%

One Payment Multiple Payments

% o

f Cla

iman

ts

600

700

800

900

Overall Index


Figure MD12



The variation in the types of out-of-pocket expenses does not differ much based on whether a claimant files a home or auto claim. In both cases, 22% of claimants have out-of-pocket expenses (OOP) that are not reimbursed. However, the manner in which the claimant perceives the fairness of these OOP differs substantially. Claimants with auto OOP are significantly more satisfied with their settlement (satisfaction is 69 index points higher) than are those with home OOP, underscoring the importance of managing expectations early in the claims experience.

Out-of-Pocket Expenses

0%

20%

40%

60%

80%

No out-of-pocket Out-of-pocket wasdeductible

Out-of-pocket wasreimbursed

Out-of-pocket other thandeductible was not

reimbursed

% o

f Cla

iman

ts

600

700

800

900

Settlement Index


Figure MD13



Conclusion

For homeowners insurance customers, damage to their home is inherently a harrowing event, and personal possessions have sentimental value far greater than their replacement cost value. Property claimants typically enter the claims experience lacking a detailed understanding of their policy coverage or their insurer’s claims-handling process. This creates a significantly challenging claims experience for insurers to manage. For the most part, insurers are providing a satisfying claims experience. Yet, insurers have ample opportunity to improve the claims experience. There is a direct relationship between satisfying a home claimant and long-term retention. This Management Discussion details some of these key opportunities, most of which are tied to managing claimants’ expectations. Insurers may greatly benefit from proactively engaging claimants and limiting periods of uncertainty about what is covered, whether the need is for a discussion regarding how the claims process works or providing a thorough analysis of the limits of their coverage and how much a settlement may actually cover.

Authors

Jeremy Bowler Senior Director [email protected] John Tenerovich Research Specialist [email protected]

mailto:[email protected]

mailto:[email protected]

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