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 “In 2013, the link
profit levers and customer satisfaction
levels; higher satisfaction corresponds with between satisfaction and
higher average annual policy retention,
financial return is once
lower acquisition costs, and pricing power,
while lower satisfaction corresponds with again confirmed even
a decrease in these profit levers. In 2013,
the link between satisfaction and financial
with several important
return is once again confirmed even insurers changing relative
with several important insurers changing
relative rank position. The linkage analysis rank position.”
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.

LINK BETWEEN CUSTOMER SATISFACTION INDEX (CSI) AND FINANCIALS

Retention
Related Acquisition Cost-Related
Avg. No. of
Actual 3-Year Acquisition Positive % Will Not Switch for
Insurer Satisfaction Tier Overall CSI Retention1 Growth2 Cost2 Mentions 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%
1
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 Figure 1
A Global Marketing Information Company
jdpower.com
 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)
OVERALL for a new
SATISFACTION ANDinsurer
POLICYincreases as overall satisfaction declines.
PERSISTENCY

OVERALL SATISFACTION AND POLICY PERSISTENCY

100%

90%
% Retention Rate

80%

70%

60%

50%
650 700 750 800 850 900 950

Overall CSI

Source: J.D. Power

Source: and Associates
J.D. Power 2013 U.S.2013
AutoU.S. Auto Insurance
Insurance StudySM Study
SM
Figure 2

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)

Chart Elements Verification Timeline of Changes/Updates

Elements Yes Type of Deliverable (Report, White Paper, Case Study, etc.) J.D. Power Insight
Data provided (Excel/Word/PPT): ✔ Data and/or edited chart provided on (date): 07/24/13
Title of ©
chart: ✔ The McGraw-Hill
2013 J.D. Power and Associates, Illustrator/InDesign printout
Companies, Inc. AllofRights
chart Reserved.
to editing Reproduction Fill in date here/name of person editing
on (date): Prohibited. 2
Subtitle of chart (if any): ✔ Flag chart if it contains unanswered info on (date): Fill in date here/other info if needed
Axis titles (if any) okay: Follow-up on chart if it contains unanswered info on (date):
 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 For more information, please
these costs, as word of mouth sales through recommendations generate low-cost leads and contact:
influence higher close rates. One indirect measure is the level of customer referrals relative information@jdpa.com or
to customer satisfaction. The number of actual reported recommendations averages 2.4 805-418-8000
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

OVERALL SATISFACTION AND CUSTOMER ADVOCACY

100%

90%

80%
% Definitely Will Recommend

70%

60%

50%

40%

30%

20%

10%

0%
650 700 750 800 850 900 950

Overall CSI

Source: J.D. Power

Source: and Associates
J.D. Power 2013 U.S.2013
AutoU.S. Auto Insurance
Insurance StudySM Study
SM
Figure 3

Chart Elements Verification Timeline of Changes/Updates

Elements Yes Type of Deliverable (Report, White Paper, Case Study, etc.) J.D. Power Insight
Data provided (Excel/Word/PPT): ✔ Data and/or edited chart provided on (date):
07/24/13
The information contained herein has been obtained by J.D. Power from sources believed to be reliable. However, because of the possibility of human or
Title of chart: ✔ Illustrator/InDesign printout of chart to editing on (date): Fill in date here/name of person editing
mechanical error by our sources, J.D. Power does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors
Subtitleorofomissions
chart (if any): ✔ obtained
or for the results Flag chart
fromif ituse
contains unanswered
of such info on (date):
information. Fill in date here/other info if needed
Axis titles (if any) okay: ✔ Follow-up on chart if it contains unanswered info on (date): Fill in date here/other info if needed
This material is the property of J.D. Power or is licensed to J.D. Power. This material may only be reproduced, transmitted, excerpted, distributed or commingled
Second axis legend (if any) okay: ✔ Chart proofed by Rita/Sandy prior to final deliverable on (initial/date): Name and date
with other information, with the express written permission of J.D. Power. The user of this material shall not edit, modify, or alter any portion. Requests for use
Legendmay ✔ Editor’s
okay:be submitted to information@jdpa.com. Name Any material Date
quoted from this publication must be Task
attributed to “J.D. Power Insights: Customer Satisfaction and
Financial Performance, published by J.D. Power, © 2013 J.D. Power and Associates, McGraw Hill Financial. Allchart
Rights Reserved.” Advertising claims cannot be
Source provided okay: ✔ Name or email Date Brief explanation of update or change to
based on information published in this special report.
Run Spell check when final ✔ Name or email Date Brief explanation of update or change to chart
Notes: Name or email Date Brief explanation of update or change to chart
© 2013 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved. Reproduction Prohibited. 3
Updated Charts_7-12-12.xls Name or email Date Brief explanation of update or change to chart
Name or email Date Brief explanation of update or change to chart