The topic of customer loyalty made an unsurprising appearance at recent conference of UK senior marketing executives. In several conversations, and breakout groups, the executives mused how different business might look in the UK if the consumer wasn’t very unloyal. Growth is an important factor for UK in 2010, and the aspiration for lower customer churn is not surprising.

So how did we get to a point where most consumers know it’s better to change insurers every year? Well, the consumer has learned that loyalty is usually rewarded with a hike in their premium. I’ve experienced this first-hand, finding out with some online research that my same insurer would take me back as a “new customer” at a lower rate than their renewal offer to me.

The Internet has democratized the renewal process. Given some time, access to the Internet, the consumer can check across the market, with the use of one or two aggregator Web sites. And they do use more than one—research suggests most use 2.8 to 3 aggregator Web sites to find the best price. This is an extraordinary investment in time to get a better deal. It also highlights the very “grudge” nature of an insurance purchase.

The aggregators appear to have caused the insurers to jump into the dire race of competing purely on price. Whilst many aggregators defend their position of being able to offer comparisons in more areas than price, my straw poll of friends shows that they look for a recognized brand in the top five (i.e. cheapest).

The visual comes to mind of the cartoon sheep/dog/coyote racing over the edge of the cliff, taking a few seconds to realize where they are, and looking down at the vast blue space beneath them. It strikes me that’s where UK insurers are today—realizing they have run out of cliff and it’s an awful long way down to the dark blue sea.

These sentiments were reiterated at the marketing conference. “This has to end,” said one chief marketing officer, “it’s just not sustainable.” A U.S. colleague told an amazed audience how her insurer had covered the whole family (motor, house and term life) since she was in college. They now insure her college-aged daughter, and offer her a discount because she gets good grades (proven link between claim propensity and grades apparently!). The family was a real fan of this large insurer.

There were no shortage of good ideas to encourage and reward customer loyalty. But the clear risk that remained unanswered was that any insurer taking a line contrary to the market was likely to be punished by the consumer in the short term. In the medium to long-term, lower customer churn would be better for their profitability, but a listed company performing to quarterly and annual reports can be very limited to any long-term plays such as this.

I hope UK insurers crack this tricky problem. If for no other reason than I find it tedious investing two to three hours a year looking for a new insurer. And the larger message to other markets who are moving steadily toward the low-cost producer model: Watch your feet; you may find yourself running out of runway before you know it, and it’s very painful to claw your way back.

This blog has been reprinted with permission from Celent. Catherine Stagg-Macey is a senior analyst in Celent's insurance practice, and can be reached at

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