Customer loyalty in P&C insurance – Bain and Company
Article Synopsis :
For insurance customers, new technology and innovations such as social media and smart phones have redefined barriers to exit, dropping them to new lows. As a result, insurers need to be ever mindful of experience, channel, brand, and – especially – price sensitivity.
In the research report “Customer loyalty in P&C insurance”, David Whelan and Sean O’Neill from Bain and Company discuss the challenges insurers face in acquiring and retaining customers. What is a loyal customer worth? What criteria define customer loyalty? What tools and techniques aid in acquisition and retention? All answered here, to an impressive level of detail, based on data from over 26,000 survey respondents.
Acquisition, retention and cross-selling of customers are three distinct activities — activities which few insurers, per the report, excel at across the board. Other pertinent findings include:
- Price is the top draw for most new customers
- Customers who defect in pursuit of a lower-price are often motivated by poor customer service or an unfulfilling customer experience (e.g., the carrier sends me a bill and that’s the only interaction)
- Initiatives to build loyalty increase retention and lead to better economics overall as retaining customers is less expensive in almost every case than acquiring new customers
- Leaders in cross-selling have higher loyalty scores overall, longer customer tenures and the most favourable economics and demographics
The report highlights four practical implications for P&C carriers, especially those with digital aspirations:
- Invest in “wowing” customers, not merely satisfying them, at key moments of truth. Creating loyal promoters is far more valuable than just avoiding detractors. Impressing customers is the imperative. “Wow” moments typically involve convenience, such as a same-day request for quote or providing proof of coverage via smartphone
- Accelerate the shift to an omni-channel experience. Across the full range of transactions 83% of insurance customers use multiple channels. Digital channels are growing in import as digital becomes mainstream
- Refine marketing to be more selective in customer acquisition. Not every customer is your customer. Segementing and targeting the right customer on the front end leads to higher retention rates over time
- Blend product and pricing innovation to retain price sensitive customers. Price dominates in insurance marketing. Pricing innovations such as vanishing deductibles, accident forgiveness, rebates for safe driving, and UBI, reduce defections by creating perceived value and making price more subjective (i.e., less easy to define and compare)
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Digital Insurer's CommentsTelematics raise a difficult choice for traditional insurers. When it reveals a safer-than-predicted driver, the company ought to lower the premium; for a riskier driver, it should raise the premium. An insurer may be reluctant to take those steps, but if it does not, a competitor certainly will.
Though this article isn’t about telematics per se it is about the digital insurance conundrum, especially major investments in digital technologies: I’m reluctant to do it, but if I don’t, a competitor will.
It’s a truism that technology changes faster than people. It’s also true that insurance buyers are changing faster than insurance sellers. We believe acquiring and retaining customers in the digital age requires a different approach, a more aggressive mindset, above all, a bias for action over an aversion to failure.
Fortune favors the bold.
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