Value creation in Topdanmark
Topdanmark's value creation efforts are intended to:
• increase the cash flow it can pay out to its investors
• while at the same time reduce the discount rate used by the market to discount the future
cash flow to net present value.
Topdanmark's systematic value creation efforts have built a strong business model which, with relatively limited financial risk, substantially ensures that a profit is likely to be made even in years with extremely poor financial markets.
Topdanmark believes that success in the Danish insurance market is best achieved by combining strong distribution power with risk-based prices, an efficient organisation and satisfied customers.
Topdanmark has a multi-distribution strategy in which its own sales channels (certified insurance sales representatives, sales centres, telephone sales, online sales etc.) are supplemented by sales or referral of leads through its distribution partners such as banks, car dealers and insurance brokers.
Activities associated with distribution power
- Topdanmark has distribution agreements with among others, Danske Bank, Sydbank and COOP. As a result of the distribution agreements with Danske Bank and Sydbank, non-life insurance forms part of the two banks' loyalty programmes. It is a referral concept, where the two banks refer potential non-life insurance customers to Topdanmark, which then is responsible for sales and advice.
- In the personal segment, the certified insurance sales representatives will to a greater extent make risk assessments on new sales, while sales commissions are determined on the basis of customer satisfaction and profitability. This is expected to improve the quality of new sales
- Typically, profitability for major industrial businesses does not meet Topdanmark's return requirements. Therefore, Topdanmark has chosen to let other insurance companies win some major unprofitable schemes and focuses on SME customers
Topdanmark works with differentiated pricing based on risk-appropriate prices, i.e. micro rating. This makes Topdanmark an attractive insurance company to customers with favourable claims trends, while customers with less favourable claims trends are incentivised to change to other insurance companies with a less risk-dependent pricing structure.
Activities associated with pricing
- Topdanmark continues its work with more finely meshed and risk-based correct prices, through use of digital solutions, publicly available data and advanced pricing models
- Topdanmark has no current plans to make general price increases. Instead it is implementing measures for non- profitable customers (e.g. loss prevention, lower sums insured, increased retention and selective price increases)
Workers’ compensation insurance for the industrial segment has been unprofitable for a number of years, and at the same time competition has been intense.Topdanmark’s risk-based prices have not matched the market price. Therefore, the workers’ compensation portfolio has been reduced by 50% since 2008. Topdanmark maintains its risk-based prices which among other things take account of the low interest rate level, the rise of the age of retirement and the new reform of the rules for early retirement.
Topdanmark has focus on improving efficiency and automating a significant part of its processes in order to be able to offer its customers easy, simple and rapid service while maintaining competitive prices.
Activities associated with efficiency
Topdanmark has decided to invest in efficiency improvement in future. The main elements of the efficiency improvement programme are:
- Digitisation – self-service, online purchase etc.
- Efficiency improvement – optimization and automation of administrative processes and outsourcing
- Transformation – performance and change culture
Topdanmark's ambition is for its customers to feel "well-helped" in all communication between them and the Company. Therefore, all customer contacts are regularly evaluated: telephone, email, letters or personal contact to hear the customers' opinion of their contact with Topdanmark.
More than 60,000 customer interviews are conducted each year, and if a customer's answer indicates that Topdanmark's services were not satisfactory, they will be contacted within 24 hours. If the customer expresses high satisfaction with Topdanmark, the employee receives a 'well done mail" immediately.
Besides the internal monitoring, Topdanmark also participates in the annual EPSI survey across most of the major insurance companies. In the SME line, Topdanmark has got a top rating in the customer satisfaction survey – and in the personal line, Topdanmark is on par with the other large companies.
Activities associated with customer satisfaction
- Topdanmark continues to work on improving the customers' experience, which is the most important factor in extending a customer's relationship with Topdanmark. Routines are constantly adjusted to improve the cus-tomers’ experience. At the end of 2017, Topdanmark had the highest share of ambassador customers ever
- Retention teams monitor customer defection and initiate targeted measures to ensure that the number of customers leaving Topdanmark is maintained at a low level
- Topdanmark wishes to achieve increasing customer loyalty as a basis for profitable growth. Generally, profitability is better for existing customers than for new customers. Therefore, Topdanmark has imple-mented a number of loyalty-promoting initiatives in order to maintain or increase its retention rate.
Topdanmark continuously monitors customer satisfaction. As shown in this illustration, the share of ambassador customers who would recommend Topdanmark to friends and acquaintances increased from 34% in 2010 to 48% in December 2017. Correspondingly, the share of dissatisfied customers declined from 8.1% to 6.4%.