Segmentation and Technology in the Digital Age: How customer expectations drive effective technology strategies

By Deno W Fischer, Principle, Advisory, Customer Solutions, KPMG in the US

Automation. Bots, including chatbots. Apps. AI. Advanced analytics. As innovation advances, new “must have” technologies enter the insurance ecosystem, or don’t they?

New technologies can offer insurance carriers advantages — in the right situations. Yet all too often discussion around use of the technologies such as automation in the form of chatbots or robo-advisors is binary, pushing for insurers to fully embrace innovation or inevitably be left behind. These positions miss the mark.

Depending on where an insurance carrier wants to position themselves in the marketplace, any technology strategy must embrace a combination of options and approaches targeted to the needs of specific customer segments, at a particular point in the customer journey.

Technology strategies driven by customer segmentation

One technology currently drawing significant attention is automation through bots (e.g., chat bots) and robo-advisors, which have already gained traction in the wealth management space. Automation offers tremendous opportunities to drive efficiency, and is making some carriers question whether human advisors and customer service reps will soon be used only in niche or escalated situations.

However, the way that a specific technology plays into a carrier’s overall go-to-market strategy must be driven by specific, targeted customer needs and preferences. Often, customer segmentation focuses on socio-demographics. While aspects such as age, location and wealth are critical components in order to understand customer needs, insurers should also differentiate by the stage in the customer journey.

Different customers have varying desires and expectations of their insurer at each stage of the engagement process. Such expectations have cascading implications for the technologies needed to support and engender these interactions. For example, consider a high net worth customer looking for comprehensive coverage for multiple properties, vehicles, and high-value possessions. Such an individual is often willing to pay a premium for “white glove” service, with a dedicated phone number, concierge-style customer service, forms completed on her behalf, and more. While automation in form of technologies such as chat bots, apps and self-service websites might drive efficiency for the carrier, it would provide little benefit for—or even repel—a high net worth customer of this type — leading to a mismatch between customer preference and carrier proposition.

Interestingly, given the value of their time, this type of customer may still want the process for mundane transactions (e.g., address change, payment or a small claim) to be quick and painless. This means that not only may bespoke underwriting through human customer service be a must for this customer type, but also that certain processes may have to be streamlined though technology, automation, analytics or otherwise to deliver a painless experience from the customer’s perspective.

In contrast, customers who purchase insurance only because it is required will have different needs, with different implications for the strategy to attract, engage, communicate with and serve that segment. For example, customers who purchase car insurance just to meet state or provincial requirements or who obtain home owner’s insurance just to meet requirements from a mortgage company will often prioritize price and ease of purchase, wanting to “tick the boxes” as fast and as cheaply as possible. Contrary to our first example, standardization and automation, as well as self-service, could be a good fit here, delivering both quick service for the customer and efficiency for the carrier (which in turn can lower the premium). However, at least sub-groups of this same customer segment may have a different preferences when it comes to claims, seeking greater support and reassurance of a human customer service representative over speed of transaction.

Effective segmentation thus cannot just encompass what customers need and how they prefer to engage with their carrier in general, but what their needs and preferences are at each stage of the journey, down to individual interactions from marketing, to distribution, to underwriting, to policy administration, to claims, to other areas. Therefore, the question carriers need to ask is not whether or not to use a specific technology approach, such as automated advice or an app-based claims process. Instead, carriers need to question which technologies and supporting strategies most effectively (and efficiently) deliver the desired experience matching the customer’s needs and preferences as part of the carrier’s proposition for that targeted market segment. The answer will differ by target segment and by interaction type.

Creating an effective segment-driven strategy

When considering whether robo advisors, apps, or other technologies effectively support a go-to-market strategy, carriers are encouraged to consider four key areas:

1. Understand your target customer segments. Understanding your customers, their needs and preferences is critical to building a strategy to effectively serve and communicate with these individuals at each interaction point through-out the life cycle. Carriers need to collect and analyze customer data, interview customers, and give close thought to the customer journey from the customer’s perspective – including pain points and sources of delight. Know, too, that the lines between segments may not always be clear and will shift over time.
2. Target technology usage to support a specific customer strategy. There will inevitably be innovations in the market that do not relate to your strategy and the segments you are targeting. Resist the hype. Technology use needs to support a specific, customer-driven purpose, and enable you to provide the most appropriate type of engagement to your target segments at the right points in the process. It should help you effectively serve a specific existing or developing need.
3. Find the balance. Opportunities for technology will differ both by segment and by type of interaction. Remember that technology use is not a binary, either/or proposition. Carriers do not need to choose between robo and human advisors, online or in-person services, algorithmic decision making and bespoke underwriting. Different target customer groups will require different approaches, meaning that the more segments you may target, the more variation in approach and strategy may need to exist across the various interaction types. Each customer segment will require its own balance between the old and the new, and that balance will likely shift over time. You are of course better served when targeting customer segments that offer some degree of synergies rather than no overlap whatsoever.
4. Embrace and learn from missteps. Insurers need to develop and test new strategies, monitor results, and learn from both successes and the inevitable mistakes. For some, this will require a shift in culture: all learning is valuable, and must be embraced and incorporated into a process of ongoing change. Your strategy will not be perfect from the get-go. In-market learning will enable you to fine-tune and continuously improve what experience to put in front of which customer at what stage in the journey.

A commitment to a customer-centric interaction approach (meaning developing interactions as a function of specific preferences of a given customer segment at a given point in the journey) is also a commitment to an ongoing journey of discovery and change. As technological innovation continues to accelerate, not only will customer needs and preferences evolve but so too will a carrier’s opportunities to optimize use of current and future technologies to deliver targeted customer engagement that builds brand loyalty and trust because it meets customer expectations.

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