NPS and the Customer Satisfaction Jigsaw

Since it was first introduced by Fred Reichheld in 2003 (“The One Number You Need to Grow”, Harvard Business Review) to help measure customer satisfaction … the Net Promoter Score (NPS) has grown to become a crucial tool in the marketer’s arsenal.

The reason that NPS has been so successful and, in many ways become the go to customer satisfaction benchmark, is its simplicity – the ease and speed with which it can be asked. This means that it can be asked more regularly, limit the time that customers need to spend providing feedback, (because as much as we would like them to, not everyone wants to take part in a 20 minute survey once a month!), and it does not require any kind of math degree or statistical tool to analyse.

While many companies, big and small, use NPS as a performance index to evaluate the state of their brand, it is not without its critics for whom it is not specific enough, relied on too heavily by companies and difficult to translate into action. Used properly it can be a helpful metric, but there are a few noticeable caveats which, to garner maximum value from any customer satisfaction program need to be understood and accounted for.

So what should marketers be doing when implementing customer satisfaction to ensure maximum value?

 A key starting point is to create a customer interaction plan. Engagement with the right audiences at the right times during the customer journey, as well as at the right frequency to obtain an accurate read on customer sentiment is crucial. Mapping and understating the key stages of this process will enable us to see where we are doing well and where there is the most room for improvement.

To harness the full power of NPS we then need to link up the scores provided with any other information that we hold on customers. This may not always be possible, but a well managed CRM system can enable us to dive into satisfaction scores much more deeply, looking at where the brand is performing well and how we are performing within key segments, cohorts or demographics. Another key benefit of this approach is that we can link satisfaction scores to other key business metrics allowing us to assess the tangible value that an increase (or decrease) in satisfaction score might bring.

We need to look at how we can ‘move the bar’ and increase scores, a point at which many a marketer we have spoken to have found challenging. Beyond purely looking at scores by stage of the customer journey this is the point at which text responses can provide real additional value. By focusing these on what the company could be doing better for all customers (rather than a traditional and not always that useful ‘Why did you give this score?’) we can look to explore key themes for improvement among both promoters and detractors of the brand. Many companies with successful customer satisfaction programs will also take the opportunity at this stage to engage directly with customers to understand their scores, and this can add an additional layer of value by tapping further into the voice of the consumer.

Finally, and arguably the most crucial stage of the process is feeding these responses back into the business, to create a Satisfaction Cycle that empowers the broader business to make tactical changes and improvements to products and services based on 4 key elements:

  • Which improvements are we able to make?
  • Which audiences would benefit most from these changes?
  • How valuable are they to us as a business? (linked to key business metrics)
  • What can we do in the short term and what are longer term goals

So is this ‘The One Number You Need to Grow’? That is certainly up for debate. To implement growth plans, any business needs much more information than the NPS on its own provides. It is no golden goose and gives us only a point in time satisfaction score. To harness the power that a well-formed customer satisfaction program can bring we must use it in the right way as part of a range of tools that can measure, identify and most importantly enable us to improve the customer journey. Knowing that customers would recommend our brand is great, but knowing what we can do if they don’t and how to improve the scores across key audiences is where NPS can deliver its true value

In praise of the ‘Diffusion of Innovation’

Another in our occasional series of blogs in which we will revisit some of the articles that we have found most useful over the years … these are the articles that can always be found on desks in the Decision Architects office. This week we are looking at Everett Rogers’ 1962 work on Diffusion of Innovations (and yes, it’s a book not an article).

“This model provides an intuitively simple lens through which we can look at how consumers approach any sort of NPD – it is not without its critics but it is a useful short-hand which we often apply to (say) a segmentation framework to talk to the propensity of different segments to try or adopt a new product or service …. be that a new delivery format for hot drinks, a new insurance concept or some form of health tech” James Larkin, Decision Architects

The foundations of this now ubiquitous framework are interesting. Rogers’ 1962 book was based on work he had done some years earlier at Iowa State University with Joe Bohlen and George Beal. Their ‘diffusion model’ was focused solely on agricultural markets and tracked farmers purchase of seed corn. It was Iowa, and Rogers was professor of rural sociology!

