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In the wake of the recent floods, there is no insurance for brand damage


 

(A Case Study for Customer Expectations and Brand Damage)

As the waters have receded from Alberta and more recently (and modestly) from the GTA, homeowners, businesses, governments and insurers are a left to take stock of the damage and begin rebuilding.  This will also be a time to acknowledge mistakes in order to mitigate the impact of future catastrophes.  Tragically, a large contributor to the magnitude of resulting hardship is a sin that has been repeated frequently in the past and will likely continue to be a challenge in the future.  Obfuscation – to make something obscure or unclear, especially by making it unnecessarily complicated – is a practice that hurts both customers and the businesses that perpetrate it.

To be clear, damage from overland flooding is not insured.  Insurers have no legal obligation to cover the claims from flooding in Alberta and Ontario.  As flood damage is a statistical certainty over time in many geographies, coverage is simply not provided or not in a way that is marketable.  The tragedy – for which the insurance industry must take responsibility – is the glaring lack of awareness of this fact among insurance customers.  Insurers are notorious for the use of jargon and legalese that renders their policies incomprehensible.

Obfuscation is the sin for which the industry will pay.  The misalignment between customer expectations and the value delivered by a firm at the moment of truth can cause irreparable brand damage.  This damage represents significant long term cost to a business that far outweighs whatever short term gain was to be had by leaving customers confused.  Of particular note for the insurance industry, sales are highly influenced by ‘word of mouth’ – the recommendations of friends and family.

Conversely, a company that is able to bridge this gap will establish a competitive advantage leading to increased trust, retention and a point of differentiation to fuel acquisition.  Customer expectations can be effectively influenced with simple tools.  Where there is a gap between what a firm can reasonably provide and what the consumer seeks, communication is critical.  Consumer expectations can be reset with an ongoing commitment to education and advice.

See illustration:

Customer Expectations

Although the solution is simple, it requires leadership and should be part of a company’s customer acquisition and engagement plans.  The largest challenge is to build customer centricity and shift the internal culture of an organization to one that values clarity. Beyond organizational alignment and prioritization, a modest ongoing investment in communication is required.  For the cost of an investment in plain language communication, those impacted by the recent floods would have known what they were covered for, and what was at risk (see this simple, under-utilized tool).  It would have saved RBC and AMA the significant public relations nightmare of the past few weeks.  It would have retained those customers who will now defect given the failure at moment of truth.  It would have reduced the bill that Insurance companies will now have to pay to charitably cover the uninsured (who will now still wrongly perceive abandonment).  It would have mitigated some of the stigma associated with insurance and financial institutions.

The fallout from this gap in expectation is likely to get worse over the coming decade for the insurance industry without a change in practice.  Water damage claims have had a significant and growing impact on insurers now representing over $1B in claims across Canada annually, exceeding fire and theft as the largest scourge on property.   Balance sheets cannot sustain this sort of pressure and changes in coverage and pricing are appropriate.  Consequently insurers have reduced coverage of sewer backup and water seepage damage (from snow-melt, soil saturation, foundation/drainage issues).  The central issue is that those changes have taken place quietly and without advice, lending credence to the industry’s poor image.   Although seepage and sewer backup can still be purchased as optional coverage, consumers are likely unaware that they are even at risk and will remain so, until they are faced with a crisis.  Legally fine and protects against escalating claims,  but unjustifiable from a customer perspective and poison for a brand.

Companies cannot always say ‘yes’, and sometimes prices must be high – as lenders and airlines know.  But dialogue can bridge the expectation gap and if positioned as advice it is just a good brand building strategy.  Proactive management acknowledges and mitigates risk.  Insure your brand like any other business asset and manage the issue of customer expectations before the storm clouds gather.

 

Tim Crowder

Principal – Mission Marketing

twitter: Tim Crowder@MissionMkt

Jul 15, 2013