Net Promoter Score (NPS) is a popular metric used by companies to measure their customers' experience and how their customers view them. In a nutshell, the NPS measures the likelihood that their customers would recommend their company to friends or colleagues. Companies like Proctor & Gamble, Verizon and American Express all use NPS to measure their customer loyalty. Companies within the financial services space have also been using likelihood to recommend, and to a lesser extent NPS, to predict similar customer behaviors. The strength of NPS is in its simplicity - an easy to collect, single score understood by everyone in the company.
The trouble with simplicity is it doesn't take into account that people are complex and are not always consistent. In fact, LIMRA's research has revealed that people's feelings and behaviors around money and finances are very complex. To gain additional insight into consumers' likelihood to recommend as a measurement of their experience, LIMRA surveyed over 2,000 adult Americans asking about their likelihood to recommend a company across a variety of industries to friends and colleagues, assuming they had an "extremely favorable experience."
Likelihood to recommend varied greatly by industry, from 7 in 10 consumers "very likely" to recommend a restaurant, to 3 in 10 very likely to recommend a life insurance company, life insurance agent, or brokerage/investment/mutual fund company (Chart). Financial services companies/products are at the bottom of the list of likely recommends (along with mattresses, interestingly).
LIMRA identifies three factors that are likely behind consumers' reticence to recommend insurance - risk, cultural norms, and interest level. With regard to risk, financial decisions are seen as far more important than choosing where to eat or what sweater to buy. People fear making a poor recommendation because of the potential long-term implications it could have on their friend or colleagues' finances. Choosing a bad restaurant could result in a bad meal — disappointing but far from life-altering. Further, both cultural norms and interest level are likely behind another (harsh) reality for our industry, and that is that few Americans are talking about insurance companies or products with their friends and colleagues to begin with. Discussing finances with friends and colleagues is not only awkward, but boring.
Over the past few years there has been a concerted effort to be more consumer-centric in our industry. Financial services companies are very interested in how they can improve the experience for the customer and are searching for simple, effective metrics to help them. While NPS can provide some directional insight into how their customers are thinking, it is clear from LIMRA research that it will be most valuable in this industry when used with other measures.