The diffusion model’s signature bell curve identified

Innovators:             Owned larger farms, were more educated and prosperous and were more open to risk

Early Adopters:      Younger and although more educated were less prosperous but tended to be community leaders

Early Majority:       More conservative but still open to new ideas – active in their community and someone who could influence others

Late Majority:        Older, conservative, less educated and less socially active

Laggards:               Oldest, least educated, very conservative. Owned small farms with little capital

Between 1957 and 1962 Rogers’ expanded the model to describe how new technology or new ideas (not just seed corn) spread across society, but whilst Rogers initial work assumed that technology adoption would spread relatively organically across a population in practice there are barriers that can derail mainstream adoption before it has begun. The expansion to this frame discussed in Geoffrey More’s 1991 book ‘Crossing the Chasm’ highlighted a critical barrier to widespread adoption. This Chasm exists between the early adopter and early majority phases of the framework and to successfully navigate requires an understanding of the personality types that form the 5 fundamental building blocks of the model.

Innovators are happy to take a risk and try out products and services that may be untested or ‘buggy’. They look at the potential, do not expect things to be perfect and are happy to work with companies to improve initial offerings, a fertile testing ground for new technology. Early adopters in contrast are more tactical in their adoption. They want to be at the forefront of new technology but will have conducted their own research to evaluate the likelihood that the product will offer them tangible value. They are also more fickle, and are more likely to leave a product or service that is not living up to what was promised creating a potential void between them and the early majority.

Once we start to look at the early majority and beyond there is marked shift towards using something that ‘just works’. They are less interested in something new or shiny but, as the Ronseal advert would put it, something that ‘does exactly what it says on the tin’.

Seth Godin put it well in his 2019 blog when he said:

“Moore’s Crossing the Chasm helped marketers see that while innovation was the tool to reach the small group of early adopters and opinion leaders, it was insufficient to reach the masses. Because the masses don’t want something that’s new, they want something that works, something that others are using, something that actually solves their productivity and community problems.”

At its basic level the innovation adoption curve is a model that can be used to critically assess the appetite to adopt something new within a particular audience (be that segment, cohort or among a more general population). This provides us with a crucial framework element addressing the ‘where to play’ question … which we talk about so often with our clients and to enable the prioritisation of resources where they will have the biggest impact on growth and revenue

To go beyond the innovator and early adoption phases, products and services must deliver on their early promise, be built around customer needs improving on what went before. Getting there first can be a huge commercial advantage but failing to understand your audience and adapt accordingly can be the difference between wide-scale adoption and, at best, obscure appeal.


Why ‘new normal’ will look a lot like ‘old normal’

Since March my mailbox has been inundated with new surveys, trackers, consumer trend evaluations, and ‘thought pieces’ on the ‘new normal’. The world we live in from this point on will look nothing like the world we have known … so says their collected wisdom! If one was a cynic, one might argue that sowing doubt and uncertainty about the future reinforces the need to spend budget on consumer insight at a time when client businesses are looking to conserve cash and agencies are feeling the pinch – and this is my business as well, so I am not going to argue with the importance of maintaining  ‘sensors in the ground’!

But if you believe all that you read we are facing a foreign landscape with consumer behaviour turned on its head! But with some trepidation … can I be the small voice in the crowd that says actually I believe that the future is going to look much more like the past than many would have us think.

Now I will caveat that with the future when viewed from the pre-Covid world was going to look different (that’s just a truism) … the migration from the high street to the virtual street perhaps being the most notable trend – and the pandemic has moved this process on (if for no other reason than such a precipitous fall in revenue would be difficult for any business to cope with especially those with a poor online presence).

Perceived wisdom is that the pandemic moved digital migration forward 5 years … as people have been forced to shop online, socialise with friends and family members online, to bank online, see their doctor online etc. And some of these behaviours are here to stay as sub-optimal customer experiences in a pre-pandemic world can now be seen as such by a wider group of consumers – who really wants to queue for 20 minutes in a bank branch or sit next to (other) sick people in a doctor’s waiting room. OK, some people will, but broadly speaking the pandemic has shown those of us who are not innovators and early adopters a better way in some areas.

However, the ‘new normal’ is not actually ‘normal’ and will meet the headwinds of behavioural inertia or the tendency to do nothing or to remain unchanged. The majority of us will go back to an office, and probably 5 days a week. We will start shopping in stores again – because we like physical (as opposed to virtual) shopping, and so the home will become less of (not more of)  “a multi-functional hub, a place where people live, work, learn, shop, and play” (‘Re-imagining marketing in the next normal’ McKinsey, July 2020). We will want to travel again as soon as possible – the ‘staycation’ was fine, but we won’t want to make a habit of it, and our new found sense of ‘community’ will wane when the pressures and time requirements of everyday life kick back in.

