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Cyberbreach and Reputation Woes Hack Away at Bottom Line for 44% of Financial Firms

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According to the 2015 Makovsky Wall Street Reputation Study, released Thursday, 42% of U.S. consumers believe that failure to protect personal and financial information is the biggest threat to the reputation of the financial firms they use. What’s more, three-quarters of respondents said that the unauthorized access of their personal and financial information would likely lead them to take their business elsewhere. In fact, security of personal and financial information is much more important to customers compared to a financial services firm’s ethical responsibility to customers and the community (23%).

Executives from financial services firms seem to know this already: 83% agree that the ability to combat cyber threats and protect personal data will be one of the biggest issues in building reputation in the next year.

The study found that this trend is already having a very real impact: 44% of financial services companies report losing 20% or more of their business in the past year due to reputation and customer satisfaction issues. When asked to rank the issues that negatively affected their company’s reputation over the last 12 months, the top three “strongly agree” responses in 2015 from communications, marketing and investor relations executives at financial services firms were:

  • Financial performance (47%), up from 27% in 2014
  • Corporate governance (45%), up from 24% in 2014
  • Data breaches (42%), up from 24% in 2014

Earning consumer trust will take some extraordinary effort, as a seemingly constant stream of breaches in the news and personal experiences have clearly made customers more skeptical of data security across a range of industries. When asked which institution they trust more with their personal information and safeguarding privacy, today’s consumers ranked traditional financial institutions—including insurers—higher by a wide margin over new online providers, but a larger percentage of consumers do not trust any organization to be able to protect their data:

  • Bank/brokerage, insurance, or credit card company (33%)
  • U.S. Government (IRS, Social Security) or U.S. Postal Service (13%)
  • Current healthcare company (4%)
  • Online wallets (PayPal, Google Wallet, Apple Pay) (4%)
  • Retail chain or small businesses (4%)
  • All other (3%)
  • None of these organizations or companies can be trusted (39%)

 

Insurers See Worldwide Drop in Customer Satisfaction

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Non-life insurers in most of the world saw improved underwriting ratios last year, thanks to a significant drop in claims expenses and rising premium volume aided by growth in emerging markets. According to Capgemini’s 2015 World Insurance Report, however, insurers were not nearly as successful with their customers.

Globally, positive customer experiences decreased significantly in 2014, indicating that steps taken by insurers are not matching rising customer expectations, the consultancy reported. The fall was pervasive worldwide, but North America witnessed the largest drop of 8.3 percentage points, followed by Latin America with 5.3 points.

According to the report, “The agent channel delivered positive experience levels that were almost double those of digital channels, suggesting that digital channels are dragging down global customer experience levels. Customer expectations of digital channels such as mobile and social media are rising rapidly along with their usage and importance. However, more than 40% of customers cited positive experiences through the agency channel, while less than 30% of customers had positive experiences through digital channels such as mobile and social media.”

Claims servicing is also problematic in terms of customer experience, seeing the lowest percentage of happy customers.

Among all customers, Gen Y currently presents the biggest decrease in satisfaction. The drop in positive experience levels was much steeper for this age group than any other, and this trend is seen across all regions, especially in the developed markets. In North America, the drop in experience levels for Gen Y customers was approximately 10 percentage points steeper than other age segments, while in developed Asia-Pacific the difference was around five percentage points, Capgemini reported.

Check out more of the study’s key findings in the infographic below:

2015 world insurance report infographic

 

Digital Presence May Improve Critical Customer Satisfaction for Insurers

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With data from 15,000 customers and over 100 insurance executives, consulting firm Capgemini and Efma found that enhancing customer experiences directly impacted insurers’ profitability. “Given the increasing demand of internet and mobile channels in insurance, digital transformation is an effective approach to create positive experiences, secure customer loyalty, and ultimately improve insurers’ profitability,” the report states.

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While many insurers say they are working to improve the user experience, ratings have only increased by about 2% worldwide, with only 32% saying they had positive experiences with their provider.

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Further, nearly 70% of customers reported that they are considering switching carriers.

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Digital presence is increasingly important in making customers happy, according to the study. For example, while internet-mobile is the least likely channel to offer a good experience, it has the greatest impact when successful.

Overall, as Capgemini and the MIT Center for Digital Business found in 2012, firms with a strong digital presence and customer focus are 26% more profitable.

In addition to the new report, Capgemini released the following infographic with their findings:

World Insurance Report 2014 Infographic

Does Reputation Really Impact the Bottom Line?

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Last month, the American Customer Satisfaction Index released its latest figures for 190 major brands across all industries. The finance and insurance industries got some good news: satisfaction increased across the sector in 2013. But a careful look at some of the “worst” companies in the survey reveals a trend that may call into question some traditional wisdom on one key risk: reputation.

As Eric Chemi points out in Bloomberg Businessweek, a comparison between these satisfaction scores and 2013 stock returns – factoring in only publicly-traded companies with at least a full year of trading data – shows that customer service scores have no relevance to stock market returns. In fact, when Chemi added a regression line, he found that stock returns actually decreased as satisfaction scores went up.

Customer Satisfaction vs. Stock Returns

The slope is minimal, so there is no statistical relationship between the variables, but the trend itself is curious. Clearly, other factors account for the market success of a publicly traded company, and reputation may impact a company’s bottom line off the NYSE floor. This chart does illustrate, however, that good guys do tend to finish last in even the broadest groupings.

2013 Performance

So, if reputation doesn’t necessarily impact one major metric of a company’s success, is there a secondary market for being liked? Does reputation make or break other metrics, like net profits or market share? Given that many other studies seem to suggest that reputation does have a negative effect on stock prices, there is likely more at work here.