The U.S. P&C market is mature and stagnant, and insurers’ ability to adopt new technologies and leverage existing ones will be increasingly important for growth, whether through customer retention or new customer acquisition, according to “Customer Loyalty in P&C Insurance,” a new study from consulting firm Bain & Co.
Despite the extraordinary number of dollars being spent by insurers on advertising and marketing, new customer growth in auto insurance totaled just 1 percent last year and 4 percent in homeowners’ for an overall total of 2 percent, according to Bain.
See also: The New Customer Experience
Fighting over the same customer base, insurers will have to do a far better job of acquiring and mining customer data and improving the customer experience in what historically has been a low-touch industry, Bain said.
Acquiring vs. Retaining Customers
P&C insurers are following one of two growth strategies, Bain said, either acquiring new customers or retaining and growing current customers.
“It’s very difficult for a carrier to excel in both in both endeavors,” Bain said. “Success hinges on selecting the right customer segments, offering them a tailored proposition, then delighting them with innovative products and superior service at the key moments of truth.”
The goal with both strategies is building customer loyalty, Bain said. The industry divides customers into three loyalty-related categories: promoters; passives; and detractors. The lifetime value of promoters is almost threefold that of passive customers, Bain said, and sevenfold more than that of detractors.
“Customers who are promoters stay longer and buy more products with their primary carrier, and they make more referrals to friends and customers,” the report said.
The customers targeted for acquisition differ significantly from those targeted for retention. Insurers employing customer acquisition strategies tend to target younger, newer consumers who are especially price-sensitive, while also paying attention to an insurer’s name and reputation. Those customers however are likely to switch insurers as soon as better pricing becomes available from a competitor. More than half switch when the savings is as little as 20 percent in premium; one-quarter save 10 percent or less.
“Defection rates [are highest] among customers who are young and lower-income, have fewer insurance needs and use only digital channels,” the study said.
Targets for those insurers pursuing retention strategies tend to have the opposite profile: Older, better educated, more interested in peace of mind than price. Those customers tend toward heavier use of live call centers or agents, Bain said.
Pursuing either strategy will require intensified use of technology. For instance, in both cases ad campaigns have reached saturation points, meaning that customers slowly are becoming desensitized to these advertising and media onslaughts. As a result, insurers must do a better job of defining who their existing and potential new customers are and better catering to their expectations. Additionally, because they want to increase cross-selling across channels, insurers should consider consolidating management of all these potentially competing channels under a single executive or silo, Bain said.
Beyond recognizing that adverting alone won’t help bring in and retain customers, marketing efforts must differ significantly for these two strategies, Bain said.
For instance, those acquirers hoping to stem the tide of defections as competitors beat them on price must offer substantive, imaginative, product innovations that capture the imagination. “Invest in wowing’ customers, not merely satisfying them,” Bain said. No wonder, then, that Nationwide has introduced its “Vanishing Deductible” program rewarding safe driving, while Allstate offers “accident forgiveness,” where higher-priced policies offer no increase in premiums after a first accident.
For those pursuing retention strategies, a goal is to increase the ways that older, less price-sensitive customers can increase their interactions with insurers across channels in this traditionally low-touch industry, increasing peace of mind and increasing sales in the process.
“USAA [has] opened physical service centers at key locations after years of only serving customers through mail, phone and on-line channels,” the report states. “At these centers, USAA associates orient members to insurance and banking services and technologies, show them how to complete routine transactions through various self-service channels, assist them with video conferencing and other technology for more complicated transactions, as well as provide advice.”
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