I am not saying that there won’t be any change and I am not just sticking my head in the sand and hoping the current crisis would just go away. But consumer behaviour is akin to an elastic band … Covid-19 has pulled it in all sorts of different directions, but fundamentally it wants to ‘ping back’. When we have a few years post pandemic perspective, I suspect covid-19 will be seen to have caused a mild bump in the overall evolution of consumer behaviour … there won’t be a ‘new normal’ that looks very different from the ‘old normal’.

Katy Milkman – a behavioural scientist at Wharton was reported in The Atlantic as saying that new habits are more likely to stick if they are accompanied by “repeated rewards”. So if the threat of the virus is neutralised the average person will go back to a routine and at the moment the pandemic looms large because its our everything. While there will be some behavioural stickiness – its easy to overestimate the degree to which future actions will be shaped by current circumstances.



In praise of ‘Marketing Myopia’

In this occasional series of blogs we will revisit some of the articles that we have found most useful over the years … these are the articles that can always be found on desks in the Decision Architects office. The first of these is Marketing Myopia, published in the Harvard Business Review in 1960, chosen by Adam Riley.

“I love this article … it talks to the ‘where to play’ and ‘how to win’ calculations that we have at the heart of our work … and I reference it time and time again. And when we use examples of obsolescence … Kodak, Nokia, Blackberry etc etc. you can see in their downfall a failure to heed the lessons of Marketing Myopia. Levitt was one of the giants of our trade”

In 1960 Theodore Levitt … economist, Harvard Business School professor and editor of the Harvard Business Review, published ‘Marketing Myopia’ and laid the foundations for what we have come to know as the modern marketing approach. Levitt, one of the architects of our profession, popularized phrases such as globalization and corporate purpose (rather than merely making money, it is to create and keep a customer). The core tenet of his ‘Marketing Myopia’ article is still at the heart of any good marketing planning process or submission. In this article Levitt asked the simple but profound question … “what business are you in?”

He famously gave us the ‘buggy whips’ illustration…

“If a buggy whip manufacturer defined its business as the “transportation starter business”, they might have been able to make the creative leap necessary to move into the automobile business when technological change demanded it”.

Levitt argued that most organisations have a vision of their market that is too limited – constricted by a very a narrow understanding of what business they are in. He challenged businesses to re-examine their vision and objectives; and this call to redefine markets from a wider perspective resonated because it was practical and pragmatic. Organisations found that they had been missing opportunities to evolve which were plain to see once they adopted the wider view.

Markets are complex systems. The ability to successfully define, and to some extent ‘shape’, the market you compete in today – and will compete in tomorrow –  is the foundation of good marketing. It is critical first step to maximizing business opportunities and identifying those competitive threats that may imperil the long term prospects of the business – or change the rules of the game to make its products or services irrelevant.

Senior management must ask, and marketers must be able to answer, the question … as a business, ‘where should we play’? This means defining the market in which we will compete – and being able to give size, scope, growth rates, competitive landscape, key drivers and barriers to success within it, as well as an appreciation of customers needs today – which are being fulfilled -and those unmet needs which may shape the definition of the market tomorrow. Market definition is not the same as ‘segmentation’ – but it is a necessary pre-cursor

When identifying ‘where to play’, marketers must address how to redefine our market to create a larger opportunity, or one which we are better positioned than the competition to take advantage of? How could our competitors reshape the market to their advantage and what impact would this have on us? And how will external trends – be they political, technological, social, economic etc. – reshape the market and affect our success? Many marketing questions then flow from this market definition – what attractive customer segments exist, how do we develop and deploy our brands against attractive market opportunities, what capabilities do we have today that give us competitive advantage, and what capabilities will we need tomorrow to sustain this.

At the time of his death in 2006, Levitt (alongside Peter Drucker) was the most published author in the history of the Harvard Business Review, and in a interview he gave about his published work, he said  “In the last 20 years, I’ve never published anything without at least five serious rewrites. I’ve got deep rewrites up to 12. It’s not to change the substance so much; it’s to change the pace, the sound, the sense of making progress – even the physical appearance of it. Why should you make customers go through the torture chamber? I want them to say, ‘Aha!’

SMEs … from dodo to lifeblood of the economy

SME. It’s a term that conjures up images of elbow grease, pull-yourself-up-by-the-bootstraps business – small teams, ambitious entrepreneurs, businesses that begin at the kitchen table. But SMEs are big business.

