ACSI Commentary December 2012
December 11, 2012
Commentary on Banks, Credit Unions, Health Insurance, Property & Casualty Insurance, and Life Insurance
Customers Look for Personalized Service and Lower Costs in Financial Services
Banks and Credit Unions
To the detriment of large banks, but to the benefit of smaller banks and credit unions, about 10% to 20% of customers switch banks each year. Credit unions continue to expand and reached record-high membership over the past year. Increasingly, customers are rejecting the mounting fees charged by large banks and taking their money to credit unions instead, which typically charge less. In 2011, the total fees from overdraft charges alone amounted to more than $30 billion.
Overall, customer satisfaction with banks, including checking, savings, and personal loans, gains 2.7% to 77. The improvement is mostly the result of continued high customer satisfaction with smaller banks (stable ACSI score of 79), which have gained market share and therefore impact the industry average more in 2012. The other factor is a large 6% increase in customer satisfaction for JPMorgan Chase, the nation’s largest bank. JPMorgan Chase leads big banks with a score of 74, but still trails the small banks, which tend to offer more personalized service, free checking, and lower fees.
As more retail customers move from large banks to smaller banks and credit unions, the overall customer satisfaction level for banks changes for the better. Smaller banks have higher customer satisfaction than big banks and thereby attract more customers. As a result, overall customer satisfaction with the banking industry goes up.
The other big banks are well below JPMorgan Chase for customer satisfaction and show declining ACSI scores. Wells Fargo dips 3% to a score of 71, followed by Citigroup, down 4% to 70. Bank of America deteriorates 3% to 66, its lowest level in more than a decade. Bank of America is the only large bank that remains below its prerecession customer satisfaction level this year.
Like small banks, credit unions offer more personalized service and fewer fees. This year, however, an influx of new clients causes credit unions to retreat from their past lofty standards for customer service. Customer satisfaction with credit unions falls 5.7% to an ACSI score of 82, which still surpasses the overall score for banks at 77.
Although customer satisfaction with credit unions declines by a significant amount, the industry remains best-in-class for financial services and displays the top customer satisfaction benchmark among all service categories covered in the ACSI. Moreover, credit unions continue to do better than small banks in customer satisfaction, while outperforming all of the big banks by a wide margin. Nevertheless, a change toward more fees and higher minimum balance requirements could be worrisome given the industry’s weaker customer service this year. For credit unions, maintaining high customer satisfaction will demand more resources, along with judicious competitive monitoring of fees and costs.
Customer satisfaction with health insurance remains unchanged at an ACSI score of 72. Health insurance premium costs have not increased much lately, with the average premium rising less than half the annual average over the past decade. In addition, employers are seeing the smallest increase in their contribution to health care costs in 15 years. On the flipside, as more consumers opt for high-deductible plans with lower premiums, the likelihood of higher out-of-pocket expenses escalates. It is unclear to what degree consistency in overall costs is attributable to consumers using less health care, finding lower cost alternatives, or deferring medical treatment all together.
The Blue Cross and Blue Shield Association, the umbrella organization for some three-dozen insurers, rebounds 7% to an ACSI score of 73. The gain erases a two-year slide for BCBS and puts it in the lead among health insurers. Better value for money as perceived by customers is behind the ACSI improvement for BCBS. The customer satisfaction outlook could change quickly, however, as premium hikes are proposed for next year.
The rest of the health insurance industry is flat or losing ground. The aggregate of smaller insurers, including Cigna and Humana, descends 5% to an ACSI score of 71. This is the third straight year of waning customer satisfaction for small insurers. Like many other service-oriented businesses, small health insurers often find it more difficult to compete on price.
WellPoint (-5%) and UnitedHealth (-3%) are tied with ACSI scores of 70. A postponement of certain rate hikes a year ago contributed to more satisfied customers for WellPoint, but the gain was reversed once higher rates went into effect in 2012. UnitedHealth, on the other hand, introduced a program for premium rebates for certain policyholders and kept rate increases low for its Medicaid programs. As of yet, however, there has not been any detectable effect on customer satisfaction. Aetna, the third largest health insurer, is in last place with an unchanged score of 67. Over the past decade, Aetna has ranked at or near the bottom of the category in most years. The bulk of its problems with customers seem to lie in lackluster claim service.
Life and Property & Casualty Insurance
Customer satisfaction is moving in opposite directions for life versus property and casualty insurance. Stable premium costs help push life insurance up 1.3% to an ACSI score of 81, which ties the industry’s all-time high. On the other hand, higher-than-average annual rate increases pull down customer satisfaction with property and casualty insurance and the industry falls 6.0% to a score of 78. A big drop for smaller insurance companies, including AAA, Nationwide, and Travelers, is responsible for much of the weakening customer satisfaction. The aggregate of smaller insurers plummets 7% to 77, the lowest score in the property and casualty category.
Among the largest property and casualty insurers, State Farm is once again on top, down a slight 1% to an ACSI score of 81. With a 3% gain, Progressive vaults into a tie with State Farm for the lead. Three other insurance companies are tied at 79: GEICO, Farmers Group, and Allstate. GEICO drops 2% and Farmers Group is unchanged. Allstate joins Progressive in bucking the industry downturn with a slight 1% gain.
Among life insurers, smaller companies tend to do better. Despite a 1% drop, the aggregate of smaller companies leads again this year with an ACSI score of 81. New York Life has the highest customer satisfaction benchmark among large companies, unchanged at 80, followed by Prudential (unchanged) and Northwestern Mutual (-2%) at 79. The largest issuer of life insurance, MetLife, brings up the rear at 78. While MetLife is the only large insurer to show improvement, the gain is very small at 1%.