ONS data suggests that there are over 1.6m SMEs in the UK – that’s 99% of all UK businesses – and over 70% of these are classified as micro businesses. SMEs account for about 50% of the British economy and over 60% of private sector employment – some 14.4 million people. The figures are very similar in Europe as a whole, where SMEs represent 99.8% of all businesses, employing 93 million people and generate 58% of GDP.

The SME sector is often described by government as the ‘lifeblood’ of the UK economy, but it wasn’t always this way. The definition of an SME that we are familiar with can trace its origins back to The Bolton Report of 1971, but then the prevailing sentiment was that the SME sector was in terminal decline …

 “The small firm’s sector was in a state of decline in both number and in contribution to output and employment and in a few years would cease to exist. Economies of scale would make the remaining 800,000 small firms uncompetitive and doomed to extinction”. The Bolton Report of 1971

Yes, the government of the early 1970s seriously thought the SME sector was “doomed to extinction”. Fast forward 45 years, and the government was arguing that “a sustained recovery of the UK economy will rely on the private sector with small and medium-sized businesses taking the lead”. The 2015 Report on Small Firms was the first official report on the health of the sector since the Bolton Report and its author Lord Young found

“This shift in the number and importance of small businesses has not been simply a linear trend over 40 years. But within this Parliament alone I have seen a transformation. The business population has increased by 17 per cent since 2010. In 2011 we saw a record number of start-ups, and the beginning of 2014 saw a record increase in the number of firms.

This, in part, could be due to the rising number of self-employed people in the UK. And due to a culture change, more Brits find themselves “driven not by necessity but by desire”.

 There is lots of fighting talk about the success of the UK economy being driven by the SME sector, but the term SME is woefully misunderstood and often mischaracterised – it has become a convenient label for motivational soundbites. The reality is that unless we actually grasp the complexity of what it is to be an SME, the economy is going to struggle

Changing aspiration and huge advances in technology are driving/enabling a complete reshaping of the world of work

  • The corporate sector will need fewer employees (and offer fewer opportunities)
  • The ‘independent economy’ will continue to expand aggressively (necessity or desire)
  • Entrepreneurship will become a more well-trodden pathway
  • Out of this eco-system, more firms will be created

Since the dark days of 1973, technology has gone a long way to leveling the playing field between huge internationals and the typical start-up. Communication, administration, marketing and management have all become more affordable and less labour intensive, while your next-door neighbour may now have a customer-pool of clients that stretches around the world.

Government initiatives have also gone some way to powering SMEs forward. The Start Up Loans company, a government-backed financial package, has lent £131m to 25,000 businesses and created 33,000 jobs, while apprenticeship grants have provided £1,500 to firms taking on their first apprentice. Then there’s the employment allowance, which hands businesses and charities a £2,000 tax cut off their National Insurance Contributions, as well as a £1.1bn package of business rates measures (although arguably the recent nationwide hikes in business rates are placing a stranglehold on SME growth).

But if SMEs are to continue to thrive, we must now take a step back and ask, what is an SME really? Only from a deep-seated placed of understanding can we ensure that they receive the support they need to continue as the UK’s backbone, especially as Brexit looms.

It’s time to rethink ‘SME’. Out with the outdated understanding. In with a more nuanced approach.

It’s time to stop tarring all SMEs with the same brush; this is a landscape of mobile hairdressers, digital agencies, garages, fishing trawlers – to understand them, it’s essential to look beyond revenue and number of employees. The government has begun to use different lenses when thinking about SMEs, focusing on business owners in terms:

  • Ethnicity
  • Gender (focusing on female entrepreneurs)
  • Senior citizens
  • New university graduates
  • High tech, ex-corporate employees
  • Immigrant statistics
  • Those recently made redundant

Although helpful, it’s not enough.

When it comes to business owners, the government must identify and understand the emotional journey of those spear-heading the businesses in this sector and understand the differences in motivations and thinking. They must also move away from just over-focusing on the Gazelles (companies out there that have experienced 20% growth pa in the last three years). While these businesses are obviously attractive  – they emerge from a positive, thriving, dynamic, SME sector of over 1.5 million businesses – all of which have a part to play.

The SME sector is fragmented, messy, diverse and distinct. We must dig deep if we’re to fully understand it.

Picking up the pieces – Wells Fargo woes and the rise of the challenger banks.

On the 7th February 2019, Wells Fargo became the latest victim of technical woes. Customers were left unable to use their debit cards or access their online accounts.

In today’s constantly-connected world, this technical failure is about much more than inconvenience – it’s about broken trust. And that broken trust seems to have driven huge numbers of customers straight to the digital doors of challenger bank Chime. The situation is grave, and it’s not only confined to Wells Fargo. After one of the most turbulent 12 months for technical hiccups and online meltdowns, established banks must fight back if they’re to contend with the growing number of innovative, agile challenger banks like Chime.

Angry Wells Fargo customers = Happy upstart banks

Chime is one of the fastest-growing bank account providers in America. Based exclusively online, among their features are no hidden fees, savings that grow automatically and receiving payment from direct deposit up to two days earlier. They say that it’s “banking the way it should be”. And it seems that many agree.

When Wells Fargo ground to a halt, Chime added 10,000 new customers in a matter of 24 hours – a company record.

“We definitely saw a huge uptick in consumers reaching out to us on Twitter and other social media channels, with the general sense that a lot of them were just at the end of their rope. We even had some dialogue like, ‘Hey, should I switch to you guys? Why should I switch to you guys?'” Chris Britt, Co-founder of Chime

Chime are one of numerous challenger banks that are making waves in the financial services industry – Monzo, Atom Bank and Starling Bank are other promising examples. 28,000 people open a Monzo account every week; Atom Bank, which launched in 2016, has 34,000 customers; while Starling Bank now has 460,000 customers and has just raised £75M more for expanding further throughout Europe.

Younger generations make up a huge proportion of those who are opting to switch to challenger banks, with one in four people under the age of 37 having made the switch.

For established banks, the threat is real AND it’s growing. So, what can established banks do to take the fight back to these ambitious and rapidly expanding banks?

Goal number one – Improve reliability and regain lost trust

First, established banks have two fundamental concerns – trust and reliability. Trust has been eroded in recent years owing to a long line-up of scandals and data breaches – PPI, rate fixing, mis-selling, ‘dark pool’ activities, Forex rigging and money laundering – to mention but a few.

Then there’s the problem of plummeting customer faith in the reliability of their banking services. Lloyds, Santander, Natwest, RBS, Ulster, Barclays, TSB & HSBC have all had technical failures (some multiple) in the last couple of years (it appears that none of the major British  banks have been immune).

Goal number two – Deliver innovative, competitive, digital banking

81% of consumers now use mobile apps to manage their finances; these people expect their experience to be seamless – going beyond basic functionality offered by online banking. HSBC’s Connected Money app is one example of a traditional bank being ambitious with the technology they have to offer their consumers, but more needs to be done to claw back the initiative from the challengers and the gauntlet that they have been laying down.

Goal number three – Personalise

Customers expect security, speed and a solid customer experience. But beyond these basic requirements they now also want banking to be built around them and their needs.

The 2018 World Retail Banking Report highlighted a few interesting stats when it comes to what consumers are looking for:

  • 49% of customers claiming a positive experience with their bank said that they had been offered personalised services
  • 59% said they are looking for tools to help them monitor their monthly budget, with real-time adjustments based on their spending
  • 54% want specific real-time offers based on their location (e.g. retail offers based on location and credit card activity).

Traditional banks already hold vast amounts of data to help them in their bid to deliver highly personal experiences, but they have historically struggled to use it in a way that provides this personalised experience to their customers.

The clock is ticking for the established banks. To use a doomsday clock analogy we are at least a minute closer to midnight and a failure to start re-establishing trust, demonstrate innovation and personalise their services is already leading to an erosion that could have serious consequences later down the line. This is the wake-up call, the question is if the established banks are willing (or able) to change. Cut out the service interruptions and downtime and focus on their products from a customer perspective. Do this and they might be able to start earning back the trust that has been slowly ebbing away for some time.

Does that compute? Robo-Advisers and the digital AI trends shaping the Financial Services markets.

Consumers are becoming increasingly open to the use of robo-advisers and AI to help inform and solve the issues that they face in their everyday lives.

Phone assistants like Apple’s Siri and Google Assistant and in-home devices such as Amazon’s Alexa have become common place when looking for the latest football scores or finding out what the weather is going to be like this weekend. Robo chat support is also becoming ‘the norm’, there to try and answer the simple questions quickly and efficiently without the use of a human resource, (although some, myself included may argue about their effectiveness), before guiding you to a human if required.


Investment in AI technology is at an all-time high with forecasts that it will hit $4.5bn by 2021. But with the growing use of artificial intelligence it is perhaps interesting to see that only 5% of finance companies have adopted chatbots (compared to 36% of real estate businesses).

“The #1 reason people dislike calling companies: not being able to speak to a real person right away” –

Your robo-adviser will see you now

Robo-advisers in the financial sector are becoming a more and more common experience for consumers. In mainstream banks, Natwest launched an AI service in 2017 targeted at customers that wouldn’t usually have access to traditional investment services, with  Santander following suit a short while later with a service specifically targeted at first-time investors. Betterment and WealthFront have robo-financial advisers for investment; SoFi Wealth boasts one for borrowing, saving, spending, investing and protecting, and Bloom provides a robo-advisor to guide customers through their pension options. Not all services have been a success though with UBS closing their service to new customers in 2018 and Investec doing the same in may this year after it racked up losses of £13 million. But beyond the economics where do consumers draw the line between the areas where they are willing to take this kind of advice and support vs. where they want to speak to a human?

A Test Case: Making big decisions using AI

Spurred on to create a mortgage product by the drawn-out application process, it’s fair to say that Habito’s CEO Daniel Hegarty is disrupting the long-standing traditions of the mortgage market.

Launched in 2016, Habito has a simple aim – to help consumers get the best mortgage possible, fast. Offering free mortgage brokerage to the client, this platform is based entirely online and they pride themselves on being jargon-free.

“We are committed to saving our customers time, stress and money and plan to deliver customers unprecedented choice, ease, speed and certainty over their mortgage in 2019.” Daniel Hegarty – CEO of Habito

Habito entered, and still operate in, a market that is deeply fragmented, with the biggest player staking a claim to just 6% of the market (attributable to London and Country). Habito could point to an interesting shift in consumer behaviour when it comes to trust in robo advisers, after all, our mortgages are one of the most important decisions we make in our lifetime – and certainly the largest debt for the vast majority of us.

This mortgage firebrand grew 20% every month over their first 16 months in business. By 2017, Habito had lent £250m to 50,000 borrowers, and had expanded their team to 45 (from 8 at launch). Their efforts have not gone unnoticed either with an award for ‘Innovation in the Delivery of Financial Products’ in 2018, and a balance sheet that has skyrocketed from £1.2M in 2016, to £5.1M in 2017, onto a cool £18M in 2018.

“While we welcome anything that speeds up the often torturously slow mortgage application process, face-to-face advice or over the phone will have a place for a while yet – although mortgage lenders and brokers need to improve their technological offerings”. Jonathan Harris, Director of Independent Mortgage Broker

Companies using AI for these purposes tread a fine line between the capability of the technology to answer customers questions quickly, provide accurate and actionable advice or suggest the right products or services for the consumer and the frustrations that can arise when AI just is not quite fit for purpose … yet. AI is developing fast and will no doubt get to a point where these frustrations disappear but, at least for now, it’s a delicate balancing act. Watch this space the smart robots are coming.

Cyber insurance and staying relevant

Cyber insurance and staying relevant

72% of large firms experienced a cyber-attack in the past twelve months. Cyber insurance market is set to top $14 billion globally by 2022

For cybercrime insurers, it’s clear that there’s an identified demand for their coverage, and that business is booming. But in an industry where technological change shifts faster than in any other, the rate of policy-change required to stay relevant is a pressing matter for insurers to address.

Despite the first cyber insurance arriving during the late 1990s, as a product it remains in relative infancy.

Policies have changed significantly over the years. Early providers were extremely limited as to what was covered – such as only including online media, while others protected against errors in data processing.

As times have moved on, businesses have become ever more reliant upon data, in ever increasing formats. Policies have reflected this change, and today cover:

Third-Party Liability Coverages

  • Network Security Liability
  • Network Privacy Liability
  • Electronic Media Liability
  • Errors and Omissions Liability

First Party Coverages

  • Loss or Damage to Electronic Data
  • Loss of Income or Extra Expenses
  • Cyber Extortion Losses
  • Notification Costs
  • Damage to Your Reputation

While cyber insurance continues to develop, insurers are still grappling with how they can weigh up risk and shape their products, when lacking significant data to be confident in their underwriting.

In 2015, 63 percent of global companies were insured against loss of income due to data breach, while more than half of the companies without cyber liability insurance considered purchasing it.

Large companies are only too willing and able to get cover for potential attacks – with a staggering 85% of the world’s cyber insurance being sold to protect US-headquartered entities.

But the typical SME represents a curious client for insurers, as the damage caused by data breaches and other cyber-attacks is disproportionally high amongst smaller organisations.

And when we say damage, we don’t only refer to set pounds and pence. SMEs must also account for the damage to their reputation, the lost confidence of customers where personal data is involved and the loss of intellectual property. As for the cost of cybercrime on the average SME, the latest FSB survey reported that fraud and cyber-crime costs Britain’s SMEs £800 a year each (54% have reported becoming a victim in the past twelve months).

It’s logical to think that SMEs would be the businesses to jump up and down for cyber protection. And yet just 14% of SMEs has cyber insurance. The question is why?

After all, cybercrime is on the rise (four in ten businesses have suffered an attack in the past 12 months), and public awareness has never been stronger.

Despite the lowly take up rate, SMEs do appreciate the threat of cybercrime (and the average £3,000 bill faced when becoming a victim).

The reasons that may lie behind this 14% may be three-fold:

First, many presume that their standard business insurance covers them in the event of a breach (and when we say many, we mean more than half – 52%).

Second, what they don’t yet see is that insurers are offering sufficient coverage to counter the full impact of a cyber-attack.

“The drop in take-up of cyber insurance shows that this is still maturing as a product. Companies do not see the cover currently on offer as targeted to their individual risks and therefore not value for money”.

–        Domenico del Re, insurance director at PwC

Third, if and when companies do seek a quote, they are posed a series of what seem intimate questions about their security systems (which are critical to calculate premiums, but which are also closely guarded by cautious business owners).

And these issues are just the tip of the iceberg for insurers that are trying to convince SMEs that their products are worthy of investment…

Over the course of 2018 alone, hackers cracked HSBC and Facebook – two of the most strenuously protected IT networks in the world.

These 12 months also saw a shift in behaviour, as criminals moved away from using mass mailing and malware as their weapons of choice, to harnessing increasingly targeted extortion efforts. This rapid shift in strategy is a standard characteristic of cyber criminals, as is the rapidly advancing tools that they have at their disposal.

In contrast to this speedy landscape, is the pain-staking practice of insurance. Underwriting has always been a notoriously time-consuming task, while risk analysis and modelling remains complex.

Encouraging SMEs to sign on the dotted line of a solid cyber insurance policy begins with education, and pushing home the fact that these businesses are often seen as soft targets by hackers.

Education also extends to reassuring businesses of all sizes that their security secrets are safe with them (a steep mountain to climb, given the distrust in even the largest of banking giants to sufficiently protect customer data).

Education and encouragement of SMEs to purchase policies is relatively easy when compared to the tall task of ensuring they feel safe entrusting their trade secrets to insurers. This is only compounded by insurers that remain cautious when placing limits on the amount of coverage they offer under their policies.

The only way to resolve these issues is to fully understand the threats that SMEs face, and for insurers to see everything from their point-of-view (including the perceived threat of sharing information with the insurers themselves).

‘To sleep, perchance to dream’ … a potentially big impact on an SMEs bottom line

‘To sleep, perchance to dream’ … a potentially big impact on an SMEs bottom line

A few weeks ago we wrote an article on employer provided benefits (“EPBs”) – and over the past year we have explored the role of EPBs in SMEs (apologies for the initialism). So, this statistic caught our attention.

A Harvard University study[1] found that in the US, insomnia is the root cause of the loss of 11.3 days’ worth of productivity per person per year.

The number of people sleeping less than the recommended level is on the rise – as a result of a range of factors including our modern 24/7 society, electronic media use and the ‘always on’ work culture. Not only is a lack of sleep associated with a range of negative lifestyle, social and health issues that result in absenteeism but also a lack of productivity while at work – so called presenteeism (not our word)

A 2016 Rand Corporation study[2] estimated that the UK loses around 200,000 working days a year due to sleep deprivation (which equates to a £40bn hit to the UK economy). Working the Harvard numbers through would actually give us c. 375,000 lost days. The Rand report noted that “if those who sleep under 6 hours a night can increase their sleep to between 6 and 7 hours – this could add £24bn to the UK economy”.

Trying to calibrate these different studies is something of data headache – so best we just summarise it as a big expensive issue calling out to be addressed. Employers are beginning to recognise the importance of sleep as well as their own role in fostering a healthy sleep culture.

“Eight hours of sleep makes a big difference for me, and I try hard to make that a priority. For me, that’s the needed amount to feel energized and excited” Jeff Bezos, reported in Thrive Global

“To perform in a way that is required by my current job, I need seven hours of sleep, every night” Cees ‘t Hart, president and CEO of Carlsberg Group, reported in Harvard Business Review

McKinsey found 70 per cent of the leaders it surveyed thought that sleep management should be taught in organisations, alongside time management and communication skills

“A growing awareness of the dangers of sleep deprivation on health – and therefore, its impact on insurance costs and worker productivity – is prompting companies to try and improve their employees rest … Goldman Sachs has brought in sleep experts, Johnson & Johnson offers a digital health coaching program for battling insomnia and Google [its always google!!!] hosts ‘sleeposium’ events” The Washington Post

But can SMEs afford this kind of enlightened self-interest? With our SME hat on, we wondered what the impact of this stat is for a typical SME (accepting that there isn’t a ‘typical’ SME – see our recent MRS Fin Serv Conference presentation ‘Stuck in the 70s! Why our understanding of the SME sector needs a reboot’).

Let’s assume that the UK experiences a similar level of lost productivity i.e. 11.3 days per annum, and then put that into context. For an SME with 20 employees … that’s 226 days per annum across the business lost to sleep related issues. A UK employee generates £283 of ‘GDP’ per day[3]. So, sleep related issues cost our SME ~£64,000 per annum in lost ‘productivity’.

SMEs are positively embracing the auto-enrolment pension – but feel the pension industry is not delivering

SMEs are positively embracing the auto-enrolment pension – but feel the pension industry is not delivering

63% of SMEs reported that the auto-enrolment pension had a positive impact on the way employees thought about the business

Recent research conducted by Decision Architects has found that over 60% of SMEs reported that the auto-enrolment pension had a positive impact on the way employees thought about the business AND furthermore two thirds of these businesses are currently paying more than the minimum contribution – showing a higher level of engagement than might have been expected. While the scheme could have been seen as a box that employers had to tick to meet legal requirements … instead they are embracing auto-enrolment as an opportunity to improve their relationship with their employees.

64% of SMEs are currently paying more than the minimum contribution into staff auto-enrolment pensions

We have previously reported external research that shows that 50% of people say they will turn down a job offer if the benefits are not good enough, and 84% say benefits are essential in keeping their current job which rises to 93% for respondents aged 25-44. For employers to really attract – or retain – the staff they want, they must deliver better benefits packages, including higher contributions on the pensions they are now all obliged to offer.

93% of 25-44 year olds say benefits are essential if they are to stay in their current job

So, while on first sight the auto-enrolment pension may have looked like another government mandated administrative headache, many SMEs are seeing an upside for the business. That is not to say that it is not a nuisance – 48% of SMEs surveyed agree that it is a “logistical/administrative headache” and only 20% disagree – and as we would expect this is more acute in more complex multi-site businesses.

But while many SMEs have embraced the auto-enrolment pension as a win-win for the business and the employee, not everything in the garden is rosy. In a previous post we highlighted the need for greater understanding between employees, employers and pension providers if the scheme is to reach its potential, but this research suggests there is room for improvement. Only one third of these companies say they definitely or probably wouldn’t switch providers, 43% definitely or probably would and the remainder will investigate their options.

43% of SMEs will probably or definitely switch auto-enrolment pension provider in the near future

Dissatisfaction is highest amongst the larger SMEs (200+ employees) as well as the smallest SMEs in the sample (10-19 employees) – in both instances over 50% of these businesses definitely or probably would switch providers. Given the disparity in size their needs may well be different, but it appears that they are not yet getting what they need from their pension providers.

These figures give a strong indicator of the potential opportunity for pension providers – there are plenty of companies looking to switch, but how to capitalise on this? In future research we will explore some of the causes of dissatisfaction and gather views of SMEs on the current product offers (both good and bad)

What opportunity does this represent? The auto-enrolment scheme is in its relative infancy, and as such there are still many organisations which have not yet found a solution that works for them, as evidenced by the large proportion who are looking to switch providers.

There is no lack of engagement or motivation here, most companies want the best for their employees, and understand that the scheme can help in that regard, but there are still a number of barriers to a successful scheme. For pension providers there is an opportunity here to better understand and address these product or service issues … SMEs are willing to embrace the auto-enrolment pension for all the right reasons but there is some dissatisfaction with the tools available to them.

Research conducted amongst 300 UK based SMEs (10-299 employees) in Q.4 2018